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A state lottery could help Alabama get its financial house in order

Apr 20, 2015, 9:15 pm

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Fifty years ago, lotteries were illegal in every state, but they have proven so lucrative and politically irresistible that 44 states have since started selling tickets to the lottery. In 2013, state-run lotteries brought in $62 billion, which amounts to $257 in sales to every adult in the nation.

Six stubborn holdouts remain. Alaska and Hawaii are isolated enough that they do not feel pressured by sales from their neighbors. Nevada and Mississippi have gambling lobbies that don't want a state lottery encroaching on their turf. Mississippi, Utah and Alabama have strong religious constituencies that do not want their flocks led astray.

Until last year, Wyoming, too, did not have a lottery. But lawmakers were concerned about all the money their residents were spending in next-door Idaho to buy lottery tickets. "This is a way to keep Wyoming money in Wyoming," Gov. Matt Mead (R ) said at the time. Lottery proponents also hope to attract customers from nearby Utah, which continues to abstain.

Alabama might be the next to break down and start a lottery. For years, it has used loans, savings and one-time windfalls to balance its budget. Now it faces an intractable $200-300 million shortfall — a $700 million shortfall if all the borrowed money is thrown into the calculation.

"We knew this day was going to come. We knew this crisis was going to take place, and it's here," Gov. Robert Bentley (R ) said in a speech Monday morning.

Bentley has drawn criticism from his own party over his proposal for a $541 million tax increase, largely paid for by increases in the cigarette tax and the auto sales tax. So far, the Republican-controlled legislature has resisted his demands for new revenue. They are asking state agencies to submit plans for budget cuts in the vicinity of 15 to 30 percent.

Democrats in the state have come up with a third solution. A lottery, argues Rep. Craig Ford (D), could put a huge dent in the state's budget problems — bringing in perhaps $280 million a year. Alabama Democrats have been proposing lottery legislation for years, but this time is different. The situation in Alabama is dire enough that a top Republican has added his name to the bill as well.

"We're just looking at anything to raise funds," Rep. Steve Clouse (R) told local papers. Clouse chairs the state's General Fund Committee, which handles all spending except for education, which is paid for out of a separate budget. Earlier this month, Clouse endorsed a lottery bill that would earmark the money for the state's strained Medicaid program (which has not taken federal Medicaid expansion money).

These debates are déja vu for many Alabamians, who remember a similar battle 15 years ago when the state nearly got the lottery.

The lottery is a divisive issue, but it cuts through constituencies in funny ways. In the South, the chief opponents are religious groups, who say that gambling is immoral — and moreover, it preys on the poor. Proponents tend to be Democrats, who focus on all the good that the lottery money can do — paying for schools or scholarships, for instance. [Editor: This commonly-held belief about political stances is actually a myth, as many high-profile liberal personalities have been quite vocal in their opposition to state lotteries.]

Versions of these arguments have echoed for centuries. In fact, some of the oldest lotteries in America also raised money for education. In the 1700s, the Massachusetts legislature allowed Harvard to run lotteries to fund dorm construction. Yale, Columbia and Princeton did the same. Later on, lotteries would also help raise money for troops during the Revolutionary War, and after independence, they paid for roads, canals and other public infrastructure.

A series of lottery scandals, combined with the growing social reform movement, prompted most states to outlaw gambling in the mid-1800s. (Much of it continued in illegal form.) The last legal lottery, licensed by the state of Louisiana, shut down in the 1890s in a stink of corruption. By then, the federal government had also banned lottery tickets from being shipped across state lines or mailed anywhere.

States wouldn't return to the idea of lotteries as revenue sources until the second half of the 20th century. In 1964, New Hampshire began selling $3 raffle tickets to raise money for public education. In just the first year, it sold $59 million in tickets. Other states quickly copied New Hampshire, in most cases rolling back their own constitutional prohibitions on such games. New York got the lottery in 1967, followed by New Jersey in 1970.

The rest of the states fell in line within a few decades, starting in the Northeast and catching on across the country. New Hampshire and New York had shown that the modern state-run lottery was more or less clean and scandal-free. In addition, widespread anti-tax sentiment in the 1970s and 1980s had put states in a bind. The lottery — and other gambling measures — became an enticing option for legislatures that needed revenue but wanted to avoid the ugliness of a tax increase.

These days, states have become so dependent on lottery money that many have turned turned to gimmicks in an effort to shore up their sales. California has launched a series of ads appealing to the state's hippie roots. "Believe in something bigger," is the state lottery's motto. In New Hampshire, you can now buy bacon-scented scratch-off cards.

"It's one of the great transformations in American life," said Michael Nelson, a political science professor at Rhodes College in Tennessee. "We've gone from a country in which one state had casinos and no states had lotteries, to a country in which lots of states have casinos and virtually every state has a lottery."

Some of the last holdouts were states in the Bible Belt, where religious objections to gambling still had force, as Nelson and his colleague John Lyman Mason describe in their book, "How the South Joined the Gambling Nation."

So Oklahoma, Tennessee and the Carolinas didn't get the lottery until the early 2000s; Arkansas didn't join the party until 2009. In these states, Democrats successfully advocated for the lottery by promising the funds to education and scholarships, which were popular issues.

Even legislators who opposed gambling were persuaded by the fact that many of their constituents were buying tickets in nearby states where the lottery was legal. Seeing all that revenue escape across state lines was a powerful (and painful) motivator.

"The lottery issue is a great lesson in how policies spread," Nelson said. "Sometimes a state has a great idea and other states copy it. Sometimes a state has a terrible idea, but other states adopt it to avoid being left out."

Alabama, too, tried to start up a lottery in the late '90s. Democratic Gov. Donald Siegelman campaigned on this issue, promising that the money would fund students at Alabama's colleges. This would copy Georgia's HOPE scholarships, which are supported by lottery funds. But like many states, Alabama had a constitutional ban on lotteries and to amend it required citizens to approve lotteries in a referendum vote. In 1999, the measure came up for a vote, but religious groups mounted a fierce campaign to keep the lottery out of Alabama. In the end, the proposal failed, with 54 percent of Alabamians voting against the lottery.

Now the state is in more desperate straits. With most of its budget tricks spent, the state needs real money or else faces real cuts. Prisons and Medicaid are the largest obligations, and already both are meagerly funded. The state's prisons hold nearly twice as many inmates as they were designed for. The state's hospital association says over a dozen rural hospitals have closed because too many patients come in without health insurance. The governor says would support Medicaid expansion, but only if Alabama could require recipients to work. This is unpalatable provision for the Obama administration.

So the situation in Alabama has become a three-way standoff. The governor wants tax increases; other politicians in his party are calling for harsher budget cuts. Meanwhile, Democrats are hawking the lottery, an idea they have tried to peddle for years.

Bentley doesn't oppose a lottery but he also points out that it would take years before citizens could approve it and the infrastructure could be set up. This morning, in an unusual move for a Republican governor, Bentley delivered a paean to taxes.

"We have to pay for the services we expect," he said. "You can't have a cellphone without paying for it. You can't drive your car without paying for gas. Everything we own in this state – this building, the roads, Montgomery — somebody paid a tax to build it."

And yet, Bentley overlooks that throughout much of U.S. history, lotteries have also been used to paid for these things. Soon, Alabama residents may again be asked if they will allow this controversial practice to return.

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