A Lottery for Tennessee? / #3
By: Rubel Shelly

Many people who plan to vote for the enactment of a state-sponsored lottery in Tennessee Nov. 5 intend to do so for economic reasons. We don’t have a state income tax, and all the polling data indicates the majority of our citizens are against such a tax. If a lottery is going to put money into state coffers, it just seems reasonable to think it is a good idea.

Since Tennessee is facing financial stresses, anything that keeps our money from going to Kentucky and Georgia – where Tennesseans can and do buy lottery tickets – has to be a good thing. Right? Creating a new source of state revenue would help all of us. So why not support it?

The truth is that a lottery in Tennessee will make it more likely that we will have a state income tax sooner rather than later. Here’s why . . .

Proceeds from the lottery proposed on the Nov. 5 ballot won’t go into the state’s general fund. That money will not build roads. It will not hire more police or EMTs. It will not reduce deficits. It will neither generate sales tax revenue nor be available to cover sales tax shortfalls. Net proceeds from the proposed lottery are earmarked for education.

But if the funds are put aside for education, doesn’t that (a) enlarge the state’s treasury at least indirectly by covering costs that otherwise would have to be paid from the general fund and (b) help our underpaid teachers and underfunded schools? Hardly!

Under specific provisions of the referendum, money derived from the lottery would be used for three purposes only: a new college scholarship fund, capital outlay projects for K-12 facilities, and special early-learning and after-school programs. Do you catch the significance of that? None of the money goes to teacher salaries, textbook purchases, or improvement of secondary school education. I think this is what many Tennessee citizens – including teachers who haven’t read the referendum – are expecting the lottery to do. It won’t. It can’t.

In 2000, Georgia netted only 29.6% of lottery revenues. Kentucky got only 27.8%. The people making money off existing lotteries are not states and scholarship programs but the gaming industry – and newly created members of the bureaucracy in the states that cast their fates with that industry.

States that legalized lotteries years ago for the sake of education now admit that they get practically nothing of substance from them. An editorial in the Naples Daily News (Jan. 18, 1998) chided Floridians for having bought into a lottery that offered “false hopes” to poor people and perverted the original stated intent of raising money for schools.

An article in Money Magazine (May 1996) claimed that, on average, lottery states collect more taxes from their citizens and spend less on their schools than non-lottery states. Since 1990, in fact, per capita taxes in lottery states have risen more than three times as fast as in non-lottery states. The piece was titled “Lotto Fever: We All Lose!”

Money put into lottery tickets is money that will not be saved, invested, or spent on consumer goods and services. Thus that money will not generate sales tax revenue. It will, however, require the creation of yet another expensive bureaucracy.

I don’t have a crystal ball, but my best guess is that the most certain way for Tennessee to make a state income tax necessary is to pass the lottery referendum.