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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 6510 March 31, 1988 LEGISLATURE: Appropriations for operation of lottery LOTTERIES: Payment of expenses of lottery from appropriations The Bureau of the State Lottery may pay the costs of an on-line wagering computer system services contract only from moneys annually appropriated therefor by the Legislature. Honorable William Sederburg State Senator The Capitol Lansing, Michigan 48909 You have requested my opinion on the following question: "Can the State Lottery pay for any portion of a new on-line wagering computer system without an appropriation by the Legislature?" You indicate that 1987 PA 131, Sec. 1, includes an appropriation for $10 million for a replacement on-line wagering system in contemplation of the January, 1989 expiration of the existing on-line contract. You advise that lottery officials have stated that no future appropriation would be necessary for the balance of the system cost, the most recent estimate for which is $117 million over a five-year period. Your question is prompted by Const 1963, art 9, Sec. 17, which provides: "No money shall be paid out of the state treasury except in pursuance of appropriations made by law." The Bureau of State Lottery was established by 1972 PA 239, MCL 432.1 et seq; MSA 18.969(1) et seq, pursuant to Const 1963, art 4, Sec. 41, as amended. 1972 PA 239, Sec. 9, as last amended by 1987 PA 62, MCL 432.9; MSA 18.969(9), provides: "The commissioner shall initiate, establish, and operate a state lottery at the earliest feasible and practicable time. The lottery shall produce the maximum amount of net revenues for the state consonant with the general welfare of the people. The commissioner shall solicit bids from financially responsible vendors of data processing equipment and services for the operation of the lottery and may contract with the approval of the state administrative board." Section 11 of 1972 PA 239, as last amended by 1987 PA 55, MCL 432.11; MSA 18.969(11), authorizes the Commissioner of the State Lottery to promulgate rules pursuant to the Administrative Procedures Act, 1969 PA 306, MCL 24.201 et seq; MSA 3.560(101) et seq. Subsection 2 of Sec. 11 provides: "The rules may include: ............................................................. ................... "(c) The number and size of the prizes on the winning tickets or shares. ............................................................. ................... "(j) The manner and amount of compensation to be paid licensed sales agents necessary to provide for the adequate availability of tickets or shares to prospective buyers and for the convenience of the public. "(k) The apportionment of the total annual revenues accruing from the sale of lottery tickets or shares and from all other sources for the payment of prizes to the holders of winning tickets or shares, for the payment of costs incurred in the operation and administration of the lottery, including the expenses of the bureau and the costs resulting from any contract or contracts entered into for promotional, advertising, consulting or operational services or for the purchase or lease of lottery equipment and materials, for the repayment of the moneys appropriated to the state lottery fund and for transfer to the general fund." This authority to establish rules to apportion revenues granted to the Commissioner by section 11 is subject to sections 12 and 13 of 1972 PA 239, MCL 432.12, MCL 432.13; MSA 18.969(12), MSA 18.969(13): "Sec. 12. As nearly as is practicable 45% of the total annual revenue accruing from the sale of lottery tickets or shares shall be apportioned for payment of prizes to the holders of winning tickets or shares." "Sec. 13. The commissioner shall make a monthly report to the governor, the state treasurer and the legislature. The monthly report shall include the total lottery revenues, prize disbursements and other expenses for the preceding month. The commissioner shall make an annual report to the governor, the state treasurer and the legislature. The annual report shall include a full and complete statement of lottery revenues, prize disbursements and other expenses and recommendations for changes in this act as the commissioner deems necessary or desirable." Section 41 of 1972 PA 429, as amended by 1987 PA 55, MCL 432.41; MSA 18.969(41), creates the state lottery fund and defines its purpose: "(1) A special fund to be known as the 'state lottery fund' is created. Except as provided in subsection (3), the fund consists of all revenues received from the sale of lottery tickets or shares and all other money credited or transferred to the fund from any other fund or sources pursuant to law. Earnings resulting from installment payment of any lottery prizes shall be used for payment of prizes to lottery winners, and the prize structure formulated pursuant to sections 11 and 12 shall be established accordingly. "(2) The investment authority of the state treasurer with regard to the state lottery fund shall be the same as his or her investment authority with regard to retirement system funds. To assure a continuing availability of money with which to pay lottery prize installments and to compensate for variations in the yield on investments, the commissioner and the state treasurer shall, every 6 months, review the status of the installment prize investments and shall agree on an amount to be restricted out of the total revenues of the state lottery fund as a reserve against a drop in yield. If the commissioner and the state treasurer fail to agree on the amount to be reserved, the matter shall be referred to the state administrative board for decision. "(3) After the payment of prizes to the holders of winning lottery tickets or shares or the payment pursuant to section 32 of the liabilities to this state of holders of winning lottery tickets or shares, and the payment of the reasonable expenses of the bureau in its operation of the lottery, the net revenue in the state lottery fund shall be deposited in the state school aid fund and shall be distributed as provided by law." In January of 1983, the Bureau entered into a lease-purchase agreement for a computerized on-line wagering system which included 2,000 terminals and a central computer system. In October of 1983, 800 additional terminals were purchased and in February of 1986, the Bureau entered into a lease agreement for 1,400 additional terminals. Under this arrangement, the Bureau pays for all ticket stock, bet slips, and printer ribbons necessary for the operation of the on-line wagering activities. In addition, individual contracts with lottery sales agents provide for commissions which are paid by deducting a percentage from the gross sales revenue prior to electronic transmittal of funds by the agents to the Bureau. In exchange for the payment of a percentage of gross sales, and through a series of contract extensions, all staff and equipment necessary for the operation and maintenance of the system has been provided by Syntech International, Inc. The final extension will expire in January of 1989. The proposed replacement computerized on-line wagering system services contract involves no ownership or leasehold interest. Rather, it is a contract for the provision of services, including all staff, equipment, hardware, software, supplies, and related goods and services necessary to operate and maintain a computerized on-line wagering system. The only exception is that lease payments for the telecommunication network, as with the existing contract, will continue to be the responsibility of the Bureau. The specified duration of the proposed new contract is for 5 years, renewable at the Bureau's option for an additional 5 years in one year increments. The contract will contain specific cancellation provisions in the event the Legislature removes legal authority to operate a lottery or fails to appropriate funds for such a purpose. The contract cost is based upon 2.35% of gross sales for the 5-year period with an adjustment to .55% should extension options be exercised. As with the current arrangement, payments pursuant to the replacement contract are to be made weekly. Agent commissions will be processed in the same fashion as presently processed. In October of 1986, a budget request for $20 million for fiscal 1987-1988 was submitted by the Commissioner in anticipation of funding a replacement computerized on-line wagering system. This recommendation was reduced to $10 million by the Governor and was included in 1987 PA 131, Sec. 1, in a line item appropriation "Bureau of State Lottery--Data Processing ... On-line wagering system ... 16,818,000." The budget request by the Commissioner was consistent with OAG, 1981-1982, No 5982, p 359, 359-360 (September 9, 1981). That opinion addressed, among other things, whether the Commissioner of the State Lottery was permitted to issue a request for quotations for the acquisition of an on-line wagering system at a time when no appropriation therefor had been had been passed by the Legislature: "On March 2, 1981, I issued a letter opinion advising the Commissioner of the State Lottery that an appropriation would be required to fund a contract for acquisition of an on-line wagering system. ............................................................. ................... "To receive an[d] open quotations ('bids') at a point in time when the Commissioner of the State Lottery is not authorized to execute a contract because of the lack of appropriations therefor could have the affect of subverting protection of competitive bidding. "19[7]2 PA 239, Sec. 43, MCLA 432.43, MSA 18.969(43) made appropriation only for the ensuing year. Board of Education of Oakland Schools v Superintendent of Public Instruction, 392 Mich 613, 620; 221 NW2d 345 (1974); Advisory Opinion Re: 1975 PA 227 (Questions 2-10); 396 Mich 465, 499-502; 242 NW2d 3 (1976). "It is my opinion, therefore, that although the requests for quotations may be circulated and quotations received in sealed form prior to enactment of an appropriation for the contemplated contract, the bids may not be opened until the required appropriation has been enacted into law." (Emphasis in original.) As noted in OAG, 1981-1982, No 5982, supra, 1972 PA 239, Sec. 43, MCL 432.43; MSA 18.969(43), made appropriations from the state lottery fund only for the ensuing year. The rationale for this result is found in Const 1963, art 4, Sec. 31, which obligates the Legislature to annually match revenues with appropriations. Bd of Education of Oakland Schools, supra, p 621; Advisory Opinion on Constitutionality of 1975 PA 227 (Questions 2-10), supra, p 500. In addition, the obligation to assess the fiscal needs of the state which is placed upon the Governor by Const 1963, art 5, Sec. 18, could not be properly discharged if continuing appropriations were not accounted for in each annual budget. Bd of Education of Oakland Schools, supra, p 621. The conclusion reached in OAG, 1981-1982, No 5982, supra, that an appropriation was required, is consistent with Letter opinion of the Attorney General (Mr. William M. Nugent, Commissioner of the State Lottery, March 2, 1981). Furthermore, in a subsequent Letter opinion of the Attorney General (Rep. Frank V. Wierzbicki, January 12, 1982), OAG, 1981-1982, No. 5982, was explained in greater detail: "Because 1972 PA 239, Sec. 43; MCLA 432.43; MSA 18.969(43), seemed at the time of its enactment to purport to provide the requisite continuing appropriation, no further legislative involvement was perceived. Rulings of the Michigan Supreme Court in Board of Education of Oakland Schools v Superintendent of Public Instruction, 392 Mich 613, 621; 221 NW2d 345, 349 (1974), and Advisory Opinion on Constitutionality of 1975 PA 227 (questions 2-10), 396 Mich 465, 499-502; 242 NW 3, 17-18 (1976), applying Const 1963, art 4, Sec. 31, however, preclude any construction of 1972 PA 239, Sec. 43, supra, to appropriate for any subsequent fiscal years other than the ensuing fiscal year after enactment. Thus, an appropriation by the Legislature is required." Therefore, the payment of the expenses of operation of the lottery, including costs of the proposed new on-line wagering system services contract, may be made only from moneys annually appropriated by the Legislature. It is my opinion, therefore, that the Bureau of the State Lottery may pay the costs of an on-line wagering computer system services contract only from moneys annually appropriated therefor by the Legislature. Frank J. Kelley Attorney General
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