While the Economy Busts, Lottery Sales Boom

Much like the economy, it’s more bust than boom for those playing the North Carolina Education Lottery (NCEL). Unlike the economy, however, bust is the normal state of affairs for lottery players—with slim statistical margins rarely yielding a winning ticket. However, that hasn’t deterred a strong uptick in lottery sales in recent years, with highest per capita sales emanating from poor rural counties.

Gambling is an industry that runs on hope. It is powered by the notion that with a lucky toss of the dice, one’s fortunes can be instantly reversed. FY 2010-11 audits reveal total lottery ticket sales topped $1.46 billion for the year, an increase of annual sales of nearly $400 million since the recession began in 2008.

While North Carolina prohibits most forms of gambling in the state, with laws that in some instances denounce the practice’s “destruction of morality,”[1] the state justified the lottery five years ago under the condition that a portion of its proceeds went towards education. North Carolina followed South Carolina and Tennessee in the early 2000’s, becoming one of the last states in the Southeast to set up an education lottery. Since 2006, annual ticket sales have increased by over $1.2 billion.

The lottery is in essence a voluntary tax, the purpose for which is to raise money for education programs. Such a tax is very useful for lawmakers. It is an effective way of bringing in revenue without angering the electorate like most conventional mandatory taxes.

The process is simple: take money from a large number of voluntary participants and distribute that money to the few lucky winners—and in the process, the state takes a chunk of the pie. North Carolina’s government retains about 30 percent of lottery sales, a relatively small slice compared to other states.  State governments in West Virginia and South Dakota hang on to 80 percent of their lottery proceeds.[2]

In addition to a revenue sharing problem, North Carolinians should be concerned with the source of its lottery revenue. Data over the last few years show the highest per capita lottery sales in the state don’t come from North Carolina’s wealthiest counties like Wake and Mecklenburg, but rather from poor rural counties in the Northeast, with Nash, Vance and Halifax topping the list. The ten poorest counties in North Carolina purchase on average 66 percent more lottery tickets per capita than the ten wealthiest counties.

Furthermore, data seem to show a higher amount of per capita lottery sales in counties with higher percentages of African-American populations, a statistic supported by national studies.[3] North Carolina, however, does not conduct studies as to the specific demographics of lottery participants.

Somewhat counter-intuitively, it seems the availability of lottery vendors doesn’t play a critical role in driving lottery ticket sales. Mecklenburg County has over one lottery vendor per square mile, yet has less than one third the ticket sales per capita of Hyde County, which only has one lottery vendor for every 356 square miles.[4] There is also a concerning risk of certain participants excessively playing the lottery. A Duke University study for the National Gambling Impact Study Commission found that five percent of lottery players accounted for 54 percent of total lottery revenue.[5]

Lotteries are now widely used revenue devices by all but a handful of states – a trend started by New Hampshire in 1964 which subsequently cascaded across the nation in the following decades.[6]

In North Carolina the state government’s share of lottery proceeds is divvied up among different programs including NC Pre-Kindergarten, public school construction, class size reduction, and financial aid college scholarships. In FY2011, North Carolina received $447 million in lottery proceeds to put towards these programs. The state’s lottery grew out of the mutual support of Speaker Jim Black and Gov. Mike Easley, now both convicted felons.

In its brief history in the state, the education lottery has proved useful for legislators in plugging  budget deficits. In FY 2009-10, Democrat legislators rerouted lottery funds to avoid laying off teachers. While the founding legislation explicitly states that proceeds are not supposed to supplant any state government expenditures, lottery revenue is currently included as an anticipated source of income to balance the budget. The state budget is counting on over $340 million annually in lottery revenue for the next two fiscal years.[7]

The decision to play the lottery is a personal one, enabled by our fundamental freedom of choice—including the freedom to make a bad decision with your money. Governments, however, have long been in the business of legally prohibiting certain types of bad decisions: drugs, prostitution, etc. Gambling is another form of bad decision that North Carolina statutes have denounced and prohibited, except in the case of the lottery. So long as the state government monopolizes the industry and gets a cut of the profits, this is one bad decision that North Carolina politicians can tolerate.

Sure, 30 percent goes towards education and local vendors get their cut, but the rest goes towards bureaucracy and operating costs—not to mention the handful of individuals who strike it rich and provide the hope that keep people (statistically speaking, the poor) coming back. In the process of raising money, the state has crossed into an area of moral contradiction and the outcomes are questionable.