About a quarter of lottery ticket sales support education. Most of the rest is paid out in prizes. The lottery has also amassed more than $1.1 billion in reserves. Building reserves for tough times is a wise fiscal strategy. Because the economy is unpredictable, it makes sense for the state to save so that it can follow through on its promises to Pre-K and college students in the event of a downturn. Half of the reserves are designated for use in case of a shortfall in lottery sales, but $600 million sits idle. That leads to an inefficient use of lottery funds.
Here is what Evans recommends the state do with that $600 million.
By Stacey Evans
When voters approved the Georgia Lottery, they did so not just to create a lottery, but to create a fund that would help students go to college. Twenty-five years later, we have a lottery producing more money than ever before, yet not all the funds are being used for their intended purpose and Georgia students—and businesses—lose as a result.
It is no secret that Georgians are struggling with the cost of college. Every year, students don’t enter the doors of higher education because they can’t afford it. And every semester, colleges are forced to drop promising students who can’t afford to pay all of their tuition—oftentimes being only a few hundred dollars short. Those students often never make it into the skilled workforce, and all the while businesses struggle to find trained workers.
There is a solution. The state is sitting on $600 million of unused lottery money intended for education.
The lottery reserve fund is required by law and is separate from the state’s general reserve fund. At the end of each budget year, any surplus goes to the lottery reserves held by the state treasury. From 2002 – 2016, surplus lottery funds averaged more than $50 million per year.
In 2011, the General Assembly increased the reserve requirement from 10 to 50 percent of previous year’s net proceeds. The increase in reserve requirements was made to the law despite the fact that the potential need for reserve funds decreased.
Prior to 2011, the law promised full tuition to any student who maintained a 3.0 GPA. Thus, it was possible that the state had made a promise it might not be able to fulfill through lottery revenues. If so, then the reserve fund would be necessary to make up the difference.
But after 2011, the main promise of HOPE was that if you had a 3.0 GPA you would receive a percentage of tuition depending on available lottery funds. Despite the uncoupling of the promise from tuition and the decrease in potential need for reserve funds, the state quintupled the reserve requirements.
Not only are the reserve requirements higher than needed, the state has accumulated additional reserves on top of those reserves. At the end of the 2018 budget year, the reserve fund totaled more than $1.1 billion. This means that Georgia exceeds the legal reserve requirement by $600 million—more than double.
The 50 percent reserve requirement (currently equal to $500 million) is more than adequate to protect Pre-K and HOPE from an economic downturn. The excess should be spent to support education. After all, that’s what Georgia voters approved—they approved a lottery that would support education, not one that would build up cash for the sake of doing so.
If the Legislature and governor believe we need $1.1 billion in reserves, then they should pass a law that requires such an amount. That’s why the law is what it is. This means the rest of the money should be put to use for educational needs.
One idea is to convert the extra $600 million in unrestricted reserves to an endowment and “make Georgians’ money work for Georgians.” The interest and returns generated from this account could be dedicated to a specific education use. For example, even figuring conservative interest at 4 percent --the same rate many colleges use to estimate available endowment fund spending—we could provide tuition-free technical college in Georgia.
This would make all the difference in the world in the lives of real students in our state. I talked to a financial aid officer at one of our technical colleges who kept money in her desk drawer to try to help make up the difference for students who found they were short on their tuition bills. She could not help every student who came up short, but the state can structure the funds so that collectively we can.
The state could also dedicate a certain amount of the endowment interest toward “gap” grants. When the (on average) thousands of students drop out each year because they are a few hundred dollars short on tuition payments, this “gap” fund could make up the difference. These could also be structured as “gap” low interest loans and the repayment of those funds would go back into the endowment fund to help future students.
Using lottery dollars for education as intended could help a new generation of Georgians access higher education, shore up colleges that are economic engines in rural areas, and fulfill the workforce needs of small, medium and big businesses.
HOPE changes lives. I know because it changed mine. I never could have afforded college without HOPE. Every year students don’t go to technical college because they cannot afford tuition. And every year students drop out because of small tuition balances they cannot pay. Will the Legislature and our new governor continue to tell these students that having nearly double the amount of legally required reserves sitting idle in a bank account is more important than their path to the middle class? I sure hope not.