The State Lottery

As the General Assembly returns for its 2002 session, the lottery is once again on the front burner. Support is fueled primarily by the state’s huge budget crunch: a projected shortfall of $2 billion. A lottery always looks like an “easy” source of money to legislators looking to balance the state’s budget while fearing the political backlash from increasing taxes. Gov. Easley, a long-time supporter of a lottery, is using the budget crisis to leverage support. The spread of the lottery to South Carolina increases pressure on NC to go along with the crowd.

The Legislation

Four lottery bills were introduced last year and could be considered this summer. New lottery bills could also be introduced. One scenario has the lottery being folded into the budget bill.

H1 and H 511 are similar to bills which have been introduced for the past two decades. Important provisions in both bills include:

· Basic division of the take: 50% to prizes, 16% to administration (including up to 4% for advertising and 5-7% commissions for ticket sellers), and 34% for state purposes.

· Prohibit sales to minors, but not possession. It is OK for minors to be given tickets by adults and for adults to claim prizes for minors.

· Start-up of lottery subject to a binding referendum.

Both bills would create a college scholarship program, most likely patterned on Georgia’s HOPE Scholarships. Details would be worked out by a commission. Any student with an A or B average in high school would be eligible for free tuition at public universities and community colleges or for partial payment of expenses at private colleges ($2,500 under H 1, $1,000 under H 511). Scholarships would not be based on need.

The two bills differ in their use of the state’s cut:

· Under H 1, it would be used for the college scholarship fund (25%), school technology needs (25%), a pre-kindergarten program for at-risk children (25%), and water and sewer infrastructure needs (25%).

· Under H 511, 50% would go to the scholarship fund, $1 million per year to each school district for capital needs, and the remainder to Smart Start.

S 986 and H 1218 are identical bills and represent a totally new approach by lottery proponents. Instead of a 20+ page bill, filled with details, S 986 and H 1218 fit on one page. All they say is that there shall be a referendum on the lottery, that the lottery will be for education, and that the money from the lottery “shall supplement and not supplant” other education money (a totally unenforceable provision). The exact wording on the use of funds sounds more like a speech than legislation: “The funds shall be used to establish a voluntary statewide prekindergarten program to prepare at-risk four-year-olds for school in order to close the achievement gap that now exists. The funds shall also be used to reduce class sizes in our public schools, for more one-on-one instruction to allow teachers to teach and children to learn so that more children will stay in school, stay out of trouble, graduate, and go on to college.”

As for the details of how much money would go for advertising, how much to the out-of-state company operating the lottery, how much to prizes, what kinds of games could be played, whether children can buy lottery tickets, etc., etc., these details would be worked out in legislation to be adopted after a referendum has been held. In effect, these bills say to those citizens concerned about the details, “Just trust us.”

The Governor’s Budget. The governor’s proposed budget for fiscal year (FY) 2002-03 includes $250 million in anticipated lottery revenue. It would be spent to fund class size reduction, More at Four, TEACH, and teacher recruitment. It will also go to subsidize existing programs: ABC teacher bonuses and increased education enrollments. There is no mention of a HOPE scholarship plan. Nor does the governor explain where money will come from for the ABC bonuses or increased college enrollments in future years, when he wants all the lottery money for More at Four and class size reductions.

In addition, the governor is proposing that the General Assembly adopt the lottery without a referendum. This is the only possible way the state could realize most or all of the $250 million during 2002-03. Even that would require a quick start-up and lots of eager lottery players.

Reasons for Opposition

There are a host of reasons for opposing a state lottery. The reasons are not new, though some of the supporting evidence is. The following is a “cafeteria line” of reasons. Some may be more important to you than others; you may not even agree with all of them. But the diversity of reasons is representative of the diversity of the opposition to the lottery.

Gambling is wrong, and the lottery is one form of gambling. This is actually the position of the state of North Carolina right now. Gambling is illegal, and there are criminal penalties for engaging in gambling activities, including numbers games that are really privately-operated lotteries. (A small exception has been carved out for non-profit bingo and raffles and for small-prize beach bingo.) H 1 and H 511 include sections which would exempt the state lottery from these criminal laws regarding gambling, but the laws would remain on the books.

Lotteries prey on poor people. People in poverty are perhaps most vulnerable to the appeal of a lucky payoff; they are also those who can least afford the 50% loss which is suffered by players taken as a whole. (Remember that only 50% of the lottery’s take would be paid back in prizes.)

The evidence on this point is incontrovertible. It is consistent over time and in various states. Early research showed that there were many more lottery outlets in poor neighborhoods, with a decreasing number of outlets as the economic status of the neighborhood rose. Later research showed that poor people spend a greater percentage of their incomes on lottery tickets than do those in higher brackets. Additional research now indicates that poor people are spending more per person in absolute dollars (not just as a percentage of income) than are others.

For example, Michigan’s Booth Newspapers found that per capita sales in inner city Detroit were three times higher than per capita sales in the suburbs. The Atlanta Constitution, reporting on the Georgia lottery when it was relatively new, found similar results: In ZIP Codes with average household incomes over $40,000, average annual per capita sales were $97. In ZIP Codes where the average income was under $20,000, average per capita sales were $249.

More recent data are consistent with these earlier findings. In Lexington, Kentucky, 79% of the money spent on lottery tickets in 1997 was spent in ZIP Codes where per capita incomes were below the county average. Similarly, 47% of Maryland’s most frequent lottery players come from households earning less than $20,000 a year.

Lottery proponents say “So what?” Some even go so far as to say that concern for the impact of the lottery on poor people is paternalistic. This argument ignores at least three factors: 1) The state has already made the determination that gambling is a bad thing for everybody. That’s why it is against the law. 2) The role of the state vis-à-vis its poorer citizens has historically been to lend a helping hand, through education, cash assistance, food stamps, housing assistance, and other programs. The role has not been to sucker them into wasting their money on foolish spending. 3) The impact of advertising changes the role of the state from one of neutrality to one of manipulation.

Millions of dollars of advertising will be used to convince all citizens that a lottery ticket could be their ticket to Easy Street. If the lottery takes in $900 million annually, the low end of what proponents claim, the state could spend $36 million in advertising. To put that in perspective, total spending for all General Assembly elections in the fall of 2000 was $19.4 million. That’s for entire campaigns, including staff salaries, consultants, etc., not just for advertising.

And what is the content of these ads? A lottery billboard in a Chicago ghetto proclaimed, “This Could Be Your Way Out.” A TV ad in Connecticut included someone saying, “When I was younger, I suppose I could have done more to plan my future. But I didn’t. I guess I could have put some money aside. But I didn’t. Or I could have made some smart investments. But I didn’t. Heck, I could have bought a one-dollar Connecticut Lotto ticket, won a jackpot worth millions, and gotten a nice big check for twenty years. And I did! I won!” An announcer intones, “Overall chance of winning is one in thirty.”

Look, too, at the timing of these ads. An advertising plan for the Ohio SuperLotto advised: “Schedule heavier media weight during those times of the month where consumer disposable income peaks. . . Government benefits, payroll and Social Security payments are released on the first Tuesday of each calendar month.”

Lotteries unfairly benefit the non-poor. As if it weren’t bad enough that the state would be using misleading and dishonest advertising to convince poor people to waste their scarce financial resources on lottery tickets, research indicates that those benefiting from lottery revenues are disproportionately the non-poor. For example, Booth Newspapers found that Detroit residents contributed $104 million to Michigan’s school aid fund through their lottery purchases. But the Detroit public schools received back only $80 million from that fund. The remaining $24 million ended up with other, wealthier school districts.

The New York Times (February 4, 2001) noted that “[Georgia’s HOPE] scholarships represent an enormous transfer of money – $1.2 billion since 1993 – from lottery players, who tend to live in the poorest counties of the state, to 504,000 college students, who come from the wealthiest counties.”

Lotteries give compulsive gamblers easy access to the object of their compulsion. A 1999 study by the National Opinion Research Center at the University of Chicago concluded that that there are 5½ million pathological or problem gamblers in our country, with another 15 million at risk. A companion report by the National Research Council estimated that 1.8 million American adults and up to 1.1 million adolescents age 12 through 17 engage in severe pathological gambling each year. While this addiction may not be as visible as that of alcoholics or drug addicts, it can be just as devastating.

A 1995 study of compulsive gamblers found that:

· 34% had lost or quit a job because of gambling.

· 76% had missed time from work.

· 44% had stolen from work to pay gambling debts.

· 21% had filed for bankruptcy.

· 18% had had gambling-related arrests.

· 16% said they had divorced because of gambling.

· 16% had attempted suicide.

· 66% had contemplated suicide.

· 79% said they wanted to die.

For compulsive gamblers, nothing could be worse than making the object of their addiction as convenient as the check-out line at the grocery store and then bombarding them with millions of dollars of slick ads.

As suggested by the National Research Council study mentioned above, the problem of gambling and gambling addiction is creeping into younger age brackets. Studies now indicate that the rate of compulsive gambling among teens is two to four times higher than the rate for adults.

A lottery sends mixed messages about how people should get ahead in life. Our society, using ideas as old as the Bible, has taught the importance of hard work, education, frugality, and saving as the avenues to a “good life.” The lottery says, “Forget about all that, and buy a lottery ticket.” How ironic that the benefits of a lottery are supposed to be for education!

A lottery reduces consumer spending on other goods and services. The lottery doesn’t create any new money. It merely reallocates how money is spent. A dollar spent on a lottery ticket is a dollar that can’t be spent on new shoes, groceries, restaurant meals, movie tickets, charitable contributions, or any other discretionary spending. A study in the Tidewater area of Virginia proved what would seem to be self-evident: consumer spending dropped by an amount roughly equal to lottery ticket sales. In addition to hurting the businesses and service providers whose revenues decrease, this also means a loss of sales tax revenues to local governments. The NC Budget and Tax Center estimates that local governments would lose $12.7 million in annual revenues. Unlike the state, which would also see reduced sales tax revenues, local governments’ loss would not be offset by any revenues from the lottery.

Regardless of what is said, lottery revenues don’t necessarily help education or other worthwhile purposes. The pattern in other states has been that funding from the state’s budget drops about as much as lottery revenues provide to a dedicated purpose. In other words, if lottery revenues are dedicated to education, the legislature then fails to increase budgeted spending for education. The result is that, a few years later, education is no better off financially than it was to begin with. What this does is to free up money in the state’s budget for other uses, which may or may not be worthwhile, but are almost certainly not as popular as education.

A complex mathematical analysis reported in the Winter 1997 issue of State and Local Government Review concluded:

In the years following the initial use of the lottery, the rate of growth in education spending declines. . . . This study indicates that states without lotteries actually maintain and increase their education spending more so than states with lotteries. . . [Citizens should recognize that claims that lotteries will improve education funding are likely to be as misleading as their odds of winning those lotteries are meager.]

Another problem for education is that lottery income is not a stable, predictable source of revenue. If the experience of other states holds up in North Carolina, lottery sales will drop off after the first months or years, as the novelty wears off or as players realize that they are losing half of what they bet. Florida, Georgia, Texas, and Virginia are among the southern states with a decline in lottery receipts in recent years. Virginia saw a decline of over 23%. Texas’ lottery revenues dropped more than a billion dollars from 1997 to 2000. Even Georgia, which only entered the lottery business in 1993, saw its ticket sales drop last year. What will North Carolina do if it funds More at Four or increased college enrollments using lottery money (as the Governor’s proposed budget does) and then revenues drop significantly?

The lottery creates a new tax, with a tax rate of 34%. It is ironic that legislators tout the lottery as an alternative to raising taxes and that many in the public are gullible enough to buy that argument. Supporters say that the lottery is not a tax because paying it is not mandatory. But the lottery tax is like the excise tax on cigarettes or beer. You can choose not to buy those products, but once you have chosen to make the purchase, you have no choice about paying the tax.

How sad that legislators (and the public at large) are not willing to pay for needed programs through a fair and equitable tax structure but prefer to impose a regressive tax that falls most heavily on those who are poor and those who are addicted!

Supporters’ Arguments

Lottery supporters make three arguments:

1. The lottery would provide needed money for the state. Proponents claim that the state would net at least $300 million in the first year of operation. While $300 million is not to be sneezed at, it should be remembered that the state’s budget for FY ’02-’03 will be more than $14 billion. And, unless the governor finds the votes to pass a lottery without a referendum, there would be no lottery revenue for the state until well into 2003. That means that legislators are going to have to balance the budget for FY ’02-’03 without a lottery windfall.

2. We’re losing too much money to adjacent states with lotteries. Proponents claim that North Carolinians spend $100 million annually on the Virginia lottery.

But, keep in mind two things. First, if North Carolinians are winning the Virginia lottery in the same proportion as are Virginians, $50 million of that money is coming back to our state as winnings. And, second, if North Carolina starts a lottery, it will contract with some company to handle the operation of the lottery. In other states, these contracts have been for tens of millions of dollars. Since none of these lottery companies is located in North Carolina, that money would go out of state just as surely as the money that benefits the Virginia lottery.

Finally, the argument about neighboring states is a two-edged sword. If North Carolina gets into the lottery game, it will still have to compete with other states for players, competition that would require more advertising and larger prizes, both of which could reduce the state’s anticipated lottery revenue. In fact, one of the reasons that several states are seeing a decline in lottery revenues is the near saturation of the lottery market.

3. It’s not really a lottery bill. It’s just a referendum bill. Several legislators are proclaiming, “I’m personally opposed to the lottery. I just think we ought to let the people decide.”

This argument, attractive as it may sound, misses two important points. First, it is the job of legislators to study issues and make choices, which are sometimes difficult, based on what they have learned. On most issues, that is what legislators want to do. On popular issues (such as universal health care) or controversial issues (such as abortion) or issues of long-term impact (such as public transportation), you will not hear legislators saying, “Let’s let the people decide.” Why should the lottery be any different?

Second, and perhaps more important, it is probably not within the General Assembly’s power to “let the people decide” on the lottery. The state’s Constitution is clear that law-making power is granted to the General Assembly. The Constitution specifies certain situations in which the General Assembly must refer matters to the people on a ballot (constitutional amendments, selling bonds). The argument being advanced by highly regarded constitutional lawyers (led by John Sanders of the Institute of Government) is that, absent constitutional authority to refer other matters to the people in a binding referendum, the General Assembly cannot do so. If a lottery referendum bill passes, it will surely face a challenge in the courts.

In fact, lottery proponents are now suggesting that a referendum, if they must accept one in order to get the lottery through the General Assembly, would only be advisory, not binding. The legislators would still have to come into session to pass a lottery bill.

The Lottery and the Bible

Biblical people might like to have a verse from the Bible that says “Thou shalt not gamble.” But that verse does not exist.

That is not to say that nothing in the Bible speaks to the question of state-sponsored gambling, such as the lottery. Consider at least the following principles:

· ultimate and complete trust in God, not in anyone or anything else, including Lady Luck.

· concern for the poor and condemnation of the rich who take advantage of the poor.

· protection of vulnerable people. In biblical times, that meant especially widows, children, and immigrants.

· condemnation of greed and materialism.

· concern for healthy families, strong marriages, and well-nurtured children.

Even without a “Thou shalt not gamble” verse, there is ample reason for people of faith to oppose a state-sponsored, state-advertised, state-benefiting lottery.

What to Do

Contact your state legislators (both senators and representatives). Tell them why you oppose the lottery and ask them to vote against it. Be sure that they know that your opposition extends to a lottery referendum.

If you don’t know who your legislators are, go to the General Assembly website <www.ncleg.net>. Click on “Representation,” then click on “Who Represents Me?,” scroll to the bottom, and type in your ZIP Code. Or call your local board of elections.

All legislators can be called through the General Assembly switchboard – (919) 733-4111. It is open during normal business hours.

To write them, you can use the following address:

Sen. (or Rep.) ________________

North Carolina General Assembly

Raleigh, NC 27601-2808

(ZIP Code for House is 27601-1096)

To contact by e-mail, go to the General Assembly website to get addresses. (Most follow the pattern <first name last initial@ncleg.net> but a few deviate from the pattern.)

It is quite possible that a lottery could come up soon, so do not delay communicating with your legislators. It is also important for you to spread the word to others who are opposed to the lottery.

Lottery supporters are well-funded. We rely on the deep commitment of a large number of lottery opponents. What you and others like you do can make the difference in keeping North Carolina out of the lottery business.

(Last updated May 27, 2002. For the most recent information, contact the North Carolina Council of Churches, 1307 Glenwood Avenue, Suite 162, Raleigh, NC 27605. E-mail: <nccofc@nccouncilofchurches.org>. Telephone: 919/828-6501.)

The State Lottery - 2002