Schools lose out in lotteries

Donald E. Miller
April 14, 2004
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Forty years ago, New Hampshire introduced the nation to a way to supposedly generate revenue for education without taxation. Since then, 39 other states and the District of Columbia have approved state-run lotteries ? and more are in the works.| Voters in Maine approved a referendum last fall after being promised that gambling revenue would be used for education. Currently, legislators are debating how to divvy up earnings from slot machines at the state's two racetracks.
| Pennsylvania's legislature is considering a proposal by Gov. Ed Rendell that would allow slot machines at the state's four racetracks. It is being sold as a way to generate revenue for schools.
| Similar proposals are pending in two other states ? Texas and Minnesota ? but a slot-machine plan in Maryland was rejected by legislators Monday.

Such proposals promise that education will benefit from wagering-generated revenue. Even some who consider gambling morally unacceptable lay low because they believe state-operated lotteries are financial windfalls for public schools. In fact, the New Hampshire Lottery's Web page contains a table showing the revenue it has generated for education each year since the lottery's inception: more than $856 million during those 40 years.

Cry for more money

But even as they enacted lotteries for education during the 1970s and '80s, states continued to cry out for additional educational funding. This was puzzling, given the supposed infusion of lottery monies. To clarify why, political science professor Patrick Pierce and I reviewed education spending from all states for the 25 years from 1965 to 1990. During this time, 12 states enacted lotteries for education. We found that states generally increase annual education spending about $12 per capita before a lottery is adopted. In the first year after beginning a lottery, states increased their education spending by almost $50 per capita.

Sounds great, doesn't it?

But after the first-year surge in spending, the annual rate of change in educational spending in a state with a lottery dropped sharply. Rather than increase education spending by $12 per resident every year, these states' spending went up only $6 per capita. In a few years, the initial flush of lottery funds into a state's education programs had been eaten up, and the state lagged those that didn't rely on lottery-generated education funds.

Consider the Ohio lottery. Before it began in 1975, Ohio had $11-per-capita annual increases in educational spending. The first year, the state's lottery for education pushed that annual increase up to $26 per capita. After the initial surge, however, the annual per-capita rate of increase sank to less than $7.

Replace rather than add

The problem is not that lotteries are going belly up. In most states, lottery-generated revenue has continued to grow. But the politicians couldn't resist using lottery funds to replace rather than add to existing sources of education funding. Governors and legislators then used money that once had been earmarked for education on tax cuts, new programs or debt reduction ? but not for schools.

To keep politicians' hands off lottery education funds, Georgia approved a lottery only after creating education programs that would be funded solely with lottery revenue. That makes it clear exactly how much lottery money is being spent on education.

In 2002, the nation wagered $68.7 billion legally. State lottery sales alone accounted for more than $42 billion of this, netting state governments nearly $14 billion. These activities can only be expected to grow as states seek revenue to fund services without increasing the tax burden on citizens. The magnitude of funds generated through gambling makes it important that state governments be held accountable for what happens to these "voluntary taxes."

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