Proposition 1C: Lottery Modernization Act - recommend No
The legislative analyst's summary tells us that the average Californian spends $83 per year on lottery tickets, which may well seem surprisingly high if you never buy a lottery ticket, but is also significantly below the average across all the states that have lotteries (that average being $190, or $105 for states west of the Mississippi, which may or may not be an interesting commentary in itself). Proposition 1C hopes to up that amount, as well as to reconfigure how California lottery money can be used.
Prop 1C would enact a handful of significant changes to the lottery.
First, it would let the state increase the portion of lottery money taken in that is subsequently kicked back out in payments. Based on examples in other states, higher percentage payouts correlate with higher lottery uptake. The goal, then, would be to increase the purchasing of lottery tickets by making bigger payouts. Higher payouts would naturally impinge on the increased intake of money, but the overall effect would be more net funds coming in from the lottery.
Second, Prop 1C would rework how lottery money is used. Currently, money from the lottery that does not go into payouts, operating the lottery, and advertising for the lottery goes directly into education. Under the revisions in this proposition, the payments would go into the state's General Fund instead. New rules would be put into effect increasing the required payout from the General Fund into education in an attempt to maintain parity on the funding going into education. This may seem arcane and pointless, but makes sense in light of the third change.
Third, this proposition would allow borrowing worth up to $5 billion against future profits from the lottery. The upshot here is that the state could immediately borrow that $5 billion, drop it into the General Fund, and use it to pay off immediate needs, while still maintaining roughly the same level of required lottery payout to education on a year-by-year basis.
The downside of this approach, as indicated in the legislative analysis, is that debt service on this $5 billion in borrowing would have to be paid off by future lottery proceeds, which could eventually lead to the state having an annual deficit in its funding. Or, put more briefly, debt is debt.
The three components of this propositions are not all of equivalent value. The modifications to lottery procedure to increase payouts seem reasonable (putting aside concerns about who the lottery is effectively taxing, which is a separate issue that bears its own evaluation). However, the second and third elements are basically a scheme to generate new debt to dig us out of our short-term budget problems. Consider this disingenuous quote from the argument in favor of Prop 1C:
By modernizing our state lottery, Prop. 1C will immediately raise $5 billion in new revenues without increasing taxes. Our lottery is out of date and underperforming. With a few simple changes, OUR LOTTERY CAN BRING IN MUCH MORE REVENUE TO THE STATE—$5 billion immediately without costing taxpayers a dime, while protecting funding levels for schools currently provided by the lottery.
To be clear, when I say 'disingenuous' I mean 'lying.' I loathe the line of falsehood that suggests that adding $5 billion in additional debt to the state does not raise taxes. Although it literally does not, it's just like saying that you can buy a car with your credit card at "no additional cost to you." The fact that this is their opening line of argument shows that the proponents of this measure know that if you explained it properly that voters would not want to go for it.
An additional giant pile of debt is likely not the best approach to working out our state's economy, and for that reason, I'm recommending against it.
The single strongest supporter for Prop 1C is GTECH, a company that refers to itself as "a leading provider of lottery technology." That's not so surprising.
You can check the full list of financial supporters of Prop 1C by clicking here.
You can get to the full text of the proposition and the legislative analysis here.