Where is All that State Lottery Money Going? - Skeptics Demand Answers

This state lottery question is echoed across the nation, as governors and state legislators continue to face severe budget shortfalls.

The answer to where all that state lottery money is going is simple: There isn't as much state lottery money as most people think.

Some 43 of the 50 states have lotteries, the exceptions being Alabama, Alaska, Hawaii, Mississippi, Nevada, Utah and Wyoming. State lotteries generally are advertised to support public education.

The New York Times reports that state lottery revenue in these 43 states adds up to $17 billion per year, which may seem like a lot of cash. However, state lottery money typically provides only about 3 percent of a state's budget for K-12 education, give or take a percentage point or two.

Gains from state lottery money shrink even more when we consider that K-12 education is only a portion of a state budget. In fact, the fastest-rising state expense isn't schools, it's prisons. This causes many educators to lament that states spend an average of about $7,000 annually per student, compared to $30,000 for prison inmates.

Lottery Overhead: Prizes, Ads, Retailers

Where is all that state lottery money going? In addition to providing only a fraction of overall public education spending, state lotteries first must pay overhead. Roughly 50 percent of the state lottery money intake is paid back out in prizes. Nearly 20 percent more goes for advertising, and to the retailers who sell the tickets. That leaves less than one-third of state lottery revenue for the schools.

Anyone who argues on moral grounds against state-sponsored lotteries (a.k.a. state-sponsored gambling) is not likely to be heard. Even though state lottery revenue is a tiny sum, compared to state tax revenues, most governors and legislators say they could not afford to part with it.

Trends for state-sponsored gambling actually is heading in the opposite direction. Taverns and bars in many states now have machines that allow patrons to play instant state lottery games. Twelve states have casinos.

Possibly the state lottery money and the newer casino revenues have reached a peak. The New York Times reports that state lottery profits dipped by 2.6 percent amid the budding recession of 2008.

Even the Apostles 'Drew Lots'

Gambling and lotteries have been with us since .... well, at least since Jesus Christ walked the earth. The word "lottery" is drawn from "the casting of lots," such as in the Bible's Acts 1:26, when the apostles drew lots to pick Matthias as a replacement for the traitor Judas.

Opinions forever have been mixed. Consider American history. To help pay costs for the Jamestown settlers of 1607, the Virginia Company of London conducted lotteries. In contrast, the Puritans who landed with the Mayflower at Plymouth Rock in 1620 banned cards and dice (along with singing and dancing, we might add). Each of the 13 original colonies had lotteries, but corruption threw them into disrepute. A group during the early 1820s conducted a lottery for the purported cleanup of Washington, D.C., but then absconded with the money.

Gambling was popular on the Mississippi River steamboats of Mark Twain's time, which gave root to the phrase "riverboat gambler." At the same time, folks who took part in the California Gold Rush were gambling that they would find gold, which made them prime customers for gambling games in general. Later, in 1931, Las Vegas became the nation's legal gambling capitol, seeking to lure tourists visiting the new Boulder (Hoover) Dam.

State Lottery Money and Tax Cuts

Today's state lotteries kicked off with New Hampshire in 1964 and gradually gained momentum. Moralists raised their voices, but folks who don't like taxes raised their voices even louder. The justification for seeking state lottery money was threefold: (1) Public schools would benefit. (2) Illegal gambling, such as numbers running, would be thwarted. (3) A state lottery is equivalent to a "voluntary tax," self-imposed by those who participate. The anti-tax people loved Number Three.

People nowadays who oppose state budget cuts and/or higher state taxes will continue to cry, "What ever happened to all that state lottery money?" In many cases, they have vast knowledge of the various and sometimes complex rules for scratch-off state lottery tickets, but they know little about the line items in their state government budgets. Therefore, they overestimate the amount of state lottery revenue, which is ironic when we think about it: Considering the sums we pay in taxes, who could ever imagine that even the most popular state lottery would raise anything near the equivalent amount of money?

State Lotteries: 'Needle in the Addict?'

Anti-lottery activists won't give up. There's a group called Stop Predatory Gambling. Simply with the wording of it's name, this group pretty much accuses those 43 states with lotteries (along with the District of Columbia, Puerto Rico and the U.S. Virgin Islands) of preying upon their own citizens. Tom Gray, a Stop Predatory Gambling spokesman, says 5 percent of lottery players combine to buy more than half of the tickets, spending nearly $4,000, even though they tend to come from lower incomes. Grey vividly asserts, "You have to juice the product to keep the needle in the addict."

Would Stop Predatory Gambling and other moralists ever get a serious hearing in a state legislature during these strife-torn days? Definitely not in Michigan, for just one example. Lawmakers instead are considering a proposal to allow bars (with their state lottery computer games) to stay open until 4 p.m., and to allow corner stores to sell beer and liquor on Sunday mornings, in part for the benefit of Detroit Lions football tailgate parties. Apparently, some fans of the Lions, winless in 2008, feel a need to imbibe before they view their heroes in action.

In Michigan and elsewhere, state lottery money will continue to flow, even if this money is nowhere near as much as some people imagine.

SOURCES

http://www.forbes.com/2009/04/14/gambling-lottery-economy-business-washington-lottery.html

http://www.nytimes.com/2009/09/10/us/10gambling.html?_r=1&partner=rss&emc=rss

http://www.nytimes.com/2007/10/07/business/07lotto.html

http://www.columbiatribune.com/news/2009/sep/30/state-lottery-just-one-funder-of-education/

http://www.library.ca.gov/crb/97/03/chapt2.html

http://www.independent.org/pdf/tir/tir_10_3_03_gribbin.pdf