Texas Politics

Are lawmakers selling the Texas Lottery short?

Scratch-off tickets are the most popular item sold by the Texas Lottery Commission.
Scratch-off tickets are the most popular item sold by the Texas Lottery Commission. Star-Telegram

Scratch-off lottery tickets are big business in Texas.

They raise billions for state coffers and are so popular that as many as 95 new scratch-off games are introduced here each year, making up a sizable chunk of overall Texas Lottery sales, officials say.

But lottery officials are worried they will have to cut back on the variety of scratch-offs offered — and on the advertising that promotes the games — now that Texas budget writers are considering cutting as much as $18 million from the agency’s budget.

These budget cuts could lead to a drop in ticket sales, which could dramatically shrink the amount the lottery gives to the state to help pay for education and Texas veterans.

“It looks, apparently, to the Legislature like we don’t need what we’ve got,” Texas Lottery Commission Chairman J. Winston Krause said during a recent meeting. “It’s astounding we are that successful but our success is being used against us.

“The bottom line is it’s going to hurt what we do.”

Overall, the lottery has transferred more than $20 billion to the Foundation School Fund and more than $77 million to the Fund for Veterans’ Assistance.

At issue this session, as a conservative Texas Legislature works to craft a final budget, is a proposed $18 million reduction to the lottery budget in the Senate and a proposed $6 million cut in the House over the next two years.

Both chambers have passed budgets, which now will be hammered out in a conference committee where lawmakers will craft a final version.

Lottery officials say the Senate’s proposed cuts in advertising, marketing and promotions could bring a loss of about $108 million in revenue to the Foundation School Fund, and the House’s cuts could reduce revenue to the school fund by $20 million.

This continues a years-long battle between the Legislature and the Lottery Commission, as critics maintain the game financially hurts some of the most vulnerable Texans and doesn’t do enough to help the state. Supporters disagree and question where enough money can be found to replace revenue lost if the entrenched business is shut down.

“The Legislature will adequately fund education with or without the lottery,” said state Rep. Tony Tinderholt, R-Arlington. “The lottery is afraid they won’t be able to market to low-income people to get them to buy scratch-off tickets.

“I have no desire to spend more money telling people who can’t afford it to play the lottery.”

State Rep. Ramon Romero Jr., D-Fort Worth, is among those hoping the Lottery Commission suffers as little a funding hit as possible.

“I don’t think this should be a target because the money predominantly goes to education. Is this the wrong place to be funding education? Absolutely,” he said. “You shouldn’t fund schools with a fund that goes up and down or can be targeted this way.

“But now you’re jeopardizing Texas kids’ education,” he said. “The best-case scenario for the Lottery Commission is that the House conferees hold their ground and don’t let the Senate conferees take any more than $6 million.”

A long history

In 2013, the issue came to a head when members of the Texas House, in an unexpected move, voted to do away with the lottery.

Within hours, as questions arose about how to replace the revenue for the state’s public schools, legislators shifted gears and continued the lottery.

The lottery began in 1992, after state lawmakers and Texans themselves voted the year before to allow the sale of tickets to avoid a huge tax hike to counter a budget shortfall.

Since the Texas Lottery began, $25 billion has been generated in revenue for the state, including more than $19 billion for Texas public education and more than $66 million for Texas veterans, lottery records show.

Last year, state officials announced that the Texas Lottery for the first time topped the $5 billion mark in scratch-off and lottery drawing tickets during the 2016 fiscal year — and put a record $1.39 billion into state coffers.

That was the 13th consecutive year that the lottery put more than $1 billion into state accounts, officials have said. Scratch-off tickets made up $3.72 billion of those overall sales, records show.

At the same time, more than $50 billion in prizes, including $3.27 billion in 2016, has been paid out to players, lottery records show.

Before 1997, lottery proceeds went into the state’s general revenue fund. Since then, they have gone to the Foundation School Fund, which is administered by the Texas Education Agency, according to the Lottery Commission.

Lottery concerns

Lottery officials unsuccessfully asked state lawmakers to restore their proposed reductions to the budget.

They also asked them to consider adding a “rider” to the state budget that would develop a new funding mechanism for scratch-off tickets.

If sales reached a certain level, then additional money would go to the agency to allow a larger variety of tickets to be produced.

The Senate denied the request; the House put it in its so-called Wish List.

“In order to be responsive to the market preferences of our consumers ... we’ve explored new scratch ticket game opportunities and product enhancements that allow for us to generate revenue for the Foundation School Fund and the Texas Veterans Commission,” said Kathy Pyka, the Texas Lottery’s controller.

With the budget the way it is, she said, “the commission will not be able to offer the unique and innovative products we have been able to offer.”

Commissioners at the April 6 meeting appeared frustrated.

“Any loss in revenue here has to be replaced for somewhere else,” Lottery Commissioner Carmen Arrieta-Candelaria said. “I think that to reduce the budget here really translates to a loss in public education dollars.

“It’s incumbent upon all of us ... to call on the Legislature and impress on them how important this is ... [to] get the budget restored to last year’s levels.”

Mixed reactions

State Rep. Craig Goldman, R-Fort Worth, cautions that nothing is a done deal yet.

“Nothing is final until after the conference committee meets and the final budget is voted on by both chambers in May,” he said.

But some local lawmakers say they’d like to do away with the lottery entirely.

“It is not the proper role of state government to be administering a ‘lottery,’ which is why I support eliminating the Texas Lottery altogether,” state Sen. Konni Burton, R-Colleyville, said. “We need to end the ridiculous hypocrisy of Texas outlawing gambling while having our own state-owned lottery.”

State Rep. Nicole Collier, D-Fort Worth, said she believes the proposed lottery cuts are the wrong move.

“The proceeds from the Texas Lottery, including ‘scratch offs,’ go to very worthwhile programs including public education and veterans support services,” she said. “I believe that cutting the marketing budget will ultimately lead to cuts in such programs at a time when they can least afford it.”

Texas Lottery Commissioner Robert Rivera, an Arlington city councilman, said he and other commissioners will do the best they can with the money they are allotted.

“The budget is not in the direct control of the commission,” he said. “Whatever resources are made available to the Lottery Commission, I’ll do my best to administer them to benefit Texas schools and veterans.”

Anna Tinsley: 817-390-7610, @annatinsley