While I loved spending a few days back home in Chicago this week, it was depressing to see how decades of mismanagement of the city and the State continue to take a toll on citizens and businesses. The latest absurdity is the announcement by the Illinois lottery that anyone who wins more than $600 will simply get an IOU for their winnings due to a lack of cash. Yet, the state is still encouraging citizens to play the lottery.
Illinois politicians spent decades destroying the economic well-being of the state. Among other things, politicians (including many still in office) yielded to demands for higher and higher public pension plans that ultimately bankrupted the state and city treasuries. They simply kicked the can down the road: grabbing political donations and votes from powerful unions while giving little thought to the economic implications. Now there is a budget impasse that has stopped payment not just on lottery payments but such things as wrongful conviction awards. Springfield is fighting over how to make tough decisions on the budget after decades of reckless spending.
Chicago has been particularly crippled by corrupt and wasteful policies of the Dailey Administration and later politicians, as with the disastrous give-away of the parking meter business in the city and its creation of speed traps for citizens. (for a column, click here). The Illinois Supreme Court recently refused to allow politicians to negate the prior pension agreements. These politicians have left the citizens with the worst-in-the-nation unfunded public pension liability of nearly $105 billion.
In the meantime, the city and county continue to tax businesses and citizens to record levels. Chicago next year will have the highest sales tax rate of any major U.S. city and a ridiculous rate of 10.25 percent on Jan. 1. Mayor Raum Emanuel will add to that tax the largest property tax hike in modern Chicago history. I spoke with friends with businesses in the city who are discussing closing their businesses due to the over-taxation and how the city is forcing payment for every possible element of their businesses from lettering on windows to having simple awnings. Just as the solution for years was to pander for votes with ever increasing pension plans and irresponsible city contracts, it is now a matter of simply taxing citizens for every possible purchase and pleasure.
Ironically, the City has been run with the economic integrity of a lottery system. Of course, it is a lottery system where most citizens lose and even the winners receive only an IOU.
Whether it’s the lottery or Social Security funding, it all starts to look the same when the proceeds go into the general fund to be immediately squandered by insatiable gov’t spending, leaving only IOUs behind.
Who’s ninian?
KCF, There were folks here touting the Kentucky model a few years ago. Good find!
JT and Darren complement each other well. This cluster coitus is the core of what binds libertarians. George Will has a good piece today on Rahm and the albatross on his back. The 4 largest employers in Cook County are all government [school, county, city, Fed]. This is NOT a socialist country this is a CAPITALIST country FOUNDED ON LIMITED GOVT. Chicago has been a one party monopoly for generations. They are learning, “Sooner or later you run out of other people’s money.”
Does ninian even have a clue about this great country?
Nick – is this the first time that you have noticed that ninian is clueless?
BTW, my wife and 21 of her workmates won $100,000.
Reblogged this on Scoop Feed.
When they brought the lottery to Arizona, we had to vote on it. Supposedly the money was to be used for additional education funds. So, I vote yes and bought a losing ticket. Then I found that the legislature was just going to deduct the lottery income from the regular funds going to education. Then I stopped buying tickets.
You can’t lose if you don’t play.
On a related note:
“Kentucky’s nonprofit health insurer cooperative established under Obamacare announced it will be shutting down due to financial troubles. As a result, 51,000 individuals will lose their health insurance plans at the end of the year.
…The fifth such co-op to close, the remaining 18 are all on equally unstable footing. 21 of the 23 co-ops were losing money at the end of 2014, and 11 have received warning letters.”
I thought JT’s article was short on “lottery” specifics but Darren did a good job filling in the missing information. I’m curious to know what percentage of public pension retirees in the state of Illinois actually live in and support the economy of the state?
Illinois – America’s Greece.
1. Darren, great background info on lottery accounting and its history.
2. This behavior would be criminal outside of the government. There would be hearings and public shaming.
3. This behavior -and the outcome- are inevitable when you socialize the risks and privatize the rewards. That is, the typical socialist state.
This says it all about state government:
Washington State raised its cigarette wholesale tax to one of the highest in the nation. As a direct result cigarette bootlegging increased dramatically. The department of revenue estimated 38% to 42% of all cigarettes possessed by citizens of the state were obtained from the black market or reservations. People also moved away to “little cigars” then the state went after that with heavy taxes. People went to roll-your-own tobacco shops, the state legislature then putatively taxed those shops and wiped out the industry. In 2012 the department of revenue also estimated the state lost over 376 million dollars in uncollected tax revenue due to bootlegging.
Now for the kicker…
The Liquor & Cannabis Board, which is charged with regulating and enforcing tobacco laws, put cigarette tax enforcement on the back burner claiming it did not have the budget to hire additional enforcement agents to go after the illicit cigarette trade.
Oh, I almost forgot. Last legislative session, you know the period of time where nobody’s life, liberty, property, or money is safe, politicians saw the fledgling e-cigarette industry taking off, and the loss of regular cigarette revenue due to bootlegging and many people switching to e-cigarettes, wanted to put a 95% tax on e-cigarette products. The industry complained that it could wipe them out and cause people to go back to cancer sticks. Luckily and surprisingly the legislature failed to pass the bill but alas it is slated to be brought up again in 2016.
Couple that with if the government gets a monopoly on a particular aspect of life or trade, it will result in incompetence, mismanagement, and the public will have no choice but to go to the government for their needs. With a free market, if one supplier goes belly up, others are available to take its place. If the gov’t is involved the whole market goes into turmoil if the state goofs up badly.
The best thing Illinois can do at this point is provide an example to the rest of the country. If you live there and expect to live longer than fifteen years you should be looking for a job out of state today.
Killing the goose that laid the golden egg.
You *know* that if a private firm ran the lottery, it would never find itself in this predicament.
It is the fact that there is such wiggle room available in government financial decision making, where the source of the money used to run government is essentially taken not earned.
When you can generate money/income over and above your expenses by sheer force, there is a disincentive to actually save or even balance the books.
The mindset of such financial accounting is not based upon effort and resource allocation as it would be in a private business, but rather a WTF mentality of “hey if we can’t afford it now, we’ll just raise the taxes”, which essentially takes no effort, and leads to a perversion of profit/loss expectation.
The simple fact is even that method of raising income, at the point of a gun instead of improved services, has a limit as well, a fact that arrogating politicians never have to plan for in the instant. As JT here says the overwhelming instinct is to just kick the can down the road, and in fact that IS the most logical strategy under these rules for the negotiator, since he can take the money he needs now and not have to worry about the chaos that the future will bring.
Incredible
The Science Geek
http://www.thesciencegeek.org
And here I thought that lotteries were a one of a kind can’t loose proposition so long as payouts are based on revenues from ticket sales. What could possibly go wrong?
PS Has Raum Emanuel been consulting with Alfred E. “what, me worry?” Newman? Or is that just a family resemblance.
The lottery system here likely is on its way to insolvency. It appears at least at first glance to be running very low on working capital so it is deferring payments and using current income from lottery sales to buoy the operating expenses, which a portion of the income must be allocated to payouts or annuities to cover over time payouts.
The next possible calamity could be a default against the merchants themselves. I have to use the Washington system because it is what I am familiar with but it should share many similarities to Illinois’.
I believe the reason for the $600 dollar amounts is that the merchants who are licensed to sell tickets must under a contractual obligation pay winnings under $600 out of their petty cash. (as opposed to being paid directly by the lottery commission) With the Illinois lottery this is essentially only buying a float and the piper is going to need paying to the merchants. So for the mean time the lottery relies on a merchant to pay on behalf of the lottery commission.
In a very basic representation of the lottery process the merchant obtains scratch tickets from the Lottery Commission which result in a debit (liability or purchase) with the commission. The merchant sells the scratch tickets which generates a petty cash credit. The merchant pays scratch ticket winners money from petty case (debit) and this causes the commission to credit the merchant. Amounts over $600 must be redeemed directly by the commission to the winner.
For lottery (machine generated) tickets the merchant does not need to debit out these tickets. The Lottery commission credits the merchant for pay-outs under $600 however.
The Lottery commission pays a fee/commission to the merchant, a paltry amount unless a big winner bought tickets from the merchant. At the end of the month accounts are settled between the commission and the merchant. (unsold scratch tickets are often bought back from the merchant and a credit issued)
The immediate concern I have is that if the commission is floating the credit liability to the merchants (because they are retaining it in order to pay operating expenses) if there is a shortfall in ticket sales they might issue IOUs to the merchants: who are then left holding the bag due to the payouts they are making on behalf of the commission.
If this happens the lottery in that state will begin a death spiral. Since merchants make very little from fees/commissions for selling lottery but end up stuck with hundreds or perhaps thousands of dollars worth of payouts that don’t get immediately reimbursed they will simply stop selling lottery tickets due to a very disproportionate risk/reward situation. Realistically the main reason that merchants even sell lottery tickets is that it brings in customers to buy products, and if it turns into a big liability they will abandon selling them.
If merchants begin pulling the plug on lottery sales and the commission needs current sales to finance payouts and operating expenses it will become insolvent eventually.
The problem really lends credence to the idea of mismanagement since lotteries are essentially a numbers operation where if proper planning an actuarial controls are maintained there is little risk for the state, but when chicanery rules the status quo breakdowns will follow.
Long ago lotteries were replete with problems, especially during the 18th and 19th centuries where governments tried utilizing lotteries for revenue but had much difficulty implementing proper accounting and controls. Insolvencies racked the practice and the public lost confidence in their use and there was considerable backlash against government engaging in such financing, leading in some areas to a one hundred year prohibition in many states for enacting government sponsored lotteries.
If Illinois doesn’t get its act together it might face a similar destruction of confidence and this will substantially reduce income for the state, further compromising the state’s revenue stream and worsening its finances.
Interesting ! Sorry typo error
It is intestine that failure of the US Banking System and its Banksters and Economic Meltdown of the Financial System in the United States and its Global Impact does not feature in this argument.
It’s clear that the lottery should be closed down.