US reliance on lottery funding raises university concerns

US public universities are expressing concern about signs of a growing state reliance on lottery revenues to fund their operations, but apparently with little clarity on what – if anything – to do about it.

Over half a century or so, the subsidisation has grown to the point where non-tax revenues – mostly from government-run lotteries and legalised gambling – now account for nearly $5 billion (£4 billion), or about 4 per cent, of all state and local support for higher education in the US.

In at least seven US states, according to the calculations by the State Higher Education Executive Officers Association (Sheeo), such non-tax support makes up at least 10 per cent of the state’s higher education funding.

Sheeo said its report on the topic was “simply intended to explore the data and present the findings”. Educational policy analysts, however, have for years been compiling their concerns about state funding reliance on lotteries, in areas that reflect both poor design choices and the intrinsic nature of gambling, with some calling on higher education leaders to be more outspoken about the dangers to themselves and others.

The fundamental problems, said Elizabeth Bell, an assistant professor of public affairs at the University of Texas at Austin, include the regressive nature of lotteries, given that the revenue is drawn largely “from the lower rungs of the income distribution”, meaning people who often do not understand their poor odds of winning.

That is compounded, Professor Bell said, by the tendency among states to distribute lottery revenues through so-called merit-based student aid – a politically popular strategy that disproportionately benefits higher-income families – rather than via need-based aid.

Ross Rubenstein, a professor of public policy at Georgia State University, has reached similar conclusions in his work. “Virtually every study of lotteries has found that they are regressive ways to raise revenue,” Professor Rubenstein said. The added reliance on merit-based scholarships “leads to an even bigger income transfer” away from the neediest students, he said.

Institutions are also at risk, he and other experts said, as lottery revenues fluctuate. In Georgia, where Professor Rubenstein made a detailed study, the state has been reducing its lottery proceeds – from about 35 per cent of revenues two decades ago to 24 per cent now – in a bid to keep gamblers interested.

In a 2018 study for the Brookings Institution, Dr Bell acknowledged that she and other researchers were surprised to find that lottery-based funding did seem to help increase state funding for higher education, rather than just give state lawmakers an opportunity to replace money they would have otherwise spent. “This was the positive part of the story, and frankly was not what I expected,” she said.

But it is not clear that the trend has continued, said Lucy Dadayan, a researcher at the Urban-Brookings Tax Policy Centre, a Washington thinktank. That fear has become especially acute after the Covid shutdowns, Dr Dadayan said, given that the federal government handed out billions of dollars in emergency pandemic relief, leading US states in the past fiscal year to cut their tax collections by a combined $16 billion, the largest-ever such decrease.

That loss will be difficult to recover, Dr Dadayan said, and Sheeo and the rest of US higher education should not expect lotteries to consistently cover the gaps. “They should be demanding more sustainable sources of funding for education,” she said.

paul.basken@timeshighereducation.com