HARRISBURG — The Pennsylvania Lottery started the 2017-18 fiscal year $18 million in the hole, the first time in its history that the Lottery ended the year with a deficit, according to new legislative reviews.

“The Lottery Fund finished the 2016-17 year with an $18.2 million negative ending balance and the early projection for fiscal year 2017-18 looks bleak as well,” state Sen. Pat Browne, R-Lehigh County, chairman of the appropriations committee, said in his October monthly budget report.

The House Democratic appropriations committee reached a similar conclusion, noting that this the was first time in 40 years that the Lottery finished a year in the red.

“Not since 1976-77, when the program was created to support older Pennsylvanians, has it finished a year with less revenue than it spent,” according to a memo released Friday by state Rep. Joseph Markosek, D-Allegheny County.

This comes as lawmakers, searching for ideas to balance the state budget, had repeatedly suggested that they may look to legalize video game terminals in social clubs and bars.

A tax plan being considered in the state House Tuesday night didn’t include the move to legalize video poker machines though, despite bipartisan support in the chamber for the idea.

House leaders have indicated that a gaming expansion was still planned, though the timing and details of the plan were under wraps Tuesday evening.

While the idea is popular in the House, there is less enthusiasm in the state Senate for legalizing the video poker machines, said Senate Majority Whip John Gordner, R-Columbia County.

Video poker “would be a heavy lift” in the Senate, he said. “I opposed making Pennsylvania the gambling capitol of the U.S. There is a finite amount of gambling dollars out there and I hate taking money out of senior programs (funded by the Lottery) and giving them to casinos.”

The new reports on the state of the Lottery only reinforced his position, he said.

“The Lottery numbers put an exclamation point” on his opposition, Gordner said.

The Lottery’s 2016-17 revenue looks particularly bad because in the year prior the Lottery had done exceptionally well because of inflated sales due to record-breaking Powerball drawings.

“Total sales were down approximately $134.1 million from the previous year,” said Jeffrey Johnson, a Department of Revenue spokesman.

As a result of the reduced sales, the Lottery was able to pass along $75 million less to senior programs than it had in the prior year, Johnson said.

That worries administrators with the county Agencies on Aging.

The Pennsylvania Association of Area Agencies on Aging is opposed to the move to legalize video poker games in bars and social halls. They pointed to a report released last year by the Pennsylvania Department of Revenue projected that legalization of VGTs in Pennsylvania would result in a $923 million to $2.3 billion decrease in Lottery sales over the next 10 years.

“The Lottery Fund, which supports our seniors, cannot afford to be jeopardized by the negative impact of VGTs, even the scaled-back proposals that may be considered,” said Rebecca May-Cole, executive director of the Association of Area Agencies on Aging. “We owe it to our seniors to raise revenues in the Lottery Fund through implementation of programs like iLottery, not by introducing new competition.”

State Rep. Kurt Masser, R-Northumberland County, said those concerns are misguided because there are already thousands of illegal video poker machines in place around the state.

Legalizing the games wouldn’t harm the Lottery, it would just allow the state to begin getting tax revenue from games that are already operating.

“This would be regulating a black market industry that is now unregulated and untaxed,” he said. “It’s the one form of gaming expansion that wouldn’t hurt the Lottery.”

Johnson said that the Lottery has suffered from increased competition for gaming dollars.

“The lottery industry is seeing a decline in market share from competition from new forms of entertainment, such as fantasy sports wagering. That is why it is necessary for the Pennsylvania Lottery to move forward with plans to modernize its business model,” he said.

Gov. Tom Wolf’s budget proposal for this year had included a plan to allow the Lottery to run games online. The measure was included in a far-reaching gaming expansion that also would have legalized fantasy sports games, sports betting, along with the video poker games. The measure went back and forth with changes between the chambers, with no final agreement reached this summer.

If the Lottery could offer games online, the state would expect to make “$174 million in new profits over the first five years,” Johnson said.

State Rep. Chris Sainato, D-Lawrence County, said that many House lawmakers embraced the idea of legalizing video poker as the best option remaining on the table for helping complete the state’s plan to balance the budget.

Like the legislation considered earlier this year, any plan to legalize video poker would likely have included measures to help the Lottery, Sainato said.

“We need to help the Lottery,” he said. “I don’t think anyone would support something they thought was going to harm it.”

John Finnerty is the Statehouse reporter for Community Newspaper Holdings Inc., parent company of The Daily Item. Email him at jfinnerty@cnhi.com. Follow him on Twitter @cnhipa.

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