A pilot [Buck
Rogers] and his young passenger crash-land on a mountaintop and are
put into suspended animation by a strange gas. They awake 500 years
later to discover that the Earth is now ruled by a tyrannical despot
called Killer Kane, and they lead a fight to overthrow him.
After
only a month in office, Pennsylvania's new Democrat Attorney General Kathleen Kane is giving Republican Governor Tom Corbett a bad case of
hemorrhoids. First, she negotiated an agreement with Florida to
close the “Florida loophole,” which had allowed Pennsylvanians
who were denied permits to carry concealed weapons to obtain them
from Florida. Then she announced the appointment of a special
prosecutor to investigate Corbett's handling of the Jerry Sandusky
case while he was Attorney General. Critics have alleged that Corbett delayed prosecuting Sandusky until after he was elected
Governor in order to avoid a backlash from Penn State football fans.
On Thursday, she thwarted Corbett's plan to privatize the state lottery by invalidating his agreement to turn over its management to Camelot, a British firm.
Camelot
had pledged to bring the state $34 billion in revenue in 20 years, largely by
allowing internet gambling and introducing the game of keno, a
lottery-type game sometimes referred to as “bingo on steroids.”
But the state lottery, now managed by state employees, made
over $1 billion in profit last year, so the guaranteed gain in
revenue under the Camelot contract is only 70%. Couldn't the current
lottery employees bring in that much extra revenue if they were
allowed to offer keno? For its part, Camelot celebrated the new deal
by opening its U. S. corporate headquarters in Delaware to ensure
that it would not have to pay Pennsylvania income tax.
Ms.
Kane gave three reasons for declaring the Camelot contract illegal:
- Signing the contract was “an unlawful extension of executive authority” by the Governor.
- The state law which created the lottery does not authorize the development of “monitor-based games such as keno.” A monitor-based game is one which is played at a computer terminal and does not require human intervention.
- A provision by which the state is required to compensate Camelot for “indirect expenses” is too broad and undefined.
It's hard to
predict how this will be resolved. It may depend on the court's
interpretation of statutory language. Kane's second reason resonated
most strongly with me. This seems to be a substantial escalation in
the state's ability to take advantage of its citizens. The plan
is to put computer gambling terminals in bars, restaurants
and convenience stores all over Pennsylvania. This differs from
present casino gaming since you don't have to go to a casino; you
can play at the corner store. It differs from the lottery in that
you can play almost continually, rather than the current twice a day.
And most importantly, it's keno, a game which has proven popular and addictive.
While the rules
governing keno in Pennsylvania have not been announced, in Maryland,
the house edge in keno—the extent to which the odds favor the
state—is 42.5%. The expected value of a dollar spent on keno is $1
minus the house edge, or 57.5 cents. This can be compared to a house
edge of 15% for slot machines, 5.26% for roulette, and only .46% for
video poker.
Current state lotteries also offer very poor odds for the player. They pay out
about 55% in prizes—very similar to keno. Operating expenses
consume 12% of the funds, and the remaining 33% go to the state. Clotfelter and Cook, whose book, Selling Hope, is the definitive work on state lotteries, refer to this 33% as an implicit tax, since it is essentially
a tax on playing the game. It is higher by percentage than state
taxes on liquor and cigarettes.
If the odds of
winning are bad, why are lotteries so popular? One theory is that
people who should know better treat games of chance as if the outcome
were partially determined by skill, and fall victim to an illusion of control over their outcomes. Another
theory is that people have difficulty calculating their odds, but advertising showing happy winners encourages them to visualize being
a winner. Since the availability of winning is increased,
people overestimate its likelihood. However, the most important
attraction of keno may be large prizes. Studies of multistate lotteries have shown that participation goes up as the jackpot
increases.
Who plays the lottery? Surveys show that about 60% of adults in lottery states
play, spending an average of $75 a year. But 5% of citizens account
for 54% of total sales and spend almost $4000 a year, suggesting that
gambling addicts disproportionately support the system. Expansion of
gambling will increase the need for state services to help these
people and their families. Men are more likely to gamble than women.
As education goes up, gambling goes down. Most importantly, studies
consistently show that lower-income people spend a higher percentage
of their income on state lotteries than middle class or rich people.
Therefore, gambling is a regressive tax, a tax that increases
the already large disparity between the rich and the poor.
State
lottery profits are often earmarked
for specific purposes, such as education, or, in Pennsylvania,
services for senior citizens. This can be a way of
manipulating the public to accept a policy they might otherwise question. For example, when Governor Corbett announced the Camelot
agreement he said that expansion of gambling was necessary because in
17 years, one in four Pennsylvanians will be over 60, and the state needs a larger and more reliable funding stream for
them.
However,
Clotfelter and Cook have found that earmarking lottery funds for a
specific purpose seldom results in any change in the amount of money
the state actually spends for that purpose. If the lottery brings in
more money than anticipated, the money goes into the state's general
fund, rather than providing a windfall for education, senior
citizens, or whatever the earmark is. However, there is a potential danger should
lottery proceeds be lower than expected, since it may give the
state legislature an excuse to cut back on spending for the earmarked purpose.
I have no moral objection to gambling. However, most theories of
government propose that the state has a responsibility to
make its citizens' lives better. It's hard for me to see the Camelot
contract as fulfilling that purpose. Maybe Killer Kane is doing us
all a favor.
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