The Round-Robin of State Lottery Exploitation

Lotteries have been with us since the early years of the Republic. They were corrupt and a poor way to raise revenue then, and today they’re not much better.

Cohens v. Virgina, an 1821 Supreme Court case, concerns the sordid tale of the National Lottery, passed by Congress to raise funds for the beautification of DC and conducted by the city’s municipal government. The court was forced to intervene when unscrupulous agents sold tickets in Virginia contrary to state law. Even worse, the lottery never paid out after one of the agents absconded with the winnings.

In a depressing reminder that nothing ever changes, a recent article in Stateline reports that a statistically impossible number of convenience store owners and clerks have hit lottery jackpots. In New Jersey, half of the 20 most frequent lottery winners since 2009 are either retailers or their family members. Store clerks commonly cash winning tickets for a commission for those who owe back taxes or other debts, and some defraud customers (often elderly or unsophisticated) by shortchanging them on their winnings. As Richard Lustig explains in Stateline, “(The clerk) sees a $500 winning ticket, but says you won $20…He gives you $20 and then goes and cashes the ticket.”

It isn’t just retailers getting in on the fraud. In states that have turned to private contractors to administer their lotteries, the companies have failed to deliver on wildly exaggerated claims of revenue growth. Last year, former Illinois Gov. Pat Quinn was forced to fire Northstar, the firm operating the state lottery after it failed to deliver $400 million in promised profit over three years. Despite that abysmal track record, New Jersey Gov. Chris Christie hired the same firm to take over New Jersey’s lottery; unsurprisingly, Northstar New Jersey missed it’s income target by $55 million, and revenues were 7.9 percent lower compared to the same period the previous fiscal year (under state management).

Lotteries hang on because state officials claim that the proceeds go to worthy causes, such as schoolchildren, the elderly, or other feel-good state spending categories, never mind that it’s a bad bet for states to depend on the meager dollars of their most vulnerable citizens to fund crucial services like schools. And often, the money never goes to its intended purpose; one study found that states with lotteries increase education budgets initially but then decrease them later on by shifting general fund dollars previously earmarked to education to other purposes. Meanwhile, “states without lotteries increase their spending over time and end up spending 10 percent more of their budgets, on average, on education compared to lottery states.”

The combination of unscrupulous vendors and firms, waning public interest in lotteries, competition from casinos and other forms of gambling, and declining revenues have made many states desperate. State lotteries have boosted advertising budgets in the hopes of squeezing more dollars out of the 20 percent of customers who constitute 80 percent of lottery sales. They’ve tried publicity stunts like bacon-scented scratch-off tickets and mobile apps to reel in younger players. Apparently, it has occurred to no one that needed revenues can be raised in traditional ways, such as through progressive taxation that asks the well-off to pay their fair share, rather than relying on the destitute to shore up state coffers.

Unscrupulous agents may not be running away to an undisclosed location with state lottery proceeds as some did in one of the earliest state lotteries, but they are still an ill-advised way to raise reliable revenue.

As ITEP state policy director Meg Wiehe said in a recent MSNBC interview, “lotteries are highly unstable; they’re unsustainable, unpredictable, and frankly an unfair way to pay for public services.” It’s time our legislators found the courage to raise revenues in a responsible way, rather than resorting to gimmicks.