The House Appropriations Committee heard on-the-record testimony from Department of Revenue and Pennsylvania Lottery officials about a multiyear decline in lottery ticket sales and a package of budget proposals the administration says would shore up the lottery fund.

"Scratch-off sales are rather soft in the lottery industry right now across the U.S.," Stephanie, executive deputy of the lottery, told lawmakers. She said Pennsylvania has seen four straight years of declining scratch-off sales and this fiscal year lacked the multi-state jackpot windfalls that historically boosted draw-game revenue.

That shortfall has prompted administration proposals in the governor's budget designed to increase lottery receipts and level the playing field with other gaming platforms. Secretary Brown said the package includes two main elements: allowing the lottery more flexibility with prize payouts by removing a mandated profit-margin requirement and imposing a new tax and licensing regime for so-called games of skill. "It would give the lottery the flexibility that we need to increase prize payouts so that we can offer games that are more competitive," Stephanie said.

Under the administration plan described in committee testimony, games of skill would be taxed and regulated, with an initial cap the department described as 30,000 machines (projected to rise over time), and a proposed tax rate intended to match parity with facility-based gaming. Secretary Brown and staff repeatedly framed the 52% figure for the games-of-skill tax as designed to produce parity with other taxed gaming activities and said a share of the new tax revenue would be routed into the lottery fund to replace lost retail sales.

Several members raised concerns about the practical effects of regulating and taxing games that now operate largely unregulated in businesses across the Commonwealth. Representative Flemings and others asked how many locations would qualify, whether veterans' organizations or fraternal clubs would face new levies, and whether small operators would be driven out by the rate and licensing rules. Secretary Brown acknowledged local concerns and said the proposal uses existing regulatory platforms where possible to limit disruption.

The lottery and department officials told the committee the lottery remains in a positive cash position today but warned that continuing declines in core ticket sales would make the fund harder to sustain without legislative changes. "The lottery fund is currently positioned in a positive balance. But long term we are not going to be able to sustain that without help from the assembly," Secretary Brown said.

Next steps: Committee members pressed for draft language and further fiscal detail; the administration's proposals will move through the budget process where lawmakers can negotiate tax rates, machine caps and exemptions for particular community organizations.