Gov. Arnold Schwarzenegger's plan to balance the budget by borrowing against future lottery earnings has the potential to stave off the state's budget crisis -- but at what cost?
In 1984, California voters approved the creation of the lottery based on the promise that it would help fund schools. The governor's new proposal, which requires legislative and voter approval, would issue bonds backed by future lotto revenue -- in other words, sell off future lotto revenue for a one-time payment. A portion of the money would cover the budget shortfall, with the rest put in a rainy-day fund. If the lottery sale fails to raise enough cash, however, the governor proposes automatically raising the state sales tax from 6.25% to 7.25%.
Financial analysts debate the lottery's fair market value, but everyone agrees that the success of Schwarzenegger's plan hinges on how many people play the lottery. Simply put, more people gambling equals more money.
But the lotto picture isn't pretty. This week, the California Lottery lowered its revenue expectations by 8% for the fiscal year ending June 30. Private equity will not be interested in a depreciating asset, so the second part of the governor's plan is to modernize lottery games to pique players' -- and Wall Street's -- interest. Proposals include bigger payouts, new blackjack and poker-style games, online games and higher-dollar Scratchers.
So, the governor's plan to pay for the state's irresponsible spending rests, ironically, on getting Californians to spend more irresponsibly.
Lawmakers should immediately reject this ill-conceived gamble-or-tax scheme. The lottery's regressive nature, long-term societal costs and perpetuation of financial myths make it a guaranteed loser.
We've known for a long time that state lotteries expand at the expense of those who can least afford it. According to a national study by Duke University in 1999, households making less than $25,000 a year spent roughly $1,080 a year on lottery tickets, by far the most amount for any socioeconomic demographic. In comparison, households making between $50,000 and $100,000 spent $495. The numbers are even more staggering viewed this way: Low-income households spend up to 10% of their income on lottery tickets, compared with less than 1% for wealthy households.
