Guest Host: Tom Gjelten

Americans spent $1.5 billion in the frenzy over last week’s Mega Millions lottery. When the dust cleared there were three winning tickets. Forty-three states, the District of Columbia and the US Virgin Islands participate in the lottery as well as other forms of legalized gambling. With ever tightening budgets, this revenue stream seems to be recession proof. The director of Maryland’s lottery and a past lottery winner talk about their experiences good and bad. Guest host Tom Gelten and the panel discuss what the long-shot games of chance mean for ticket buyers and state budgets.

Guests

  • Robert Ward deputy director of the Rockefeller Institute of Government, heads the Institute's State and Local Government Finance research.
  • Sandra Hayes won the Powerball lottery in 2006, author of "How Winning the Lottery Changed My Life."
  • Stephen Martino Maryland Lottery Director
  • Philip Joyce professor of Management, Finance and Leadership at the University of Maryland School of Public Policy

Transcript

  • 10:06:55

    MR. TOM GJELTENThanks for joining us. I'm Tom Gjelten of NPR, sitting in for Diane Rehm. Diane is recovering from a voice treatment. 2-4-23-38-46 and another 23, the numbers that meant immediate riches in the largest lottery ever. There were three winning tickets in last week's Mega Millions drawing. But the real winners may have been state budget planners.

  • 10:07:20

    MR. TOM GJELTENJoining us here in the studio is Stephen Martino, the director of Maryland's lottery, also Philip Joyce of the University of Maryland School of Public Policy. From WAMC in Albany, N.Y., we have Robert Ward of the Rockefeller Institute of Government. And Sandra Hayes, author of "How Winning the Lottery Changed My Life," joins us from a studio at KWMU in St. Louis, Mo. Good morning, Sandra in St. Louis. Good morning, Robert, in Albany and both of you here with me in the studio.

  • 10:07:50

    MR. TOM GJELTENOur guests will be able to fill you in on everything you wanted to know about lotteries. And you can get in on the conversation by calling us at 1-800-433-8850, by emailing us at drshow@wamu.org or by joining us on Facebook or Twitter. Stephen Martino, director of the Maryland Lottery, can you tell us any more about who won that ticket? Who drew that ticket here in Maryland or nearby Maryland?

  • 10:08:19

    MR. STEPHEN MARTINOWe know that it was won in Maryland. The ticket was purchased at about 7:15 on Friday evening, less than four hours before the drawing, at a 7-Eleven on Liberty Road in Baltimore County in Maryland. And other than that, we are anxiously awaiting the winner to come into the Maryland Lottery with the ticket and present it to us for payment. And I would just encourage the winner, if they're listening, to sign the back of the ticket and safeguard it.

  • 10:08:45

    GJELTENSo you haven't heard a word.

  • 10:08:46

    MARTINOWe have not. No one has contacted us. No one claiming to represent the winner has contacted us, and so we just continue to wait, and don't find that particularly peculiar either. I think that we say we don't give advice other than to encourage the winner to get advice, legal advice and financial advice. And so we think that that would -- that's a process that would take some time.

  • 10:09:13

    MARTINOAnd we anticipate that that's what they're doing and getting organized so that when they get this money and they take the cash option in Maryland -- that will be about $105 million -- we don't believe that, you know, most people know the next day exactly what they're going to do to have -- when they have $105 million deposited in their bank account.

  • 10:09:32

    GJELTENWell, we're going to be talking to Sandra Hayes in a little while who was in the similar -- not quite that much money, but she came up with a lot of money, too. What about this story, Stephen, that a -- it was a employee at McDonald's who won the drawing in Maryland?

  • 10:09:48

    MARTINOWell, there's been a number of stories. And I think that because this was the largest jackpot in the history of the world -- it ended up being $656 million -- it obviously captured the imagination of many Americans. I read where over the course of the drawing, the 19 drawings that led up to the $656 million jackpot, that $1.5 billion of Mega Millions was sold for this drawing. So, obviously, you know, it really captivated people. I think that we were also at a bit of a disadvantage on the rumor side because Sunday was April Fool's Day.

  • 10:10:32

    GJELTENYeah.

  • 10:10:33

    MARTINOAnd there were certainly not a shortage of Photoshopped tickets on Facebook and Twitter. And so probably on Sunday alone, we feel that -- I'd say 12 to 15 inquiries from the media asking about this person or that person. Ultimately, though, I can say that we have not been contacted by the winner. No one has contacted us who claims to represent the winner. And until the actual ticket comes to the lottery and we can verify it, you know, put it through our procedures, it is not a claimed ticket.

  • 10:11:06

    GJELTENAnd how many days do we have?

  • 10:11:09

    MARTINOUnder Maryland law, they have 182 days to claim a winning ticket, not just for Mega Millions but for all of our lottery products.

  • 10:11:15

    GJELTENAnd you said it's not unusual for someone to wait this long. Do you have any advice to winners? I mean, do you suggest that, in fact, they start to get their ducks in a row and hire a lawyer, et cetera, before they come forward?

  • 10:11:26

    MARTINOYeah, our advice is to get advice, seek counsel from an attorney, a financial adviser. Again, it's $105 million on the cash option. And, you know, we think that that would be prudent so that people can get organized. You know, after this, you know, people are going to hear from family they had -- that they haven't heard from in quite some time. They're going to hear from family they didn't even know that they had. And so it's something you need to be organized for. And so the advice we give is to get advice.

  • 10:11:57

    MARTINOWe wouldn't recommend any organization or individual over another. But we had two jackpot winners last year. One, a couple came in the day after they found out, bloodshot eyes. It was clear, I don't think, that they had slept at all since they had found out. And another, which was actually drawn on Christmas Eve, I think we heard about a week later from an attorney, a very prominent Mid-Atlantic law firm representing them. So it can be done either way.

  • 10:12:25

    GJELTENSure. Now, Sandra Hayes in St. Louis, you won the Powerball lottery in 2006. What was your experience? Stephen says you -- that the winners can expect to hear from relatives they never knew they had. What was your experience?

  • 10:12:40

    MS. SANDRA HAYESWell, that's absolutely true. I had relatives calling me from Atlanta, Ga., and I'm like, who are you?

  • 10:12:48

    GJELTENAnd what were they asking, Sandra? I can imagine that they needed a loan.

  • 10:12:53

    HAYESWell, a few of my relatives, they specifically asked for loans for like their pastor, et cetera, sums of $50,000 and various requests. What, you know, really got to me is the fact that people actually thought I was -- I should've split my money up with the family members, period. And I'm like, hey, that's not going to happen, period.

  • 10:13:20

    GJELTENMm hmm. Yeah. Did -- now, can I -- can we ask you how much you won?

  • 10:13:25

    HAYESWell, we won $224 million.

  • 10:13:30

    GJELTENMm hmm. And there were, what, like 12 of you that had to split that up, right?

  • 10:13:33

    HAYESWell, 13 people played, two people split a ticket, so actuality, yes. They had split the money up between 12 people.

  • 10:13:41

    GJELTENYeah. And we actually have a picture of you and your co-winners holding that big check on our website. So your share then, after taxes, came down to what?

  • 10:13:55

    HAYESIf I would have taken the yearly payout, it would have been 12.5. But since, most of us wanted our money now, it came out to basically less than six.

  • 10:14:07

    GJELTEN$6 million. Mm hmm.

  • 10:14:09

    HAYES$6 million, yes.

  • 10:14:11

    GJELTENRight, yeah. And did you seek advice like Stephen Martino is recommending that the winners of the Mega Millions lottery do? Did you seek advice, legal advice, financial planning advice?

  • 10:14:24

    HAYESWell, yes. Actually, everybody who played lottery and won knew we had won the lottery except for me. And so, actually, when I went to work that morning, the lottery commissioner was there, and he was advising us to go seek legal help. And it just so happened the person who bought the ticket had legal, you know, help set up for us already. And we all went to a Clayton office, and we've met with this attorney, particular attorney. And he gave us legal advice before the ticket was even validated.

  • 10:15:04

    GJELTENMm hmm. And so the author -- the title of your book, Sandra, is "How Winning the Lottery Changed My Life." How did it change your life briefly?

  • 10:15:13

    HAYESWell, I was able to retire at age 46.

  • 10:15:16

    GJELTENOK, that's good. And so it was -- it changed your life for the better in that sense?

  • 10:15:24

    HAYESYes. And it changed my life for the worse. I mean, for the first few years, I went through a lot of storms, and that's the term I use.

  • 10:15:35

    GJELTENStorms.

  • 10:15:35

    HAYESA lot of storms. Yes, storms. You're dealing with people. You're dealing with new situation or new way of life. You have to really understand who your friends are, who are not your friends, and you just basically -- you are rebuilding your life, period, not only your life, but the life of your family, the life of your children. Everything is new.

  • 10:16:00

    GJELTENYeah, I'm sure. And not always -- I'm sure it disrupts many of your relationship. You used the word storms, so you've had some stormy times as a result of coming into all that money.

  • 10:16:12

    HAYESThat's correct. And that's what the cover of my book represents, the sunshine and the darkness because it hurts to lose people who are your friends for a long -- over your lifetime, discover that, wow, basically now, all they want to do is use me to get what they can out of me. And it's like, I've never in my life asked you for financial help, you know, even though I was struggling. I mean, I've had to go to the food bank, et cetera. There's nothing wrong with it.

  • 10:16:49

    HAYESBut now that I have money, you are expecting me to become your knight in shining armor and deliver you from all your troubles? That's not going to happen 'cause I plan on keeping my money until the day I die.

  • 10:17:04

    GJELTENYeah. Do you regret winning the lottery?

  • 10:17:07

    HAYESNo, I do not.

  • 10:17:08

    GJELTENOK.

  • 10:17:09

    HAYESThat was a blessing for me.

  • 10:17:11

    GJELTENWell, I'm sure that many people who in -- many of whom are in desperate situations, hope that they have to face the dilemma that you have faced. Stephen Martino, you want to point out something here.

  • 10:17:22

    MARTINOI did. I think it's important to point out, especially within the context of the jackpots that were won on Friday night in Maryland and Kansas, that winners in both of those states can remain anonymous. There's not a requirement to do publicity.

  • 10:17:36

    MARTINOSo I think the -- when I made the comment about, you know, hearing from family that you haven't heard from for a while or that you didn't know you had, that obviously has to be kept in context that, at least in Maryland and in Kansas, the winner has the choice of whether to participate in compulsory publicity and -- or, I guess, it's not compulsory if you have an -- the decision to make. And both, in fact, of the jackpot winners in Maryland last year chose not to do publicity.

  • 10:18:10

    GJELTENMm hmm. Well, given what's happened to people like Sandra Hayes, that's certainly an understandable reaction. Now, we've been talking so far here about winners, what it's like for winners. I do feel compelled to point out that the chances of winning the Mega Millions lottery was something akin to the chance of being killed by a falling vending machine. So I think most of our listeners can safely assume they're not going to ever in their lives have to face the kind of dilemma that you and Sandra Hayes are talking about.

  • 10:18:41

    GJELTENWe're going to take a short break here. When we come back, we're going to talk about lotteries as a policy option for state governments that are facing tight budgets. You can join us. Call 1-800-433-8850. Short break. We'll be right back.

  • 10:20:04

    GJELTENWelcome back. I'm Tom Gjelten sitting in today for Diane Rehm, and we're talking about the Mega Millions lottery that finally produced a winner, or three winners actually, at the drawing last week, but also what lotteries mean for the individuals who take a chance, spend their money on a lottery ticket in the hopes that they're going to come in to riches, and for state governments who are increasingly depending on revenue from lotteries and other forms of legal gambling to cover some of the great fiscal needs that they have.

  • 10:20:39

    GJELTENAnd we have here in the studio Philip Joyce, who's a professor of management, finance and leadership at the University of Maryland School of Public Policy, and also in Albany, N.Y., Robert Ward, deputy director of the Rockefeller Institute of Government. Philip, let's begin with you. What we have seen, of course, a phenomenon here in the last five years or so where state governments are really strained fiscally. How important are lotteries and other forms of legalized gambling to these 43 states and the district that use them?

  • 10:21:13

    PROF. PHILIP JOYCEI think the answer is that they would definitely miss the lottery revenue if it disappeared. It's increasingly more important than it has been, but I think we should not confuse that with thinking that the lottery is actually a major source of state revenue. What lottery has brought in in 2009, which is the last year the census has date -- actually, 2010 -- now the census has dated, was about somewhere in the neighborhood of 2.5 percent of overall state general revenue from their own sources.

  • 10:21:45

    PROF. PHILIP JOYCEBut that masks the fact that there are some states where it actually is quite a lot more significant. As you can imagine in Nevada, for example, where -- which does not have a lottery but have substantial casino gambling with something like 12 percent of state revenues came from that source, and there are other states where it might approach 10 percent. But in the big states, it's usually around 2 percent.

  • 10:22:08

    GJELTENWell, if I'm not mistaken -- and correct me if I'm wrong -- West Virginia is a state where lotteries and legalized gambling are a very important source of revenue. Now, you know, a lot of people -- it may be a stereotype, but a lot people think about poverty when they think about West Virginia. I want to put this question to Robert Ward.

  • 10:22:25

    GJELTENThere has been a lot of criticism of lotteries as regressive-type attacks in that the people most desperate to win riches are the people who probably can least afford to spend their money on what is probably a very foolish chance. What's your view of that issue, that debate, Robert Ward?

  • 10:22:45

    MR. ROBERT WARDWell, it certainly is true that lower income people disproportionately buy lottery tickets relative to the overall population. On the other hand, it's a voluntary activity, so it is, you know, not the same as a tax, which people are required to participate in. I think the issue is our state's abetting, if you will, addictive gambling, whether it's through lotteries or casinos.

  • 10:23:12

    MR. ROBERT WARDWhat we have seen over the last 40 years is that, as governors and legislators have tried to balance budgets with more spending and without raising taxes wherever they can, they have increasingly turned to lotteries and other forms of gambling. And as we just heard, it is a relatively small share of overall state budgets. But if you are a governor or the chair of a finance committee and a legislature, when it comes time to adopt a budget, you're always looking for that last incremental piece of revenue to help close the gap for the coming year.

  • 10:23:47

    MR. ROBERT WARDSo that is often the circumstance under which we see states deciding to expand lotteries or open new casinos. Over the last couple years or so, we've seen a dozen of these pieces of legislation enacted. Ohio is opening casinos for the first time. Massachusetts is about to do that. New York is very seriously studying the possibility. So it's -- on the one hand, it's a, you know, again, from an elected policymaker's perspective, it's a useful piece of revenue.

  • 10:24:21

    MR. ROBERT WARDAnother question is whether it is really a net revenue gain or to what extent it is -- we are simply substituting that revenue for tax revenue that state otherwise would get when people are spending those dollars on other forms of entertainment or other consumer purchases.

  • 10:24:42

    GJELTENI imagine there's been research on what correlation there is between -- Robert -- revenue from lotteries and gambling in the time of shrinking economic activity. I mean, is there -- do -- are -- I said in the intro that revenues from lotteries and gambling are more or less recession-proof. Is that your conclusion as well based on research that you're familiar with?

  • 10:25:09

    WARDWell, they're not entirely recession-proof. There was a downturn in overall gambling revenue to states in fiscal 2009, at the time, of course when the great recession was having its most severe impact on consumers' purchasing power. Over time, it has been a steady increase from year to year. But a lot of that has been because states are almost continually opening new opportunities. What we see is that in New York, for example, over the last 10 years, the state has opened a dozen or so what are called racinos, which are places where you can go play slot machines on the grounds of long-established racetracks.

  • 10:25:54

    WARDAnd the state has picked up close to $1 billion in new revenue from those sources. Other states have enacted other expansions of gambling. So in the year when you open a new gambling facility or you create a new lottery game, you get something of a spike in revenue. From a long-term perspective, the concern is that gambling revenue does not grow steadily over time in the way that sales tax and income tax revenues do -- those being the two primary tax revenue sources for states.

  • 10:26:28

    WARDSo if you're thinking about balancing your education budget, for instance, over the long term or paying health care bills over the long term, gambling is not necessarily going to solve those problems for you.

  • 10:26:39

    GJELTENOK. I want to read an email from Larry, who says, "What do your guests say about the fact that state-sponsored lotteries are, in effect, a transfer of wealth from the poor, who are most likely to play, to the rich, who are less likely to play and whose taxes are reduced by amounts collected by the state on the winnings? This is bad social policy and is tax regressive." Philip Joyce.

  • 10:26:59

    JOYCEI would say that the research shows that that is true, but it is not universally true. And one footnote that I had to the previous discussion is that actually there's some interesting research out there that suggests that the bigger the jackpot gets, the less regressive the tax becomes. That is, the more higher income people and middle income people tend to play the lottery, the bigger the jackpot becomes.

  • 10:27:25

    JOYCEAnd one other note on Robert's point, I think the lottery is not recession-proof, but it did not experience the kind of reduction that the major revenue sources did. The sales tax and income tax were down about 10 percent during the same period of time, 2009 that the lottery revenues were only down by 2 percent.

  • 10:27:46

    GJELTENWell, if poor people are more likely than wealthy people to play the lottery, it's -- that would suggest that financial need drives the purchase of lottery tickets to some extent. So you think that that dynamic is more operative in times of recession than in times of prosperity?

  • 10:28:03

    JOYCEI would think that that's true. I haven't seen the specific research on that except to say that, you know, what you are really buying when you buy a lottery ticket is you're buying hope. And you may -- in times of recession, you may find yourself in a position of being a little more hopeful.

  • 10:28:22

    GJELTENStephen Martino, I'm sure that your government -- the government of Maryland is sensitive to these charges that this is bad social policy, that this is -- that this has a regressive effect, that it takes -- transfers money as one of our listeners said -- from the poor to the wealthy in a sense. How do you deal with those? What do you think of those issues?

  • 10:28:45

    MARTINOWell, it's obviously something that we're concerned about, and it's one of the reasons why, at least over the past two years since I've been the director, we've taken a very aggressive approach to responsible gambling and making sure that we had information out there that would be available to players who maybe have a gambling problem. We spearheaded a group of government agencies and not-for-profit providers to form what we call The Maryland Alliance for Responsible Gambling.

  • 10:29:13

    MARTINOWe now have the national toll-free problem gambling hotline, which is 800-522-4700, active in the state. But we've also -- I can only speak to Maryland. You know, from our research, two-thirds of Maryland players identified as having an incoming, a household income greater than $50,000 a year. Two-thirds of our players indicate having some college or, you know, four-year college degree.

  • 10:29:40

    MARTINOAnd I would certainly agree with the previous point that I think when you're talking about a $656 million dollar jackpot and the enormity of tickets that are purchased, you obviously have people coming into the lottery who had never played before, and that's going to include, you know, higher income people. And it's exactly right.

  • 10:29:58

    MARTINOYou know, at that point in time, people are playing for a dream. You know, the nature of lottery gambling is quite a bit different than casino gambling. You're wagering a very small amount of money against extremely long odds. In case of Mega Millions, it was $176 million -- or 176...

  • 10:30:15

    GJELTENMillion-to-one.

  • 10:30:15

    MARTINO…million-to-one for a very large payout, $656 million. And, you know, the lottery is ubiquitous. We've got 4,200 lottery retailers across the state of Maryland and at low price points. So lottery, I think, is different than casino-style gambling.

  • 10:30:32

    GJELTENCan you talk a little bit, very briefly -- break down how much Maryland took in from the Mega Million lottery itself and how that -- what you then -- how that money was used, how it was distributed, whether -- what you had to share with other jurisdictions, what the money was spent for, et cetera?

  • 10:30:50

    MARTINOSure. Just a few numbers, but on Friday alone, we sold $11.8 million of Mega Millions tickets. We are roughly a -- 30 percent sales go to revenue, which is money that is ultimately transferred to the state general fund of Maryland. So, you know, kind of back of the envelope, that's, you know, around $4 million on Friday alone. That Mega Million is generated for all of the good causes of the state of Maryland.

  • 10:31:16

    MARTINOAnd, you know, that's K-12 public education, higher education, environmental programs, social services. In fiscal year 2011, which ended June 30 of last year, the Maryland lottery sent $519 million to the state general fund. That's a general fund of $13.5 billion for that fiscal year. We're the fourth largest source of revenue for the state after sales, corporate and income taxes.

  • 10:31:41

    MARTINOSo, you know, lottery and gaming is not, I don't think, recession-proof. I think the great recession has proven that. But it's recession-resistant. We've had 14 straight years of record growth in sales. So, you know, it's obviously an important part of the public policy budget picture in the state of Maryland.

  • 10:32:03

    GJELTENBut the revenue from the lottery in Maryland is not earmarked for particular expenditures. The bulk of it just goes into the general fund, you say.

  • 10:32:12

    MARTINOThat's correct. Unlike a lot of states that will designate public education or some other effort, Maryland's lottery revenues go into the state general fund.

  • 10:32:24

    GJELTENI'm Tom Gjelten. You're listening to "The Diane Rehm Show." Philip, what is the record of other states here? Has this really made any difference, for example, for education, which is something that a lot of governments promote the idea that lottery revenue goes to support education? Education, in particular, has been really hit in recent years. How much has lottery helped education expenditures across the country?

  • 10:32:47

    JOYCEThe research suggests that it is very hard to draw any direct relationship between lottery revenues and, for example, increases in education funding. Many states that have lotteries that earmark them for education simply say that, that the money is earmarked to go to K-12 education, for example. But states spend a lot of money on K-12 education. I used to do revenue estimates for the lottery in Illinois, and so I looked at the Illinois situation yesterday.

  • 10:33:14

    JOYCEIllinois took in $647 million from the lottery last year, spent $10 billion on elementary and secondary education. It'd be hard to prove that that $647 million was an increase in what they otherwise would have spent. So I think it's more of a marketing device than anything, the suggestion that money goes to education or senior assistance programs or any other earmarked purpose.

  • 10:33:39

    GJELTENSandra Hayes out there in St. Louis and the lucky winner of a Powerball lottery in 2006, do you tell your friends and family now, Sandra, to -- do you recommend that they buy or not buy lottery tickets? Do you -- has your experience sort of led you to have a position on the wisdom of lotteries and participating in them?

  • 10:34:02

    HAYESWell, you can't win if you don't play. So my position is -- I mean, yes. To me, there's nothing wrong with, you know, when the pot is up high, to spend a dollar -- now Powerball costs $2 -- to play.

  • 10:34:18

    GJELTENMm hmm. Yeah. Now, you said that you, in your own experience, you actually had to go to food banks for a time. You knew what it was like to live under bad financial conditions. But you never -- am I correct? You never spent, you know, sort of too much irresponsible -- irresponsibly on lottery tickets, even when you were really in -- having hard times?

  • 10:34:39

    HAYESNo. As a matter of fact, when I won in 2006, that was my first time playing lottery with my co-workers. I never played before with my co-workers.

  • 10:34:55

    GJELTENMm hmm. Did you have any issues with your co-workers since splitting up the money? Have you stayed close?

  • 10:35:03

    HAYESI had no issues. We made copies of the tickets. Everybody received copies of the copy, so we knew exactly what was played. After we won the lottery, we did -- we hung out for about two years. We will meet around Christmastime and have lunch together. So now I still talk to some of the winners. We call each other on the telephone, and we try to remain fairly close.

  • 10:35:33

    GJELTENMm hmm. Robert Ward, at the Rockefeller Institute of Government, do you see any policy issues emerging here, any difficult choices that state governments need to confront as they consider how much emphasis to put on lotteries or other forms of legalized gambling here?

  • 10:35:54

    WARDWell, I think the big question is what would be happening if the states were not promoting gambling? Back, you know, before the modern rise of modern lotteries in the '60s and '70s, we probably had a lot more gambling going on illegally, associated with criminal activity. So, to the extent that we have moved this piece of the economy or a large part of it out of an element of criminality, that's a good thing.

  • 10:36:24

    WARDOn the other hand, research shows that the more easily people can find access to a casino or gambling kind of activity, the more likely it is that they will engage in it. And, obviously, that simply makes sense. So I don't think we can escape the conclusion that by actively promoting gambling, states have created more gambling addiction and more of the very severe negative impacts for a relatively small, you know, percentage of the population, but probably many thousands of individuals.

  • 10:36:59

    WARDSo that's the balance that we are striking. And I think it can also be said that we do need to know a lot more about each of those pieces. We don't really have real clear answers on -- to what extent have we eliminated the -- what used to be the bad side of gambling that went on in a criminal environment and, you know, would be associated with violence and things like that, compared to the -- both the cost and benefits of state-sanctioned gambling.

  • 10:37:38

    GJELTENRight. Robert Ward is deputy director of the Rockefeller Institute of Government. He's with us from Albany, N.Y. We're going to take a short break. When we come back, your phone calls and comments. Stay listening.

  • 10:40:04

    GJELTENWelcome back. I'm Tom Gjelten, sitting in today for Diane Rehm. And we're talking about lotteries. The Mega Millions jackpot last week reached $656 million, the largest lottery in history. It's no surprise that a lot of people wanted to take their chance at it.

  • 10:40:24

    GJELTENMike wrote in to our website: "I played. I Put in $10. I didn't expect to win, and I didn't. But the fun of fantasizing about winning was better than any movie, book, or video game. For a majority of the people, playing the lottery is entertainment, even a social event, how many people got into a lottery pool at work or in neighborhoods and actually talked to each other about what they would do if they won and probably about other things, too."

  • 10:40:47

    GJELTENOn the other hand, Tim writes: "As an occasional lottery player, whose large jackpots are in the offing, I am probably typical of those who dream the impossible. As a Marylander, I see another ugly side of the state-run lottery: People who can ill afford to lose any money. They have routinely lost and daily gamble away huge amounts of money. It's a tax the state profits handsomely from. I see a conflict between a state that needs to ensure the solvency of its citizens and the false promises of instant riches with which it siphons off money from the poor."

  • 10:41:22

    GJELTENPhilip Joyce is with us, professor of management and finance at University of Maryland School of Public Policy. Philip, you were making an interesting point during the break about how we should think about this issue of people spending money sort of foolishly on lottery tickets.

  • 10:41:40

    JOYCELook, I'm very sensitive to the plight of state governments. I mean, the fact is that state governments have to get money from somewhere. If you look all over the country, there are legislators and there are governors who have sort of taken the pledge never to raise taxes.

  • 10:41:55

    JOYCEWell, if you're not going to raise taxes on the main tax sources that you have and you have to get the money from somewhere, and if that is the lottery, if I was somebody like Stephen Martino, then I would think it was my job to market the lottery, to get people to buy lottery tickets in order to return more money to the state, in order to finance essential state services.

  • 10:42:16

    JOYCESo, you know, I think that we can argue about whether there should be lotteries or not or whether they were aggressive or not. But the fact is, if we have them, they do contribute to state revenues, and they contribute to state revenues in order to finance those essential state services.

  • 10:42:34

    GJELTENAnd at a time when people are so resentful of having to pay more and more in taxes, this is one that they really can't complain about, is it?

  • 10:42:40

    JOYCERight. It's -- I mean, you can look at it as a voluntary tax. Now, you know, to be fair, it is a voluntary tax that we actually work hard to try to convince people to pay because we are marketing the lottery. We're trying to get people to buy lottery tickets. But in the end, it is a voluntary tax in the way that the sales tax or the income tax is not.

  • 10:43:00

    GJELTENI want to remind our listeners that we have out in St. Louis Sandra Hayes, who won the Powerball lottery in 2006, and I'm betting that some of you may have questions for her, some of you who are lottery players yourselves. But first, let's go to Brian, who's on the phone with us this morning from Pensacola, Fla. Good morning, Brian. You're on "The Diane Rehm Show."

  • 10:43:18

    BRIANHi. Good morning. How are you?

  • 10:43:20

    GJELTENGood.

  • 10:43:21

    BRIANHey, I'm -- I was just curious. The amount of states -- do you think more people would be apt to play more in the lottery if the lottery -- respective lotteries were more open about exactly where all the money goes? I know I would be moving to play the lottery more even if my chances are slim to none. I could at least look at my losses as going to further education or better our state highways. Do you think that if people are more open about how much money they brought in and the percentages of the money that went to those programs, more people would play and not feel as badly?

  • 10:43:58

    GJELTENLet's put that question to Robert Ward, who's the deputy director of the Rockefeller Institute of Government. He's in Albany. What do you think, Robert? Would people -- does it make any difference to a potential lottery ticket buyer how they expect that money to be used?

  • 10:44:12

    WARDWell, I guess there are some people who feel a little better about, you know, potentially "wasting" their -- the cost of their lottery ticket if they think the came are going to their kids' schools, for example, and that's fine. The reality, I think, is that if I'm a governor or a legislator, I look at the overall revenue pot as something to be distributed among the many programs that I need to pay for. And here in New York, for example, our state constitution says that the lottery proceeds will go to education.

  • 10:44:43

    WARDI use to work on the staff of the Assembly Ways and Means Committee, and I don't think anybody would say that there is a direct pipeline from lottery tickets into our state's public schools. It really is a certain amount of increase in the overall revenue that is distributed as part of the overall budget. And again, I think the other question is to what is extent is that a net gain. We don't have a real good handle, I think, yet on to what extent those revenues would otherwise be gained through the sales tax or through other taxes if the lottery did not exist.

  • 10:45:22

    GJELTENWell, speaking of New York, we actually have a caller on the line from Cortland, N.Y. Larry, you're on "The Diane Rehm Show." Good morning.

  • 10:45:30

    LARRYGood morning, Tom and your guests. I am a New Yorker, who spent a lot of time in education, and I've never bought a lottery ticket at New York State because I feel that a big betrayal occurred. In 1966, New York held a referendum on whether or not we should have a lottery with the promise that the proceeds would go exclusively to education. It was a clear earmark, and 60 percent of New Yorkers voted for it. And that's why we got one of the oldest lotteries around.

  • 10:46:04

    LARRYAnd over time, what had happened is that that money has been turned over to the general revenue. And the money has not been used for public purposes but for commercial needs, developing manufacturing industries, building churches, et cetera. So the -- it was a bait-and-switch process by which the people were convinced that this would be good for the state and good for education. But now, in my judgment, it's a disastrous way for -- as your Pensacola caller said, for so many impoverished people I always see buying tickets for lotteries.

  • 10:46:41

    LARRYIt's not rational. It's not a good way for money to be spent within the state. And I passionately wish that we had never indulged in the lottery. So thank you for letting me have my say.

  • 10:46:54

    GJELTENOK. Well, thanks for...

  • 10:46:55

    LARRYI'll stay on the line in case -- yeah.

  • 10:46:56

    GJELTENThanks, Larry. What do you think, Philip Joyce? Is this a legitimate issue? I'll also put that question to Robert, but first to you, Philip.

  • 10:47:04

    JOYCEWell, I think it is a legitimate issue but for the same reason that I suggested before, which is that if you say that it's going to go to something, the lottery revenues, that the state already spends a lot of money on, then there is this concept in budgeting, and probably elsewhere, called fungibility. And it essentially means that, you know, if you take something that's an earmark revenue and you put it into one thing, you can then take money that you already spending on that and spend it on something else.

  • 10:47:30

    JOYCEI think that that is likely what occurs in many cases. I do have one important footnote, which is that there are states that have started lotteries and earmark funds for very specific new programs that did not exist prior to the lottery. In the case of Georgia, for example, there was something called the HOPE Scholarship, which was for people who were going to go to college in Georgia.

  • 10:47:53

    JOYCEAnd the research on that suggests that, in fact, there is money that exists for that scholarship program that arguably would not exist were it not for the lotteries. So that's not a sort of general earmark to education but something for a specific education program.

  • 10:48:10

    GJELTENAnd, Robert, did you have anything to add about Larry's point that -- or argument that, in the case of New York, it was actually a broken promise?

  • 10:48:18

    WARDWell, there certainly was that promise, and I think it's fair to say, again, that the dollars do not go strictly to public schools. So, if you want to call that a broken promise, I probably wouldn't argue. I guess I would broaden that point and say that politicians generally aren't interested in cost-benefit analysis with regard to, you know, any of the major enterprises of government. And this is one area where we ought to think along those lines more than we do, and the same is true of every sphere of government activity.

  • 10:48:52

    GJELTENOK. Let's go now to Michael, who's on the phone from Dallas, Texas. Good morning, Michael.

  • 10:48:57

    MICHAELGood morning.

  • 10:48:58

    GJELTENYour comment.

  • 10:48:59

    MICHAELThanks for having me on. Mine is representative of what the last man just said that the broken promise here in Texas is definitely here, and it is a broken promise. And my only concern is who really -- everything that everybody said today has been mostly positive. So who really gets hurt by this? The person that stands in front of me for five minutes in a convenience store and buys ticket after ticket. And is that socially good? Is that socially a benefit to the people that do that sort of thing? Are they spending money on tickets and not buying good food? I guess that's the question.

  • 10:49:56

    GJELTENYou know, you could probably -- though, Michael, you could probably make the same argument about people in line to buy Twinkies or to buy cigarettes or something like that. I mean, it's probably not a good idea for them to spend money on that either, but we're not...

  • 10:50:08

    MICHAELI definitely agree. I definitely agree. I just want -- it's the -- it's that it's sanctioned by the state is what I'm concerned about.

  • 10:50:17

    GJELTENRight. OK. All right. Stephen Martino, this question comes up and up again. Two questions actually, first, the one about broken promises. Perhaps states, in the interest of transparency, should just say from the beginning the money is going to the general fund. It's not been earmarked for anything then people wouldn't feel betrayed. And second, what about this issue of the state sanctioning stuff that's not good?

  • 10:50:39

    MARTINOWell, we have in some ways in Maryland thought that we've been disadvantaged from a marketing perspective by not being able to say that our money goes specifically to one particular effort, be it K-12 public education or senior assistance like it does in Pennsylvania. I wonder though if maybe in long term we're better off having the money go into the general fund, that it is a more accurate and transparent way of dealing with it.

  • 10:51:04

    MARTINOI think that, you know, part of the issue is that -- and obviously, going back, I mean, the caller from the New York where the vote was taken in the 1960s where it was anticipated that lottery revenues were going to supplement existing funds for a particular effort, and I think, you know, obviously, education in that case. But as state budgets have become more distressed, it's no longer a supplement of funding that existed at the time the lottery was created but rather it's now replacing funds that were there.

  • 10:51:34

    GJELTENRight. And you would agree with that, that transparency -- I mean, you made the point, Philip, that fungibility means that earmarks are irrelevant. I mean, you can say you going to spend it on education, but if you didn't say that, education expenditures would still take place.

  • 10:51:47

    JOYCERight. I have to say that I was looking at various lottery websites in preparing for this, and it made me proud to be an employee of the state of Maryland that the state of Maryland was as transparent as it is, which is to essentially say that the money goes to "help advance many essential services." And, you know, that's unalterably true. I mean, you know, you cannot argue with that. Whereas, if you start to suggest it's going to support education, of course, it's also true that's going to support education, but not if you believe it means it's somehow a supplement to what education would otherwise get.

  • 10:52:25

    GJELTENI'm Tom Gjelten. You're listening to "The Diane Rehm Show." And let's go now to Megan, who's on the phone from Winston-Salem, N.C. Good morning, Megan.

  • 10:52:35

    MEGANHi. Good morning. My question is we had talked about the -- it being kind of a voluntary tax. You know, when you're gambling, you're putting the money towards education. Well, if it's voluntary tax, you know, and you're spending so many, you know, maybe somebody spends several hundred bucks a year, would that be a tax write-off? 'Cause if you were to bypass the lotto and just donate that money to education or, you know, social services or whatever, you could get some kind of a tax write-off. So my question is how does that really fit in with the gambling?

  • 10:53:04

    GJELTENWell, that's a good point, isn't it, Robert Ward? I mean, if you pay taxes, taxes are deductible expense.

  • 10:53:10

    WARDWell, they're not deductible in that sense. I believe that gambling losses, at least in some circumstances, can be deductible. I would hate to think that anyone would have such a significant number of dollars lost to the lottery that it would mean much on my income tax return, but...

  • 10:53:28

    GJELTENWell, she mentioned spending $200 a year on tickets, which -- that's not going to save you much in taxes, is it? Well, I guess it'll save you $30 or something. Philip.

  • 10:53:42

    JOYCEYeah. Well, I think it's true. And I think when you have to, you know, when you're buying lottery tickets, you actually are buying, you know, is -- I mean, I agree with the one caller that said it's a form of entertainment. I mean, I'd actually like to believe that most people don't think they're going to win, that most people, when they see that big number, the odds, they think this really is something that I have a very slim chance of winning.

  • 10:54:05

    JOYCEBut I am buying something. I'm buying the sort of entertainment value of sort of hoping that I might win. And in that sense you could argue that the lottery is getting you something that perhaps just paying more on taxes would not give.

  • 10:54:15

    GJELTENStephen Martino, just before coming on the air, I checked out your website and the Maryland Lottery website. There's all this stuff in there about how to spend your -- what to do with your money, how to plan for retirement, et cetera. It certainly gives the idea that you have a reasonable chance of winning, not reasonable chance, but a chance of winning.

  • 10:54:31

    MARTINOWell, I think actually one of the things that we have really tried to reinforce is that the lottery is entertainment, and it should be used for discretionary purpose or discretionary funds only. People should not look to the lottery as a source of income. And I read my mail, and I've received letters from people saying, can you, please, have a certain pick three or pick four number hit because that's, you know, how I intend to make my, you know, mortgage payment or make the, you know, have money for food.

  • 10:54:56

    MARTINOAnd we have sent people information about how to get help because that is not how the lottery should be played. It is a form of entertainment, and it can be done at very low price points. And I think that's why lotteries have faired well compared to casino gambling because you can't go into any, you know, 4,200 retailers, buy a, you know, a lottery ticket for 50 cents or a dollar. And it's a very inexpensive form of entertainment.

  • 10:55:20

    GJELTENWell, let's just finish up here with you, Sandra Hayes in St. Louis. Just tell us a story about the downside, some of the bad things that did happen to you. You spoke generally about that before, but give us a brief little anecdote of one particularly unfortunate thing that you had to deal with as the winner of the Powerball lottery in 2006.

  • 10:55:38

    HAYESWell, the story I always tell is the story of a neighbor of mine who I've known for years. She came to my house and asked me to pay her taxes on her home. She stated that this is year number three, and if I do not pay my taxes, I'm going to lose my home. And I knew, from the way she was acting, her bodily expression, that something was going on. She couldn't look me straight in the eye. So I told her, well, basically, I'll think about it.

  • 10:56:04

    HAYESAnd after she left my home, I did research on the computer. I found a public website that showed me the taxes that were due on her house, and I discovered that she owed no taxes. And basically, I printed out that page, and I mailed it to her.

  • 10:56:22

    GJELTENWell, good for you, Sandra. That was a smart thing to do. I wish all the lottery winners were as thoughtful and as well-versed in how to handle their winnings as you were. Sandra Hayes, she is the author of "How Winning the Lottery Changed My Life: A Blessing or a Curse?" We've also been joined by Robert Ward, deputy director of the Rockefeller Institute of Government. He's -- he was in Albany, N.Y.

  • 10:56:45

    GJELTENPhilip Joyce, professor of management, finance and leadership at the University of Maryland School of Public Policy, and Stephen Martino, the director of the Maryland Lottery. Thanks to all of you for joining us. Thanks to our listeners for calling in. I'm Tom Gjelten. Thanks for listening.

  • 10:57:01

    ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture, Monique Nazareth, Lisa Dunn and Nikki Jecks. The engineer is Erin Stamper. A.C. Valdez answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is drshow@wamu.org, and we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.

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