The CA Lottery: The State's Least Progressive Idea
Déjà vu all over again
CA Lottery: CA voters created the state lottery in 1984 by approving a ballot measure that required 34% of sales revenue to go to schools and capped administrative expenses at 16%. Yet periodic audits find very inefficient spending patterns on marketing, personnel and other things not fully aligned with the mission of the department.
Latest audit: Since 2010 the lottery’s total operating revenue has increased by 115% and its funding to education has increased by 66%, which means its funding for education is not proportionate to its increases in net revenue, to the tune of $36 million in fiscal year 2017–18.
Money involved: The lottery is now a $7 billion enterprise that provided $6.7 billion to CA's education system throughout the last four years, which is an increase of more than $1.3 billion from the previous four years. The annual dollars allotted are ~1 percent of the State’s annual budget for public schools.
The Core Flaw of the Lottery
Question: Is CA's lottery really a tax or a levy on a large majority of the 19 million CA residents that participate in it each year? Specifically, those residents who live in CA's underserved communities.
What to pay attention to: Lotteries take the most from those who can least afford it. Instead of taking those most able to pay (the principle of federal income tax in the U.S.), state leaders use lotteries to disguise a regressive tax that falls on the middle and even more on the poor.
Research: A 2010 study found that households with take-home incomes of less than $13,000 spent on average $645 a year on lottery tickets, which is about 9 percent of their income. Data shows that ticket sales in CA are disproportionately high in the poorest quarter of census tracts in nearly every populous county and disproportionately high in census tracts with a plurality of Asian-Americans or Latinos. Ticket sales are disproportionately high in the counties of L.A., Orange, Riverside, San Bernardino and Ventura when compared to other parts of CA and per-capita sales across the five Southern California counties were $205 per year in 2016 and 2017, more than $50 higher than the rest of the state.
Targeted marketing: Lottery and census data show that, while about 7 percent of people in Southern California live in an Asian plurality census tract, over 10 percent of lottery sales took place there. Sales are also high in tracts with Latino pluralities, and low in areas where whites are the most common racial and ethnic group. Seventy percent of participants tend to be in their twenties and thirties and as people age they tend to play less.
Historical Perspective
History: In the 18th and 19th centuries, privately run lotteries, authorized by states, helped raise funds for everything from religious institutions to colleges. Harvard and Yale, for example, financed some new construction with lotteries. But as the practice grew more popular, fraud and other abuses increased, leading to a backlash. From the 1830s on, states began banning lotteries. The last state-sanctioned one ended in 1894, and the following year, Congress prohibited the interstate promotion of lotteries, making it tough to launch new ones. It wasn't until the 1960's that U.S. states started to create their own lotteries and today 45 of them operate one and the dollars provide a significant source of revenue for each state.
Alarming trend: Nearly every inch of land in some of Southern California's smaller cities is within half a mile of a lottery retailer. That's the case in places like San Fernando, South El Monte, Alhambra, Inglewood and elsewhere, where lottery directors continue to heavily market their products through greater presence in stores, new games and partnerships with sports teams and television shows. Among their new offerings are $20 and $50 scratch-off tickets that provide higher payouts. The residents in these neighborhoods buy far more of the lower prize games, such as scratch-off instant games which account for the majority of lottery sales in CA. Retailers are happy because they keep around 6 percent of each sale, plus bonuses connected to winning lottery tickets. And the state is happy because they get money for education.
Something to think about: The CA Lottery understands that surging sales are due to existing players spending more each time they play. It is very similar to Coke's Latin American marketing push a number of years back - do not get more people to drink coke, get the people drinking it to drink more of it. Just think what that means for CA's approach to the lottery - they generate $7 billion each year, a large proportion coming from our region's underserved communities, and distribute the money unequally on winnings, education and operating expenses. To put that in perspective, the state takes in almost $13 billion each year in corporate income taxes from those entities that have much better access to capital and an ability to build equity.
Let's Increase the Odds of Success for Everyone
State level: State leaders should curb the lottery's ability to turn every supermarket, convenience store & gasoline station into a gambling hall that pulls equity out of the pockets of residents in our state's underserved communities.
Leverage federal law: Savings programs linked to cash prizes have thrived in Great Britain, New Zealand and Sweden and President Obama signed the American Savings Promotion Act in 2014 to authorize some financial institutions to conduct a contest, known as a "savings promotion raffle," in which the sole consideration required for a chance of winning designated prizes is obtained by the deposit of a specified amount of money in a savings account or program, where each ticket or entry has an equal chance of being drawn. To date a growing number of credit unions & nonprofit groups are using lotteries to encourage low-income families to save.
Local level:
Economic development: Local leaders should collaborate on ways to reach out to communities most targeted by the state lottery and collaborate on the development of pathways that encourage residents to keep and grow their dollars/equity within their own community.
One idea - L.A. has a number of economic development corporations that where created with the help of federal government dollars. Their mission is to engage in the development of housing, businesses, infrastructure and people power. Some use their standing to acquire real estate assets and some properties are being evaluated as potential sites for a community tech incubator or other economic and workforce development space. Why not develop programs that allow constituents to secure equity shares in these assets and encourage them to engage in ways to advance their success? The return on investment is a stronger local economy, higher property values with a better return to the local community, and additional real estate property revenue that goes back into the schools.
Public schools: LAUSD is starting a pilot program to provide first grade students a savings account with $50. Students can earn additional savings through matching funds programs and incentives like perfect attendance or good grades. The program is fully funded for the first two years through state and federal grants, but with an estimated 40,000 first graders in the LA school district, providing savings accounts will cost the already underfunded district roughly $2 million every year. Those dollars have not been found yet. Additionally, LAUSD is now providing complimentary financial literacy workshops for seniors and their families thanks to $1 million each from City National Bank and the CA Council on Economic Education.
One idea - The odds are high that a large number of parents of LAUSD students play the lottery; why not find ways to encourage/incentivize them, through financial literacy programs, to redirect their discretionary dollars to these savings programs. Propel Schools, which operates kindergarten through 12th-grade charter schools with 3,400 students in Pittsburgh, opened college savings accounts for every one of its students and raffled off gift cards worth $25 to $40 in places like T. J. Maxx, Red Lobster, Walmart and Giant Eagle supermarkets. Under the program, known as Fund My Future, every $10 deposit earns an entry in the monthly lottery (up to four entries a month).