A Lottery and Gaming Provides Revenue for the Hawaiian Government as We Knew It

Governor David Ige

By: T. Jeffersonian 

Within the past week, Governor David Ige did two things: (1) he opposed building a Hawaiian Home Lands’ casino, and (2) he reported that Hawaii does not have the revenue to fund government as we knew it.  Due to Covid 19, Hawaii now has a projected revenue shortfall of $1.4 billion per year for the next four years.  This $1.4 billion shortfall is unfortunately expected to increase next year by nearly another $1 billion dollars as tax revenues for 2020 continue to fall well short.  Warning that this is only the beginning and in response to the growing shortfalls, Governor Ige has submitted a conservative cost cutting budget.  The cost cutting budget intends to save up to $600 million in annual state operating costs.  Unfortunately, the proposed cuts include an annual $78 million cut from the University of Hawaii and an even more worrisome $224 million in annual cuts from public schools.  Annual cuts from the University and the public schools not only means loss of salaries due to furloughs but increased constituents’ costs to cover child care expenses for kids when not in school. Child care is expensive and harder to find.  Parents who cannot afford of find child care must miss work to care for their children.  Missing work leads to loss of wages and if absences are too often and unpredictable, eventual loss of jobs.  These losses characterizer the downward spiral of government and civilian revenue generation that can be reversed without raising individual income taxes, which is under consideration. 

Hawaii already has the one of the top two highest state income taxes in the country but Hawaii is one of only six states that does not have a state lottery and one of only two that does not allow in-state gaming.  One of the latest states in Union to allow lotteries and gambling is North Carolina.  North Carolina started an education lottery in 2005.  Since 2005, North Carolina has generated $5.5 billion.  North Carolina lottery funds have been distributed as follows: 

  • 60 percent prizes ($3.3 billion) 
  • 29 percent distributed to public education ($1.595 billion) 
  • 7 percent to lottery ticket retailers ($385 million) 
  • 4 percent general expenses ($220 million) 

Three of the above revenue categories – prizes, retailers, and expenses – are taxable and has yielded another nearly $1.1 billion dollars revenue to the North Carolina state government since 2005.  North Carolina allows the Cherokee tribe to operate casinos on tribal land.  The revenue generated by these casinos is not taxable; however, the tribe agreed to a Gross Gaming Revenue (GGR) sharing resolution with the state.  Since 2012, every four years, the GGR sharing between the Cherokee nation and North Carolina increases by one percent.  Currently the Cherokee nation shares five percent of its GGR with the state.  Though no data could be found showing how much revenue North Carolina generates from GGR, Louisiana generated $477 million in revenue in 2015.  

There are obvious differences between Hawaii, North Carolina, and Louisiana but there are also similarities too.  All three states are characteristically religious which makes them reluctant to enact progressive legislations such as gaming.  Louisiana and North Carolina are in particular considered “Bible Belt” states.  When United States citizens are asked how important is religion to their daily lives, Louisiana citizens responses are amongst the highest (90+ percent) while North Carolina and Hawaii both scored in the second to highest levels (80-84 percent).  Despite being characteristically religious, North Carolina and Louisiana have allowed lotteries and gaming while Hawaii has not. 

The populations of the three states are different with North Carolina having a population of 10.5 million (9th); Louisiana having 4.4 million (25th); and Hawaii (40th) at 1.4 million.  The population difference when taxed by and large equates proportionally sized collected revenues.  There is however a potential variable in Hawaii’s case.  Without Covid 19, Hawaii has more than 10 million visitors annually.  Visitors plus residents make Hawaii’s population one million more than that of North Carolina.  Were Hawaii to legally make a lottery eligible to both residents and visitors alike, then Hawaii stands to earn as much if not more revenue from lotteries and Gross Gaming Revenue as does North Carolina.  This additional revenue stream can enable the Hawaii state government to keep individual income taxes at their current rates or to even lower them.   Think of how much additional revenue Hawaii would have generated since 2005, if we had allowed gaming here when North Carolina allowed gaming there?  Currently though North Carolina is the 9th state in population, it is the 11th largest in revenues generated by taxes.  Hawaii though the 40th in population size, is the 35th in revenues generated from taxes.  Nevada, perceivably the largest gaming state is 32nd in population size and 33rd in revenues generated from taxes.  Lotteries and gaming revenues enable states to lower tax rates while generating revenue from other sources.  Were Hawaii to keep its tax rates current and allow both lottery and gaming, it could have an operating budget comparable to the 30 largest state populations in the country while still only being the 40th in population size.  This would be an unprecedented revenue to population ratio.   

Covid 19 has had and will have unprecedented changes to America.  American states will have to adapt in order to recover, to be less dependent on the Federal government for aid, and to be more resilient survivors when the next pandemic hits.  One major change for Hawaii to undertake after Covid 19 is to legalize both state lotteries and gaming so that Hawaii continues to have government as we know it.