The Maryland Lottery

From Marc Korman:

Despite all of the talk about the slots constitutional amendment on the ballot this November, there has been little discussion of one of the state’s existing form of legalized gambling, the lottery (for information about another form of gambling in Maryland, reads the report on bingo machines in the Washington Post). Many of the concerns expressed about slots are intertwined with concerns about the lottery.

I have heard three major reasons to oppose slots:

First, slots are not a fiscally sound method of budgeting. When Moody’s released its latest report on Maryland’s bond rating last week, it specifically highlighted the problem of the state over estimating slot revenue. Governor O’Malley’s projection for slots is $550 million a year, largely based on recapturing Maryland players currently traveling to other states.

Second, slots are regressive in that they disproportionately affect the poor because it is expected that the amount they play will have a negative correlation to how much they can afford to lose. Gambling is, of course, addictive. As one State Senator put it to me, a slot machine is basically a “Skinner Box” that reinforces gambling through occasional rewards and makes certain the player does not lose too quickly.

Third, there are major special interests involved. These include major casino companies, which will probably push to expand gambling to different locations and different types of games in the years ahead. There are also built in payments to specific interests that may not be worthy of the dollars. The slots enabling legislation sets aside 7% of the slots revenue, up to $100 million annually, to the ‘Purse Dedication Account’ to increase the winnings at horse tracks. An additional 2.5%, up to $40 million a year for the first eight years of slots, is dedicated to the ‘Racetrack Facility Renewal Account.’

Of these three reasons for opposing slots, the first two also apply to the Maryland Lottery. The third is less of a factor due to the lottery being run directly by the state. But unlike slots, the Maryland lottery does not exist as some hypothetical windfall in the future. It has been a part of state budgeting for over thirty years and is much more difficult to take on. The Maryland State Lottery Agency generated $1.577 billion in fiscal year 2007. Of this, $494 million went to the state’s general fund and $21 million to the Stadium Authority. The remainder went to expenses, including pay-outs to lottery winners.

Despite these contributions to state revenue, the lottery is still not the most sound method of raising revenue. Lottery proceeds as a share of the budget have been declining for years from a peak of 8% of the budget to 4%. The New York Times also ran a comprehensive story last year on the failure of lotteries nationwide to live up to their potential for government revenue. Lottery revenue shortfalls have led to an increase in the type of games offered and the frequency of drawings. That is the same type of gambling expansion slots opponents worry will happen in Maryland slots parlors/casinos as the years progress.

The lottery is also regressive. In fact, I believe it may be more regressive than slots. A Washington Post poll in 2005 found that 37% of adults played the lottery within the past month and 19% of those spent $20 a month doing it. While slots will be limited to five locations around the state and will, in most cases, require a special trip, the lottery is everywhere. Gas stations, convenience stores, and other locations all around Maryland peddle the product. In poorer, urban areas, it is hard to walk a block without finding a place where lottery tickets are available.

There are ten different lottery games overseen by the Maryland Lottery Agency. Keno and scratch-off games allow immediate gratification and are always available. Lotteries involving number drawings occur, in some form, on a daily basis. Individual ticket prices vary from $.50 to $20.00 per play depending on the game. This is far less than would be spent on a single trip to the slots parlor. The difference is that people can purchase multiple lottery tickets on their way home from work every day. What they pay for each play of the lottery is less than they would pay each time they hit the slots, but the frequency with which they do it is much higher.

Is repealing the Maryland lottery realistic? Given the continued pressures on the budget and real needs in education, transportation, and other areas, the answer is no. But if slots are defeated in November, slots opponents should think about the Maryland Lottery before patting themselves on the back.