Gambling on a Way to Trim Taxes

With $6.7 billion in sales, state lotteries help pay the bills

The lines snaked for blocks around neighborhood drugstores and newsstands earlier this month as hopeful New Yorkers waited to place their bets. Among them: Governor Mario Cuomo, who stood in the rain for 20 minutes in Manhattan to buy $5 worth of chances. “There’s something going on in this state,” he said. “It’s called greed.” No wonder. Fed by three successive drawings that failed to produce a big winner, New York’s lottery jackpot had ballooned to a record $22.1 million, the highest ever in North America. (The world’s largest: Spain’s El Gordo, “the Fat One,” which in 1983 amassed a $73 million pot.) In the final days before the drawing, tickets for the outsize prize were selling at the frenzied rate of a million an hour.

The four winners—a housewife, a machinist, a manicurist and a hospital maid—are understandably elated: each will receive $263,095 a year, minus the 20% federal tax bite, for the next 21 years. Shortly after hearing that she had won, Weonta Fitzgerald, 64, quit her job as a cleaning woman at Benedictine Hospital in Kingston, N.Y. “I was broke, now I’m rich!” she exulted. But the biggest winner by far did not have to wait in line: New York State, which stands to reap an estimated $11 million in education funds from that one giant jackpot alone. In fact, ticket sales are so brisk that this year the state figures to rake in $520 million in profit from $1.14 billion in lottery bets.

Squeezed by balanced-budget requirements and wobbly tax bases, a growing number of states are turning to lotteries. Since 1963, when New Hampshire started the trend, 16 other states and the District of Columbia have legalized such games; at least nine others are considering them.* The Public Gaming Research Institute, Inc. (P.G.R.I.), projects that lottery ticket sales in 1984 will total $6.7 billion (an average of more than $28 for every person in the country), up more than 26% from the 1983 sales record of $5.3 billion. About $2.1 billion of last year’s take remained in state treasuries, $2.6 billion was distributed in prizes, and more than $600 million was spent on administrative costs.

The games seem to have something for everyone: jackpots for the winners, commissions for the ticket sellers, and a politically safe way for legislators to raise revenue without raising taxes. In most states, lottery proceeds are channeled directly into the general fund. Typically, the largest share goes for education. Ohio’s Democratic Governor, Richard Celeste, for example, last week endorsed a bill that would earmark lottery profits for schools.

In Colorado, the most recent state to start a lottery, 40% of the take is allotted to a conservation trust fund. In Massachusetts, a share of the profits from the state’s high stakes Megabucks game is designated for the arts. Explains P.G.R.I. President Duane Burke: “If the choice is added taxation or a voluntary method of raising additional revenue, people will choose the voluntary method.”

Lotto is the game that captures the most attention—and headlines—in those states that have it. Typically, the player picks six numbers from 1 to 44 and waits to see if they pop up in the Ping Pong-ball contraptions used to select winning combinations. If no one wins, the jackpot accumulates. Another game is the instant lottery, with scratch cards that let players know immediately if they have won.

Whatever the method, players see the games as a dice roll on a dream. Says Louis DeSantis, who has sold New York lottery tickets at his Lower Manhattan newsstand since 1967: “People know they’re not going to get rich on what they’re making, so they invest a dollar and wish.” But despite well-publicized accounts of overnight wealth (see box), a person is about 31½ times as likely to be killed by lightning as to win New York State’s Lotto jackpot. “Sure, somebody wins,” says Myron Powell, a retired Congregational minister who fought against the Massachusetts lottery a decade ago. “But 900,000 people lose, most of whom could not afford to play to begin with.”

In fact, a chief criticism of lotteries is that they prey on the hopes, and wallets, of the poor. “I always felt that it was an insidious way to re-collect our welfare dollars,” says Republican State Representative Tony Van Vliet of Oregon. Lottery enthusiasts, however, contend that different games attract different players. New York’s high-stakes Lotto seems to be the pick of the upper and middle classes, while three-and four-digit numbers games appeal to a more downscale market. In Arizona, a state-funded study found that lottery regulars are predominantly white males with a median age of 36 and a household income of $20,000. Says Charlie Buri, who voted against Arizona’s lottery but now serves as its director: “People aren’t taking the bread and milk off the table to play the lottery.”

Lotteries are as enticing to strapped state legislatures as they are to hopeful ticket buyers. But for both, they offer at best an unreliable source of income. The games generate a rush of enthusiasm, with revenues to match, when they are first legalized. But interest and profits soon sag unless new versions are introduced. In 1981 Arizona’s opening game pulled in a robust $5.4 million a week; by its second year, the take had plummeted to $900,000. (It now averages $1.2 million a week.) “In lottery operations, you have to keep innovating to be successful,” says Douglas Gordon, executive director of the Washington, B.C., lottery, which started in 1982 with an “instant” rub-off card, later added a three-digit numbers game, and last month introduced a Lotto contest.

The newest wrinkle in state-sponsored betting is the video lottery. Developed by Bally Manufacturing Corp., the producer of Pac-Man, the games feature terminals that produce winners by predetermined programming and include splashy graphics calculated to appeal to younger lottery players. This summer the devices will appear in Illinois bars and lounges. But in Nebraska, the state legislature last month passed a bill outlawing video lotteries.

Lotteries were used in post-Revolutionary America to help underwrite such eminent universities as Harvard, Yale, and William and Mary. But the privately run Louisiana Lottery, which flourished after the Civil War and depended on nationwide sales, was notoriously corrupt. To stop misuse, Congress in 1895 banned interstate commerce by lottery operators. Today lotteries still draw fire on moral grounds. Declares Jack Wyman, a lobbyist for the Christian Civic League of Maine: “Government financing by gambling encourages citizens to indulge their weaknesses.”

Despite detractors’ fears, most state-run lotteries have been scandal free. During the first six months of its lottery, Colorado arrested seven people who had tried to forge winning tickets, but it now boasts that last year’s games were squeaky clean. “People get a thrill out of betting, and lotteries seem to serve that need,” says Lieut. Alfred Cassinelli of the Washington, D.C., morals squad. “All you have to do is keep it honest.”

The lottery craze seems certain to continue—at least until paying taxes is as much fun as playing the numbers. To fatten their jackpots and compete with neighboring Massachusetts, the states of Maine, New Hampshire and Vermont are even considering combining their lotteries into a more tantalizing tristate pool. Last week lottery supporters in California gave state authorities the required petitions to put a lottery proposal to a November vote. In Florida, Lobbyist Jay Kashuk is leading a petition drive to repeal a state ban on lotteries.

Some have even suggested, along with Economist Alfred Telia, that a national lottery be established, patterned on that of Canada, to battle the federal deficit. “It’s inevitable,” says Samuel Valenza Jr., publisher of Lottery Players Magazine. “Lotteries will sweep the country.” Others may be less exuberant, but there is no doubt that for the moment, the stakes are indeed sweeping.

THE PAYOFF

in millions of dollars

(1983 Sales) (%change over ’82) (States share)

Ariz. $60 -28% $27

Colo. 203 N.A.** 72

Conn. 188 +11 81

Del. 30 +18 11

D.C. 54 N.A.** 12

Ill. 667 +67 286

Me. 13 +35 3.7

Md. 463 +1 198

Mass. 312 +12 93

Mich. 557 +4 221

N.H. 14 +12 3.6

N.J. 693 +34 295

N.Y. 889 +38 390

Ohio 399 +9 145

Pa. 885 +57 355

R.I. 44 +14 15

Vt. 4.5 +88 1

Wash. 214 N.A.** 85

**Lottery started in mid-’82 or ’83

—By Susan Tifft.

Reported by Elizabeth Taylor/New York, with other bureaus

* Alabama, Alaska, Arkansas, California, Florida, Louisiana, Missouri, Oregon, West Virginia.