Title: Perry/Novick v. Myers
Citation: N/A
Docket Number: S53130
State: Oregon
Issuer: Oregon Supreme Court
Date: March 9, 2006

FILED: March 9, 2006
IN THE SUPREME COURT OF THE STATE OF OREGON
WILLIAM (BILL) PERRY,
Petitioner,
v.
HARDY MYERS,
Attorney General,
State of Oregon,
Respondent.
STEVEN NOVICK,
Petitioner,
v.
HARDY MYERS,
Attorney General,
State of Oregon,
Respondent.
(SC S53130, S53138)
En Banc
On petition to review ballot title.
Submitted on the record February 28, 2006.
Michael Mills, Salem, filed the petition and reply
memorandum for petitioner William (Bill) Perry.
Margaret S. Olney, of Smith, Diamond &amp; Olney, Portland,
filed the petition and reply memorandum for petitioner Steven
Novick.
Elizabeth A. Gordon, Assistant Attorney General, Salem,
filed the answering memorandum for respondent.  With her on the
answering memorandum were Hardy Myers, Attorney General, and Mary
H. Williams, Solicitor General.
BALMER, J.
Ballot title referred to Attorney General for
modification.
BALMER, J.
These ballot title review proceedings brought under ORS
250.085(2) concern the Attorney General's certified ballot title
for a proposed initiative measure that the Secretary of State has
designated Initiative Petition 113 (2006). (1)  The proposed
measure seeks to establish rates for the commissions that
retailers receive from video lottery revenues and to direct
increases in video lottery revenues to fund education.
Petitioners are electors who timely submitted comments
to the Secretary of State concerning the Attorney General's draft
ballot title.  They therefore are entitled to seek review of the
resulting certified ballot title in this court.  ORS 250.085(2). 
Petitioners assert that the certified ballot title fails to
comply with the requirements of ORS 250.035.  We review the
Attorney General's certified ballot title to determine whether it
substantially complies with those requirements, see ORS
250.085(5) (stating standard of review), and we conclude that it
fails to comply in several respects.  We therefore refer the
ballot title to the Attorney General for modification.
The measure proposes several statutory changes.  Under
the current scheme, administrative rules rather than statutes set
the commissions that retailers receive from video lottery
revenues.  Those rules establish "tiered" commission levels,
which we describe below.  The proposed measure would limit video
lottery retailers' commissions to 18 percent of net receipts.  It
defines "net receipts" as "the amount of money that is received
by the video lottery establishment from the operation of video
lottery games after payment of prizes."  Beginning in July 2007,
any "increase" in state video lottery revenues would be dedicated
to K-12 public education, unless the state constitution directs
otherwise.  The proposed measure defines an "increase" in video
lottery revenues as "an increase in the dollar amount of such
revenues in any fiscal year over the amount of such revenues in
the July 1, 2006 -- June 30, 2007 fiscal year."  The proposed
measure defines "[s]tate [v]ideo [l]ottery revenues" as "the
amount of money the State receives from Video Lottery operations
(not including payments of prizes or payments to retailers)."
The Attorney General certified the following ballot
title for the measure:
"LIMITS RETAILERS' PAYMENTS FROM NET VIDEO LOTTERY
RECEIPTS;
DEDICATES INCREASED VIDEO LOTTERY REVENUES TO
EDUCATION
"RESULT OF 'YES' VOTE: 'Yes' vote limits
retailers' payments from net video lottery receipts to
no more than 18 percent.  Dedicates increase in video
lottery revenue to K-12 education.
"RESULT OF 'NO' VOTE: 'No' vote retains existing
system directing Lottery Commission to determine
retailer compensation.  Video retailers receive
payments from 11 percent to 32.5 percent of net
receipts.
"SUMMARY:  Under current law, State Lottery
Commission determines payments to lottery retailers.
Video retailers may receive payments from 11 to 32.5
percent of net receipts; video lottery proceeds are
dedicated to lottery bonds, economic development, job
creation, educational stability, park/natural resource
funds.  Measure limits video lottery retailers'
compensation to no more than 18 percent of 'net
receipts'; 'net receipts' are video lottery operational
revenues.  Beginning July 1, 2007, measure requires
'increase' in net proceeds of video lottery revenues be
dedicated to public K-12 education; 'increase' is
increase in video lottery revenues in any fiscal year
over such revenue for fiscal year ending June 30, 2007. 
Net proceeds do not include video lottery revenues
constitutionally required for deposit to educational
stability/natural resource funds.  Other provisions."
Petitioner Perry challenges the caption, the "yes" vote
result statement, and the summary of the certified ballot title. 
Petitioner Novick challenges the "no" vote result statement and
the summary.  The Attorney General concedes that the "no" vote
result statement and the summary require modification and
requests that we refer the ballot title for modification.
CAPTION
Perry advances three arguments that the caption does
not substantially comply with the requirements of ORS 250.035. 
We cannot consider two of them because Perry did not raise them
before the Secretary of State.  See ORS 250.085(6) (court cannot
consider arguments not made to Secretary of State); Nelson v.
Myers, 330 Or 92, 97, 996 P2d 975 (2000) (applying ORS
250.085(6)). (2)  We have considered Perry's third argument
with respect to the caption and have concluded that it is not
well-taken.
"NO" VOTE RESULT STATEMENT
The "no" vote result statement is "[a] simple and
understandable statement of not more than 25 words that describes
the result if the state measure is rejected."  ORS 250.035(2)(c). 
As stated above, the certified "no" vote result statement
provides:
"RESULT OF 'NO' VOTE:  'No' vote retains existing
system directing Lottery Commission to determine
retailer compensation.  Video retailers receive
payments from 11 percent to 32.5 percent of net
receipts."
Petitioner Novick argues, and the Attorney General
agrees, that the reference to 11 percent as the lowest rate is
misleading: That rate will not apply under current law until
2007, and its application then is contingent on an increase in
video lottery revenues.  OAR 177-040-0029(2)(a).  The Attorney
General agrees that the correct level is 12 percent.
Novick also argues that the "no" vote result statement
fails to make clear that the payment rates to which it refers are
marginal rates based on a retailer's sales volume.  A retailer
who offers only video poker games must choose either a three-tier
compensation option or a two-tier compensation option.  OAR 177-040-0027(2).  Under the three-tier option, the retailer receives
32.5 percent of the net receipts up to $175,000, 26 percent of
the net receipts between $175,000 and $475,000, and 17 percent of
the net receipts in excess of $475,000.  OAR 177-040-0027(2)(a). 
Under the two-tier option, the retailer receives 26 percent of
the net receipts up to $650,000 and 19 percent of the net
receipts in excess of $650,000.  OAR 177-040-0027(2)(b).  
A retailer who offers both video poker games and video
line games must choose either a four-tier compensation option or
a three-tier compensation option.  OAR 177-040-0028(2).  Under
the four-tier option, the retailer receives 29 percent of the net
receipts up to $175,000, 24 percent of the net receipts between
$175,000 and $475,000, 15 percent of the net receipts between
$475,000 and $800,000, and 12 percent of the net receipts in
excess of $800,000.  Under the three-tier option, the retailer
receives 23 percent of the net receipts up to $600,000, 18.5
percent of the net receipts between $600,000 and $1,800,000, and
12 percent of the net receipts in excess of $1,800,000. 
Novick argues that "it is inaccurate to use the
marginal rates to describe retailer compensation -- without
additional explanation."  He points out that, even with the
Attorney General's concession that the "no" vote result statement
should refer to "12 percent" rather than "11 percent," that
statement still is inaccurate because no retailer receives a
payment of 12 percent of net receipts.  Rather, Novick argues,
under the current scheme, most retailers receive a "blended"
commission rate based on the payment option that they choose and
their level of sales.  He proposes that the "no" vote result
statement refer instead to the "average" percentage payments that
video lottery retailers receive.  
We agree with Novick that the certified "no" vote
result statement is inaccurate because no retailer could receive
payments of 12 percent (or 11 percent) on all of their net
receipts due to the graduated nature of the compensation scheme. 
Moreover, the statement implies that the payments mentioned are
the actual rates that particular retailers receive under the
current system, rather than marginal rates that apply depending
on which payment option a retailer chooses and the retailer's net
receipts.  We therefore conclude that the Attorney General's "no"
vote result statement fails to comply substantially with the
requirements of ORS 250.035(2)(c).  The "no" result statement
must accurately describe in some way the graduated rate structure
under current law or the results that that structure produces.  
We do not agree, however, that the "no" vote result
statement must refer to the average retailer commission, as
Novick suggests.  As the Attorney General points out, an average
commission figure could be misleading because it fluctuates
depending on the level of net receipts.  The Attorney General may
find it useful to use some rate other than the marginal rates
contained in the administrative rules to describe the current
compensation structure, but he is not required to do so.  It is
the Attorney General's task, in the first instance, to draft a
revised "no" vote result statement, consistently with this
opinion, that helps the voter "understand the state of affairs
that will exist if the voters reject the proposed measure." 
Nesbitt v. Myers, 335 Or 424, 433, 71 P3d 530 (2003).
SUMMARY
The summary must be "[a] concise and impartial
statement of not more than 125 words summarizing the state
measure and its major effect."  ORS 250.035(2)(d).
As noted above, the certified summary states:
"SUMMARY:  Under current law, State Lottery
Commission determines payments to lottery retailers.
Video retailers may receive payments from 11 to 32.5
percent of net receipts; video lottery proceeds are
dedicated to lottery bonds, economic development, job
creation, educational stability, park/natural resource
funds.  Measure limits video lottery retailers'
compensation to no more than 18 percent of 'net
receipts'; 'net receipts' are video lottery operational
revenues.  Beginning July 1, 2007, measure requires
'increase' in net proceeds of video lottery revenues be
dedicated to public K-12 education; 'increase' is
increase in video lottery revenues in any fiscal year
over such revenue for fiscal year ending June 30, 2007. 
Net proceeds do not include video lottery revenues
constitutionally required for deposit to educational
stability/natural resource funds.  Other provisions."
Novick makes four points.  He argues, and the Attorney
General agrees, that the reference to 11 percent is incorrect. 
He also maintains that the summary does not adequately describe
the nature of the marginal rates.  We agree for the reasons
previously stated.  
Novick further asserts, and the Attorney General
agrees, that lottery proceeds fund both the educational stability
fund and general education, and that it is inaccurate to refer
only to "educational stability."
Finally, both Novick and Perry point out that the
summary does not provide a correct definition of "net receipts." 
They argue that the phrase is supposed to describe the funds that
the lottery receives after the expenditure of funds paid as
prizes.  The Attorney General concedes that, because the portion
of the text of the summary discussing net receipts is potentially
confusing, it must be rewritten. (3)  
We conclude that the Attorney General's summary does
not comply substantially with the requirements of ORS
250.035(2)(d).
For the foregoing reasons, we conclude that the ballot
title must be remanded to the Attorney General for modification.
Ballot title referred to Attorney General for
modification.
1. Two petitioners challenged the Attorney General's
certified ballot title in separate proceedings.  We consolidated
those proceedings for purposes of review.
2. We reject Perry's challenge to the "yes" vote result
statement for the same reason.
3. Perry also advances an argument regarding the summary
that he did not raise before the Secretary of State.  We decline
to address it.  ORS 250.085(6).