In record $1.6 billion lottery, states not such big winners: experts

DENVER/CHICAGO (Reuters) - The fervor around this week’s $1.6 billion Powerball jackpot will feed annual lottery ticket sales worth tens of billions of dollars, but public policy experts estimate only about a quarter of that revenue will ultimately make it into state coffers.

The winning Powerball numbers are shown after being drawn at the Florida Lottery studio in Tallahassee, Florida January 13, 2016. REUTERS/Philip Sears

Forty-four states plus Washington D.C. and two U.S. territories sold millions of tickets ahead of Wednesday’s draw. It was the largest lottery prize ever offered in North America, and the biggest ever worldwide that a single ticket holder could win.

The record prize will be divided among three tickets bought in California, Tennessee and Florida, lottery officials in those states said. But the states themselves, where earnings from ticket sales usually go, have less reason to cheer.

Total U.S. lottery sales, boosted by advertisements highlighting how states spend the money on worthy causes such as education, topped $70 billion in 2014, according to the North American Association of State and Provincial Lotteries.

But research by the Rockefeller Institute of Government found that after prizes, administrative costs and other expenses are paid, the net revenue for state budgets amounted to only some $18 billion, or 26 percent of sales.

The institute’s researchers, Lucy Dadayan and Donald Boyd, said states typically allocate lottery revenue to the general fund or to dedicated funds targeted at specific areas such as schools, veterans’ affairs or the environment.

But, they said, legislators then normally decide how much of the lottery funds go to the dedicated programs, and often supplement funding for those programs with general revenue.

Therefore, higher ticket sales do not necessarily lead to increased state spending on those programs, nor do shortfalls in sales always result in lower spending on them.

“So while dedicated lottery funds to popular purposes may increase public support for lotteries, it doesn’t necessarily mean that spending on the dedicated purpose will be higher,” Dadayan and Boyd wrote.

In all three states where winning tickets were sold, lottery revenue is ear-marked for education.

As well as veterans and the environment, other states also set money aside for programs such as anti-drug task forces, treatment for gambling addicts, senior citizens, the homeless, and even juvenile detention facilities.

The picture varies from state to state. While lottery revenue accounts for an average of about 2 percent of state revenue overall, that rate fluctuates from more than 5 percent in states such as South Dakota, Oregon and Georgia, to less than 2 percent in more than 20 states.

Patrick Pierce, a political science professor at St. Mary’s College in Indiana, said there was also wide variation in how states handle the payment of lottery administration costs.

He argued the lottery was a “regressive” tax on society’s poorest, who studies have shown for decades buy the most tickets.

While the idea of funding college scholarships, for example, might be appealing, he said, those scholarships most often went to families who were already better off and better educated.

Pierce said lottery funds allow politicians to avoid having to argue for higher taxes.

“(Lottery revenue) enables members of state legislatures to shirk the tough responsibilities of actually governing their state and asking citizens to pay their fair share,” Pierce said.

Reporting by Daniel Wallis and Fiona Ortiz; Editing by Diane Craft