Earmarked lottery profits: A good bet for education finance?

Journal of Education Finance

Volumn 31, Issue 1, 2005, Pages 23-44

  Novarro, Neva K ^a  

^a Department of Biology   (United States)

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EID: 33746047458     PISSN: 00989495     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (33)

1. Fiscal Planning Services Inc., Dedicated State Tax Revenues: A Fifty-State Report (Bethesda, MD: Author, 2000).
2. National Association of State Budget Officers, 2000 State Expenditure Report (Washington, DC: Author, 2001).
3. W.W. McMahon and C. M. Sprenkle, "Earmarking and the Theory of Public Expenditure," National Tax Journal 25(2) (1972): 229-230;
4. E. Y. Deran, "Earmarking and Expenditures: A Survey and a New Test," National Tax Journal 18 (1965):354-361;
5. W.McCleary, "The Earmarking of Government Revenue: A Review of Some World Bank Experience," World Bank Research Observer 6(1) (1991): 81-104.
6. J. M. Buchanan, "The Economics of Earmarked Taxes," Journal of Political Economy 71(5) (1963): 475-469;
7. E. K. Browning, "Collective Choice and General Fund Financing," Journal of Political Economy 83(2) (1975): 377-390;
8. C. J. Goetz, "Earmarked Taxes and the Majority Rule Budget Process," American Economic Review 58 (1968): 128-136.
9. J. L. Mikesell and C. K. Zorn, "State Lotteries as Fiscal Savior or Fiscal Fraud: A Look at the Evidence," Public Administration Review 46 (1986): 311-320;
10. M. O. Borg and P. M. Mason, "The Budgetary Incidence of a Lottery to Support Education," National Tax Journal 41(1) (1988): 75-85;
11. M. O. Borg and P. M. Mason, "Earmarked Lottery Revenues: Positive Windfalls or Concealed Redistribution Mechanisms?" Journal of Education Finance 15 (1990): 289-301;
12. S. R. Stark, C. Wood, and D. S. Honeyman, "The Florida Education Lottery: Its Use as a Substitute for Existing Funds and Its Effects on the Equity of School Funding," Journal of Education Finance 18 (1993): 231-242;
13. C. I. Spindler, "The Lottery and Education: Robbing Peter to Pay Paul?" Public Budgeting and Finance 15(3) (1995): 54-62;
14. S. R. Summers, D. S. Honeyrnan, J. L. Wattenbarger, and M. D. Miller, "An Examination of Supplantation and Redistribution Effects of Lottery Allocations to a Community College System," Journal of Education Finance 21 (1995): 236-253;
15. V. Q. Land and M. H. Alsikafi, "A Lottery's Impact on Instructional and Noninstructional Expenditures and Unrestricted Revenues for Education," Journal of Education Finance 25 (1999): 149-174;
16. T. A. Garrett, "Earmarked Lottery Revenues for Education: A New Test of Fungibility," Journal of Education Finance 26 (2001): 219-238.
17. M. O. Borg, P. M. Mason, and S. L. Shapiro, The Economic Consequences of State Lotteries (New York: Praeger, 1991);
18. O. H. Erekson, K. DeShano, G. Platt, and A. L. Ziegert, "Fungibility of Lottery Revenues and Support of Public Education," Journal of Education Finance 23 (2002): 301-312.
19. M. M. Glickman, State Lotteries: Boon or Bust for Education? dissertation, University of California at Berkeley, 1997.
20. States often describe profit maximization in their lottery mission statements printed in their annual reports and lottery legislation. See also T. A. Garrett, "The Leviathan Lottery? Testing the Revenue Maximization Objective of State Lotteries as Evidence for Leviathan," Public Choice 109(1-2) (2001): 101-117.
21. Table 1 does not include South Carolina, North Dakota, and Tennessee, all of which initiated lotteries after 2000. See appendix for details.
22. Specifically, New Jersey's lottery profits can be used for education and state institutions; West Virginia earmarks funds for seniors, education, state parks, and tourism; and Oregon's funds benefit economic development, education, and natural resource programs. In these three states, the legislature or treasury department has discretion over the division of profits between these categories.
23. State personal income taxes and sales taxes account for the largest percentages of state general funds at 41.6% and 33.3%, respectively, according to the National Association of State Budget Officers, 2000 State Expenditure Report (Washington, DC: Author, 2001).
24. States fund the remaining 26.0% from federal funds, 24.0% from earmarked funds, and 1.9% from bonds according to the National Association of State Budget Officers, 2000 State Expenditure Report (Washington, DC: Author, 2001).
25. National Association of State Budget Officers, 2000 State Expenditure Report (Washington, DC: Author, 2001).
26. Current educational expenditures do not include capital expenditures for education. Capital expenditures are lumpy, and the politics of bond issuance may differ significantly from the politics of current expenditure budgeting. Therefore, the analysis here focuses on current expenditures. Results including capital expenditures are qualitatively the same and are available upon request.
27. Ideally, the education lottery profits category would be narrowly defined to include only profits ear-marked for K-12 expenditures. A second method attempts to create this more narrowly defined category by treating a fraction of lottery profits in each state as earmarked solely for K-12 education based on exogenous state budget information. Results using this second method are qualitatively similar and are available upon request.
28. The difference between the Census Bureau data and the state data for these eight states, excluding Oregon, averages 7%, with a median difference of 3%. The Census Bureau's Oregon data are unreliable in recent years because of an accounting error in which the video lottery profits were doubled. (Personal e-mails from Debra A. Spinazzola, Census Bureau, Governments Division, 7/2/02 and 10/3/02.)
29. Donna Hirsch, Governments Division, U.S. Census Bureau provided these data (7/16/02).
30. For each regression run, robust standard errors are calculated
31. The number of years before the lottery time trend is defined to equal -1 in the first year before lottery adoption,-2 in the year before that, and so on. The number of years after the lottery time trend equals I in the year of lottery adoption, 2 in the lottery's second year, and so on.
32. For states that do not operate lotteries, each of these dummy variables is set to zero. The variable "1-5 years before lottery" is constrained to zero in every year for each state in order to avoid perfect colinearity in estimation.
33. Although profits per student increase over time on average, results for individual states such as California differ. See http://www.ed-data.k12.ca.us/ articles/article.asp?title=lottery.