Like a Powerball player hoping to strike it big, politicians in Montgomery have visions of a financial windfall from a lottery.

And much of the public seems to support the idea.

But experts warn that while lotteries bring short-term gains, they diminish over time. And the burden falls disproportionately on residents with low and modest incomes. Those are the folks who buy the most lottery tickets.

Tea party activist Pete Riehm argues a lottery is essentially a tax – and a regressive one, at that.

“It’s a tax on an activity that’s not a positive activity,” he told FOX10 News. “You’re exploiting your people. So, I mean, is there a tradeoff because instead of using their money for solid things – they’re buying things, whether they’re opening new businesses or just buying lawnmowers – what are they buying? They’re buying a nothing.”

Lawmakers currently are considering two competing lottery bills – one that also would expand video gaming and one that is limited to paper lotteries only. The first would divide revenue between the General Fund and Education Trust Fund. The other one would pay back a state trust fund that lawmakers borrowed from in 2012 and then divide revenue between that fund and the General Fund.

Both could get hearings next week in the Senate Tourism Committee, but it’s unclear whether either will pass.

States without lottery

What’s not in doubt is that Alabama is an outlier. Later this year, next-door Mississippi will become the 45th state to offer lottery games. It has been 20 years since Alabamians last got a chance to vote for the lottery. In 1999, residents voted it down.

This time, supporters think it would be different.

“It looks like times have changed,” said state Sen. Greg Albritton (R-Atmore), whose district includes northern Baldwin County and all or parts of four others.

Since New Hampshire became the first state to legalize the lottery, states cumulatively have raised $579 billion. That is a lot of money, but experts caution that supporters sometimes inflate the benefits. According to the National Conference of State Legislatures, lottery proceeds account for just 1 percent of revenue, on average.

And revenue tends to level off after the novelty wears off, according to experts.

Diminishing returns

Census Bureau data show that states netted a little more than $23 billion in 2017. That was essentially flat compared to the year before, but 31 of 44 states saw declines.

Lucy Dadayan, who studies state-sponsored gambling for the Urban Institute, noted that most of the increases in recent years have resulted from new states jumping in – not steady increases in states with existing programs.

“The growth has been downward, and the industry – gambling industry – is trying to attract new customers into the market,” she told FOX10 News.

Dadayan said this effect can be seen with other forms of gambling, as well. After some states rushed to legalize sports better after a Supreme Court ruling, many saw disappointing results.

Rhode Island, for instance, actually lost almost $900,000 on sports betting in February. That largely was the result of many New England Patriots fans betting the region’s team in the Super Bowl, but other months also have failed to live up to expectations.

In four months, the state had made a $150,000 profit from sports betting – a far cry from the $23.5 million the legislature had budgeted to take in through the end of June.

“All sin taxes – and that’s what lottery is – tend to shrink over time,” said Matthew Glans, a senior policy analyst at the free-market Heartland Institute.

Glans said policymakers should tread cautiously.

“I don’t think it’s a good idea at all,” he told FOX10 News. “But if you’re going to do it, you’ve got to keep your expectations low.”

But pro-lottery legislators in Alabama maintain that they have no illusions about the limitations of gambling as a revenue source. Sen. Jim McClendon (R-Springfield) made that clear when he announced his bill.

“Please keep in mind, I am not offering my lottery bill to solve our financial problems,” he said.

“I’m offering this lottery bill so people don’t have to drive to another state to buy a lottery ticket. And we’re gonna make some money off of it.”

Albritton agreed. He said the experience of other states shows that lotteries often fail to meet lofty expectations.

“Those that desire the lottery has for decades been portraying it as the golden ring that you win. … The reality I’m going into this with is that the lottery will produce some money,” he said. “This is true. But it’s not gonna to produce as much as is needed. It’s not gonna produce to substitute anything. It’s not going to be a golden aspect at all.”

‘Only so many lottery tickets that can be sold’

The conservative-leaning Alabama Policy Institute, which played an instrumental role if defeating the lottery proposal in the 1999 referendum, put out a report this month raising concerns about relying on lottery revenue for critical government programs.

Phil Williams, director of policy strategy at the Birmingham-based think tank, told FOX10 News that he is “concerned with the government funding itself on a game of chance.”

Williams especially criticized McClendon’s bill, which he argued would expand so-called Class III gambling – aka slot machines.  

“API is opposed to any bill that portrays itself as one thing but is really another thing,” he said.

Williams said Alabama’s prospects are even worse considering there has been such a proliferation of gambling across the country.

“When you have a glut of something on the market, it dilutes the ability of any one thing to stand out,” he said. “Basically, there are only so many lottery tickets that can be sold.”

Supporters counter that Alabamians already are playing the lottery in high numbers – just not in their home state. It is foolish for the state to remain passive while that money goes to lotteries in Florida, George and Tennessee, they argue.

But Dadayan, of the Urban Institute, said that argument can apply to many things. People may cross state lines to play at casinos, or Alabama residents may move to Florida because the Sunshine State has no income tax.

“It’s not really about what your neighboring state is doing,” she said. “It’s more like looking at the bigger picture and seeing whether it’s a sustainable source of revenue for the state.”

All content © 2019, WALA; Mobile, AL. (A Meredith Corporation Station). All Rights Reserved.  

 

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