As lottery rakes it in, schools see little gain

  • By Scott North, Jerry Cornfield and Eric Stevick / Herald Writers
  • Saturday, October 16, 2004 9:00pm
  • Local NewsLocal news

The Washington Lottery advertises itself as a game where “Everybody wins.”

When you buy a ticket in Everett, you’re told that you’re helping build a multimillion-dollar jackpot for schools in your neighborhood.

But a close look at where lottery money is coming from and how it is being spent shows little link between who plays and who pays for schools. Nobody in state government appears to be documenting exactly how much lottery money winds up in individual school projects.

State law doesn’t require it, so nobody is checking to ensure equity in how lottery profits are divvied up. The rules governing how funds are doled out exclude some of the poorest- and the wealthiest – parts of the state.

A computer analysis by The Herald found that Snohomish County generates the third-highest amount of lottery revenue in the state, about $52 million in 2003.

But the county didn’t get back a similar share of lottery profits.

Local school building projects received about $2 million- the best estimate that could be deduced by cobbling together figures from a variety of state sources.

If a 4 percent payoff for Snohomish County schools seems like a puny return, consider this: Other communities in the state received nothing.

Over the past two years, according to state records, not a single dollar of lottery money went to build schools in 18 of Washington’s 39 counties.

Getting skunked on lottery construction money happens even in places where the games are most popular. For example, no lottery dollars are destined this year for Grays Harbor County, which leads the state in per capita lottery sales.

Enough tickets are sold there in a year to provide $150 worth for every man, woman and child in the county, the Herald’s analysis found.

Gambling expansion

The lottery is Washington’s only form of state-sponsored gambling. Voters soon will decide whether to change that.

Initiative 892, which is on the Nov. 2 ballot, would allow video slot machines in up to 2,000 businesses, including restaurants, taverns, card rooms, bowling alleys and bingo halls.

If the measure passes, the state will get a cut of the slot machine profits, and the lottery commission will collect the money and pass it on.

The initiative is being pitched in a way that connects it with the state lottery. Official ballot language from Mukilteo initiative guru Tim Eyman even calls the slot machines “electronic scratch-ticket machines.” That’s what the state decided to call slots in agreements with tribal casinos, Eyman said.

Gov. Gary Locke’s budget analysts predict that lottery profits earmarked for schools could dip by 30 percent or more if I-892 passes.

Eyman thinks his plan would be fairer than the lottery, because a portion of gambling profits would be used to reduce property taxes.

“I’d say that we’ve beat ‘em hands down on the fairness and equity argument,” Eyman said.

Whether the lottery has proven to be a good bet for Washington’s education system is a source of debate.

The lottery delivers more headaches than revenue for state government, said state Rep. Hans Dunshee, D-Snohomish, chairman of the House Capital Budget Committee.

It’s “a tax on people who can’t do math,” Dunshee said. He doubts that expanding gambling would change that.

“Government gets hooked on gambling just as much as gamblers,” Dunshee said. “It would be nice to kick this habit.”

It’s a myth that the lottery bails out education, said Sen. Dave Schmidt, R-Mill Creek, who serves on the Senate Education Committee.

“When you look at what the total lottery profits are, I don’t think it makes that big of a difference one way or another,” Schmidt said.

At one point, when lottery money flowed into the state general fund, it accounted for just 1 percent of the kindergarten through 12th-grade education budget, he said.

Rules get tweaked

Trying to track what happens with lottery dollars in Washington requires a journey into the thick, bewildering world of capital budgets, fiscal years and arcane rules governing how money is divided up to support the public good.

Understanding it all requires a history lesson.

Voters didn’t create the lottery; state lawmakers did because they needed money.

It happened in 1982 during a recession that left the state short of cash. A bill signed by Republican former Gov. John Spellman steered all the revenues into the general fund rather than into the budget of a single department.

Voters were told that education would benefit from lottery profits.

Through the years, voters and lawmakers tweaked the rules, diverting bits of the stream of money to pet projects.

When legislators decided to foot the bill for the new Mariners ballpark, they pinched a little to pay off the bonds. A voter-authorized package to finance the Seahawks stadium and an exhibition center took away some more.

The biggest change came in 2000. Voters passed Initiative 728, which yanked lottery money completely out of the general fund and plunked it into education.

Although the initiative was billed as a way to supercharge education efforts in Washington with a fresh shot of cash, it also was a bit of a backlash. Opponents of paying for sports stadiums with lottery money argued that taxpayers had been sold out.

The thicket of new rules brought by Initiative 728 required that from July 1, 2001, to July 1, 2004, the dollars be scattered throughout the state for use in classroom instruction and capital improvements.

On July 1, the initiative imposed a new guideline: Every lottery dollar now must be spent on new construction, rehabilitation or modernization of school buildings.

But there’s a catch.

School districts are only eligible for state matching money if voters first agree to tax themselves to pay for school construction projects.

In addition, lottery money is available only to communities that aren’t considered too wealthy to qualify for it. It’s all based on a sliding scale of need, and the state makes the final call.

Mike Roberts, senior capital budget assistant to Gov. Gary Locke, said lottery profits now account for 17 percent of state matching money for school construction projects. The rest comes mostly from timber sales.

Tracking lottery receipts is a bit like following the money that comes from logging state-owned trees, said Bill Panos, director of school facilities and organization for the state Office of the Superintendent of Public Instruction.

“It would be impossible for me to tell you what tree, or area of the state, that tree came from, and where that money ended up in terms of a school project,” he said.

The lottery helps diversify the school construction fund, Panos said. It’s like a financial portfolio. “When one is down, others can be up,” he said.

In the current two-year state budget that expires June 30, 2005, the $402.3 million common school construction fund for elementary and secondary schools includes $67.4 million from the lottery.

The $874.4 million capital budget for colleges and universities also includes $53 million of lottery money for “preventive maintenance” on buildings.

Schools need the money

Lottery construction money is out of reach for some local school districts.

Marysville School District Superintendent Larry Nyland cites pressing building needs in his community. Marysville-Pilchuck High School is one of the most crowded in the state. Hundreds of new homes that are being built promise even more students.

Marysville isn’t eligible for lottery construction money even though people there last year spent about $4.4 million playing the games. That’s because voters last year twice turned down bond proposals to pay for a new high school and other projects.

The district is in the early stages of discussing another bond proposal, but Nyland said it’s difficult to predict the state’s matching funds.

He’s still trying to understand how lottery money is supposed to trickle down to his school district.

“I think that all of us who have a need for building more buildings are concerned about the state’s ability to finance their portion,” he said.

School districts that fail to pass construction bonds are overlooked when it comes to qualifying for lottery and other forms of state matching money, said Barbara Mertens, assistant director of the Washington Association of School Administrators.

The state’s share has dwindled, while the need is rising, she said. As things stand, a district can’t even make a case for the money unless it passes a bond.

Her solution?

She suggests forming a blue-ribbon commission to examine school construction funding. The state needs to identify what works, what doesn’t, and the role of the lottery.

But determining if lottery construction dollars are equitably shared around the state has not been a pressing concern in Olympia.

“We do know the public cares about accountability,” said state Sen. Rosemary McAuliffe, D-Bothell, a senior member of the Senate Education Committee.

“The question is: Should the (lottery) commission oversee which dollars are lottery dollars, where they will go, and make sure they are spent in the right way?”

There have been discussions in Olympia on ways to better distinguish where lottery dollars end up. Even so, no serious proposals have emerged.

“All the dollars are green,” said Roberts, the governor’s budget analyst. “We can’t make a lottery dollar radioactive and follow it through the system.”

The lottery simply runs the games and collects the revenues. It has no say over how and where the profits are spent.

Jacque Coe, public relations manager for the lottery, said tracking lottery spending on schools would make it easier to show public benefits.

Meanwhile, the lottery is phasing out “Everybody wins” and trotting out a new slogan, “It’s good to play.”

That was a marketing decision, Coe said.

“‘Everybody wins’ had its time and place,” she said. The new slogan aims to convey “the fun and entertaining products we sell in order to generate the critical dollars for the public good, (such as) construction of public education buildings.”

Dunshee isn’t surprised that lottery profits aren’t shared equally in Washington. State formulas for using school construction dollars turn places like Everett and Seattle into net exporters of tax revenue, he said.

That’s the way it is with property taxes as well, he said. “One of those skyscrapers in Seattle probably pays for schools in six counties in Eastern Washington.”

Reporter Scott North: 425-339-3431 north@heraldnet.com.

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