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ANALYSIS: Missouri Lottery plan to increase funding for schools, veterans might backfire

Sunday, March 25, 2012 | 3:44 p.m. CDT

JEFFERSON CITY — Missouri House of Representatives members are banking that they can boost funding for veterans' nursing homes by diverting more of Missouri's lottery proceeds to the state budget, leaving less for prizes.

But the budget passed by the House doesn't account for another possibility — that if prizes decline, lottery sales might fall, too, and so also might the amount of money available for the Missouri Lottery to transfer to public schools.

The chain-reaction of tumbling dollar figures isn't some far-fetched theory. When the Texas legislature cut back on its lottery prizes about a decade ago, the result was an almost immediate and dramatic decline in ticket sales. Fourteen years after Texas' short-lived experiment, its lottery transfers to schools still haven't rebounded to their 1998 levels.

"The prize payout reduction here in Texas was devastating to our lottery sales," said Gary Grief, executive director of the Texas Lottery.

"What this reduction does is it sends players away — and it doesn't send them away temporarily, it sends them away permanently," Grief added.

It is understandable that Missouri lawmakers are looking at the lottery as a cash cow for a strapped state budget. The state has suffered through several years of flat or declining education funding as the economic recession resulted in falling sales and income tax collections that have yet to fully rebound.

The Missouri Lottery, meanwhile, posted a record $1 billion in sales during the 2011 fiscal year, transferring $265 million of that to public elementary and secondary schools.

Legislation passed by the House and now pending in the Senate would require the lottery to transfer 30.5 percent of its revenues to the state, a 4 percentage point increase over this past year. That extra money would go to early childhood education, allowing the casino fees that currently benefit early childhood education to instead be directed to state-run nursing homes for military veterans, which are facing a financial squeeze.

Under the legislation, public schools would continue to get about the same percentage of money they currently receive from the Missouri Lottery. In fact, the budget passed by the House assumes that lottery proceeds for education will continue to increase.

But the lottery has warned that for each 1 percentage point decline in available prize money, there could be a 5 percent decline in ticket sales.

If the lottery were to offset the proposed 4 percent increase in its state transfers with a corresponding 4 percent decrease in prize payments, it could result in a 20 percent reduction to the projected ticket sales for the 2013 fiscal year. And that could mean an estimated $50 million reduction in the amount of lottery proceeds transferred to public schools.

"I understand them wanting a bigger piece of the pie — that seems like a no-brainer," said Grief, who has briefed Missouri's lottery director about the Texas experience. "But what they will actually get is a bigger piece of a much smaller pie, and in gross numbers it will be a severe losing situation for them."

Some Missouri lawmakers remain skeptical about such woe-is-me predictions.

Lawmakers contend the lottery could cut back on administration expenses instead of taking the full amount out of prizes. Those lawmakers also note that Missouri already devotes more to prizes than most of its neighboring states and could perhaps afford to be a little less generous to lottery winners.

According to the LaFleur's 2010 World Lottery Almanac, the Missouri and Arkansas lotteries each devoted 64.6 percent of their ticket sales to prizes. Tennessee was the only of Missouri's other neighboring states to top the 60 percent threshold for prizes.

"Our payouts are much higher than the average, so I don't think you're going to see a decrease in revenue from the lottery by decreased players just because the (prize) percentage goes down slightly," said House Speaker Steven Tilley, R-Perryville.

Sen. Brian Munzlinger, who is sponsoring a bill similar to the one that passed the House, said lottery players might not even notice if the prize pool declines.

"I dare you, ask someone who's bought a ticket lately — ask them if they've read the back of it" where the prize amounts are listed, said Munzlinger, R-Williamstown. "Nobody reads them."

Perhaps not. But after California legislators authorized an increase in the lottery prize payout in 2010, sales rose 13 percent and public schools got nearly $40 million more, said Elias Dominguez, a California Lottery spokesman.

State Rep. Sara Lampe of Springfield, the ranking Democrat on the Missouri House Budget Committee, acknowledges that lawmakers are taking a risk by assuming that a smaller lottery prize pool won't lead to less money for public schools.

"It's clearly a gamble," she said.

David A. Lieb has covered state government and politics for The Associated Press since 1995. He can be reached at http://twitter.com/DavidALieb.


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