Regional Update (April-June 1996)
Regional Update (April-June 1996)
|Index||The state of the states||Southeastern manufacturing survey||Views from the region||Southeastern economic indicators|
Cover Story - Florida and Georgia Find Jackpots With Lotteries
|Florida and Georgia Find
Jackpots With Lotteries
But Different Approaches Spawn Different Attitudes
Editor's note: The Federal Reserve Bank of Atlanta is interested in economic development in the Southeast and, through publications and conferences, examines some of the tools communities use to raise revenue or stimulate growth. Some communities have tapped into professional sports, casinos, or the arts to enhance economic development. Others think a lottery is just the ticket. In this issue, Regional Update examines how the lotteries have fared in Florida and Georgia.
The odds aren't great. But people do it anyway.
It's self-taxation. But people do it anyway.
It's a chance to win millions of dollars. So people who otherwise might squawk at the idea of paying higher taxes flock to stores bearing the familiar flamingo or peach logos and plunk down their dollars (at 54-million-to-1 odds) to play Lotto, or Fantasy 5, or Powerball, or any of the other games of chance that Florida and Georgia offer.Ifnowhen they lose, they can just shrug their shoulders and say, "Oh, well, the money went toward education."
From a financial standpoint, the Florida and Georgia lotteries have been a success. Florida sold $2.3 billion in lottery tickets in fiscal year 1994-95, and $870 million of that amount went into the education coffers. Georgia, with a population of about half of Florida's 14 million residents, sold about $1.3 billion worth of tickets that year and sent $500 million to education fundsin only its second full year of operation. (See Chart 1.)
But from a public relations standpoint, the Georgia Lottery is the star pupil that Florida wishes it could be.
The two lotteries have many similarities, but the differences become apparent quickly. Both lotteries were billed as a way to enhance education. But in Florida, allocations from the state's general revenue fund have been reduced, and lottery dollars are paying for many basic needs, including some teachers' salaries. This year, Florida lawmakers began delving into lottery reform measures, looking for ways to ensure that the money raised through the eight-year-old lottery is used to enhance education, as was promised to voters.
Both states have a six-number Lotto drawing, five-number Fantasy 5 drawings, three-number Cash 3 drawings, and a variety of instant-win games. Florida also has a four-number game and a Bingo game. Georgia has Powerball. (See the box The Games People Play)
Both set aside half of their revenues for prizes, and more than a third of the revenue is earmarked for education.
In Florida, the education slice is 38 percent. The rest is spent on retailers, lottery administration, ticket providers, and advertising. In Georgia, the chunk for education is 36 percent, and the remainder is spent on retailer commissions, incentives, and bonuses, instant and on-line vendors, lottery administration, and advertising. (See Chart 2.)
Rebecca Paul was hired to start both lotteries. In Georgia, where she still heads up the lottery, she set the record for per capita lottery sales for a start-up year$165 per person (based on the number of state residents even though many nonresidents buy lottery tickets). That smashed the previous record of $128 per capita, a record she also set when she started the Florida Lottery in 1988.
Both lotteries avoided a second-year slump, no easy feat considering that of the 37 states and the District of Columbia that have lotteries, all but fourFlorida, Georgia, Iowa, and Texassaw revenues slip in their second year.
The differences between the Florida and Georgia lotteries fall into at least three categories: politics, economics, and approach.
Floridians were keen on having a lottery from the start. Voters approved the lottery by a margin of nearly 2-to-1 in 1986. Ironically, the man Floridians elected as governor that same year was not a lottery fan. He quickly distanced himself from the games, which some people viewed as a regressive tax.
A few years later, Florida's next governor vowed to downplay the lottery, which critics said had become too glitzy and employed hardsell tactics.
Georgians originally were more divided on the issue. The 1992 vote squeaked by with 52 percent approving the lottery. But Georgia's governor wasand still isan ardent supporter of the lottery, which has provided college scholarships, prekindergarten education, satellite dishes to the schools, and computers to the classrooms.
Floridians' thoughts soon turned from the lottery's image to economics.
Florida became gripped by recession and had to slash millions of dollars from the state budget as revenue projections got worse and worse.
Sales tax revenuesFlorida government's primary incomedropped by 1.2 percent from 1989-90 to 1990-91. So services were being cut, and education sat on the chopping block.
Many Florida lawmakers said the cuts to other services would have been even more severe if the state hadn't had the lottery money to help compensate for the loss in sales tax revenue.
But critics charge that the percentage of Florida's total budget spent on education (including lottery dollars) has dwindled by nearly 9 percent since its post-lottery peak of 34.6 percent in 1989-90. (See Chart 3.) And Florida clearly has rebounded from the recession.
Getting a later start, Georgia didn't have to cope with a recession after finding the lottery jackpot. But other factors intensified Florida's problems, and Georgia learned from them.
Georgia made sure that the money raised from the lottery would be spent only on new programs and equipment that enhanced education. The state has created three programs so far:
The Florida Legislature grappled with lottery reform during the 1996 session, with lawmakers proposing several bills. Georgia was a model they tried to mimic.
But the obstacle lawmakers couldn't seem to get over was where to get the money to increase allocations for basic education so the school districts don't have to rely on lottery revenue. Florida did establish a scholarship program similar to Georgia's Hope scholarships, but no comprehensive lottery reform passed in the session that ended May 4.
Another difference between the two states' approaches is that Georgia created its lottery as an independent corporation, allowing it to operate much like a private company, while the Florida Lottery is a state agency.
Education Funding Disparities
While the lottery has raised revenue, it certainly hasn't been a panacea for Florida's education needs. In fact, residents are showing a growing level of frustration about the way the money is being used.
More than 40 of the 67 school districts have sued the state, claiming Florida has failed to provide adequate education as promised in the state constitution.
And polls show that voters cite the lottery as their reason for voting down local school board proposals for bond issues and sales tax increases. At a time when the state is putting more burden on the local districts to provide their own money, the voters say that either more money isn't needed because the schools have lottery money or they are just dissatisfied with what they believe was a money hoax and they aren't going to support another government initiative.
Despite the disparity between Floridians' feelings for the lottery and Georgians' attitudes, some concerns recently have been raised about the distribution of Georgia Lottery money.
A study released in May by the Policy Research Center at Georgia State University concluded that Atlanta's share of the lottery money earmarked for the Pre-K program and for technology has declined. Atlanta is receiving an equitable level of HOPE scholarship money, but its share for Pre-K programs was particularly low, the study said.
The report recommends that the Atlanta Board of Education increase its participation in Pre-K programs, that the state help private Pre-K programs to apply for the state money, and that more lottery money be spent on renovating vacant or underutilized school buildings for Pre-K centers in urban areas.
Using another measure to compare the education efforts in the two states, Florida still spends more money per child on elementary and secondary education than Georgia, according to the National Education Association statistics.
Florida ranked 26th in the nation on per pupil spending for public elementary and secondary schools based on the 1994-95 fall enrollment. The state spent $5,212 per child. Georgia ranked 39th, spending $4,595 per child. The other states in the Federal Reserve's Sixth District, none of which has a lottery, all ranked below Georgia. Louisiana ranked 41st ($4,525 per pupil), Tennessee was 44th ($4,201 per pupil), Alabama was 45th ($4,194), and Mississippi was 50th ($3,469).
Still, even with the lottery, neither Florida nor Georgia spends as much per student as the U.S. average of $5,472.
Lotteries have been a jackpot for Florida and Georgia. Regardless of how the money is spent, the lotteries provide state revenue in the form of taxes that people actually seem to enjoy paying.
The financial benefits have been clear$500 million for Georgia education in 1994-95 alone, $870 million to Florida for the same year. That translates into a lot of college scholarships and early intervention prekindergarten education. But whether this money actually helps schools get better, measured, for example, by test scores or graduation rates, remains to be seen.
Other states are wise to be wary about starting their own lotteriesthere have been pitfalls along the way. But the newer lotteries have learned from their predecessors, and now the predecessors are learning from the new guys on the block.