Monday, December 01, 2008

Legislators Sort Out Lottery Issues

One of the major concerns legislators have in setting up a lottery, according to this Rob Moritz article, is that the money raised be spent on actual scholarships and not administrative expenses and salaries for lottery personnel.

I am glad they are concerned about it, but history tells us that they can't stop it from happening when the structure they are using for it is a constitutionally protected government monopoly. Remember the "Heros of 911"? The city of New York asked for and got $1 billion from Congress in order to set up a special insurance company just to deal with emergency response personnel claims from the attack. According to Susan Edelman of the NY Post the fund has paid out just $320,000 to five workers, but has spent over $127 million on legal fees and administrative overhead. The ruling elites really know how to milk a cash cow and take advantage of a sentimental public, eh?

What starts off as a noble cause inevitably becomes a jackpot for looters when a big institution is involved. This seems to be true especially true when the institution is government, but also applies to the heads of large corporations looting the company or even large religious institutions. I will say that the Catholic Church has done fairly well at combating this powerful pull. Maybe there is something about a life of celibacy that discourages the looters from worming their way in to an organization.

I expect that no matter what they do, at the end of the first year or two of operation, they will find that the money spent on administrative "expenses" exceeds the amount given out in scholarships. For one thing, millions and millions of dollars of print and other media ads must be purchased as a reward to the newspapers of this state for their complicit silence about the massive flaws in the lottery proposal.

The papers smelled this big payday all along, thus their refusal to act in the public interest. Guess what, they are not obligated to act in the public interest, they are going to act in their own interest like just about everybody else. They just want you to think they are acting in your interests because, well, that's in their interest too!

This is why the discussion of how to run it; straight government office; quasi-public, or private group subcontracted by the government, makes no difference and bores me. Keeping it all within the government is socialism, and the "public-private partnerships" are corporate-cronyism that approach fascism, at least in philosophy. If they had really wanted to do this in a way that would minimize waste and looting they would have set down the rules for permitting private lotteries, then taxed the earnings and the winnings. That is a free market approach that will minimize waste and maximize returns, since the groups competing against one another to sell lottery tickets will have an incentive to trim their waste. Not so with a government monopoly with constitutional protections, regardless of how it is run.

But the free market approach is often not how one makes money in our current (and failing) looters economy. It is not how Bill Halter made his money. Hence, the lottery creators had no interest in a free market approach, and so they will get another opportunity to learn the hard lessons of economic reality. Unfortunately when government is involved, the hardness of the lesson falls on the citizens, and therefore the legislators tend to take a pass on learning the lessons.

On the other side of the coin, lets say that due to excessive purity of heart and wisdom on the part of folks the legislature picks to run the lottery, they actually do make 100 million dollars and the great majority of it goes to college scholarships. They will then find that there is simply no place to stick the money. Colleges already spend up to 30% of their budget on scholarships. We are simply running out of worthy young scholars to throw money at! Already, our colleges are recruiting in other states to get good students to come get an education at our expense, and then likely leave on graduation to return home where the suitable jobs are. That is not a path to prosperity for Arkansas, but a suckers route to continued economic under performance. We under perform because our leadership under performs. Impenetrable groupthink substitutes for analysis.

But maybe the money the colleges spend on scholarships could be shifted to other things! If that even passes a court challenge, which is iffy, what would they spend the money on? The U of A Fayetteville President just spent seven million taxpayer dollars on his residence. At Conway, they have residences they can loan out as favors to well-connected people. If you look at the campuses of most colleges in this state, they are nicer than the average residences. Higher education is one of the most over funded areas of state government. If they do somehow manage to cram another almost 100 million dollars into it while we are on the verge of a depression then the recriminations will be bitter and long. In other words, I think the lottery will blow much of its revenues, but even if it does not, the money will not be well spent.

Like the lottery itself, the best way to win the game is not to play it. The legislature should not pass a lottery bill that is a lose-lose for the state.


Anonymous Chuck said...

Halter has projected the lottery will bring in about $100 million per year. Arkansas News Bureau had a story today re: Tennessee's lottery, which is experiencing a $460 million surplus b/c they lowballed expected revenues and "settled on awards that did not fully cover tuition in writing rules & regs for the program."

My prediction is the AR lottery will bring in $200 million (double what Halter is saying), salaries of the muckety-mucks running it will be $150K/yr or more, and we will later see shortfalls in other areas, namely Medicaid, highways, and more. Meanwhile, bankruptcies, divorces, and the # of children needing foster homes will all increase.

3:01 PM, December 01, 2008  
Blogger Mark Moore (Moderator) said...

Colleges are over-funded right now. If you are right, WHERE will the colleges put all that money? Maybe they could build giant ivory towers gilded with gold to store all of the money until they figure out a way to spend it all.

Meanwhile, as you mention, broken lives will be the result of an increase in gambling. That money, be it 200 million or whatever, will be sucked from some of the people on the edge and families on the brink.

5:09 AM, December 04, 2008  
Anonymous Chuck said...

Are you kidding? State-funded college Presidents are like politicians in at least one respect - they NEVER run out of things to spend money on: new dorms, computers, gyms, athletic gear, cars, classrooms/libraries, bigger offices, better furniture, higher salaries for tenured (and likely liberal) profs and so nauseatingly on. They can, and will, go through $100 (extra) million in the blink of an eye.

The social costs of what the lottery brings in will far outweigh the benefits of puring more money into, you as have previously pointed out, an already overfunded higher ed bureaucracy. However, it can't be stopped now. The only hope is that some legislators, perhaps enough, may have the good sense & foresight to cut current higher ed spending to some degree.

1:53 PM, December 05, 2008  

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