An Alabama Lottery: Theft by Consent

An Alabama Lottery: Theft By Consent Founding Principles In Action Executive Summary Lotteries are the most popular form of gambling in America. As recently as 1963, lotteries were banned in every state in America. Today, however, 38 states and the District of Columbia have legalized state-run lotteries. Americans have spent more than $427 billion on lottery tickets—or about $375 every second—since their legalization in 1964. In 2001 alone, Americans wagered more than $38.9 billion on lotteries—about $136 for every man, woman and child in the nation. Lotteries are also the biggest source of government revenue from gambling, generating about $11.8 billion for the states sponsoring them. In most states with lotteries, some or all of this revenue is earmarked for education. This lure of “revenue from nowhere” has caught the attention of Alabama politicians since 1986. For the second time in four years, the citizens of Alabama are being told the best way to boost the quality of education in our state is by legalizing a state-sponsored lottery. The most recent proposal by Gov. Don Siegelman would establish a state lottery that he states could generate $200 million in revenues for the state’s beleaguered Education Trust Fund. With the recurring threat of proration and the lure of lotteries and casino gambling across three of our state lines, an Alabama lottery may seem to be a quick fix to our state’s financial woes. Despite their popularity, though, lotteries are not the stable revenue source gambling supporters claim them to be, nor are they devoid of social and economic consequences. An Alabama Lottery: Theft by Consent examines the darker side of lotteries in other states, as well as what might happen if Alabama were to legalize its own education lottery. This report shows: To realize $200 million for education, an Alabama lottery would have to sell $571 million worth of tickets, or about $127 for every man, woman and child in the state. Legalizing a state lottery would create more than 16,000 new pathological gamblers, and cost the state more than $200 million in social and economic costs. The poor spend disproportionately more of their income on lottery tickets than middle- and upper-income families. Instead of attracting money from out of state, an Alabama lottery would cannibalize the existing economy by consuming local dollars. States that legalize low-stakes forms of gambling such as lotteries often legalize “harder” forms of gambling in a matter of a few years. Seventy-five percent of all high school students have gambled, and more than 2.2 million adolescents are already addicted to gambling. Five percent of all lottery players buy half of all lottery tickets. The fastest growing group of problem gamblers—in terms of those calling for help—is senior citizens, many of whom are being hooked on the lottery. Alabama residents buy only two percent of all lottery tickets from Florida and 4.5 percent from Georgia. The Alabama Policy Institute (API) is an independent, non-profit research and education organiza- tion that is issue centered and solution oriented. We provide in-depth research and analysis of Alabama’s public policy issues to impact policy decisions and deepen Alabama citizens’ understand- ing of, and appreciation for, sound economic, social and governing principles. Since 1989, API has been on the front lines of critical public debates, helping Alabama citizens, lawmakers and business leaders better understand and apply principles that maximize individual freedom, limit government interference and encourage personal responsibility. The Alabama Policy Institute is the largest free-market, solution-based policy research center in Alabama. Alabama’s Lottery: Theft By Consent by Dr. John R. Hill Layout, Design, and Editing by Kristin Day Copyright August 2002 by the Alabama Policy Institute, Birmingham, Alabama Permission to reprint in whole or in part is hereby granted, provided that the Alabama Policy Institute and the author are properly cited. For additional copies, please contact: Alabama Policy Institute P.O. Box 59468 Birmingham, AL 35259 (205) 870-9900 [email protected] An Alabama Lottery: Alabama Policy Institute Theft By Consent otteries are the most-played form of legalized gambling in the U.S. In 1998, 51.8 percent of Americans—100 million adults—played Lthe lottery, compared to 29 percent who gambled at casinos and seven percent who wagered on horse races.1 Americans have spent more than $427 billion on lottery tickets, or about $375 every second, since their legalization in 1964.2 In FY 2001, Americans wagered $38.9 billion on lotteries—about $136 for every man, woman and child in the nation.3 While state lotteries have the worst odds of any common form of gambling (the odds of winning the typical state lottery are about one in 12-14 million, and are getting higher),4 they also offer the largest payoffs, with prizes regularly totaling tens—and occasionally hundreds—of millions of dollars.5 Lotteries are also the biggest source of government revenue from gam- In 2001, Americans bling, having generated approximately $151 billion for the states sponsoring them since their legalization in 1964.6 In FY 2001 alone, lotteries con- wagered $38.9 tributed $11.8 billion—about 35 percent of money wagered—into state cof- billion on lotteries— fers.7 They are also the only form of gambling in the U.S. that is a virtu- about $136 for every al government monopoly.8 man. As recently as 1963, lotteries were banned in every state in America.9 Today, 38 states and the District of Columbia have legalized government- run lotteries.10 Their revenues fund a variety of initiatives, including education, economic development, transportation, prison construction, envi- ronment and natural resources programs, and senior citizens centers.11 In almost every case, the lottery was presented to state legislators as a means of raising revenues without having to raise taxes.12 The lure of "revenue from nowhere" that accompanies the effort to legalize lotteries has caught the attention of politicians in Alabama since 1986. The most recent proposal would establish a state lottery and earmark all profits to the state's Education Trust Fund. Unlike several earlier attempts to establish a Georgia-style education lottery to fund college scholarships, voluntary kindergarten programs and technology upgrades in public schools, Alabama's latest lottery proposal would be directly tied to the state's education budget. As with the last proposal, lottery supporters expect their program could generate about $150-200 million for education per year.13 1 Alabama Policy Institute An Alabama Lottery: Theft By Consent But, a study produced by Dr. Mark Thornton, Professor of Economics at Columbus State University and former Alabama Assistant Superintendent of Banking, suggests the state is too poor and does not have a population large enough to sustain a lottery that nets more than $72 million a year.14 Some gambling analysts also estimate the social price Alabama will pay if it legalizes a lottery may be higher than any benefits it might receive. Whose predictions are more accurate? This report examines other state lotteries to determine the social and economic consequences of introducing a lottery in Alabama. I. The Lottery and Education Just because a lottery claims its funds go to education does not neces- "every dollar given to sarily mean that a state's public schools are receiving additional funding a school district from lottery profits.15 Ironically, states without lotteries actually maintain through the lottery and increase their education spending more than states with lotteries.16 A formula is literally 1997 study of the impact of lotteries on education funding concluded: deducted from the "regardless of when or where the lottery operated, education spending amount that district declined once a state put a lottery into effect." Consider the following would have received examples: under school aid formulas," !In 1988, the first year of its lottery, Florida spent 60 percent of its budget on education. By 1993, however, education's share of the budget had —New York State dropped to 51 percent.17 Last year, Florida's lawmakers considered such Comptroller varied measures as increasing property taxes and installing video poker H. Carl McCall machines at dog and horse tracks to pay for education and human servic- es.18 !In 1998, New York State Comptroller H. Carl McCall called the lottery's long-standing claim that its revenues go to education "a myth." A state audit found "every dollar given to a school district through the lottery formula is literally deducted from the amount that district would have received under school aid formulas," freeing up more of the state's general fund for other spending.19 In reality, the billions of lottery dollars earmarked for education do not amount to much. According to a 1999 Education Research Service report, lottery contributions constitute less than four percent of state and local education budgets in the states that assign their lottery revenues to education.20 2 An Alabama Lottery: Alabama Policy Institute Theft By Consent Thus, instead of helping, lotteries can hurt education funding in the long run because they serve to undermine public support, even in Alabama where tax dollars are earmarked for education. When voters cast their votes regarding millages, school board referenda, or sales tax increases for education, they are increasingly saying "no" because voters believe schools are being amply funded with gambling money. In states with education lotteries this should come as little surprise because the public was led to believe that additional funds for education would not be needed. When Susan MacManus, a University of South Florida political scientist, asked local voters why they had voted against a sales tax increase for local schools, more than 80 percent of them gave the same reason: the lottery.21 Consequently, the revenue that Alabama's schools would receive from a lottery would very likely make it even more difficult to convince voters to approve tax increases.

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