Lotteries Spread, But Policy Jackpots Elusive
By Pamela M. Prah, Staff Writer
Lotto fever is catching among states seeking to cash in on the popularity of this form of gambling and bolster near-empty coffers. But these politically popular games of chance don't always perform as advertised for programs earmarked for funds, such as education.
Thirty-nine of the 50 states run lotteries at present and that number is about to grow. Voters in North Dakota and Tennessee approved lotteries in last year's elections and ticket sales are expected to begin in those states within a year. Oklahoma could be next on the bandwagon. Alaska, Nevada, North Carolina and Wyoming also are eyeing lotteries.
But experts say a lottery isn't the quick fix for state budget problems that advocates often sell it as being. "Sometimes lotteries are touted as big money-makers for [financing schools], but they produce only a small percentage of the entire education funding," said Molly M. Burke, a researcher with the Education Commission of the States, a Denver-based group of state education officials and experts.
Of the 39 states with lotteries, 22 earmark the proceeds for education, according to ECS.
Illinois, which mandates that all lottery profits be used to support education, is a case in point. Though lottery sales amounted to $1.59 billion in fiscal 2002, education got only $555 million, according to the state. That represents about 7.7 percent of the state's contribution to public education. When Illinois education funds from all sources are taken into consideration -- federal, state and local -- it's only about 3 percent of the $18.6 billion spent each year.
"It's not a huge revenue source for the states, although giving that up wouldn't be fun, you'd have to get it from somewhere else," said Michael McLaughlin, editor of Insight, published by the North Carolina Center for Public Policy Research. The Tar Heel state is among states without lotteries, although North Carolina Gov. Michael Easley (D) called for one in his State of the State address and urged lawmakers to earmark it for education.
States that reserve lottery profits for education don't show a significant change in education spending after instituting a lottery, said Thomas A. Garrett, senior economist at the Federal Reserve Bank of St. Louis. "The level of education expenditures after a lottery is no different than before," Garrett told Stateline.org.
In addition to Illinois, nine other states earmark 100 percent of lottery proceeds to education: Georgia, Michigan, Missouri, New Mexico, New York, Ohio, Texas, Vermont and Virginia, according to ECS.
"Those who thought that the lottery was going to be a boon for schools found out that wasn't the case," said Joshua Hall, director of research for the Buckeye Institute for Public Policy Solutions, a think tank in Columbus, Ohio, that analyzes state and local government programs, taxes and regulations. The end result, he said, is that lawmakers shift money that would have been used to fund education and put it elsewhere.
Another problem is that no one really knows, from year to year, how much lotteries will yield, said Scott Young, an education expert at the National Conference of State Legislatures. "The fluctuations from lottery revenues can be quite dramatic, certainly more so than property taxes," he told Stateline.org.
Ohio is running $26 million below estimates for lottery profits for the fiscal year, but the year doesn't end until June 30, so there is still time for profits to pick up, said Ohio Lottery spokeswoman Mardele Cohen.
In some states, lotteries fund programs that become so popular they are almost untouchable. In South Carolina, state budget writers had to drop plans to eliminate the popular lottery-funded HOPE college scholarship program after an outcry from parents, students and colleges.
Despite lotteries' uncertain payoffs, they are a hit with lawmakers who see throngs of constituents head to neighboring states to buy lottery tickets.
"That little one-dollar purchase was driving [North Dakotans] across our borders" to states that did sell lottery tickets, state Rep. Andrew Maragos (R) told Stateline.org Maragos introduced the legislation that North Dakota Gov. John Hoeven (R) signed this month that allows the state to join Powerball, the multi-state lottery game.
North Dakota, like all states that join Powerball, can spend the revenues in any way they chose. For every $1 spent on Powerball, half goes to prizes and the other half goes to the 23 states that participate, said Joe Mahoney, a spokesman for the Multi-State Lottery Association. In North Dakota, proceeds are not earmarked for education, but Rep. Maragos said he believes revenue will be split between education and medical and other services for the elderly.
In Tennessee, lawmakers and Gov. Phil Bredesen (D) continue to bicker over who will sit on the lottery board. Once in operation, Tennessee's new lottery will fund college scholarships.
In Oklahoma, lawmakers are set to submit the idea of a lottery to a statewide vote. If approved, proceeds would go to education, including college scholarships.
"I wouldn't be surprised to see those states [without lotteries] pass lottery measures just because states are certainly searching for new and additional revenue streams with the tough budget conditions that they are facing," NCSL's Young said.