Where did the all the Michigan lottery money go?
That age-old question is being asked with a little greater frequency these days as local school districts grapple with mid-year state aid cuts of a minimum of $292 per student.
Conspiracy theory has long held that lottery proceeds intended to solve all of Michigan's school funding problems have been for decades fiscally diverted by crafty lawmakers in other, non-school programs.
Those suspicions might have had more of a basis of support before the Proposal A school finance changes ratified by voters in 1994. All of the main taxes in those changes, sales, property and income are either constitutionally or statutorily earmarked for K-12. As is lottery revenue.
What has changed since Proposal A was adopted is that more lottery revenue is going into prizes with the aim of boosting sales. Sales are up in games where prizes are greater or can be varied, as with Instant game tickets.
In a state with two-dozen tribal and commercial casinos where slot machines pay out roughly 90 cents of every dollar played, it makes sense from a business standpoint to boost lottery sales by giving customers a greater financial incentive to play.
But if the winners from this business plan are the players of certain lottery games, K-12 school budgets would appear to be the losers. Far less of a percentage of lottery sales is going into the Michigan's school aid fund than it did when it was established under Proposal A 15 years ago.
That $292 cut in per-pupil aid imposed by Gov. Jennifer Granholm and lawmakers could be reduced by half if the lottery contributed the same percentage of sales to schools as it did in 1995.
Forty percent of $1.38 billion in lottery sales flowed into the school aid fund that year, a $548 million contribution. In the 2009 fiscal year that just ended, only 30 percent of $2.38 billion of sales went to support schools, a contribution of $723 million. Boosting that 2009 contribution to 40 percent would have been worth another $229 million, or $143 per student.
There would be far few teacher layoffs and fewer reductions in programming. That there might also be fewer lottery ticket sales is a valid concern. In that same time period from 1995 to 2009, the percentage of sales devoted to prize payouts has jumped from 52 percent to 60 percent. But that raises the question of what the lottery's central mission is.
Over time, a succession of lottery officials under pressure to boost ticket sales, and K-12 revenue, have figured out that it takes more than civic-minded appeals to public education to pry $5 bills out of the pockets of cash-strapped Michigan residents. It takes cash prizes, the bigger the better.
Since 1995, lottery payouts have doubled and sales are up by more than two-thirds. School proceeds from the lottery, though, are up a third. Sales growth is slow in the games with prizes that haven't increased. Sales are soaring in games that offer lottery players more.
The Daily game, the twice-daily drawing of three or four numbers, has paid out 20 percent more in prizes since 1995 and has had sales growth of just 10 percent.
The Instant game, however, is now the lottery's biggest seller with nearly $750 million in tickets sold in 2009. Aggressively marketed with a steady stream of new products and a variety of prizes, the Instant game has had a sales increase of 80 percent in 15 years. Prize payouts are up by more than 100 percent. "Holiday Riches," a new $10 game, has a top prize of $500,000.
Club Keno, the online game played in bars and restaurants across Michigan, began in 2004 with a prize payout of 66 percent of sales. From its first full year of operation, sales are up from $332 million to $516 million. In three years, Michigan Raffle has had a prize payout of about 56 percent and sales are declining.
You can argue that schools would still be receiving less if skimpier prize payouts caused sales to suffer. The question is whether the right balance is being struck. Regardless, the trend shows that the Michigan Lottery is more of a gambling outfit and less of a benefactor to education than it used to be.
Where is the money from those lottery tickets going? Actually, into the pockets of those who bought them.