July/August 2015 Magazine

Spotlight: Arkansas Rolls the Dice

Lottery Tickets

July/August 2015 Issue

Earlier this year, the legislature passed Act 218 shaking up the Arkansas Scholarship Lottery by disbanding the lottery commission and reallocating scholarship amounts.

Photography by Ashlee Nobel


Top photo: Scratch-Offs – According to lottery director Bishop Woosley, sales of instant, scratch-off tickets have increased while other games have declined.


In 1964, with the Beatles, civil rights and a sexual revolution exploding across America, a little-remembered thing happened in New Hampshire. Gambling became the business of government with the first modern, state-run lottery in the U.S., designed as a way of raising revenue without raising taxes.

The idea caught on, and today 44 states run their own lotteries. Arkansas started one in 2009, and the proceeds are used to fund college scholarships.

As a matter of public policy, instituting a lottery amounts to its own kind of gamble. Will the public support it? Will it be managed well?

In Arkansas, ongoing financial difficulties led the legislature to institute money-saving changes earlier this year. They stiffened the qualifications to receive the scholarships. They also lowered the freshman-year award amount (offset by a higher sophomore-year amount for students who continue to qualify). These changes are set to take effect in the 2016-17 school year.

In addition, the legislature abolished the independent lottery commission, placing control within the executive branch — under the Arkansas Department of Finance and Administration. Will these changes stabilize what has been a very unstable existence for the Arkansas Scholarship Lottery?

Republican state Sen. Jimmy Hickey, Jr. (R-Texarkana), who co-chairs the lottery oversight committee and sponsored the bill that became Act 218 that modified aspects of the lottery, said the changes were needed because the lottery had gone from bringing in close to $100 million per year to only between $76 and $78 million projected for this fiscal year.

“From looking at all the financial data and the way the trends look, like with any business we just decided that it was time to try to make a move to correct [the decline],” Hickey said. “So the first thing we did — not only did we try to correct what we’ve seen as some inefficiencies on the revenue side, we also went in and adjusted the expense side on the scholarships.”

The other co-chair, Democratic Rep. Chris Richey of West Helena, pointed out that the lottery has a $20 million reserve fund to dip into when expenses don’t square with revenues. “Every year they’ve been having to dip further into that,” Richey said. “And the fear is they are going to go over that $20 million reserve and not be able to pay scholarships.”

 

Boosting Lottery Sales

By taking away the lottery’s independent status and bringing it into the DFA, it was possible to save money right away by eliminating some duplicate positions. Hickey said the move will also increase accountability.

“It still has a lottery director,” he said. “But the lottery director and the director of the department of finance, they both [now] report directly to the governor. And, of course, the legislature has lottery oversight. Through that type of management our hope is that we can go in and get a response … that we can kind of stabilize our sales, and then start growing those on a sustainable basis.”

Director of the lottery Bishop Woosley seems to recognize the need for change. Contacted by email, he called placing the lottery under DFA a “natural fit,” since DFA already oversees revenue collections.

“Further, having direct oversight from the governor will provide the agency with the support it needs to accomplish its goal of raising money for scholarships and will help in the process of rehabilitating the agency’s public image,” he said.

One root of the entire problem is that people are not playing the games as much as projected. Woosley said that while the lottery’s instant ticket sales are doing well this year, other games have simply lost popularity.

“Due to jackpot fatigue, sales for the multistate games Powerball and Mega Millions have decreased significantly over the past two years,” he said. “Players no longer get as excited about the higher jackpots as they did in the past.”

Other states have had similar experiences with jackpot fatigue. Huge payouts seem to create tolerance in players. Payoffs need to keep increasing to generate the same level of excitement.

“This is a nationwide trend,” Woosley said, “and the multistate organizations are attempting to make changes to these games, which will stabilize their sales. Unfortunately, we have very little control over this process and the [multistate] game changes. Any positive results could take as long as 18 months to realize. For now, we have to do what we can to make up revenue with the games that we do control to some extent, such as our instant tickets and our in-state draw games.”

“The most important of those reasons [for the financial difficulty] is that the number of applicants, successful applicants for the scholarship, was greater than the legislature initially forecast.”
— Former Lt. Gov. Bill Halter

Hickey, who comes from a banking background, likened the problem to one faced by businesses in the private sector: “[When revenues falter] they’ve got to work within their product range and try to create other innovative ideas for sales.”

He called the fixes a “work in progress,” and said that one of the first orders of business will be DFA bringing in an outside consultant to help develop a plan to keep the lottery healthy. It’s a step that his co-chair, Richey, supports. But the changes that have already been made to the scholarships are more controversial. Students must now initially qualify by test score alone. High school grade point average will no longer be considered.

Richey, while understanding the need to save money, doesn’t like it.

“I feel like getting rid of the GPA [criteria] hurts students who don’t test well…. And, I think there are a lot of those students out there.” He added that Arkansans voted for the scholarship lottery as a way to increase access to college, and that reducing the freshman-year award money “goes counter to that.” Richey’s hope is that these changes can be undone before they take effect, if a better alternative can be worked out with the Arkansas Department of Higher Education.

 

A Work In Progress

Former Lt. Gov. Bill Halter, who is sometimes called the father of the Arkansas Scholarship Lottery, takes an even dimmer view of the recent changes.

“When I campaigned for the scholarship program,” Halter said, “I made clear in countless town hall meetings that the biggest impediment that students were facing in going to college was a financial impediment … so the idea of reducing the amount of scholarship assistance to a graduating high school senior who’s facing a decision about whether to go to college or not just seems to me to be the wrong direction to head in.”

Like Richey, Halter said that the campaign to create the lottery was built around increasing access to higher education in the state, not limiting it.

“And of course the voting public spoke loudly about that,” he said. “The percentage of votes was almost 2-to-1 in one of the highest turnout elections that Arkansas has ever had. So I think [the changes are] just the wrong strategic direction. It’s the wrong educational direction. And it’s the wrong direction for the long-term economic development prospects for the state.”

While acknowledging that the lottery must deal with its financial realities, Halter emphasized those are not just a matter of declining revenues.

“The most important of those reasons [for the financial difficulty] is that the number of applicants, successful applicants for the scholarship, was greater than the legislature initially forecast,” he said. “And that is the dominant reason that the amounts of the scholarships have been cut. If you recognize that the legislature under-forecast the number of successful scholarship applicants, you’ll look at that as a very high-class problem to have. You’ve got more students accessing the scholarships than had initially been predicted. Well, that’s something we want. We want more students to go to college. That’s why we put the scholarship program there in the first place.”

In other words, Halter believes the important part of the program, the college scholarships, is working great, and doesn’t deserve to be subjected to cuts.

“And the way we should address [the financial imbalance] is to find additional resources to direct into the scholarship program,“ Halter added. He said he views it as an investment in the economic future of Arkansas, one that is paying off in terms of students qualifying for scholarships. He does not, however, offer specifics on where to get the money needed to keep the system properly funded.

“The amount of money that we would be talking about, relative to the size of the state budget, is quite small … and, I think you will be surprised, pleasantly I would say, by the relatively modest percentage of the state budget that would be necessary to restore the scholarship amounts to the level that the legislature had initially placed them at,” Halter said.

As to whether bringing the lottery under the control of the executive branch is likely to help things, Halter took a wait-and-see attitude, while voicing skepticism. He pointed out that the original reason for an independent commission was to separate the lottery from politics and allow it to act more as a market-driven organization. He said that no clear rationale has been offered for taking that independence away, and worried that control of the lottery is being turned over to people who, in some cases, opposed it from the start.

“And it will be a very interesting thing to see whether they achieve the revenue goals that have been laid out for them,” he said. “My hope is they will. But let there be no doubt that if they don’t, they’re accountable.”

Nonetheless, many see the Republican–controlled state government to be in the interesting position of trying to get Arkansans to gamble more. One reason it took so long for a lottery to come here was that many in the state, particularly on the religious right, consider gambling a vice, one the government ought not to promote.

Yet the lottery is now a fact of life in Arkansas, and that doesn’t appear likely to change soon. For his part, Richey, a Democrat but also a former church pastor, admits to ambivalent feelings. While having “philosophical problems” with a state-sponsored lottery, he added that he was honored to be appointed to the oversight committee, noting that the people of Arkansas had amended the constitution to create the lottery as a way to generate money for college scholarships. In his mind, making it work as designed is now his duty.

“I want the lottery to be as effective as possible,” he said, “because that’s what the people of Arkansas voted for.”

 

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