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National study pans lottery scholarships

MAP MASTERCopyright © 2014 Albuquerque Journal

A national study of lottery scholarship states, including New Mexico, has found that despite the popularity of using the gambling money to fund educational programs, they ultimately create more problems than they solve.

Moreover, the American Association of State Colleges and Universities said in a policy statement this week that lottery proceeds “rarely match projections, often decaying within the first decade after creation.”

The report, “A Gamble with Consequences: State Lottery-Funded Scholarship Programs as a Strategy for Boosting College Affordability,” was written by Kati Lebioda, a policy analyst for the Washington, D.C.-based association. It found several other problems with lottery scholarship programs, including:

  • High administrative costs.
  • The potential erosion of sales tax revenue, for example when money is spent on lottery tickets instead of taxable goods.
  • A correlation with lower spending on education from the states’ general budgets.
  • The questionable ethics of states promoting gambling.

In New Mexico, the Legislative Lottery Scholarship has historically covered all of the college or university tuition for freshmen who graduate from high school in the state and go directly to college without taking time off.

But beginning next year, lottery scholarship students will more than likely see their awards reduced, as officials warn that 100 percent tuition payments are almost certainly a thing of the past.

Future scholarship awards will depend on how much money is available from the scholarship fund. New recipients must also meet stricter eligibility requirements.

Of eight states that earmark lottery funds for higher education, only New Mexico does not require a minimum high school GPA for eligibility. Five states demand a 3.0 GPA in high school, and two require a 2.5 GPA, according to the study.

And New Mexico is the only state of the eight that doesn’t require a minimum ACT or SAT score. It is one of four with no core course requirements.

However, of the eight states, New Mexico is the only one that requires a minimum college GPA – 2.5 – for students to keep getting the scholarship.

Nearly 15,000 New Mexico students are positioned to receive lottery scholarships for the current semester.

Sen. Michael Sanchez, D-Belen, is generally considered the champion of the Legislative Lottery Scholarship. He said Thursday he would not comment directly on the study because he had not seen it.

However, he said, New Mexico’s lottery scholarship “has allowed many individuals to participate in higher education, people who otherwise wouldn’t have had that opportunity. The positive effects of the scholarship on those who choose to participate extend to the state in general. I would rather fall on the side of access to higher education for those students, who would never have had the opportunity.”

Studies like the one in question “are all well and good,” he said, adding that he might have more to say about it once he has read it.

With revenue from the lottery either stagnant or falling – ticket sales have declined in seven of the last 10 years – the cost to taxpayers to fund the program has risen.

In fiscal year 2014, the lottery generated $40.9 million for the scholarship, a drop of more than 6 percent from the $43.7 million it raised in 2013. Ticket sales brought in $136 million during FY14, which ended June 30, compared with $141.8 million in FY13, but 70 percent of that goes to winnings and administrative costs rather than awards to students. At least 30 percent of lottery proceeds must go to the scholarship.

Last year, the Legislature approved an $11 million shot in the arm for the scholarship from the Student Financial Aid Special Program fund and another $2.9 million as a general fund appropriation. Lawmakers also allocated $11.5 million from the general fund for this year.

A previous $5 million transfer from the Tobacco Settlement Fund is also bolstering the scholarship, and lawmakers provided an estimated $19 million each for FY16 and FY17 from the state’s liquor excise tax.

According to the association report, although state-run lotteries “appear to be a positive policy solution to increase revenues and support college access,” the truth is that they do not live up to expectations.

“For example, the instability and unpredictability of lottery revenues often leads to more stringent eligibility requirements for scholarships,” which is precisely what happened in New Mexico.

And stricter eligibility requirements “can result in more funds being disproportionately distributed to the wealthiest families,” the report states.