So far, I’ve been pretty out front in saying that a state lottery is not a good idea. Again, it’s not really a moral issue I’ve been arguing from, but rather an economic one.
With the advent of Governor Bryant and a lot of House Republicans pushing for an up or down vote on a lottery, it seems that there are two issues that not many folks have been talking about. And make no mistake, there is a distinct majority of House Republicans who are koo-koo for Cocoa Puffs to have a lottery. From a public policy perspective, it looks like legislators are having about the same buyers’ euphoria to create a lottery as someone who plays has when they buy a ticket.
Issue 1 – Transfer Payments
Speaker Philip Gunn has been the finger in the dyke of the House in terms of a lottery, and he went on the Paul Gallo show on Supertalk on Thursday to lay out a pretty compelling case that, in theory, the lottery is just a transfer payment. Basically his argument was that lottery money is disposable income and that money that goes into a lottery essentially comes out of money that would otherwise be spent via consumer items subject to sales tax. As he pretty deftly made the point, you won’t find high volume lottery sales at the local Country Club or affluent suburbs. Lottery participation disproportionately comes from socioeconomically depressed areas. And unlike casino gaming, which has been a huge boom, lotteries have no history of creating jobs or wealth in any meaningful form. When someone goes to a casino, they’re entertained. Food and drinks are served. People are employed. Those casinos are huge economic engines for tourism in the areas they are located. Profits are made by the company and substantial revenues are generated by the state. Lotteries and casinos, though both involve games of chance, are apples and oranges from a public policy perspective.
Issue 2 – Math
Math is undefeated, so let’s look at it. Here’s a list of lottery revenues nationwide. Let’s look at our peer states of Louisiana, Arkansas and Tennessee. Louisiana, with a population of 4.65 million had receipts of about $351 million and a net benefit to the state of $131 million (a 37% payout). Arkansas, with a population of 3 million, had receipts of $362 million and a payout of $81 million (a 22% payout). Tennessee, with a population of 6.5 million, had receipts of $1 billion and a payout of $325 million (a 30% payout).
Mississippi has a population of 3 million. Let’s just say that every man, woman and child in Mississippi spent $75/year (a staggering sum when you think about it) on the lottery. That would yield gross lottery receipts of $225,000,000. Most lotteries offer about 62% payouts in prizes and average about 8% in administration. So that leaves and average take for the state of about 30%. That number in Mississippi would be $67.5M.
But remember, the $225M that was spent on lottery tickets wasn’t spent on consumer good subject to sales tax. So we have to remove most of that out of the sales tax equation. Mississippi’s sales tax collections is about $2.1 billion. So let’s, for argument’s sake, deduct $200M from what would be subject to Mississippi’s 7% sales tax. That’s $14M that won’t go to state and local governments as a result of the lottery. That should get backed out of the $67.5 million of “new revenue”.
That leaves a net resulting revenue from a very optimistic view of the lottery of about $53.5 million. That is the functional equivalent of giving a gorilla a Tic-Tac. $53 million is not going to fix budget woes – not by a long shot. $53 million is a rounding error in a $6.2 billion state budget.
Mississippi unquestionably has some fiscal issues and there are two ways you can deal with it – on the revenue side and on the spending side. Both are hard. The spending side in Mississippi’s case is likely the most glaring. We’ve been taking in more and spending more just about every year. The lottery issue seems to be a pretty populist excuse not to make hard budget decisions, and the economic impact would only stave that off for a short period, if at all. $53 million won’t in and of itself fix Medicaid, education, or roads, much less all three. It is a proverbial drop in the bucket.
Issue 3 – The “Liberty” argument
The final issue that I hear some conservatives getting on board with is the “liberty” argument. It’s the “if people want it they should have it.” Well, if we are going to have that argument, there’s a slew of things that would generate revenue if the state would back off. More liberal alcohol laws to allow the state to get different types of wine not carried through the ABC is one item. That would help the restaurant industry substantially. Continued deregulation of the craft brewing industry is another. And if you want to carry this all the way out to the extreme, legalizing marijuana goes straight into the liberty argument (and the economics are substantially more compelling than the lottery). I’m not advocating for that, by the way, but I will note that if economics is the issue, Colorado, with a population of 5.3 million took in over $200 million in legal marijuana revenues in what is a pretty nascent industry. That number will go up substantially over time.
My point to all of this is that there’s a lot of legislative hysteria building over a lottery, and I’ve yet to see anyone make a real math or policy argument for it. If this is a public policy issue that we are going to jump in with both feet, I’d at least like to see someone frame up what the economics are and make a real public policy argument that this is good for Mississippi. So far, not a soul has done that.