- BIG PLANS: Ray Thornton (left), chairman of the Lottery Commission, and Passailaigue.
On June 5, Ernie Passailaigue was hired as the executive director of the Arkansas Lottery Commission at a salary of $324,000, a six-figure pay boost over his job as leader of South Carolina's lottery.
Since then Passailaigue's brief tenure as head of the newest state agency has played out prominently in newspapers, TV and the web. Others hired to work for the lottery have been awarded huge salaries as well with the promise that the pay will all be worth it once the scholarship money starts to roll in. With every new hire, comes a headline. Legislators are either defensive or out for political blood.
Passailaigue has said that every day that goes by without tickets being sold is $1 million in gross revenue lost, or about $250,000 in “profit” for college scholarships. He has said he is out to “set lottery history by starting up a lottery in the quickest amount of time in the history of lotteries.” If he meets his end-of-October starting date, he'll actually match the development period of a couple of recently established lotteries, including one in North Carolina where Passailaigue once sought to be hired at a salary much lower than Arkansas's.
But in all the haste, headlines and hubbub about what has become the biggest political story of the year, something sometimes gets overlooked. What will the lottery really mean for Arkansas's citizens and higher education system? Here, even big backers hedge their bets.
Though new to Arkansas, lotteries have had a long place in American history. They have existed in some form for over 200 years in the United States. The campuses of some of our finest universities — Harvard, Princeton and Yale, for example — were built using funds from lotteries. George Washington was known to buy tickets with some regularity and, in 1769, helped manage a lottery in which parcels of land and slaves were among the top prizes.
Since the beginning, lotteries have been met with opposition. The arguments are familiar — lotteries are built on greed, corruption and immorality. Those who choose to play have been deluded into doing so by unrealistic promises of riches and are exactly the ones that can least afford to throw money away.
There are heart-warming stories of those who hit it big, heart-breaking tales of those who won and lost it all again. Many a political career has been made by running on the promise of using lottery funds for schools, buildings and other government programs. It remains to be seen if Lt. Gov. Bill Halter's vision will pay off in the next governor's race, should he choose to run. Politically, his so-called Hope scholarship campaign was a success, winning overwhelming voter approval. But some confusion remains about what the lottery will look like, how much money it will create and whether it will make a difference in the numbers who attend and complete college.
According to Passailaigue, the lottery commission will begin selling tickets on Oct. 29. The first games will be scratch-off tickets in four to seven varieties. For the most part, they'll be sold in convenience stores although the request for proposals sent to lottery vendors also asks for up to 100 ticket vending machines. These machines will resemble an ATM where customers can buy tickets and claim small rewards from the machines. (For large prizes, players will have to go to one of at least three redemption offices planned for different parts of the state.) Purchasing tickets would require a valid driver's license to verify a person's age.
“The price points on those tickets will be from $1 to $10,” Passailaigue says, “because initially it's a training process. We're educating the player about the games. A lot of people haven't played the lottery, and it will also be a training period for the retailers. So it's a slow roll-out.”
Draw games like Powerball, a multi-state game with huge jackpots, will begin in December. Powerball jackpots can reach into the hundreds of millions but odds for winning — picking all six numbers in a draw — are as great as the reward, somewhere around one in 150 million. Other draw games — picking fewer numbers correctly will produce smaller prizes — are also in the works.
“We'll build from there,” Passailaigue says. “A daily pick-three game, a daily four-digit game, then maybe a regional or Arkansas lotto game depending on what we want to do, but those games will be introduced over a period of time.”
There's been some question as to whether video monitor games like Keno will be introduced but Passailaigue says those types of games are a low priority. Keno has been called “video crack” by some critics because of its addictive nature. It's a game often seen in casinos, where players bet on a draw of numbers every five minutes or so. Since play is continuous, and sometimes in settings where drinks or served, it has spawned criticism from lottery critics who see the game as something like a mini-casino.
Other states have also started to introduce higher priced games, such as $50 scratch tickets, in order to boost sales but Passailaigue says that is not likely here.
“I doubt under my watch that we'd go beyond a $20 price point,” he says.
How much money will the lottery make? That depends on who you ask. Passailaigue says the lottery could bring in as much as $1.5 million per day but that's when the lottery is mature. Initial Department of Finance and Administration figures assumed $50 million in revenue, or roughly $600,000 in gambling per day, but everyone has a different number. Arkansas Advocates for Children and Families predicted about $61 million net revenue and initial estimates from Lt. Gov. Halter hovered around $100 million, or a bit more than $1 million in gambling per day.
“We tried to be conservative in our numbers,” Halter says. “We looked around at other states that border Arkansas, other Southern states, and we looked nationally. The averages of those three groups are significantly above $100 million if you apply it to an Arkansas population, so that's relatively conservative. If we have $100 million and it continues to grow at the rate of inflation, then I would consider that a success.”
Passailaigue has higher hopes.
“Before I was ever offered a job or even thought about this position, I did some really quick projections and I figured this lottery could potentially gross over $440 million in the first 12 months,” he says.
But right now, the best we have is an educated guess. In North Carolina, officials expected their lottery to generate between $400 million in its first year but the final tally came up more than $100 million short.
Other lotteries around the country have generally seen lottery revenues fall once the “new” wears off. According to a New York Times report in 2007, overall lottery sales rose just two percent from the year before and two dozen states reported declines in ticket sales.
So what happens to education dollars when sales lag? Sen. Shane Broadway, who was a member of the ad hoc committee that wrote the lottery bill, says that's something legislators will have to deal with on a yearly basis. That's one up-side of annual legislative sessions, which the voters also approved in last November's election, he says.
“Our first couple of years are going to be our spike years,” Broadway says. “It's kind of like a new restaurant, everybody wants to go. It will be the new thing and everybody will run out and buy a ticket and then two years or three years down the road it will start to fall off. But in terms of year-to-year, when you say yes to a student and tell them you're giving them a scholarship, that's more than a one-year commitment, it's a four-year commitment. We'll have to make sure there's enough money there to guarantee the entire four years.”
Halter says that while there is some stagnation in the market, lottery sales do trend upward, if only modestly so.
“Do they level off? Yes, but we think that it ought to grow at the rate of inflation once it becomes mature.”
One big question is what will happen to education costs. In South Carolina, where Passailaigue was the former director, the growth in education costs has outpaced scholarship revenues. According to one South Carolina columnist, “now it costs more for a year of college with a [lottery] scholarship than it did without one before the state started playing the numbers.” That doesn't constitute proof that the influx of lottery money encouraged college price increases, but it's clear the money hasn't offset them.
Scholarship amounts will be set by the legislature depending on revenue and demand. Ideally, students would receive up to $5,000 per year to attend a four-year university. Scholarships are smaller for two-year colleges and certificate programs. That can make a big impact for low-income students, but looking at the cost of college in the state now, as well as how much those costs have grown over the past few years, $5,000 might not go very far.
The average cost of tuition and fees at a four-year college in Arkansas for the 2008-2009 school year was $5,618. At first glance that seems like excellent news for parents about to send their kids to college with lottery scholarships. But that figure doesn't include what the Arkansas Department of Higher Education refers to as the “cost of attendance,” or COA. COA includes housing, food, books, supplies and other expenses. The average cost of attendance in 2008-2009 at a four-year college was $15,792.
It's impossible to predict today whether higher education costs in Arkansas outpace lottery revenue. But history suggests costs will rise. According to DHE, over the past 17 years the cost of tuition and fees has gone up an average of just over 8 percent per year. Since 1992, costs have risen 275 percent in all.
Halter, answering questions from constituents at a town-hall meeting last week, said it would be up to members of the legislature and those who work in higher education to make sure costs don't get out of hand.
“Because if that were to happen,” Halter said, “there would be a lot of frustration and a lot of folks would say that we didn't do anything to make college more affordable for Arkansans and their families.”
Skeptics will say that rising education costs and the possibility that lottery revenues may decline in the future will mitigate any real change in the state's education system. Others see the lottery, whether it's a big success or not, as an example of a commitment to doing something about education, and that's a good thing.
Jay Barth is a professor of politics at Hendrix College. He says the ability to implement public policy directed toward altering education in Arkansas says a lot about how the culture is changing.
“The overwhelming majority by which it was passed does say something about the state's relatively new commitment to education,” Barth says. “The populace is committed in a real way to educational change and I think that's part of the lasting legacy of the Clinton era. [Bill] Clinton's governorship really took a step toward saying education is key to changing this state and I think this is a continuation of that trend.”
But lofty ideals about a new commitment to education won't do much for parents trying to send kids to college. Sen. Broadway admits that the lottery scholarships won't fix everything that's wrong with education in Arkansas, but it is a step in the right direction. Arkansas is currently 49th in the number of students that complete college.
“This will be a significant bump — even 50 million new dollars — for our scholarship program,” Broadway said. “We have a great college-going rate. About 63 to 65 percent of our kids go to college. Our biggest problem is finishing, and one reason for that is financial. They get there, things happen, their car breaks down, they get sick. Financial considerations are one place where this will help.”
Scholarship funds from the lottery will go into the existing Arkansas Academic Challenge (AAC) program. The first lottery scholarships will go to entering freshmen in the fall semester of 2010. Once that money has been distributed, and depending on lottery revenues and the number of applications, scholarships will then be given to nontraditional students, students over 24 years of age who have already earned college hours. If there are still funds left over, then current college students with over 90 hours of credit will receive scholarships as well. The idea, Broadway says, is to get more students to finish college.
The new, revamped Arkansas Academic Challenge program will also be more inclusive, and have less strict requirements, than the previous scholarship. As long as a student has a 2.5 cumulative high school GPA or a score of 19 on the ACT, he or she is eligible. Once that student starts taking classes, he/she must maintain a 2.5 GPA. That's down from the previous requirement of 2.75. The 2.5 requirement is also lower than most other scholarship lottery programs, which typically require a 2.75 or a 3.0. If students lose the scholarships, they also have a chance to get them back, which did not exist before.
The current scholarship program is limited to children from lower income families. The new lottery scholarships will be open to all, regardless of income. This will be a key point to watch because an early experience in other states was heavy use of the money by middle-income families, not previously eligible for state aid, who'd been planning to attend college anyway.
Another big change from the previous program is that the new scholarships will be available to nontraditional students and those who wish to attend certificate programs. Broadway says this was a major goal.
“A bachelor's degree is not an end-all be-all,” he says. “There are two-year programs, certificate programs, nursing schools. So for the first time, if you want to go and get a welding certificate or a plumbing certificate, you'll be able to use scholarship dollars to do that. So we took a different look at it. It's not just about getting bachelor's degrees, but improving education beyond high school and allowing kids to go out and get a skill that's going to help them get a job.”
No Magic Bullet
While legislators are hopeful the lottery and the revenues it generates will improve higher education, all realize that increased funds alone will not cure what ails Arkansas's education system.
Halter, Broadway and Barth all say that while the financial boost will help, there is always room for improvement in other areas.
“Financial barriers are real in terms of higher education but there are other things too, like preparedness for college. That means continuing to improve the K-12 system so kids go to college ready to succeed,” Barth says. “Because of how low our graduation rates are compared to other states, we still have more first generation college students than anywhere else in the country. Kids who come from those families face challenges when they get to college because they don't come from an environment where there are high expectations. So we need to continue this move toward a culture in which going to college and graduation is seen as essential to economic livelihood.”
“I've been saying for over two and a half years that this is not a silver bullet,” he says. “This is one set of resources for a very specific educational issue we face. I don't want to tell you it's insignificant because it is significant. We are tripling the amount of state-funded scholarships that are coming to our students.”
Passailaigue says that once the lottery is up and running, the initial costs will be justified. When asked if mistakes were made in South Carolina that he hopes to avoid here, he's confident but focused on the reality of running a state lottery.
“There's no education in the second kick of a mule,” he says. “We made plenty of mistakes in South Carolina, not too many or I wouldn't be here. And we're going to make some mistakes here. It's just the nature of the business, but we hope they're not catastrophic.”
“This is fun and entertainment. If you're playing because you think you can change your financial future, then you're not being rational.”