State lawmakers are set to meet in Montgomery in the coming weeks following Gov. Robert Bentley’s recent announcement that he will ask the Legislature to pass a bill allowing Alabamians a vote on a constitutional amendment that would legalize a lottery.
The governor’s proposal calls a lottery “our best chance” for a “permanent solution” to the state’s budget woes, which include rising expenditures on services such as Medicaid and the prison system, and withering revenues with which to fund them.
Failures of the past
Those budget woes are nothing new to Goat Hill. For years, the costs of Medicaid and other general fund services have been ballooning while no real change has come on the funding side of the equation.
That’s something Sen. Trip Pittman, chairman of the Senate’s General Fund Committee, emphasized when he spoke with Lagniappe about the upcoming special session on the lottery, which begins Aug. 15.
“Medicaid is a complex issue. You really have two options. You absolutely have to control costs, and you really need to figure something out on the funding side.”
Pittman, who oversaw the education budget before his move to the general fund, says it’s important to address the revenue issue so that both budgets are stable in the long term.
“You have revenue that’s dried up in the general fund,” Pittman said. “But you have these growth revenues in the education trust fund, so something has to happen to balance things out.”
Typically in the Statehouse that balancing is done by legislators transferring money from education to the general fund every year, line item by line item, a process that takes time, tears and legislative labor. A long-term budget fix — possibly to include a lottery, among other changes — could help to begin addressing this imbalance in the state’s two budgets. The problem is the devil’s in the details.
Those details, at least in the last few years, have not included tax increases, something which the governor and some legislators have proposed as part of the solution. Significant (and even some minor) proposed tax increases on products such as gasoline and cigarettes have failed to pass the Legislature, adding to the fiscal shortfall.
Gov. Bentley expressed some frustration on that point in his announcement supporting a lottery.
“We proposed a very fair and balanced tax plan. But the representatives you sent to Montgomery said ‘That’s not the answer,’” Bentley said in a video announcing the lottery proposal. “We have not solved our funding crisis yet. Now I am giving you, our people, the opportunity to fix this. I’m giving you the right to vote on a lottery. It is, I believe, after all other options have been exhausted, our best chance to solve this problem.”
Alabama is one of only a handful of states that does not have a lottery, and historically states have indeed turned to a lottery as a way to avoid tax increases. Columbia University’s Matthew Vaz explains the phenomenon in a book on the rise of lotteries from the 1960s to the 1980s:
“The political fight over early lottery expansion offers a window onto how anti-tax politics played out in the Northeast,” Vaz writes. “As was the case elsewhere around the nation, education funding was a flashpoint for anti-tax politics, and in the Northeast legislators promoted lotteries as a means of preventing further tax increases to support public education. As Illinois legislator John G. Fary said of the state’s original lottery bill, ‘Passage of this Bill will be a victory for the taxpayer … this is a substitute for taxes. Income therefrom will delay any thought of increasing taxes.’”
Rep. Allen Farley, who opposes Bentley’s lottery proposal, wrote in a blog post that the governor had expressed a similar sentiment. He wrote that during a phone conversation with Bentley, the governor told him there is a “concerted effort” not to pass more taxes and that gambling is then the only answer to not cutting government and keeping people happy.
This isn’t the first lottery “gamble” in Alabama, either. In 1999, a lottery proposed by then-governor Don Siegelman was defeated handily by the public in a vote of 54 percent to 46 percent. That lottery effort faced opposition on many fronts, including from some religious groups in the state as well as from both in- and out-of-state-gambling interests. Those special interests ran ads across the state opposing Siegelman’s lottery with the slogan “maybe a lottery, but not this lottery.”
Now, while still serving time behind bars on political corruption charges, former Gov. Don Siegelman is returning the favor. Siegelman has released an op-ed condemning the new lottery titled, “Maybe a lottery, but not this lottery.”
“Now some of these same people who fought the lottery in 1999, whose greed or lust for power cheated our children out of a better life, want Alabama voters to bail them out,” Siegelman’s op-ed reads. “Shame on you!”
The devil’s in the details
No matter who’s on what side now, when it comes to any proposed lottery, the devil’s in the details. Currently, with what Sen. Pittman called “dried-up revenue” going to the general fund but the education trust fund growing each year, the political will seems to be there for lottery revenue to go to the general fund. While that’s what the governor has currently proposed, it may not be easy, to say the least.
“It’s just a political reality,” Sen. Pittman told Lagniappe. “People want a lottery to go to education, but that’s just not what’s needed.” Pittman focused in on Medicaid. “When you look at it, Medicaid needed $785 million this year, but in five years, it’ll be over $900 million. Something has to be done.”
That reality in what is needed versus what is good politics seems to be a bipartisan one. State Rep. Chris England, a Democrat, posted about the issue on social media and recognized the same issue, putting it in perspective:
“Currently, most of the state’s growth taxes (income and use taxes, for example) flow to the education trust fund. When the overall economy improves, we generally have more money to spend on education. On the other hand, taxes that are stagnant flow to the general fund. Therefore, although the cost of doing business goes up every year, the amount of revenue that flows into the general fund remains flat,” he wrote.
“So, while we do not spend enough money on education, the real serious crisis-level problem is the viability of the general fund. At some point, something will be done to address that problem. Passing a lottery will create a way to deal with the general fund problem either directly or indirectly. So the real question remains, how do we deal with the general fund problem?”
There’s also the issue of how much the lottery would generate, and when the money would begin to come in.
During his video proposal, Gov. Bentley said, “An Alabama lottery is expected to generate approximately $225 million annually, and my plan will dedicate the new revenue to the basic services our state must provide.”
One question, though, and something Sen. Pittman pointed to, is the question of whether the governor’s estimate includes expenses and overhead, or if it’s just a total, without costs included.
“Some of these lotteries have overheads around 40 or 60 percent. So you have to look at gross receipts versus net receipts, and the governor’s not clear about what he’s talking about,” Pittman said.
Data from the U.S. Census Bureau confirms the cost of winnings and administration combined usually exceeds actual profits of lotteries, although those profits are sometimes in the hundreds of millions, or even billions, of dollars. For example, in 2014, Florida’s lottery had a total revenue in excess of $5 billion dollars, but nearly $3.5 billion went to prizes and $150 million to administrative costs, leaving only about $1.5 billion in profit: a sizable amount, but nowhere near the $5 billion politicians could have advertised.
These differences in the sticker value and the real profit is something Pittman says he thinks legislators haven’t fully considered.
“That’s one reason I just think it’s a bad way to fund the government. And it can’t fix anything at all right now, so you have other things to consider too.”
As far as timing, almost all parties agree with Pittman: the lottery is not a short-term solution and won’t, for example, fill the $85 million gap between what Medicaid needs to prevent harsh cuts and what it’s currently appropriated. To fix those problems, discussions during the special session may have to go beyond the lottery, bringing in debate on issues like how to spend BP settlement cash, the first infusion of which is set to hit the general fund later this year.
“I think that there are already several versions of the lottery bill. There are discussions about BP. There are discussions about Medicaid. We’ll have to discuss all of this and get into all of it,” Pittman said.
Heads or tails?
In the end, all impacts aside, the question becomes: Can a lottery bill pass the Legislature and then pass a vote in November? It’s hard to say. Leaders in the Statehouse have said they want to have the issue on the November ballot, which would require quick passage after they convene — in only about a week of meeting days. Even further, special sessions are limited to 12 total meeting days, putting some serious pressure on legislators to fix what’s become a complex and fragile political and fiscal situation for the state.
Legislators are also unsure if the lottery will even see enough support in the Statehouse to make it to a November vote.
“Any lottery proposal introduced during the August 15 special session has a long way to go before it reaches the ballot in November, and right now I am not optimistic that anything will pass at all,” Rep. England said in his social media post on the issue.
Other Republicans say they’re just waiting to see the specifics of what is proposed and what amendments are made to those proposals. Currently there is a “clean” proposal that would only authorize a lottery. A second proposal, not currently supported by the governor, would also authorize gambling at greyhound dog tracks at several locations in the state. Sen. Jim McClendon is sponsoring both versions of the bill.
“I’m submitting both options to my fellow legislators and letting them work it out,” McClendon told the media after releasing copies of the bills. “That is the art of politics.”
House Rep. Phil Williams told Lagniappe he’s ready to debate the issue, and wants a clean lottery bill to vote on. “Given the lottery is the governor’s idea, the initial bill looks like a straightforward and simple bill with funds going where they are most needed. I look forward to the debate and will read every word of every amendment prior to any vote,” he said.
Another Republican Representative, Corey Harbison, told Lagniappe he’s also ready for the debate, but has some concerns about the proposal.
“I am all for giving Alabamians a vote on the issue. I am just worried that pushing something without having the details down is a bad idea,” Harbison said. “We have had two years to be working on this. I don’t understand why he’s making such a push at the last minute. I do think it’s going to be hard to pass the lottery at this point. There’s 140 legislators and everyone wants to do it in a different way.”
Other Republicans emphasized the need for useful, bipartisan debate on the issue.
“There are two competing bills,” Rep. Tim Wadsworth, another Republican, explained. “A clean lottery bill is a must. Both sides of the aisle must participate in order to allow a bill to go before the people to vote.”
Bipartisanship will indeed be key. Any constitutional amendment, which is required to legalize a lottery, will require a three-fifths majority in both houses for passage and, therefore, for Alabamians to get a vote.
When asked about the prospects of passage, Pittman sidestepped the answer.
“Look, to call a session this fast, to get us all to Montgomery to sit down, to get it all out, and to get it passed in both houses is going to be difficult,” Sen. Pittman told Lagniappe. “If I were a betting man, would I bet on it? Good question. I’ll tell you what, I’ve got a coin here. I’ll flip it; you call it in the air for the lottery. Heads or tails?