State officials warn of potential $20 million lottery scholarship funding shortfall

Tennessee Lottery games (Photo by the Tennessee Lottery)

Explosive program growth and a drop in lottery revenues prompted Tennessee Higher Education Commission officials to warn state lawmakers of a projected shortfall in funding for Tennessee Education Lottery Scholarship programs. This comes as Governor Bill Lee has proposed several lottery scholarship program expansions.

Currently, the lottery scholarship fund covers 13 programs, including HOPE scholarships, TN Reconnect, Tennessee Promise, and high school dual enrollment, serving around 164,000 students across the state. Governor Lee has proposed several expansions of lottery funded programs, including an additional $12 million in TN Student Assistance awards for low-income students.  In a presentation before the House Higher Education Subcommittee, officials with the Tennessee Higher Education Commission say they’ve also seen huge natural growth in existing programs such as TN Reconnect and dual enrollment.

“One that has shown radical growth over the years and that’s dual enrollment, 182 percent growth just in five years,” said Lou Hanemann, Chief of External Relations for the Tennessee Higher Education Commission. “If that projection continues, that’s another $10 to $12 million dollars in expenditures just from natural take up rates among high school students.”

These programs are funded through proceeds from the Tennessee Lottery.  But state officials say this fiscal year, those revenues are falling about $40 million short of initial projections.  If current trends continue, this could lead to a projected $20 million shortfall for lottery scholarship programs for the next fiscal year. 

Revenues from online gaming go to a separate fund with the State Treasury and 80 percent of those dollars are earmarked for maintenance and other needs of K-12 schools under the recently passed Education Freedom Scholarship Act. In the event of a lottery revenue shortfall, those funds are diverted to cover the difference for lottery program funding under an amendment included in the final bill.  Sports betting revenues this fiscal year are projected to hit more than $70 million, more than enough to cover the difference.  That upward trend is also expected to continue.  

Representative Charlie Baum R-Murfreesboro raised questions about the possible correlation between the drop in lottery revenue and an increase in online sports betting. Hanemann deferred to the TN Lottery Corporation but urged lawmakers to keep those projections in mind.

“There is nothing that precludes expansion of lottery programs, either through legislation or otherwise,” said Hanemann. “Just bear in mind, in year where we have a shortfall, such expansions would exacerbate the shortfall.”

“I share your concerns about the potential shortfalls. That’s something that’s useful for this committee to keep in mind,” said Subcommittee Chairman Charlie Baum R-Murfeesboro.  “For the last several years we’ve entertained a lot of bills that would be financed with lottery dollars. We’ve kind of tried to hold the line on spending those dollars, but that’s when those dollars were available and this year’s going to be a little different in that those dollars really aren’t available.”

Following the presentation, Representative Baum told other lawmakers that moving forward, any bills financed by the lottery would be moved to the subcommittee’s last calendar for consideration.