Pennsylvania and New Jersey Aim to Amplify Biggest Losers

Why privatizing the lottery is a mistake.

“Where the lottery was concerned, even people who could barely read and write seemed capable of intricate calculations and staggering feats of memory.” — George Orwell, 1984

The latest budget gimmick coming from state lawmakers across the country is the lame idea to privatize the lottery. Of course, this is a mistake that will likely end up costing taxpayers more money in the long run. But don’t tell that to the elected officials who seem hell-bent on trying to gamble their way out of budget problems.

Gov. Christie and Gov. Corbett are just two of the latest leaders looking to privatize the lotteries in New Jersey and Pennsylvania. Ohio, Oklahoma, Washington and a number of other states have also discussed turning over the lottery to private operators. The moves are all about generating more revenue for state coffers.

Since when did gambling become a worthy public policy? Casinos and lotteries are not economic development. State leaders take an oath to protect their citizenry, not entice them to gamble away their hard-earned money in order to fund the government bureaucracy.

Illinois became the first state to privatize the lottery. Of course, the contract was given to a company with deep ties to the state lottery. Giving the lucrative lottery contract to a connected firm would never happen in Harrisburg or Trenton, right? The potential for corruption or cozy relationships when it comes to awarding the lottery contract is a big reason why privatizing the operations is a bad idea.

In Illinois, the plan calls for the private company to generate $4.8 billion in net income over five years. That is $1.1 billion more than the state expected to generate during that time. If the private firm meets that goal it stands to pocket $331 million.

There is nothing wrong with the government looking for ways to increase efficiency and generate more revenue in most departments. But the lottery is a different animal. When it comes to generating revenue through gambling, should the goal be to maximize profits? (Disclosure: I edit a gambling blog and think gambling is a bad way to fund the government.)

Lotteries rely disproportionately on older and poorer players. In fact, there are often more lottery machines per capita in lower-income areas. Once a private operator takes over the lottery, it is a good bet the poor will end up even poorer. A private operator will be more aggressive about enticing new and existing gamblers to spend more money on the lottery.

That will likely mean more marketing, more retail outlets, more new games, and probably a push to sell tickets online. There will also likely be an increased effort to attract younger gamblers. The likely result will be a sharp rise in the number of problem gamblers, and less disposable income to spend on other goods and services. States don’t have much concern for problem gamblers as it is. Once a private operator takes over, look out.

Expanding the lottery to private operators may provide a short-term increase in revenue but it will likely lead to higher costs from social ills. That’s the last thing Philadelphia or Camden needs.

All for what? In the end, the increased lottery revenues do little to help states with their budget problems. The Nelson A. Rockefeller Institute of Government found that “new gambling operations that are intended to pay for normal increases in general state spending may add to, rather than ease, state budget imbalances.”

In California, the lottery was expected to boost funding for education. But years later the lottery contributes less than two percent to the education budget. In Florida, the lottery provides less for education, after adjusting for inflation, than it did 10 years ago.

The Citizens for Tax Justice said adding more lottery games is a “case of diminishing returns.” Stephen Carter, a professor at Yale Law School, questioned why states are allowed to hold a monopoly on a business that profits by getting “the suffering to part with their money in the hope of a munificent return they are all but certain never to see?” Rather than contract out the lottery, Carter asked the right question: “Why is the government in the lottery business at all?”

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