Bill Halter, a Stanford University graduate and Rhodes scholar, had politics and college costs on his mind.
It was late 2005 or early 2006, the North Little Rock native and Catholic High School valedictorian recalled, and he had decided to run for lieutenant governor. His vision was to rally Arkansans to a cause: a lottery to provide money for college scholarships.
“First, there was a need for enhanced funding for college scholarships, and that tied into my thoughts on economic development,” said Halter, now the CEO of Scenic Hill Solar. “Statistics across the country indicated that income levels were highly correlated to the percentage of the population with higher education. Families were saying that a big impediment was the cost of college.
“Using a lottery seemed a universal and fair way to fund higher education,” he continued in an interview with Arkansas Business. “The idea was that if you achieved a 2.5 grade-point average as an Arkansas high school student and wanted to go to an Arkansas college, you’d get a scholarship.”
Halter was elected in November 2006. “Getting a lottery required an amendment to the Arkansas Constitution,” he recalled.
Eventually he helped gather enough signatures from Arkansas voters to get the amendment on the November 2008 election ballot, and “it passed overwhelmingly, carrying all 75 Arkansas counties.” The Arkansas Scholarship Lottery was born.
Act 606 of 2009 set the rules, establishing that all students who graduated from an Arkansas high school with at least a 2.5 grade-point average or a score of 19 on the ACT college test — regardless of the student’s family income — would qualify for a lottery scholarship.
After initially funding $5,000 a year for students in four-year colleges and $2,500 a year for students at two-year institutions, lawmakers realized that revenues weren’t keeping up, and scholarship amounts were cut in 2011 to $4,500 and $2,250.
“It’s very important to understand that more students applied for and received scholarships than the Legislature predicted,” Halter said. “It wasn’t just that the lottery wasn’t providing $100 million a year. Having greater interest and participation in the scholarships is a great class of problems to have.”
As pressures continued, the Arkansas Legislature voted in 2013 to cut the initial award to $2,000 for all lottery scholarships, with amounts increasing by $1,000 each year students remained qualified, up to $5,000 for the fourth year.
In 2015, the freshman-year portion was reduced again to $1,000, but staying eligible became more valuable. The sophomore and junior amounts are now $4,000 a year, with a $5,000 peak for seniors. To remain eligible, students must maintain a 2.5 GPA and complete 15 credit hours per semester after a first-semester threshold of 12 hours.
Legislation signed by Gov. Asa Hutchinson in 2015 eliminated oversight by the independent Arkansas Lottery Commission, giving the Arkansas Department of Finance & Administration responsibility over the enterprise.
The lottery had its best run of funding scholarships in its early years, yielding $82.8 million in less than a complete fiscal year in 2010, $74.2 million in 2011, a record $97.5 million in 2012 and $90.3 million 2013. After successive declines in 2014 and 2015, scholarship money surged to $85.3 million last year.
(Also see: As Arkansas Lottery’s Luster Fades, Numbers Signal Challenges)
But the early years also brought discord and embarrassment. Former Lottery Director Ernie Passailaigue, a South Carolina lawmaker before becoming the first chief of that state’s lottery, was forced to resign in 2011 amid controversy over his $324,000 annual salary and a contract he had altered to be more favorable to a lottery vendor, Scientific Games Corp. A deputy security director, Remmele Mazyck, also pleaded guilty in 2013 to stealing tickets and cashing in the winners.
Passailaigue was replaced by lottery counsel Bishop Woosley, who accepted a far lower salary, $165,000, and did not replace two dismissed Passailaigue assistants who were each making more than $200,000 a year. Since then a greater sense of efficiency has prevailed.
Expenditures for employee compensation and benefits have been cut by a million dollars, from $6.2 million in fiscal 2011 to $5.2 million last year, and gaming contracts with companies like Intralot and Scientific Games, which produces the instant scratch-off tickets and guarantees that no one can prematurely identify the winning tickets, have fallen from more than $24 million in 2011 and 2012 to $19.4 million in 2016. “I believe the operation is more efficient now, and that Bishop has made some good moves,” said Jerry Cox, chief of the Family Council, a faith-based group that lobbied against the lottery.
Cox still finds much to fault in the lottery itself, and how it is administered. “The primary effect of the lottery over the years has been false hope,” he said. “There’s the false hope of the players believing they’ll strike it rich. You hear about the ones who win money, but you never hear about the person who spent his grocery money on losing tickets, or the child who gets tickets as a gift, scratches them off and gets nothing.”
He said the other false hope is that scholarships will be the ticket to a burden-free college education, pointing out that even the top awards of $4,000 or $5,000 pay only a fraction of the cost of attending the University of Arkansas. “Sure, it’s good to get 20 percent of the expense,” Cox said. “But to watch lottery commercials you’d think that thousands of students are going to school for free, and that’s simply not true.”
Halter counters that the scholarships were always intended to help rather than pay the whole freight, and he emphasizes that more than 235,000 Arkansas students have benefited from more than $600 million in awards. “Would the critics prefer to impose taxes?” he asked. “Would they like to not have the scholarships at all?”
Cox says the lottery should earmark at least 25 percent of its proceeds to scholarships. “We now need to look at how we can make it more responsible. The lottery people will tell you that cutting the amount given to prizes will cause people to stop playing and eventually there will be less for scholarships. But the fact is, if people understood the odds they wouldn’t play anyway. Dropping the prize percentage to 50 percent from almost two-thirds would put us more in line with other states.”
Halter and Cox agree on one thing. They both oppose a recent change making a score of 19 on the ACT test the sole qualifying standard for lottery scholarships. The 2.5 high school GPA standard was eliminated. As Max Brantley pointed out in the Arkansas Times, this led overall applications to drop by more than 16 percent, according to state figures. But a racial breakdown is more stark. Applications by white students fell 10 percent, but black applications plunged 40.5 percent. Fewer than 1,900 black students applied, compared with more than 16,000 white applicants. Average family income of scholarship recipients climbed 7.5 percent, to $84,264.
“This is an important development that should be more directly addressed and considered,” Halter said. “I think it’s a mistake, for several reasons. A number of studies have shown that the ACT and SAT are not as good in predicting college success as high school grade-point averages. Another reason is that we know some kids aren’t as good at taking standardized tests as they are in school performance. Specific demographic groups perform poorly on the tests as compared to others, and GPA is a better indicator of future success in college.”
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