The Lottery Legislative Oversight Committee seemed satisfied today with the Arkansas Lottery Commission's renegotiation of a controversial ccontract with vendor Scientific Games. It will cut Scientific Games' cut of scratch-off ticket sales from 1.92 to 1.81 percent, which should produce about $430,000 in the new fiscal year, beginning July 1. Scientific Games has made other concessions as well since an internal auditor raised questions about a change in the original contract.
The committee also learned that the lottery projects a 34 percent gross profit on lottery sales in the year, 1 percent lower than where it is expected to finish this year June 30.
Lottery Director Bishop Woosley said that the Lottery is cutting it's salary expenditures by $930,000, and that one of its goals for 2013 is to introduce more players to online games, because the profit margin is higher. He'd also like to see increased ticket sales at claims centers, to cancel out the cost of running the centers.
Sen. Johnny Key, chair of the oversight committee, told Woosley, "If you have positions you're not going to use, I'd like to see them eliminated from the legislation." Woosley said he would analyze the situation and have a report before the next meeting.
The committee also heard about an expecting increase in applicants for scholarships financed by lottery profits and the expectation that reserves will be used to cover the rising cost for the time being.
Shane Broadway, director of the Arkansas Department of Higher Education, said in 2013 his staff plans to reduce ADHE scholarship processing expenses from $1.3 million to $800,000. Thus far, the ADHE has only spent $310,000 of the $1 million appropriation it received for a software system to help process the scholarships. ADHE won't know how many scholarships it will award in 2012-2013 until summer school students get their transcripts in after October. $123 million was awarded to 3,998 students in 2010-2011; $129 million was awarded to 4,358 students in 2012. The ADHE has determined that in 2012-2013, $12 million will go to nontraditional students that are at least three-quarters of the way through their degree. ADHE expects a six percent increase in applicants this school year. He's convinced that it will eventually peak out, because the roughly 28,000 students graduating from Arkansas high schools each year is fairly static — or, if anything, decreasing a little.
"You have more people applying and accepting. The lottery was able to start nine months early [before the scholarship started paying], so we have a cushion of start-up money that has bridged us, and it will for the next two, three years," said Broadway. "We give the Lottery a projection every year, based on a certain number of renewals and expected new applicants. If there's not enough, then they need to make adjustments. We have a formula that dictates that, but we know that we're spending more than we're taking in...in a few years, we're going to have to make some decisions."
The lottery is projecting about $95-98 million in scholarship transfers for 2013, which means there will be a $10-15 million gap in what is awarded and what is transferred. According to Broadway, for a few years the excesses from an initially robust period, in which the lottery made high figures and a lower number of students applied, will carry the program. But the ADHE has already lowered the amount of the award from $5,000 to $4,500, and if applicants continue to rise and profits continue to fall, ADHE may have to do this again.
With the cooperation of colleges and at the directive of the LOC, ADHE has undertaken a massive statistics-gathering project on the students who collect, retain and lose the scholarship. Seventy-nine percent of them go to a four-year-school. Twenty-one percent go to a two-year school. Students who were able to renew their Challenge Scholarships (which means they took the required hours and didn't let their GPA fall below 2.5) have an average high school GPA of 3.52 and an average ACT score of 24, as opposed to those who didn't renew their scholarship and have an average high school GPA of 3.03 and an ACT score of 21. According to Broadway, a little over 4,000 students lost the scholarship. About 3,000 of those students didn't have the grades or the hours to apply for renewal. Broadway said the the ADHE is working with colleges to alert these students early on, let them know their eligibility is endangered and they need to pull up their grades or take more classes. "We're also working with the Department of Education. We sent information to high schools, so they know their students are not maintaining the scholarship...so we're working with them to improve the preparedness of that student before arriving on campus."
When asked about legislative policies to have the number of students losing the scholarship, Broadway seemed perplexed. He mentioned how complex and contradictory the data is. "We've only got one year of data, and we won't know till around October what this year, the second year or the program looks like," he said.
One note from yesterday's Lottery Commission meeting: After the Lottery Commission broke into executive session, Chair Ben Pickard noted that the Commission was no longer going to pursue limited police power. "Police power is a moot issue and we're not going to pursue it," said Director Bishop Woosley.