State of Lotteries (Jeff Hankins Publisher's Note)

Tom Garrett of the Federal Reserve Bank offers an interesting overview of trends and policy issues related to state lotteries that is void of the typical moral debates that we usually hear.

The option of establishing a lottery in Arkansas never came up during the recent legislative session, but Garrett made a pretty good economics case against the concept at the University of Arkansas at Little Rock Economic Forecast Conference two weeks ago.

States that have lotteries typically earmark the funds for a special program, and more often than not education is the beneficiary. Garrett says research shows that this actually does not lead to higher expenditures on the targeted program because state legislatures tend to shift general revenue away from it. He cited Missouri as an example of this.

A chart showing percentage changes in lottery sales indicates this revenue can be a budgetary nightmare for states because of the volatility. The big growth years for lotteries were 1975-86, except for the 1980 recession period. Growth in lottery revenue is small now because of the growth of casino gambling options.

In 2003, states generated $45 billion in lottery sales. But the net revenue to states after winner payouts (50 percent) and expenses was only $14 billion — a 31 percent takeout rate. That number would actually be higher in states like Arkansas that would collect income tax on those winnings, and it's also a boon to the federal government with its taxation of the $22.5 billion in winnings.

I loved this statistic: States generally require themselves to pay out 50 percent of the revenue they take in for lottery winnings. But the average gambler payout that states require of casinos is 85 percent. How about those odds?

Overall, Garrett said, public excitement over lotteries isn't what it used to be, there's much more competition from casino gambling and there's more competition from neighboring states with gambling options.

It's hard to imagine Arkansas ever jumping into the lottery arena, mostly because of the inevitable moral and social issues that are raised. The concept almost seems passé from a business standpoint. Giving Garland and Crittenden counties the option of expanding gambling at Oaklawn Park and Southland Greyhound Park — which was approved by the Arkansas Legisla-ture — at least has potential tourism impact value.

Economic Outlook

John Shelnutt, in his last forecast for UALR before joining the Arkansas Department of Finance & Administra-tion as its lead outlook expert, delivered a fairly stable picture for the state.

He expects employment and personal income numbers will continue to improve this year. Job growth will likely slow down in 2007, mostly as a result of more manufacturing job losses though not nearly at the level of loss we experienced from 2001-03.

A few other highlights from both state and national forecasts:

• The new best-case scenario for oil prices over the next four years is $45 a barrel for crude oil. That's not going to be much relief from where we are now on gasoline prices.

• The target federal funds rate of 4 percent means we'll be in the 7 percent range for short-term interest rates by the end of the year. The 30-year mortgage rate will follow toward 7 percent.

• Travel and tourism in Arkansas continue to recover and expand. Recent numbers on hotel and restaurant receipts in Little Rock already show short-term impact from the Clinton Presidential Library.

• The lack of a rebound in manufacturing will hurt rural Arkansas proportionately more than urban areas. This is where landing an auto manufacturing facility in eastern Arkansas could be critical.

• Northwest Arkansas continues to be the huge economic driver for the state, particularly in job, income and tax revenue growth.

(Jeff Hankins can be reached via e-mail at