Another state's lottery offers sobering lessons for Texas
BY MIKE THOMAS
"Gambling is actually the most regressive form of taxation that can be devised. It is designed to pick the pockets of the poor," — late Texas Congressman Wright Patman
Branford, ConnecticutONE MORNING ON my way to work I pulled into one of those tiny gas and food stores. At $1.26 a gallon they seemed to have the cheapest gas in all of New England. After filling up I walked into the cluttered little store and saw a girl behind the counter busily scratching with a coin at what looked like a football ticket. "What is that?" I asked. A little embarrassed, she explained that it was an instant lottery ticket. The ticket had "Classic Connecticut" printed across the front of it with a picture of the historic old statehouse building in Hartford. "I never win anything," she said. "I don't know why I keep playing, but there is another girl who works here and she won $1,000 once." "I just moved here from Texas," I said. "Texas doesn't have a lottery. How much are those tickets?" "One dollar," she said. I paid for my gas and left.
Connecticut has been running its state lottery for more than 18 years now. The Division of Special Revenue, which oversees all of the state's gambling operations, reports that the lottery has grossed more than $4.1 billion since its inception. Approximately $1.7 billion has been transferred to the state's treasury. But despite this "easy" money, Connecticut faces a budget crisis even worse than the one in Texas. Connecticut's projected budget deficit is over $3 billion.
It's hard to find lottery tickets in the wealthier parts of Connecticut, but when you go out into the poorer areas then suddenly every little run-down gas station, liquor store and grocery mart has a sign in its window that proclaims, "Connecticut Lotto — You Can't Win If You Don't Play." Of course, you can't lose either, and that is what most lottery players do most of the time. According to ConsumerResearch magazine, lotteries have the lowest odds of winning of any form of gambling. State lottery officials report that the odds for winning something in the lottery are one in 30, but these are the odds for winning the smallest and most common prize of $3. A person who plays the lottery on a regular basis will likely spend a $3 prize on more lottery tickets. To win the really big money, the odds are more like 13 million to one. Since most people can't make sense of odds that high, lottery critics once tried to point out that by comparison the odds of a person being killed by a bolt of lightning are only 400,000 to one. The lottery industry later made light of this information by making a commercial in which an actor is struck by lightning right before winning the big jackpot.
Last April a man in South Windsor, Conn., won $3,600 in the lottery. The local media went out to interview him as they do every person who wins a big lottery prize, but instead of finding the typical happy, giddy winner, they found that this man was bitter and angry. It seems that he had been playing the lottery for 10 years and he had a habit of always throwing his losing lottery tickets into a crumpled paper bag. This was the first time he had ever won a substantial prize and out of curiosity he decided to go back and .see how many losing tickets he had collected. There were 10,000 of them. He said he felt like a sucker. Every outlet that sells lottery tickets is set up with an on-line computer terminal, which is hooked into the main lottery computer system and allows the state to keep track of when and where every ticket is sold and announce simultaneously to every distributor what the winning numbers were. These computer systems are made by companies like G-tech of Rhode Island and Scientific Games, a subsidiary of Bally Manufacturing of Atlanta. It is no accident that these same companies are also the biggest lobbyists for the expansion of lotteries into non-lottery states like Texas. Pro-lottery companies have hired some big-name political figures, such as former Lt. Gov. Ben Barnes and former state Sen. Kent Caperton, to press their case at the Capitol.
In 1977, Connecticut commissioned Mark Abrahamson, a sociology professor from the University of Connecticut, to study the state's gambling operations. Abrahamson's study found that most forms of legalized gambling, including the lottery, were largely ignored by persons with college degrees and yearly incomes in excess of $25,000. Abrahamson concluded that Connecticut's state lottery "primarily attracts poor, long-term, unemployed and less-educated participants. It generates revenues in a regressive manner and should be discontinued."
The study was not well-received at the state's lottery bureau, and John Winchester, the lottery director at the time, wrote a 25-page rebuttal that harshly criticized Abrahamson and his study, which was for the most part ignored by the state's legislature. A few years later a new study was commissioned, this time to be carried out by Economics Research Associates of Los Angeles, a company which had done many similar studies for other states with legalized gambling operations. That study whitewashed most of the concerns brought out in Abrahamson's study.
GAMBLING IS STILL controversial in Connecticut, but not the lottery. The lottery has become matter-of-fact, commonplace and ingrained into society. Lottery revenues long ago were absorbed into the state's bloated bureaucracy and now the state is hungry for more. The question of right or wrong has long been forgotten and the only issue now is how much money can be made. The state legislature wants to ban out-of-state lottery ticket sales for fear they will cut into the Connecticut lottery's gross sales. Several legislators are sponsoring a bill that would allow a South Carolina-based company to set up video slot machines across the state with the assurance that the state will get a 33 percent cut estimated at $64 million per year. Several jai alai frontons are located around the state where people can bet on games. One in Bridgeport isn't doing well, so its owners are seeking permission to convert it into a dog race track. There also are several off-track betting parlors where people can go to bet on out-of-state horse races and watch them on a large video screen. The biggest controversy has been over the efforts of the Pequot Indian tribe to build a gambling casino on their reservation in Ledyard.
In 1989 Duke University economists Charles Clotfelter and Philip Cook, in a book entitled Selling Hope, criticized the lottery as an inefficient way to raise revenue. They pointed out that while traditional taxes cost only one or two pennies per dollar to collect, lotteries can cost up to 75 cents per dollar of revenue raised. For each dollar spent on a lottery* ticket, 40-50 percent goes to prizes while 10-25 percent goes to administrative costs, vendors' fees, advertising and promotional campaigns.
Lottery proponents argue that the lottery is a form of entertainment and not a tax, and therefore should not be judged on that basis. However, state governments usually begin to rely on lottery revenues as a substitute for other forms of taxation and thus its fairness and efficiency as a tax merits serious attention.
THE BIGGEST PROBLEM WITH the lottery from the state's point of view is that people tend to lose interest in it after a while. They require constant prodding by slick advertisements and promotional campaigns to continuously support the lottery at the level required to keep it profitable. This means that the state cannot simply make the lottery available to people who would be likely to gamble anyway. Instead it must aggressively market the lottery to people who otherwise would not normally choose to gamble. Connecticut now spends more than $12 million on its lottery ads, and the figure continues to climb every year. The 33 states with lotteries as of 1990 were spending more than $600 million a year combined on lottery. promotions.
The state of Connecticut, like most states with lotteries, hires major advertising and marketing firms to push its lottery. The same people who normally sell soft drinks and laundry detergent become pitchmen for the government. They know who their potential customers are and the ads are targeted accordingly.
A recent TV ad featured two elderly gentlemen sitting in a diner, drinking coffee. The first man has a pile of instant lottery tickets and is busy scratching them off while the second man acts uninterested. The first man then asks his friend if he plays and the second man replies "no" with just a hint of disdain in his voice. So the first man gives his friend one of the tickets from his pile, saying, "Here, try one of these. It's the new Classic Connecticut Instant Game." The second man scratches the ticket as the first man gets excited and says, "See there, we have a winner!" The second man replies, "What do you mean, `we?"' as he tucks the ticket into his shirt pocket. Besides promoting greed and selfishness, the ad implies that finding a winning ticket is very common. Nowhere in the ad are the odds displayed. A survey conducted by Clotfelter and Cook found that only 12 percent of lottery radio and TV ads reveal the true odds of winning. The underlying message of the ad is that people who do not play the lottery are missing out and therefore are behaving foolishly.
As a state's need for more revenues increases, the ads for lotteries become more desperate. One Connecticut TV ad showed an elderly gentleman explaining that he had won a million dollars by investing his money into lottery tickets rather than saving for his retirement. An ad for the New York lottery showed a woman telling her daughter she would not have to worry about getting a scholarship for school because Mom was going to win her college tuition money by playing the lottery. There was even a protest in a Chicago neighborhood when a billboard was put up urging the poor, black residents to get off of Washington Street and move up to Easy Street by playing the Illinois lottery.
Without these advertising blitzes lottery sales tend to drop off sharply. Thus states that rely on lottery revenues find themselves trapped in a paradox pointed out by Clotfelter and Cook: "Here you have the same outfit that is trying to educate our children selling images and hyperbole rather than factual information and telling the public: 'Play your hunch, you could win a bunch.'" While the states might be desperate for the revenues lotteries can produce, the people on whom they prey are often even more desperate, down to the homeless people who collect and sell bottles and cans to make money to purchase lottery tickets.
LAST YEAR, CONNECTICUT'S lottery produced a record $525 million. Sales are down slightly for this year, which a state gambling official blamed on the recession. "The average person who plays our lotto products is a blue-collar worker," said Bruce Cowen, chairman of the state Gaming Policy Board, in a recent newspaper interview. "When they're collecting unemployment checks it's a little tougher to get people to buy lottery tickets." But he predicted another record-setting year in 1991.
People who believe the lottery is the best way for Texas to solve its budget problems and avoid an income tax should take a close look at Connecticut. Here you have a state suffering through one of the worst recessions in years, struggling to pay off the biggest budget deficit in the state's history at the same time the lottery is raking in more money than ever. But it has not helped the state avoid a major budget crisis. On Sept. 1, 1991, Connecticut began levying its first-ever personal income tax.
Former Texan Mike Thomas is a writer who lives in Connecticut.
MIKE THOMAS Bushy Hill Market in Branford, Conn. — one of about 2,600 lottery agents with an on-line system