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February 23, 2014

Powerball, Mega Millions give state budgets a lift

IOWA CITY, Iowa — The scores of losing players in last week's $425 million Powerball jackpot did more than take an extremely long shot at getting rich. Their ticket purchases also helped fund a small but increasingly important part of their states' budgets.

Changes in the nationwide Powerball and Mega Millions games have led to some of the world's largest jackpots in the last two years, boosting player interest and sales. Fueled by the growth of those games and the steady expansion of other offerings, many state lotteries last year reported record revenues and transfers to the state budgets and programs they helped fund.

For every $2 ticket, 50 cents or more might end up paying for police officers in Massachusetts, services for the elderly in Pennsylvania, or education in rural school districts in Idaho, lottery directors say. In all, about $20 billion out of the roughly $70 billion in overall annual lottery revenues is used by states after prize money, retailer commissions, advertising and administrative expenses are taken out. Most states target their lottery revenue to specific causes, with education being the most popular.

Texas Lottery Commission executive director Gary Grief said Powerball sales in his state multiply several times as the jackpots rise, from a normal range of about $3 million per week all the way up to 10 or 15 times that amount. That means millions more dollars for public education in Texas, the lottery's beneficiary, he said.

"That's a very small piece of a big pie, but every dollar counts," he said. "It helps alleviate the drain on other revenue sources for state government."

He and other lottery directors say that revenue from jackpot games still make up a small fraction of overall sales — instant scratch tickets remain their bread and butter.

Overall, state budget experts say lottery revenue typically represents a single-digit percentage of overall state budgets. That means a momentary sales frenzy for Powerball has little impact in the big picture, other than helping the lottery become a dependable and incrementally growing funding source.

"In the big scheme of things, we have a $16 billion budget in Oregon," said that state's chief financial officer, George Naughton. "The individual sales, the individual jackpots, do have an upward tick but it's probably not going to change from a revenue perspective the decisions that elected officials are going to make down the road."

Naughton said the lottery generates roughly $1 billion over two years to help fund education and other programs.

Critics say lotteries are a terrible way to fund state services. They argue that lottery tickets are heavily taxed since only a fraction of the money goes to payouts and winnings are taxed again. And they say the poor are more likely to play more often, making it a regressive funding source.

"This is going to help the states big time. There's no denying that," said Dawn Nettles, a lottery critic from Texas who runs lotteryreport.com, which tracks the industry. "But how many people are going to max out their credit cards?"

Supporters such as Grief say the lottery is voluntary, gives everyone a chance to dream big and avoids the need for tax increases.

Critics admit they have mostly lost the argument. Lawmakers across the country over the last three decades have opened and expanded lotteries. Forty-three states now operate them, while organized political opposition has largely vanished.

"The notion that any state would eliminate their lottery is just absurd," said Patrick Pierce, a political scientist at St. Mary's College and co-author of "Gambling Politics: State Government and the Business of Betting."

"States are looking for some quick money to stop the bleeding right now," Pierce said.

Increases in lottery revenues have helped maintain services in recent years during a tough time for state budgets, said David Gale, executive director of the North American Association of State and Provincial Lotteries. He said overall lottery revenues likely increased one or two percent in the budget year that ended last July, above the $68.7 billion of the previous year.

In Massachusetts, cities and towns benefit when sales spike because lottery revenues are among the state's "single largest source of unrestricted local aid," said Beth Bresnahan, executive director of the state's lottery. The money is divvied up based on a formula set by state lawmakers and used for everything from police officers to transportation, she said.

She said that during a December frenzy over the last large Mega Millions jackpot, retailers were selling $11,000 in tickets per minute — "and this was in a statewide snow emergency."

"When we see a surge in sales, it does impact the bottom line," she said, "regardless of the smaller amount of overall play it represents in our portfolio."

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