Hamstrung by large fiscal commitments and hefty campaign promises, Massachusetts Gov. Deval Patrick has proposed a series of casinos to help fill the gap. The situation, however, took on a new wrinkle when state Republicans filed a bill with another quick fix: selling off Massachusetts' interest in the state lottery to a private company in exchange for an immediate infusion of cash.
These Republicans estimate that the lottery could fetch between $10 billion and $20 billion on the open market. They contend that this money could augment and possibly replace the casino proposal to provide funding for the state to be distributed amongst various state projects. Shortfall or no shortfall, this proposal is bad policy. This massive payout may look attractive to term-limited state legislators and a governor confronted with tough choices about casinos and tax increases, but it only sets up their states for even larger fiscal disasters down the road. Whatever one thinks about lotteries, they are valuable assets - Massachusetts's lottery usually makes almost nearly $1 billion a year in profit funneled into local aid. Though some have speculated that this amount will decrease with the establishment of casinos, this kind of hole doesn't fill itself. Even states with expansive casino projects like Michigan still manage to maintain successful lotteries. And while the cash upfront may help Massachusetts get its head above water, it comes by mortgaging the state's future returns.
State governments should not cop out of addressing the deep structural issues that are creating these deficits by selling off one of their most profitable programs. Solving the problem of state deficits with lottery privatization will only let the deeper issues fester as they continue to go unaddressed.
While issues of fiscal responsibility stand by themselves, privatization also has social costs. Do we really want a lottery controlled by a private company out to maximize its profit? In many cases the profits of the lottery come out of the pockets of the desperate and undereducated who want a chance to get out of the hopeless cycle of poverty that consumes their lives.
As of now, states control the way their lotteries are advertised and, up to a point, prevent some of the more egregious profit-building lottery proposals. I have no illusions, however, that a profit-driven private company will do the same. No matter how states structure the lease, if private companies are going to invest $10 billion dollars in an asset, they are going to squeeze every bit of profit out of these games as possible. That means more advertisements and store locations in poor neighborhoods and more losing numbers for those who can least afford it.
There is historical precedent for opposition to lottery privatization. In the late 19th century, graft and bribery led the Louisiana state legislature to exchange its rights to its direct mail lottery for an upfront cash payment. As a result the state watched a private company reap millions by preying on the impulses of its citizens. According to an 1874 New York Times article, "A bribed state legislature granted the incorporators of the Louisiana Lottery Company the right to pocket millions a year by practicing on the simplicity and credulity of the negro and poor foreign population of New Orleans."
When these abuses finally reached the Congressional floor in 1890, the result was what amounted to a Federal ban on the lottery that pushed numbers games underground. There they stayed until New Hampshire revived the public lottery in lieu of higher taxes in the mid-1960s.
While the troubling social aspects of lottery games may make them an inappropriate business for states, they are all the more inappropriate for private companies. State control allows a level of regulation that endows the gaming industry with some kind of conscience. The Legislature in Massachusetts needs to stand strong against the monetary overtures of private interests. Rather than a one-time payout, states need to seek responsible solutions to balance their budgets. If these states bite the carrot being offered them, it may set a dubious precedent and unleash a wave of lottery privatization that fundamentally alters the nature of gambling in this country. And if that happens, it seems likely that everybody loses.
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