New York state has reclaimed nearly $20 million in lottery prizes since 2013 from winners who had received public assistance in the last 10 years.
The little-known program, one of the toughest of its kind in the country, has grabbed back prizes from an estimated 30,000 winners in the last four years.
At least six other states have similar programs, but New York is the only state that seizes prizes of those on public assistance, experts said. Other programs take back unpaid child support payments or unpaid taxes.
Here's how it works: Lottery players who win prizes of more than $600 can only get their prizes at state lottery centers. There, lottery officials process winners' Social Security numbers and other identifying information to determine, among other things, whether they've received public assistance over the last 10 years.
If they have, the state can seize up to 50 percent of the winner's payout to help pay back what they've gotten in welfare. The state cannot take more than what a recipient received in welfare.
Welfare recipients can contest it if they believe they are wrongly penalized. In 2016, winners appealed 667 times and won their appeals 476 times, according to the state Office of Temporary and Disability Assistance.
The OTDA has estimated these "intercepts" have happened about 30,000 times in New York since 2013, though the number is hard to determine.
What is known is that the state has garnered about $20 million since then, according to OTDA data. The agency also estimated it withheld money about 300 times in Onondaga County since 2013, taking $26,650 from lottery winners.
While the clawback policy has not received much publicity, lottery players and dealers in poor neighborhoods know about it and have built an underground economy to get around it.
In some places, lottery players who stand to lose some prize money have learned, in effect, to pay someone to safely claim their full jackpot.
Two state agencies — the Gaming Commission and Department of Tax and Finance — last month launched an effort to crack down on lottery winners who try that move.
Two accused schemers — Neil Ferguson, 50, and Eduardo Moran-Barrera, both of New York City — were charged with criminal tax fraud. Both are accused of cashing in a combined 777 tickets on behalf of those who were trying to avoid paying back the state.
Nonie Manion, the tax department's executive deputy commissioner, said the so-called "discounting schemes" deprive "New York State taxpayers of revenue needed for vital services."
"We will continue to root out criminals who try to evade these obligations," she said.
That so many people on welfare have won $600 or more on the lottery shows the game's popularity among the state's neediest residents, who experts say often have gambling addictions or buy the tickets out of a misguided attempt to escape poverty.
Quik-Mart customers know the program
The program was well known among players at the Quik-Mart Express in one of Syracuse's poorest areas.
The South Salina Street shop was bustling with lottery commerce. It sold the highest number of winning tickets in Syracuse in 2016 — $124,838 to 18 winners, according to data obtained by the Columbia University School of Journalism.
By 1 p.m. on a recent Monday, the shop had sold 1,327 lottery tickets, not including scratchoffs, in four hours.
At the store, one woman said she was on public assistance and played the lottery and bought scratchoffs. She said the trick is to hand the ticket to someone who is not on public assistance and give that person a cut of the winnings.
"We know all about it. If we win, we give the lottery ticket to someone that works," the woman said, declining to give her name unless a reporter bought her another scratchoff ticket.
Another woman buying a lottery ticket, who identified herself only as Clara, 75, said a neighbor once offered her $500 to cash in a $5,000 winning ticket. She declined the offer, she said.
National critics condemn it as cruel
Lottery critics ripped the program. Those who play the state lottery often do so out of "financial desperation" or addiction, so a program that further reduces infrequent winnings is cruel, said Les Bernal, national director of Stop Predatory Gambling, a nonprofit organization.
"They're just sucking as much money out of people as they can," said director Les Bernal. "New York state goes after those funds because the intent of state-sanctioned gambling in New York state is to maximize profits. It's not to promote the public interest. It does not improve people's lives."
Welfare recipients are required to pay back money if they have other windfalls, such as a lawsuit settlement or inheritance.
Both agencies involved in the program — the State Lottery and OTDA — declined to describe what they saw as the program's intent. Instead, spokesmen said the agencies are simply implementing a decades-old program and referred comment to state legislators who enacted the law.
On average, lottery winners on public assistance saw about $670 of their winnings taken away, according to a Syracuse.com review of the state data. In Onondaga County, the average amount the state took was about $623.
The program started in 1995, created in then-Gov. George Pataki's package of reforms to the state's Medicaid and welfare programs. The 100-plus-page bill ends with a three-page section, giving the state the power to take the winnings.
Pataki's statement accompanying the law's passage did not address the lottery program specifically but said the reforms were aimed at preventing welfare cheats and recipients becoming too dependent on the system.
"This legislation enacts changes to our welfare system which emphasizes work, personal responsibility and temporary assistance instead of permanent dependence upon a system which can no longer support those who are in desperate need of assistance," Pataki wrote in June 1995.
Former state Assemblyman Patrick Manning (R-Dutchess County) introduced legislation that same year that would have created a program like the one passed in the welfare reform package. His legislation said the bill's purpose is to "recover any benefits paid to recipients who now may be able to repay those dollars because of lottery winnings."
Several experts told Syracuse.com that New York's practice of taking public assistance money is unique to the country by taking public assistance funds, not just child support or back taxes.
Those experts are David Gale, executive director of the North American Association of State and Provincial Lotteries, and Richard McGowan, a finance professor at Boston College who's written three books on the gambling industry.
Michigan's Health and Human Services in 2014 did cut some state-funded benefits to welfare recipients in light of a report that found more than 7,200 people who won at least $1,000 in the Michigan Lottery the previous year living in households that received public assistance.
Robert Barksdale, a Quik-Mart customer who said he spends about $10 a day on lottery tickets, said he agrees that people on welfare are making poor choices by spending money on lottery tickets.
But he said he understands the allure of prizes in the millions of dollars to folks struggling to get by. His cousin, for example, spends $100 a day on tickets.
"I wouldn't say he's got a gambling problem. I'd say he has a hope problem," Barksdale said of his cousin. "A lot people are struggling out here, man. They want to win it big."
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