Dueling lottery studies | Arkansas Blog

Wednesday, June 25, 2008

Dueling lottery studies

Posted By on Wed, Jun 25, 2008 at 12:47 PM

Lt. Gov. Bill Halter's organization today distributed a report advocating his state lottery proposal, which directs proceeds to college costs. Using a surrounding state average, it predicts $100 million a year in revenue and insists it wouldn't be disproportionately paid by poorer players. It carries no author's name and little in the way of new information.

The release (probably issued today to steal a march on the following) prompted Arkansas Advocates for Children and Families to hurry up release of its own negative report on a state lottery. It puts revenues at $61.5 million based on three years of experience through 2006 in both border and states with similar demographic profiles, the guide being percentage of income spent on lottery tickets. It asserts, believably, that poor people spend a greater percentage of their income on lottery tickets than rich people and otherwise questions a number of the key points in the Halter organization's release.

One key difference: The Halter people, in claiming a rising tide nationally for lotteries, don't take into account the bump that six of 42 lottery states get from running video lottery terminals, nothing but a euphemism for slot machines. They will be legal in Arkansas under the lottery amendment, too, but it's a point that the Halter forces don't particularly like to talk about. See, the legislature will decide the fine points and we all know we can trust the legislature to do right. Right?


Lottery proponents today released a so-called study after hearing that Arkansas Advocates for Children and Families had planned to unveil an independent, data-driven analysis of the proposed lottery’s potential revenue.

We felt obligated to move our release up to counter their disingenuous statements. They are playing loose with the facts, for example:

Claim: “Low-income people do not fund a majority of lottery proceeds.”

Truth: Upper income families may contribute more in total dollars, but not as a percentage of their income. As a percentage of their family or household income, low-income families disproportionately pay for lottery revenues.

David Brooks’ recent column in the New York Times notes that a household with an income under $13,000 spends, on average, $645 a year on lottery tickets, which represents about 9 percent of their income: http://www.nytimes.com/2008/06/10/opinion/10brooks.html

That figure was taken from a new report, “For A New Thrift: Confronting the Debt Culture,” written by The Thrift Project and signed on by a diverse group of scholars and leaders.

For our lottery analysis, Arkansas Advocates for Children and Families relied on independent, empirical studies, none of which were paid for or produced by the lottery industry. To name just a few:

Clotfelter, C., & Cook, P. (1989). Selling Hope: State Lotteries in America. Cambridge, MA: Harvard University Pressj.

National Opinion Research Center (1999), “Gambling impact and behavior study: Report to the National Gambling Impact Study Commission,” University of Chicago.

Garrett, T. A., & Sobel, R. S. (2002). “State lottery revenue: The importance of game characteristics.” Federal Reserve Bank of St. Louis.

Kearney (2005); Price, D. I., & Novak, E. S. (1999). “The tax incidence of three Texas lottery games: Regressivity, race, and education.” National Tax Journal, 52(4), 741-752.

Stranahan, H. & Bord, M. O. “Horizontal equity implications of the lottery tax.” National Tax Journal, 51(1), 71-82.

Bowden, R. G., & Elrod, H. E. (2004). “State lotteries: Their effect on equal access to higher education.” Journal of Hispanic Higher Education, 3(1), 73-85.

Cornwell, C. M., & David B. Mustard. (2003, Fall). “Georgia’s HOPE Scholarship Program: Enrollment gains and lottery finance.” Insights on Southern Poverty, 1(3), 5-8.

Claim: According to the table on page 11 of their report, which looks at data from 2002 through 2007, all but one state had net increases in lottery proceeds.

Truth: The important point is not the increase from the beginning year (2002) to the ending year (2007), but year-to-year instability. Based on the data in their own report, 31 states had at least one year over the period in the table when revenues declined from one year to the next.  Twelve states had two or more years in which revenues declined from year to year. Twenty states had net declines just from 2006 to 2007.  It isn’t responsible to rely on an unstable revenue source for a critical service like college scholarships.

Claim: National, per-capita estimates of the amount of money that Americans spend on lotteries ($150 per month) could mean billions in revenue for Arkansas.

Truth: Our demographics are much different than the national average and it isn’t fair to use sweeping figures to estimate revenue in Arkansas.

We’re not New York or California and it isn’t honest to assume we can raise the same amount of money as much bigger states with much different demographic and economic characteristics. That’s why we didn’t rely on per-capita measures, but instead used percent-of-income measures because they better reflect the state’s wealth and the ability of Arkansans to buy lottery tickets.

For copies of the brief or press release, please visit www.aradvocates.org

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