$85.2 mil­lion goes to lot­tery schol­ar­ships

Fis­cal 2017 sees rise of $2,403; net pro­ceeds above forecast, but rev­enue be­low 2016

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - MICHAEL R. WICKLINE

The Arkansas Schol­ar­ship Lot­tery raised $85.2 mil­lion for col­lege schol­ar­ships in the fis­cal year that ended June 30, nar­rowly ex­ceed­ing the amount raised the pre­vi­ous year by $2,403.

The to­tal raised for schol­ar­ships also beat the lot­tery’s forecast of $80.9 mil­lion for the just-ended fis­cal 2017, ac­cord­ing to its an­nual re­port re­leased Mon­day.

The lot­tery has helped fi­nance more than 30,000 Arkansas Aca­demic Chal­lenge Schol­ar­ships dur­ing each of the past seven fis­cal years, but the Leg­is­la­ture has cut the size of schol­ar­ships three times in re­cent years be­cause net pro­ceeds lagged ini­tial pro­jec­tions and more stu­dents than ini­tially ex­pected started get­ting schol­ar­ships.

Al­though net pro­ceeds ex­ceeded the forecast in fis­cal 2017, lot­tery rev­enue fell by $6.4 mil­lion from fis­cal 2016 to a to­tal of $449.9 mil­lion, about $13.4 mil­lion short of pro­jec­tions, ac­cord­ing to the writ­ten re­port to Gov. Asa Hutchin­son and the Leg­isla­tive Coun­cil’s lot­tery over­sight sub­com­mit­tee.

Lot­tery Di­rec­tor Bishop Woosley said rev­enue fell short of pro­jec­tions be­cause “we had a $1.6 bil­lion Power­ball” in Jan­uary 2016 that skewed that fis­cal year’s gross re­ceipts.

Draw-game rev­enue in fis­cal 2017 dropped by $14.9 mil­lion from the pre­vi­ous year to $80.6 mil­lion, the lot­tery re­ported.

Lot­tery rev­enue comes

from draw games like Power­ball, Mega Mil­lions and Nat­u­ral State Jackpot and from scratch-off in­stant game tick­ets. It also re­ceives rev­enue from re­tailer fees.

Woosley said the lot­tery’s net pro­ceeds for col­lege schol­ar­ships ex­ceeded the lot­tery’s forecast for fis­cal 2017 be­cause “we started up in pro­ceeds with an in­cred­i­ble July and were able to hold that trend for the rest of the fis­cal year.”

“We fi­nally saw the changes that we made to Play It Again [sec­ond-chance draw­ings] fully im­ple­mented, [which] re­sulted in a sav­ings of over $4 mil­lion,” Woosley said in a writ­ten state­ment.

“Our op­er­at­ing costs were lower than last year, and our staff worked tire­lessly on our game de­vel­op­ment, ad­ver­tis­ing and re­tail ex­e­cu­tion to make this year a suc­cess.”

Fis­cal 2017 marks the sec­ond con­sec­u­tive year in which the lot­tery’s net pro­ceeds have in­creased af­ter de­clin­ing for three con­sec­u­tive years.

The lot­tery’s re­ceipts and net pro­ceeds were bol­stered in fis­cal 2016 by the record $1.6 bil­lion Power­ball jackpot in Jan­uary 2016, when the lot­tery re­ported rev­enue of $58.7 mil­lion and net pro­ceeds of $13.8 mil­lion, both a record for any month for the state’s lot­tery op­er­a­tion.

The lot­tery started selling tick­ets on Sept. 28, 2009.

Be­fore vot­ers in 2008 ap­proved a con­sti­tu­tional amend­ment autho­riz­ing the Leg­is­la­ture to cre­ate a state lot­tery, the state De­part­ment of Fi­nance and Ad­min­is­tra­tion es­ti­mated that the lot­tery would raise about $55 mil­lion a year for col­lege schol­ar­ships. At that time, then-Demo­cratic Lt. Gov. Bill Hal­ter of North Lit­tle Rock pro­jected the lot­tery would raise about $ 100 mil­lion a year for col­lege schol­ar­ships.

Dur­ing the lot­tery’s seven full fis­cal years of op­er­a­tion, the amount raised for col­lege schol­ar­ships has ranged from $72.6 mil­lion in fis­cal 2015 to $97.5 mil­lion in fis­cal 2012.

Sen. Keith Ing ram, co-chair­man of the Leg­isla­tive Coun­cil’s lot­tery over­sight sub­com­mit­tee, said Mon­day that the lot­tery’s net pro­ceeds have lev­eled out.

He said he ini­tially thought the lot­tery would raise only about $50 mil­lion to $55 mil­lion a year for col­lege schol­ar­ships, “so ac­tu­ally the net is higher than what I thought it would do orig­i­nally.”

“I think the peo­ple tend to get anes­thetized to win small pots. They want to win big pots, and your big jumps are just go­ing to cor­re­late with when you have a huge Power­ball,” said In­gram, a Demo­crat from West Mem­phis.

“We are go­ing to keep study­ing it and tweak­ing it and see if we can’t cer­tainly make it as ef­fi­cient as pos­si­ble so we can put as much money as we can to schol­ar­ships,” he said in an in­ter­view.

In ad­di­tion to net pro­ceeds, the schol­ar­ships are funded by $20 mil­lion a year in state gen­eral rev­enue and $20 mil­lion from the lot­tery re­serve fund, which is used to cover tem­po­rary cash short­falls in the schol­ar­ship pro­gram be­fore it’s re­plen­ished with net pro­ceeds.

Arkansas Aca­demic Chal­lenge Schol­ar­ships to­tal­ing $86.1 mil­lion were paid out in fis­cal 2017, down from $96.4 mil­lion dis­trib­uted the year be­fore, said Tara Smith, deputy di­rec­tor at the state De­part­ment of Higher Education.

“We are pro­ject­ing a 3-5 per­cent in­crease in ex­pen­di­tures, which equates to a range of $88.9 mil­lion to $90.5 mil­lion” in Arkansas Aca­demic Chal­lenge Schol­ar­ships for the fis­cal year that started July 1, Smith said in an email.

The largest amount of Arkansas Aca­demic Chal­lenge Schol­ar­ships dis­trib­uted in a year was $132.9 mil­lion in fis­cal 2012, Smith said.

This year’s Leg­is­la­ture and Gov. Asa Hutchi­son en­acted Act 613 of 2017 — spon­sored by Sen. Jimmy Hickey, R-Texarkana — to cre­ate the Arkansas Work­force Chal­lenge Schol­ar­ship pro­gram. The pro­gram will use any ex­cess lot­tery pro­ceeds to fund schol­ar­ships for stu­dents en­rolled in higher education pro­grams lead­ing to the stu­dents be­ing qual­i­fied to work in high-de­mand oc­cu­pa­tions.

El­i­gi­ble stu­dents would have to be in a pro­gram of study at a state or pri­vate higher education in­sti­tu­tion in Arkansas lead­ing to an as­so­ciate de­gree or a cer­tifi­cate pro­gram in in­dus­try, health or in­for­ma­tion tech­nol­ogy and re­sult­ing in the stu­dent be­ing qual­i­fied to work in an oc­cu­pa­tion iden­ti­fied by the De­part­ment of Work­force Ser­vices un­der Act 613.

Smith said she hasn’t fig­ured out whether she ex­pects these new schol­ar­ships to be funded in fis­cal 2018, “but we will have an up­date on that at the Au­gust lot­tery over­sight meet­ing.”

In fis­cal 2017, the lot­tery paid con­sul­tant Camelot Global Ser­vices $3.63 mil­lion, Woosley said. That in­cluded $2.9 mil­lion in in­cen­tive com­pen­sa­tion, base com­pen­sa­tion of $650,000 and ex­pense re­im­burse­ments of $61,301.29

In Novem­ber 2015, lot­tery of­fi­cials signed a con­tract with Camelot to de­velop and help im­ple­ment a busi­ness plan. The con­sult­ing firm has of­fices in Lon­don and Philadel­phia.

Un­der the con­tract, Camelot re­ceives base com­pen­sa­tion and ex­pense re­im­burse­ments up to $750,000, but also is el­i­gi­ble for in­cen­tive com­pen­sa­tion of at least 12.5 per­cent of the lot­tery’s ad­justed op­er­at­ing in­come above $72.28 mil­lion in a fis­cal year. The con­tract also calls for Camelot to help the lot­tery ne­go­ti­ate con­tracts with ven­dors; the sav­ings would be used to help pay for Camelot’s ser­vices.

The con­tract will run through June 30, 2020, with op­tions for a two-year ex­ten­sion.

In March 2016, the lot­tery signed off on the con­sul­tant’s five-year busi­ness plan, which called for the lot­tery to sign up about 600 more re­tail­ers in fis­cal 2017 and in­crease its mar­ket­ing bud­get from $5 mil­lion to $7.9 mil­lion.

The lot­tery ended fis­cal 2017 with 1,934 re­tail­ers selling tick­ets on June 30, up from 1,910 on June 30, 2016, the lot­tery re­ported Mon­day. The lot­tery spent $5.7 mil­lion on mar­ket­ing, ad­ver­tis­ing and pro­mo­tions in the most re­cent fis­cal year, up from $4.8 mil­lion in fis­cal 2016.

“Ob­vi­ously, we fell short of [the ad­di­tional re­tail­ers] goal, but we made great progress in defin­ing the re­tail uni­verse. We will use that in­for­ma­tion to con­tinue our ef­forts to ex­pand our re­tail net­work as we go for­ward,” Woosley said.

Re­tail­ers may be­gin selling lot­tery tick­ets with debit cards start­ing Aug. 1 un­der a law en­acted by the Leg­is­la­ture dur­ing this year’s reg­u­lar ses­sion.

“We are un­sure how many re­tail­ers in­tend to sell lot­tery us­ing debit cards. We are hope­ful that many of our re­tail­ers will ac­cept debit and that the change in the law will have a pos­i­tive im­pact on sales,” Woosley said.

For fis­cal 2018, Woosley has pro­jected the lot­tery’s rev­enue at $459 mil­lion and net pro­ceeds at $83.6 mil­lion.

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