The Odor Around the Lottery

When North Carolina legislators by the narrowest of margins 10 years ago approved a state lottery, capping a long debate over the wisdom of state-sponsored gaming, they set aside warnings of a slippery slope.

Supporters maintained that our lottery would be, in effect, a lottery-lite. Advertising would be soft-pedaled so as not to pose irresistible temptations to prize-hungry players. Revenues would be used to enhance funding for education, not to replace money derived via regular taxes.

A lottery set up in that fashion would be a fun diversion for players who could afford to buy the occasional ticket and also would give the state a nice little windfall to spend on schools and scholarships. Or so the supporters argued. But it didn’t take long for the rules to be loosened.

Down the slope we headed. And we haven’t hit bottom.

The lottery’s ongoing structure – its menu of games, its advertising budget, the allocation of its revenues – faces tweaks that could be folded into the new state budget being negotiated (two months after the nominal deadline) by the Senate and House.

For those of us who all along have regarded the lottery essentially as an unfair tax on the poor, none of these changes would be for the better.

Instant action

Legislators have sought ideas about how to make the games even more lucrative for the state. In response, here’s some of what lottery officials came up with, as summarized by The News & Observer of Raleigh:

• Instant, Internet-based games that could be accessed on a player’s computer or smartphone. The Senate’s version of the budget anticipates about $64 million in sales from these “E-Instant” games.
• Video lottery terminals that would be cousins to slot machines.
• Terminals offering a “Club Keno” numbers-drawing game, targeted for restaurants, clubs and bars. The game would be patterned after Kentucky’s, which features a drawing every five minutes and is billed as “fast, fun, easy to play!”
• A boost in advertising, now capped at some $20 million a year. The Senate would raise that to about $30 million.
• Ticket sales at liquor stores, which are state-owned and county-run. It makes one wonder whether officials have data showing that drinkers are likely to be lottery players. And if so, why?

A well-known lottery industry phenomenon is that to keep the customers coming, games have to be kept fresh. Novelty makes them more appealing – and takes people’s minds off the long odds of actually coming out ahead.

Speaking of novel, the N.C. Education Lottery, as it’s formally known, is set to begin selling $2 tickets that, when scratched by the hopeful buyer, will emanate a whiff of something that’s supposed to smell like barbecue. Or at least barbecue smoke. Sounds like a harmless gimmick, except that a pleasant aroma won’t make the chances of winning one of the $25,000 top prizes any less daunting. The odds are pegged at 888,000 to 1.

Lottery officials also cite the popularity of digital devices in explaining why they want to expand into electronic, interactive gaming. Fair enough. But when the state has to keep coming up with cleverer and cleverer ways of convincing people to part with their hard-earned money, that amounts to a slippery slope almost by definition.

The lottery was enacted by a one-vote margin in the state Senate, after intense lobbying and amid some shady dealings that eventually landed some folks in court.

Among the opponents were both anti-gambling social conservatives and groups such as the Council of Churches, which focused on issues of equity and exploitation. Even though the lottery has to be rated a financial success – with annual revenues that have more than doubled to the range of $2 billion – the Council’s concerns echo today.

After all, who are the lottery’s best customers? The pattern is clear. Sales tend to be heaviest not in affluent neighborhoods where people have lots of discretionary money to spend on whatever kind of entertainment they choose, but in poorer sections.

Folks buying lottery tickets at inner-city convenience stores may be having fun of sorts. They also may be hoping to win a prize that could help pay that month’s rent or buy the next load of groceries. So the state is taking advantage of their neediness by offering games that, statistically, will end up putting the average player even further into the hole.

Tax shifts, revenue shuffles

When the lottery first came along, it brought pledges that the availability of a new revenue stream wouldn’t be allowed to erode the conventional tax base. That base in those days featured an individual income tax that was progressive in nature – i.e., top earners paid at a higher rate.

That was a fair approach. But the legislature led by conservative Republicans has switched to a flat tax whereby the same rate applies to everyone with taxable income. What’s more, the rate has been cut to a level that forgoes hundreds of millions in revenue that the state could be using to improve the state’s paltry pay scale for veteran teachers, for example.

It’s true that the lottery during the fiscal year ending June 30 pumped more than $500 million into various education programs. But when tax cuts are factored in, the picture that emerges is of a shift in funding – not, as originally promoted, an increase.

Republican legislative leaders continue to press for lower taxes, under the theory that lessening the tax burden on individuals and businesses is more important to economic growth than is a healthy portfolio of state programs and services aimed at boosting opportunity and quality of life.

At the same time, they seek even more revenue from the lottery. And they seek it by going to even greater lengths to convince folks to, in effect, tax themselves by buying lottery tickets that are calculated on the whole to be losing bets. So the tax burden continues to shift toward people who are less-suited to bear it.

The lottery exemplifies the cynicism at the heart of the legislature’s tax and budget policies. It’s probably too embedded in North Carolina’s system of public finance to be gotten rid of. But there’s still room to object to a greater reliance on lottery revenues to fund operations of government that should be raised from broad-based, fairly structured taxes. Barbecue scents aside, the lottery has a bad smell about it, as it did from the start. Let’s do what we can to keep it from getting worse.