Uncertain times | Arkansas Blog

Saturday, October 17, 2009

Uncertain times

Posted By on Sat, Oct 17, 2009 at 6:34 AM

How can the state not revise its revenue estimates with double-digit monthly shortfalls in tax revenue?

The holiday season will be an uneasy time for state employees. The legislature demonstrated high optimism in budgeting 3.8 percent pay raises for state employees for each of the two-year biennium back when times seemed relatively flush, so much so that Gov. Mike Beebe saw no problem in a further tax cut on groceries. But, of course, the second year was only an estimate and the state is already spending from reserves to balance the budget. The official spending next year will be the work of the first constitutionally mandated fiscal session in early 2010. Will that pay raise survive?

Lottery foes have begun to suggest that lottery spending is a contributing factor to the state revenue decline. It's a theory with some surface appeal, but it needs some careful analysis. 75 percent of the ticket purchases continue to circulate in the economy -- lottery salaries (thank you Ernie P. for your support), commissions to retailers, payments to vendors, spending by winners on things other than lottery tickets.  The amount that will reach college students is nothing less than a 25 percent state tax on the lottery for scholarships and that money certainly will circulate in the economy.

What if $400 million in lottery sales went wholly for taxable groceries? That would be $12 million in sales taxes. About double that if every dime bought a new car instead. A chunk of change, but not a life altering amount on a $6 billion state budget. Also, absent the lottery, not all the alternate spending would be in taxable transactions.

Surely, with the rich lottery experience in the U.S., somebody has studied this question of net impact of lotteries on state revenue. Let me know if you find anything, readers.

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