Saturday, January 12, 2008

Snake Oil Salesman

The Courier-Journal reports that Kentucky will have a $500 million deficit in our new budget. The story implies that the Fletcher administration left Steve Beshear with this deficit. OK, even if it is true (each administration proclaims it doesn't have enough money from the previous administration), should we not be happy that the money was appropriated to the constituents?

My high school math teachers always pointed out the amazing properties of math. I find it politically expedient (amazing) that we have a shortfall of $500 million dollars and if only we could get a casino, that will bring in $500 million dollars, the exact amount that we need. Really! That is almost magical (amazing) how it always works out mathematically!

So the sales pitch begins. Our new governor gets elected, promising to bring in casino gambling. Surprise, surprise: he gets in office, and within days realizes that we need money, and even if he fixes the shortfall, it cannot be done in a year -- but maybe two years. (Here's another mathematical equation: Legislators + solving budget crisis = two years to pass constitutional amendment on casinos.)

I also took history. The greatest axiom is "history repeats itself." Maybe we can take a lesson from our Kentucky Lottery and see how much money the state might make from casinos.

A visit to the Kentucky Lotto web site states that that 27.5 percent of the money spent on a lotto ticket goes to the Commonwealth, 60 percent of the ticket price goes to the winners -- who might be from out of state. In addition, 6.3 percent is paid to retailers and 6.2 percent goes to marketing and operating expenses.

Sounds like a lot, doesn't it?

Something made me question these figures, so I made several calls to the Kentucky Lotto Headquarters and eventually spoke with Pam Jones. She told me that for every dollar a customer spends on a lottery ticket, half of it -- 50 percent -- goes to the MUSL (Multiple United States Lottery) Company. MUSL runs lottery systems for different states, and I suspect one would find it lobbies state legislators and pays for extensive advertising to promote the benefits of lotteries when they come up for votes.

Armed with this conveniently undisclosed information, we now know the above-quoted numbers are only exactly half of that for your dollar waged. So only 13.75 percent dividends go to the Commonwealth, only 30 percent goes to the winners, only 3.15 percent pays the retailers, and only 3.1 percent covers marketing -- while 50 percent leaves Kentucky. This is because we allow out-of-state people to organize the lottery. The lottery web page states that $1.4 billion has gone to the General Fund since 1989 (just under $8 million a year). But that also means that $1.4 billion has left our Commonwealth.

What might happen if we get casinos? Will they be run by state personnel or will they be run by big gambling concerns, that take half of our money out of state? Leaving aside for now the moral issue, are casinos mathematically wise?

What might be perceived as an easy fix could well prove to be very costly to the residents of the Bluegrass. I have an alternative solution that I will be post at another time.

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