RALEIGH – Here’s a shocker. State legislators who for years argued that North Carolina should adopt a state-run lottery because neighboring states already had lotteries are now arguing that North Carolina should tart up its lottery because neighboring state lotteries have more seductive advertising and odds of winning.
Observing that North Carolina’s lottery would likely fall some $75 million below expectations in its first full year of operation, Sen. Tony Rand and other lawmakers are talking about upping the percentage of revenue devoted to prizes, which would make the game more competitive with nearby lotteries. That means that the percentage going into state coffers would go down (don’t expect administrative costs to shrink much, as discussed below) but advocates of the change argue that a smaller share of a larger take would be better for the state treasury that a large share of a smaller take.
What, a supply side argument? I didn’t think they understood the concept.
The General Assembly can’t say it wasn’t warned about the likely revenue flows. As my colleague Roy Cordato observed the other day in the staff blog, The Locker Room, JLF analysts constructed a model back in 2001 that (when adjusted for inflation) accurately predicted today’s lottery revenue. To obtain this prescient number, we used average lottery performance from a number of comparable states but adjusted for a number of factors, including the somewhat-inflated revenue numbers in lottery states with non-lottery neighbors. Apparently, North Carolina officials used a far-cruder tool. Now, “surprised” and all that, they want to rewrite legislation less than two years old, and stained by the grasping hands of a former speaker who is about to be a current felon.
Another proposed change you’ll hear about involves advertising. While finagling votes for the lottery bill back in 2005, Speaker Black promised reluctant House liberals that North Carolina’s game would be different, that it wouldn’t resort to the kind of televised pitches and misleading claims that other states used to entice the less-astute of their citizenry to play a fool’s game. That was back when some people believed the words coming out of his mouth. Even if he meant it, which is hard to believe, the introduction of more lottery advertising was inevitable, as we pointed out at the time, especially given the expectations set by overly ambitious lottery projections.
My preference, naturally, would be to rewire the lottery legislation so that it self-destructs in five seconds. Failing that, I think it’s a bad idea either to increase the payouts or expand advertising expenditures. If North Carolinians are exercising more good sense than their political leaders anticipated, and spending their money on goods and services they enjoy (including gambling alternatives with better odds), I’d rather state government not attempt to change their minds. This was always the problem with getting government involved in the gambling business. It is a business. There are competitors. To attract and maintain clientele, you have to be nimble, aggressive, and persuasive. As a taxpayer and voters, I’d rather not be forced to associate with a nimble and aggressive government trying to persuade residents to gamble.
If lawmakers want to rewrite the bill, a better idea would be to change the revenue allocation to dedicate all net proceeds to school construction. In the meantime, the lottery is improving education in North Carolina in at least one way: it’s teaching our public officials about statistics and business models.
Hood is president of the John Locke Foundation.