2023 Legislative Session, Worker Freedom

The Half-Hearted Head Feint for a State Lottery

Geoffrey Lawrence

Few ideas have been rejected more frequently by the Nevada Legislature than a prospective state lottery.

At Nevada’s founding in 1864, the state’s predominantly Mormon population believed gambling was sinful and that a state lottery would invite corruption, so Nevada’s framers banned the idea within the original constitution.

Since then, lawmakers have proposed constitutional amendments to allow for a state lottery about two dozen times – all without success.

This year, however, the idea of state lottery has found renewed support within the legislature. Some Assembly Democrats have proposed a new amendment to authorize a state lottery, and even Assembly Speaker Steve Yeager has spoken favorably of the measure. This comes after no proposal had even been offered in eight years.

So why the sudden about-face?

Proponents say they will dedicate any lottery proceeds toward mental health services for Nevada’s youth. Whatever the worthiness of that cause, this proclaimed intention isn’t included in the legislative language, and lawmakers could easily wind up using proceeds for anything they wish.

Instead, it appears legislative Democrats are carrying water for a key political ally – the Culinary Union.

The union, which purports to represent casino workers’ interests, is widely credited with having carried Sen. Harry Reid to re-election in 2010 despite deeply negative public opinion toward him by initiating a massive campaign and busing operation to get workers to the polls.

The so-called “Reid Machine,” centering on Culinary, has formed the backbone of Democratic politics in Nevada ever since.

Not coincidentally, Culinary is currently re-negotiating union contracts with Southern Nevada casinos as the existing agreements expire in May.

On its website, the union not so subtly ties its support of the lottery proposal in the legislature to its positions in these contract negotiations as an apparent threat to casino operators who would presumably lose some revenues to a state lottery.

Also, Unite Here, the parent organization of the Culinary Union, has been critical of how casino operators have spent profits. Clark County casinos posted record revenues last year and expect another strong year in 2023. Unite Here is unhappy that sector employment is essentially flat compared with nearly 30 years ago.

Despite union bleatings, analysis has shown that lotteries have serious flaws. In 1987, the legislature commissioned an expert review of the state’s revenue structure that remains the most comprehensive and authoritative fiscal analysis in state history.

The consultants, Urban Institute and Price Waterhouse, evaluated the state’s existing tax instruments and compared them to a wide array of potential alternatives. Among the many issues they considered was a lottery, to which they devoted an entire chapter. The experts concluded that a lottery should not be considered for Nevada for four reasons:

  1. Lotteries do not generate significant revenues. Indeed, lottery proceeds account for less than 3 percent of tax revenues in states that administer lotteries;
  2. Lottery revenues are highly volatile. Revenues have increased by as much as 250 percent year-over-year and then declined by as much as 50 percent year-over-year. This level of volatility makes fiscal planning highly difficult, particularly in tourism-dependent states like Nevada that are already vulnerable to volatility;
  3. Lotteries are regressive. Lottery tickets tend to be purchased primarily by individuals on the lower end of the income scale. Lottery spending is concentrated heavily among the bottom third of income earners. (In addition, while only an extremely rare few ever win, a shocking 70 percent of winners wind up going bankrupt within seven years due to a lack of financial sophistication.); and
  4. In Nevada, a lottery would compete directly with the private sector. The state already has an interest in the success of its private-sector gaming establishments, since gaming taxes still account for about one-third of state revenues. Keno, in particular, operates similarly to a lottery.

The legislature’s experts concluded, “A state-run lottery fails every test of a ‘good’ tax policy. In Nevada, gaming should be left to the private sector.”

So what’s changed? Nothing, other than the Culinary Union’s recognition of an opportunity to strong-arm casino owners by threatening to support legislation that could cut into the latter’s proceeds.

While the union’s ability to seemingly manipulate elected officials at will is perhaps something to behold, it’s likely that the debate for a state lottery returns to the dustbin of history before the legislature concludes its business in June.

This proposal has all the makings of a half-hearted head fake.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.