If Connecticut were to use lottery proceeds to fund its state pension systems, it wouldn't be the first state to do so, the new president of the Connecticut Lottery Corporation told the Pension Sustainability Commission this week.

Lottery president Greg Smith told commissioners New Jersey recently directed some proceeds from its state lottery toward its pension system.

Connecticut lawmakers appointed the Pension Sustainability Commission to develop recommendations for controlling of the state's spiraling pension costs.

Commissioners are exploring several options to fund the five state employee pension systems, including selling state assets such as real estate, and dipping into lottery proceeds.

Of the $2.5 billion New Jersey contributed to its $76 billion pension fund this fiscal year, $1 billion was from its lottery, Smith said.

But Smith said that in its valuation, New Jersey used input from lottery officials to project sales and profits of individual games.

Sports Betting?

He said Connecticut lawmakers should do that and also consider the potential profits of legalized sports betting.

"Should this commission ultimately recommend using lottery to shore up pension funding," Smith said, "we hope that you will also consult with your lottery to know what the future looks like for current games, and to also be thinking about that value if internet lottery or sports betting become product offerings through the Connecticut lottery.

"Both of these additions have been considered in prior legislative sessions, so any action on those would certainly impact the projected cash flows and value for pension purposes."

The lottery and sports betting won't balance the state's budget or shore up pension obligations.
— New Jersey lottery chief Greg Smith
Smith concedes lottery funds alone won't solve the problems surrounding Connecticut’s pension liabilities.

"Even together, internet lottery and sports betting won't balance the state's budget or shore up the state's pension obligations," he said.

"But these concepts are viable for improving profits for the state, and would help ensure the lottery's relevance and continued growth in the years to come."

Deadline, Resource Issues

While underfunded pensions are a problem, an equally vexing issue for Connecticut is that the actual return rate of investments has fallen short of projections.

Smith noted that Connecticut's lottery had a record $1.26 billion in sales in the last fiscal year, generating a record $345 million in revenue for the state's general fund.  

State Rep. Jonathan Steinberg (D-Westport), the commission chair, expressed concern commissioners may lack the time and resources to properly complete their task. The commission's report is due to lawmakers in January.

Steinberg said the commission will be pressed to meet its deadline and said lawmakers failed to provide funding that would allow them "to engage consulting services to validate some of actuarial projections that are essential to our work."

"It is a real issue," Steinberg said.

Other Options

The commission still has to hear from Treasurer Denise Nappier on the Teachers' Retirement System and bond covenant issues.

Among the restructuring options commissioners previously discussed:

  • Moving retirement benefits and funding for state and municipal employees from collective bargaining to the legislature and local government upon a reopening of the state employees' contract agreement or the expiration of the current agreement in 2027
  • Requiring the state comptroller to certify that state officials are making realistic assumptions on investment return rates
  • Having a private panel of experts analyze how the 2017 state employees contract agreement compares to other states and private plans, and whether it allows the state to remain competitive

For more information, contact CBIA's Louise DiCocco 860.244.1169 | @LouiseDiCocco