A healthier gambling alternative to the lottery and sweepstakes games, NC Policy Watch

July 2012

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Governor Perdue’s veto of the $20.2 billion state budget proposed by the Republican-led legislature and the subsequent override of the veto represent just the latest skirmish over our state’s uncertain finances. And, with an economy still struggling to rebound and a state revenue-raising structure that’s increasingly not up to the challenges of a 21st century economy, these battles are likely to continue into the foreseeable future.

So, it probably should come as no surprise that, in a desperate effort to fund state government, Governor Perdue made an unorthodox revenue-raising proposal at an impromptu press briefing a couple of weeks ago. Gov. Perdue’s bright idea was to legalize and tax North Carolina’s so-called “sweepstakes parlors” – unregulated gambling operations in which people play computer games in hopes of cashing in on a big win.

The Governor should get credit for this reality check on how many of the state residents are spending their hard-earned paychecks. Indeed, behavioral economists teach us that people love games of chance and that, for most of us, a big potential payout is much more tempting than a sure bet on a more modest return. What’s more, evaluating long-term probabilities of winning and losing are not our strong suit – most of us are much more motivated by short-term gains and losses.

But, shouldn’t public policy in North Carolina seek to encourage healthy financial behaviors, not risky ones? Rather than taking advantage of our irrational tendencies in an effort to solve a budget gap that demands permanent solutions, the Governor should use the psychology of financial decision-making to strengthen household balance sheets in our state.

Here’s one possible avenue for pursuing such an end: Follow the lead of the United Kingdom is establishing something known as “Premium Bonds.” Owners of these unique bonds do not earn interest. Rather, their return is simply the chance to win monthly prizes based on their investment. Each month, bondholders in this “savings with a thrill” scheme are entered into prize draws that are awarded from £50 to £1 million. Over £43 billion (about $65 billion) is currently invested in U.K. Premium Bonds, and 36% of British citizens hold at least one of these bonds. In the best-case scenario, bondholders receive a handsome return; in the worst-case scenario, bondholders have net new savings in their name. Bondholders can get their original investment back at any time.

This idea of “prize-linked savings” may seem novel for North Carolina, but there are already innovative efforts in our state to take advantage of this concept. Just last year, with the encouragement of the North Carolina Credit Union League, the legislature passed the “Save to Win” bill, which exempts certain savings promotion raffles from the two raffle per year limit imposed upon credit unions. Gaining the exemption allows participating credit unions to create Save to Win campaigns with monthly prize drawings that help to encourage credit union members to develop a regular habit of saving.

And this doesn’t have to be limited to credit union members. What if the North Carolina Treasurer’s office created Premium Bond-type savings products that any North Carolina residents could purchase at a bank – or even better – where lottery tickets are sold? The state would reap millions and citizens could pursue their gambling impulses without literally throwing all of the money wagered away as is usually the case in traditional lottery and sweepstakes parlor games.

Let’s use state policy, not to take advantage of our frailties, but rather to incent behaviors that strengthen household finances and encourage investment in our state. A North Carolina Premium Bonds program might just be one way to pull that off.

Carl Rist is the Executive Director of the 1:1 Project at the economic development nonprofit, CFED.