Tennessee Looks for Ways to Increase Lottery Revenue

October 7, 2011

The Tennessee Lottery, like other state-run lotteries, has been under pressure to raise more revenue for college scholarships. The governor has even gotten involved. From Lottery Post:

Tennessee state Senate minority leader is calling on fellow lawmakers to find ways to increase lottery revenues instead of cutting back on the scholarship program, while Gov. Bill Haslam has assigned his staff to consider a broad range of options for stabilizing the game’s finances.

Jim Kyle, D-Memphis, said in a letter released Wednesday that while the Tennessee Higher Education Commission estimates that the lottery will deplete its sizable reserves by 2024, it also says annual losses could be stemmed with an 8 percent increase in ticket sales.

The senator also questioned the urgency for making changes when the lottery has more money in its reserves than it spends each year.

“I don’t know a single person with more money in their savings account than they spend in a year who considers themselves broke,” he said.

Haslam, a Republican, told reporters after a speech to a Nashville business group that the lottery needs to be self-sustaining.

“It is an issue that we are spending more than we’re bringing in, and we can’t keep doing that in kicking the can down the road,” he said.

Haslam said he’s asked his staff for a comprehensive look at neighboring states’ lotteries to see if they might offer ideas for improvements in Tennessee. The governor did not rule out possible efforts to boost revenues ranging from allowing debit card purchases to smaller commissions [currently 6.5 percent] for ticket retailers, but stressed that wants to hear “the arguments pro and con” before making a decision.

“By the time the Legislature comes around we’ll have a voice in all that,” Haslam said.

It can be tempting to say that a good cause, such as making college affordable, justifies state involvement in gambling enterprises that could be run privately, but there are better options for states looking to help students afford college (including selling the lottery to a private company and levying sales and/or excise taxes). State-run lotteries are an inefficient way to help students, and they represent poor tax policy.

Lottery revenue, contrary to popular belief, is implicit tax revenue, and state-run lotteries fail the tests of sound tax policy in multiple ways: They are not economically neutral; they are not simple to administer; and they are not transparent. In addition, they’re regressive, which seems to defeat the purpose of helping lower- or middle-income students and their families.

However, since Tennessee does not seem likely to give up its lottery any time soon, at least policymakers are planning ahead and attempting to be fiscally responsible with lottery revenue. It’s better than the examples that three other states have recently set, which highlight the nebulous grey area that lotteries create somewhere between government agencies and private companies:

Indiana:

In a news conference Wednesday, Hoosier Lottery officials admitted to breaking state rules when moving into its new multi-million dollar headquarters, furnished with $800 bar stools, flat screen TVs, and a $25,000 workout room.

Washington:

Washington Governor Chris Gregoire reentry ordered the lottery to return the Mercedes-Benz “lotto mobile” it had purchased as a promotional tool, at a cost of around $125,000 of taxpayer money.

Arkansas:

The lottery’s vice president for administration was fired last week (two days after the resignation of the president and another vice president). The tottery was unable to provide acceptable financial statements last year and was found last month to owe nearly $100,000 to the IRS in penalties and interest for late deposits.

More on state-run lotteries.


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