Musical Chairs of Funding Relies on Extra Lottery Revenue

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COLUMBIA - A new law will redistribute the money from a tobacco settlement fund and a gaming fund to early childhood programs and state veterans homes, respectively. But the law effectively spends the same money twice. Lawmakers are banking on the Missouri Lottery to generate an extra $35 million dollars next year to make up the difference.

The new law has created a chain reaction of redistributed funds. To start, it established a dedicated funding source for the state's seven veterans homes.

Daniel Bell, the Public Information Officer for the Missouri Veteran's Commission said veterans in those homes pay, at most, $1,800 per month to stay in the homes. That money doesn't cover all of the costs needed to provide the care benefits for veterans. In the past, the homes were funded thanks to the main trust fund for the Missouri Veterans Commission, as well as both state and federal funding. Now, the state will spend less on the home while casino fees will feed into commission's fund.

That fund, in particular, was hit rather hard. "The trust fund had about $80 million in 1999 and decreased to about $19 million today," Bell said. "Over the last few years, during the economic downturn the nation was facing, we were asked to supplant state general revenue with revenue from the trust fund."

"Had nothing changed this year, as far as funding sources, the fund probably would have disappeared by about June 2013."

Bell and the Veterans Commission were pleased by the passing of House Bill 1731 and Senate Bill 498. The house bill "changes the laws regarding the use of gaming and tobacco settlement moneys." Veterans homes will now rely on casino fees for funding.

"We now have a guaranteed source of funding that allows us to better predict our expenses down the road," Bell said.

 Missouri casinos pay a $2 fee for every two hours a patron spends at their facilities. Half that money goes to local governments, and the other half to the state. The state portion will now go to the veterans commission under the new law. Until the passing of House Bill 1731, veterans homes received just a portion of the state's half, roughly $6.6 million annually.

The bulk of the casino fees, more than $30 million, was earmarked by state statutes to the Early Childhood Development, Education and Care fund. But the new law gives those casino fees to veterans. The exact amount of funding the veterans homes receive each year depends on the number of gamblers.

That Early Childhood Development, Education and Care fund will replace that lost funding with $35 million annually from Missouri's share of a nationwide settlement with tobacco companies. Yet the new law does not require that the money be spent on specific programs; the Department of Social Services will spend it how it sees fit. As a result, some early childhood programs like Early Head Start were cut in the budget that takes effect July 1. The money saved in those cuts to replace general revenues in other programs.

For example: public schools will receive $145 million for their early childhood special education programs next academic year - the same amount as this year. But that total will now include about $14 million from the early childhood fund that previously had gone to other programs.

When the music stops playing in this musical chairs of state funding, there is a $35 million hole in the budget. The tobacco money that now goes to early childhood programs had been promised to several programs that now lack funding.

To fill that void, lawmakers are counting on the Missouri Lottery to generate about $35 million more than originally expected. The lottery is coming off of a record year in sales, where it generated just over $1 billion. The plan is to plug that extra lottery money into education, which would free up general revenues to go to programs that had received tobacco funds before the new law.

"The legislature in their budget assumed that additional lottery would be available to make up for the fact that they basically double spent the settlement money," state budget director Linda Luebbering said.

If that lottery money does not show up, the state would have to find $35 million in cuts.

"The lottery commission is looking at various options on how they could generate more money," Luebbering said. "I would say that $35 million over what the lottery commission was originally projecting is pretty aggressive."

The math behind last year's lottery sales might surprise some people. The state of Missouri has roughly 4.6 million residents above the age of 18, according to the 2010 Census. With last year's record lottery numbers alone, the average Missourian aged 18 or older spent $218.48 in 2011 on lottery tickets. That breaks down to just over four $1 scratch tickets per week. Two-thirds of the record $1 billion in lottery sales last year came from scratcher tickets.

To reach that level, plus the extra $35 million, each of those residents would have to spend an additional $7.64 on tickets this year.

"It's going to be challenging to get to that number. Are there potential ways to get that revenue? Yes, but the lottery commission is looking at those right now," Luebbering said.

Officals from the lottery commission weren't able to comment. Executive Director May Scheve Reardon was out of town for two weeks at the time of publication.

Luebbering said the increased expectations on the lottery impact next year's budget. "We will take into consideration that increased expectation by the legislature that lottery would generate more revenue as we're looking at the entire budget, and making decisions about what needs to be done to make sure the budget stays in balance," she said.

While there is no downside to the new funding law in the short-term, the economic eyes will be on the lottery for the long-haul.