Wednesday, March 2, 2016

Lottery contributions up, but percentage down

Funding for Illinois public schools costs more than 14 times as much money as the state lottery brings in for state coffers each year, and the lottery offers no potential salvation for lagging school funding.

The revenue contribution to state funds from lottery sales grew  between 2005 and 2014, rising from $614 million per year to $813 million per year. When viewed as a percentage of the state’s K-12 education appropriations, however, lottery revenue declined over the decade, falling from 8.8 percent in 2005 to 6.6 percent today. When ticket games were launched in 1974, lottery dollars were equal to 20 percent of state education funds.

Unfortunately, schools cannot expect to see that trend in the lottery reverse itself. The lottery is just not set up to boost school funding totals, according to a state finance blog, Reboot Illinois, which reviewed the status of the state lottery's relationship to schools on March 5, 2015.

“It’s not gravy added to the main course of state money for schools," wrote Matt Dietrich, executive editor of Reboot Illinois. In fact, "state funding for education still is well below what the Legislature has established as an adequate per-student funding level,” according to Dietrich.

Based on official figures, the lottery produced $813 million for the state last year. That compares to the $30.1 billion in state, federal, and local revenues that was needed to fund more than 3,500 public elementary and secondary schools in 2015. More detailed funding data is available on the ISBE website.

Although lottery profits are deposited in the Common School Fund (CSF), the accounting maneuver actually reduces the amount of money that schools require from other state sources. Lottery profits themselves provide no additional funds for the schools.

Worse yet, the amount of lottery profits deposited in the CSF today is held to a fixed level. Since March 1, 2010, annual transfers to the CSF are to equal the amount transferred in FY 2009, adjusted for inflation, according to the 2015 tax handbook for legislators published by the nonpartisan Illinois Legislative Research Unit.

The funding deposited to the CSF was made into a set amount as part of the state’s plan to contract with a private firm to manage lottery operations. It was hoped that a for-profit company would manage lottery sales, by increasing revenues and reducing costs. To date it hasn’t worked out that way.

The Illinois Department of Revenue contracted with Northstar Lottery Group, LLC, for management services in July 2011. After Northstar allegedly missed some revenue targets, Gov. Pat Quinn announced in December 2014 that his office was terminating the firm’s contract. That move was overturned by Illinois Attorney General Lisa Madigan. But Gov. Bruce Rauner announced last September that his office had reached a termination agreement with Northstar that will remove the firm as the games’ private manager as of Jan. 1, 2017, or when a replacement firm is chosen.

No replacement firm has been picked to date.

Meanwhile, the biggest threat to lottery sales may be the video gambling machines that have proliferated in most Illinois communities since the arrival of legal gambling in the state. This is still a rather new development as Illinois’ video gaming tax only became effective in 2009. Video gaming operations were not authorized until October 9, 2012, and many locations didn’t start offering it until fiscal year 2014.

But the video gaming business is booming, perhaps drawing business away from the lottery. Its tax receipts to state coffers skyrocketed from $29.3 million in Fiscal Year 2013 to $137.3 million in Fiscal Year 2014, with none of that revenue going to schools.

During that same time period, the lottery’s gross revenue dropped by nearly $60 million.