Detroit-area legislators air views on lottery money

Some state legislators say constituents frequently ask, "If we have the Michigan Lottery, why do the public schools constantly face budget troubles?" Other elected officials say they rarely face the question.

The standard answer is that Michigan Lottery revenue provides about 6 percent of total K-12 school spending and less than 2 percent of the state budget as a whole.

According to the Michigan Lottery's 2009 annual report, the lottery paid out $1.407 billion in prizes while contributing $724.5 million to the school aid fund. The overall state budget was $46.6 billion.

Michigan voters in 1972 approved the creation of the state lottery by nearly a 3-1 ratio. Lottery profits in 1981 were directed totally to K-12 education.

For this report, surveys were sent four times to the offices of the 46 state house members and 15 state senators who combine to represent Wayne, Oakland and Macomb counties. Five responses were received, reflecting an array of perspectives. Among those not responding are House Speaker Andy Dillon, a Redford Democrat, and Senate Majority Leader Mike Bishop, a Rochester Republican.

Here is a summary of the responses:

Sen. Michael "Mickey" Switalski, a Roseville Democrat

"With Michigan's current economy and threats of cuts to school funding, the question of how the lottery relates to this funding is often raised by many of my constituents. Many people believe that schools are funded through the lottery, which is a partial truth. Lottery revenue is only a small percentage of the school aid budget.

... Any source of funding, especially for school aid, is important. Although the $700 million brought in by the lottery is only a small percentage of the total funding school aid requires, that is still $700 million that doesn't have to be allocated from other funds. In this respect, the lottery is good for Michigan.

"However, we must also consider the welfare of our citizens and ensure that we are not promoting something that will lead to a gambling addiction. There is a delicate line that we must balance here for potential good and bad that comes from the lottery ... Although I tolerate gambling and acknowledge that people will partake in it, I feel that it is important to draw a line between regulating the gambling and promoting it. I do not think that using government money to increase the advertising for the lottery is a fiscally sound or socially positive decision. We should not take an active approach to encourage such vices, but instead focus on proper regulation of it and ensure that the proceeds go towards a positive end."

Switalski refers constituents to a November/December 2009 Senate Fiscal Agency report, "Doesn't the State Lottery Fund the Schools?" Economist David Zin reports, among other points, that Proposal A in 1994 shifted a large amount to school funding to a higher state sales tax, rather than local property taxes. This means that even though lottery revenue increased annually until last year's economic downtown, the budget share decreased in comparison to the sales tax.

Rep. Fred Miller, a Mount Clemens Democrat

"(Constituents ask), since the lottery is giving so much money to the schools, why is there still a budget problem in many districts? This is one of the most common questions I get asked as a state legislator.

"While the lottery is an important source of funds for public schools, it is only about 6 percent of the overall school budget. The school aid fund also includes money from 2 percent of the sales tax, some of the income tax, state education property tax, use tax, tobacco taxes and the real estate transfer tax. The lottery represents a small, though stable and important source for funding education in Michigan.

"School funding is under the most pressure this year primarily because sales tax revenues, the largest contributor to the school aid fund, are down substantially in this economic slowdown.

"What happens to the rest of the money? The biggest lottery expenditure, of course, consists of the money given to those people lucky enough to win. In 2008, lottery prizes accounted for 57 percent, or $1.35 billion of the state lottery's budget. At $172 million, or 7 percent of its revenues, the amount paid to retailers to operate lottery games was the second largest expenditure. Business and administrative expenses total less than 5 percent, while the remaining $740.7 million, or 32 percent, is the net profit that went to the school aid fund in 2008. (Totals dropped slightly in 2009)."

Rep. Kim Meltzer, a Macomb Township Republican

"Occasionally, a teacher will ask how much of the lottery funds public schools, but that question has come maybe two or three times."

Chetly Zarko, legislative aide to Rep. Marty Knollenberg, a Troy Republican

"The lottery is a nice supplement to the school aid fund, but it was always intended as a supplement. The school aid fund is the single largest segment of the budget, and was always overwhelmingly larger than the lottery could provide in contribution to it.

"It is possible that the urban legend that the lottery was going to be a savior of public education resulted from an over-selling of the value of the lottery early on when it was created, or simply from the types of things and rumors that result in all urban legends. The lottery money does - by law - all go to education, though, although when it was initially created decades ago it is possible that the legislature 'shifted' other revenue sources away from education. Nonetheless, whatever amount that resulted has long since moved through the system, and is no longer relevant to the budget situation. It is also empirically true that education spending (lottery plus general fund) has increased every year except one year over the last roughly 20 years."

Sen. Raymond Basham, a Taylor Democrat

Basham, in his eighth year in office, says constituents don't ask him about Michigan Lottery spending for schools.

Sources:

http://www.senate.michigan.gov/sfa/Publications/Notes/2009Notes/NotesNovDec09dz.pdf
http://sunshinereview.org/index.php/Michigan_state_budget