Lottery isn't always a boon to schools

This year, millions of dollars of Indiana state lottery proceeds were poured into a teachers' retirement fund, school technology, and public-school tuition support.

Last year, the Idaho state lottery contributed $9 million to build new roofs on schoolhouses, new bleachers in school stadiums, and to buy new computers and school buses. Two years ago in California the state lottery contributed a record $1.11 billion to public education.

All this sounds good. But the story behind lottery money for education is more complicated, and not as rosy.

"The proceeds from state lotteries are less than you might think," says Molly Burke, researcher at the Education Commission of the States in Denver. "Even if they're all earmarked toward education, it isn't a huge amount. It's never quite as much as states would like the schools and the taxpayers to think."

Since the 1970s and 1980s, state lotteries have been popular means of helping to fill state coffers. Today 39 states have lotteries and several more have voted to join the crowd. Many states sell the lottery concept to the public with the promise that a large portion of the proceeds will benefit public schools.

In fact, 22 states earmark portions of lottery earnings for public school spending. States such as New York, Michigan, Missouri, and Vermont plow 100 percent of their lottery gains back into public education.

Yet, while the public may believe that means a net gain for schools, that's not always the case.

Many times, says the Rev. Richard McGowan, a professor at the Carroll School of Management at Boston College, "you're really allowing the state to spend the money in other places rather than the schools. It's not a bonus for the schools but a substitution."

Sometimes what ends up happening is that schools achieve a small gain through the lottery.

"The fact that you vote for a lottery that's going to add $100 million to education doesn't mean that education will get $100 million," says John Augenblick, president of Augenblick, Paliach & Associates, a consulting firm in Denver that specializes in state education-policy finances.

"The government may take back $75 million in property taxes. There's probably a net gain, but it's not large."

Yet in Ohio, pouring lottery proceeds into education actually caused state spending on schools to shrink, according to a study by graduate student Thomas Garnett published by the Buckeye Institute in Dayton, Ohio.

The study demonstrated that, after Ohio's 1974 promise to devote all lottery winnings to public schools, state spending on education dropped from 42 percent of its total budget in 1973 to 29 percent in 1994.

Of course, not all lotteries are equal. Many policymakers praise Georgia's state lottery, which funnels all its proceeds into specific projects related to education.

Instead of pouring money into a general fund, the law in Georgia restricts lottery profits to financing college scholarships, universal prekindergarten, and technology grants for schools.

There is also a danger in such a system, however. Because some of these projects are funded solely through the lottery, if lottery proceeds ever dry up, important programs could find themselves high and dry.

But overall, if all state lotteries were designed like the Georgia model, says Father McGowan, education might receive a genuine benefit.

More states are leaning that way. Texas has already adopted a similar plan, while Tennessee and South Carolina have both approved lotteries based on the Georgia model. [Editor's note: The original version of this story incorrectly included North Carolina in a list of states with approved lotteries.]

All these states plan to donate their full proceeds to educational programs.

But the overall financial success of state lotteries is uneven as well. Massachusetts, which permits no advertising for its lottery and devotes all its profits to spending on local schools and cities, is sometimes called the most efficient of all state lotteries.

California, on the other hand, is sometimes criticized as an inefficient lottery hampered by poorly conceived restrictions.

Some states spend so heavily on lottery prizes and related advertising that their proceeds are thin and may vary dramatically from year to year.

Of course, even when lotteries are not most profitably managed, there are certain residual benefits to linking state lotteries to spending for schools, says Mr. Augenblick.

One is that politicians sell lotteries to the public by stressing the paramount need to fund public education. If nothing else, Augenblick says, their campaigning serves to reenforce the message that spending on schools is both important and taken seriously.

"They get the issue in front of people that there ought to be more money for education," he says. "And then the support of the people tells politicians that this does matter to voters."

There are also those who argue that, however marginal the financial contribution of the lotteries may be, those few extra dollars may make a difference.

Last year in Illinois, where all lottery proceeds go to education, lottery earnings accounted for 3 percent of the total $18.61 billion the state spent on education.

"If you believe that 1 percent is critical - and some people do," says Augenblick, "then all of these lotteries are important. But you're not talking about the bulk of anything."

The idea of raising money for schools through lotteries has been an American tradition since Colonial times, McGowan says.

Both Harvard and Columbia Universities, he points out, helped finance some of their earliest buildings through lotteries.

"It was a tradition," McGowan says.

But today, he adds, state lotteries have become a type of institution. "I don't think they can be cut now," he says. "Once it gets in there, the state becomes pretty dependent on this for revenue."

What's likely for the future is more state involvement in lotteries and other forms of gambling as well, McGowan forecasts.

Games of chance will continue to be frequently pegged to education because it's an effective way to overcome public qualms about legal gambling.

That's not necessarily a bad thing for school financing, says Augenblick - but neither is it a tremendously good thing.

"The state lotteries are good," he says. "They're better than nothing. But they're not nearly as good as they're sold to people to be."

The amount of lottery money that goes to schools varies by year and by state. During a recession, lotteries take in less money, and states often must make up the difference by raising taxes.

* Total US lottery profits for fiscal year 2002 were $13.7 billion.

* 39 states, plus the District of Columbia, have state-sponsored lotteries.

* 22 states earmark lottery proceeds* for education funding.

* 13 states and the District of Columbia earmark lottery proceeds for general funds, which may or may not fund education.

* States that earmark 100% of lottery proceeds to education* are: Georgia, Illinois, Michigan, Missouri, New Mexico, New York, Ohio, Texas, Vermont, and Virginia.

* Note: Some states use lottery money instead of, not in addition to, state money set aside for education.

Source: 2003 Education Commission of the States