SALEM - Tavern and bar owners have told Oregon state lottery officials that the recession and a statewide smoking ban already have hurt them, and any move to reduce their video gambling commissions will create more hardship.

But education advocates say schools are hurting too. They told a Tuesday hearing that the commission rate should be cut so more lottery proceeds could go to schools. State law requires lawmakers to spend lottery profits on education, parks and other state programs.

Bar and tavern owners keep about 23 percent of the money players lose in the state-run gambling machines that the businesses host. Last year, the lottery paid out about $187 million - or an average of $71,000 for each site.

Still, Ed Fairbank owns Crabby's Underground in Pendleton. He said he's seen the money he gets from video gambling fall from $66,000 three years ago to $48,000 last year.

"I cannot continue to lose money on lunch while hoping lottery money will make up the difference," Fairbank said. "We're all hanging on to the hope that we don't have to pay any more for the state of Oregon's decision to ban smoking in our business."

The video lottery commissions have been cut five times since the games began in 1992. But host businesses have also seen sales surges spurred by the Las Vegas-style line games the state introduced in 2005.

Video gambling brought in $787 million last fiscal year. But total lottery revenues, which include video and traditional games, declined from $1.25 billion in 2007-08 to $1.1 billion last fiscal year.

Bruce Davis, chairman of the board of Elmer's Restaurants, said the Oregon Lottery is in a "sales death spiral."

"We think the structure itself is broken." he said.

Supporters of trimming the commissions also made their voices heard.

Lottery officials should reduce the retailers' commission rate to 15 percent, said Dana Hepper with Stand for Children, an education advocacy group. She contended that past cuts in the rate have been followed by growth in the number of bars and taverns that offer the games.

The Lottery Commission will take public comments by e-mail and letter until October, when it will vote on a new six-year contract for lottery retailers.

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