Arkansas Scholarship Lottery director predicts revenue miss in fiscal '17

in Lottery

The Arkansas Scholarship Lottery should meet its forecast to raise $80.9 million for college scholarships in the fiscal year ending June 30, but it's unlikely to meet its projection for revenue to reach $463.4 million, lottery Director Bishop Woosley said Monday.

During the first 11 months of fiscal 2017, net proceeds for college scholarships totaled $72 million -- a dip from $74.1 million in the same period last fiscal year, when the lottery was bolstered by a world-record Powerball run of $1.6 billion in January 2016 -- the lottery reported in its monthly report to Gov. Asa Hutchinson and the Legislative Council's lottery oversight subcommittee.

"As of May 30th, we are above budget $3.7 million," Woosley said. "Obviously, the past has shown us that a large prize or other issue can have a huge impact on proceeds."

Under Act 1080 of 2011, the lottery is required to transfer its unclaimed prize reserve balance, minus $1 million, to the Department of Higher Education's scholarship account at the end of the fiscal year. The lottery reported its unclaimed prizes reserve fund totaled $7.2 million as of May 31 -- an increase from $5.9 million at the same time a year ago.

During the first 11 months of fiscal 2017, revenue totaled $411.3 million -- a drop from $421.3 million collected in the same period in fiscal 2016 -- the lottery reported.

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Woosley said the lottery is unlikely to reach its $463.4 million revenue forecast because the scratch-off ticket projection "in our budget anticipated that we would have more retailers."

"We continue to recruit, but that is one of the reasons we will not meet our total revenues goal," he said. The lottery reported 1,930 retailers selling tickets as of May 30.

So far in fiscal 2017, scratch-off ticket revenue reached $337 million -- a slight increase from $331.7 million in the same period in fiscal 2016. But the lottery's draw-game ticket revenue is $73.6 million thus far in fiscal 2017 -- a decline from $88.8 million in fiscal 2016 in the same 11-month period.

The lottery started selling tickets on Sept. 28, 2009. It has helped finance more than 30,000 Arkansas Academic Challenge Scholarships during each of the past seven fiscal years. The lottery's revenue and net proceeds declined in fiscal 2013, 2014 and 2015 after peaking at $473.6 million and $97.5 million, respectively, in fiscal 2012.

Total revenue and net proceeds rebounded to $456.3 million and $85.3 million, respectively, in fiscal 2016. These figures were fueled by the Powerball jackpot in January 2016, in which the lottery set a monthly record for revenue, $58.7 million, and net proceeds, $13.8 million.

For fiscal 2018, which starts July 1, Woosley has projected revenue at $459 million and net proceeds at $83.6 million.

The Legislature has cut the size of future scholarships for some recipients three times in the past several years because of net proceeds falling short of initial projections and more students than projected receiving scholarships.

The Arkansas Academic Challenge Scholarships also are funded by $20 million a year in state general revenue and a $20 million lottery reserve fund that covers temporary cash flow shortages to pay for scholarships before the fund is replenished.

The program paid $122.7 million in scholarships in fiscal 2011, $129 million in fiscal 2012, $133.1 million in fiscal 2013, $112.8 million in fiscal 2014 and $99.2 million in fiscal 2015, the Department of Higher Education previously reported.

So far in fiscal 2017, the Department of Higher Education has distributed $84.8 million in Arkansas Academic Challenge Scholarships -- a decline from $96.4 million total in fiscal 2016 -- said Tara Smith, deputy director at the department.

"The decline in expenditures is primarily due to the changes in the award amount structure and academic eligibility requirements," she said.

Act 1105 of 2015 required high school graduates, starting with the Class of 2016, to have ACT scores of at least 19 or the equivalent on comparable college entrance exams to be eligible for the scholarship.

High school graduates previously were required to have completed the Smart Core curriculum and achieved a high school grade-point average of least 2.5 or a minimum score of 19 on the ACT or its equivalent.

Act 1105 of 2015 also reduced the scholarship size for future recipients to $1,000 for the freshman year at two- and four-year colleges. The scholarships increased to $4,000 for the sophomore year at four-year colleges and $3,000 for the sophomore year at two-year colleges. Recipients get $4,000 scholarships as juniors and $5,000 as seniors at four-year colleges.

The changes were aimed at providing an incentive for students to remain in college and helping make sure there was enough funding for the scholarships, according to supporters of the law, sponsored by Sen. Jimmy Hickey, R-Texarkana. Critics of the law argued the changes would hurt students who are poor and those who are members of minority groups.

"We have extended our deadline date to apply for the scholarship to June 15th this year instead of June 1st because of changes that occurred during the [legislative] session, so we are up some in numbers of applications," Smith said in an email.

"I am projecting a slight increase in expenditures due to the increased number of applications and tweaks that were made during the legislative session," she said in the email. "I am projecting that we will increase our expenditures by 3-4 % to approximately $87[million]-$88 million."