Why Does Steve Grossman Hate the Poor?

The Boston Foundation has put out an interesting document: City of Ideas: Reinventing Boston’s Innovation Economy. In it, they conclude that that state lottery (run by treasurer Steve Grossman) is a drain on poor communities, returning far less in local aid then their citizens pay in.

In Saturday’s Globe, op-ed writer Renee Loth picks up the theme, noting that:

Exacerbating the trend [toward disproportionate taxation of the poor] is the state lottery — basically a kind of voluntary taxation. The top 20 communities in lottery sales — mostly low-income towns like Chicopee and Lynn — contributed $1.25 billion more in 2011 than they got back in unrestricted local aid.

What’s missing from this analysis is an understanding of how the lottery works. For every dollar the lottery collects, approximately 74 cents is paid out in prizes. A few cents go toward administration, and the remainder is paid out in state aid. Therefore, no municipality is likely to get an aid allocation that is close to what its citizens paid in.

Lottery aid is allocated on the basis of the inverse of per capita property value, in an (occasionally misguided) effort to allocate benefits equitably. The detail of the Boston Foundation report acknowledges as much — saying the top 20 communities for lottery sales (who are below the median per capita income for the state) account for 40 percent of lottery purchases yet they receive almost 50 percent of the aid. It’s hard for me to see the gross inequity in that arrangement.

So, is the lottery a horrible plot by Grossman to drain poor communities of money? No. It’s always going to pay out in aid less than it takes in, but players are going to get some portion of that 74 cents on every dollar that is returned in prize money. The formula based on property wealth as opposed to some other measure might bear some scrutiny but the position of the Boston Foundation report reflect a misunderstanding of how the Lottery works.

Crossposted at Pioneer Institute’s blog.