20

Maximizing State Lottery Dollars for Public Education: An
Analysis of Current State Lottery Models
Kevin P. Brady
North Carolina State University
John C. Pijanowski
University of Arkansas
Abstract
Today,  it  is  increasingly  difﬁcult  for  states  to  adequately  satisfy  the  demand  
for   well-­funded   and   quality   public   services,   such   as   K-­12   education   by  
relying  exclusively  on  traditional,  broad-­based  taxes  for  ﬁscal  support.  State  
sponsored   lotteries   are   an   increasingly   popular,   non-­traditional   revenue  
stream  for  public  education.  There  is  in  many  cases,  however,  a  gap  between  
their  promoted  beneﬁt  to  public  K-­12  schools  and  the  actual  ﬁscal  support  
they  provide.  This  article  examines  the  efﬁciency  of  42  U.S.  state  lotteries  and  
the  District  of  Columbia  in  transferring  funds  to  public  education  programs.  
Historical  and  geographic  trends  are  identiﬁed  that  have  inﬂuenced  the  design  
of  state  lottery  revenue  allocation  policies.  
Introduction
State governments face escalating pressure to adequately fund public
education while supporting demands for growth in other services. Lawmakers,
loath  to  increase  traditional,  broad-­based  taxes  for  ﬁscal  support,  seek  out  
creative solutions to this dilemma. Just as local education agencies have turned
to non-traditional revenue sources to supplement tax revenue, so too have state
governments in the form of education lotteries (Pijanowski & Monk, 1996).
While lotteries generate, on average, less than 3% of total state revenues, the
sale of lottery tickets is arguably the most visible and controversial revenuegenerating activity in which state governments participate (Clotfelter & Cook,
1989).

 21

Over  the  last  ﬁve  decades,  state-­run  lotteries  have  weathered  their  fair  
share of critics, but they have never been more popular than they are today. As
of 2007, only eight states: Alabama, Alaska, Arkansas, Hawaii, Mississippi,
Nevada, Utah, and Wyoming have not adopted a lottery (Coughlin, Garrett, &
Hernandez-Murillo, 2006). Forty-two states as well as the District of Columbia
currently have lotteries. Consequently, lotteries play an ever increasing role
in how the nation funds public programs. This is particularly true of their role
in funding public education.
Government sponsored lotteries are a controversial source of public
ﬁnance,  largely  because  they  constitute  not  only  the  fastest-­growing  revenue  
source for states, but also spark debate concerning the appropriate role
of government participation in commercialized gambling. While some
policymakers   promote   state-­run   lotteries   as   modern-­day   ﬁscal   panaceas,  
opponents have long argued that lotteries are a regressive form of taxation that
disproportionately  places  a  higher  ﬁscal  burden  on  poorer  residents  (Clotfelter,  
Cook, Edell, & Moore, 1999). Perhaps the greatest source of contention in this
debate  is  the  efﬁciency  of  lotteries  and  their  ﬁscal  impact  on  speciﬁc  publicly  
funded programs, such as K-12 schools.
The purpose of this article is to identify those state lotteries that maximize
ﬁnancial  resources  targeted  to  public  education.  We  will  explore  the  various  
ways in which state lottery polices are constructed with an eye towards
understanding   best   practices   and   barriers   to   optimizing   the   efﬁciency   of  
education lotteries. Dynamic growth in the use of lotteries to fund education,
coupled  with  limited  and  outdated  research  examining  economically  efﬁcient  
state lottery models, serve as the impetus for this study.
Building  a  More  Efﬁcient  State  Lottery
State sponsored lotteries are the most popular form of commercialized
gambling in the United States. In 2004, for example, lottery ticket sales in
the U.S. surpassed $48 billion, with state governments acquiring nearly $14
billion in gross lottery revenues (Coughlin, Garrett, & Hernandez-Murillo,
2006). In 2002, the average American spent more money on lottery tickets
than reading materials or movie tickets (Hansen, 2004).
Today, U.S. state lotteries are one of the fastest growing segments of
the legalized gambling industry. Between 1976 and 1997, revenue generated

Fall  2007  /  Volume  7,  Number  2

 22

from legalized gambling increased dramatically by approximately 1,600%
and expenditures more than doubled as a percentage of personal income
(Clotfelter et al., 1999). The use of legalized gambling, including state lotteries,
has been marketed to the public as a mechanism to offset the rising costs of
public education to taxpayers (Mikesell & Zorn, 1986; Miller & Pierce, 1997;
Rodgers & Stuart, 1995; Spindler, 1995).
Moreover, state lotteries are often seen as a “voluntary tax” because
individuals have the choice of whether or not to purchase lottery tickets
compared to a mandatory, government imposed tax (Berner, 2001; Bracey,
1995;;   Brent,   2000;;   DeMitchell,   2000;;   Jones   &  Amaliﬁtano,   1994).   The  
emerging growth in state lotteries, particularly in the last 25 years, has
coincided with changing public attitudes toward legalized gambling, growing
state and local government expenditures, and increasing public opposition to
new and increased rates for existing taxes (Bledsoe, 1994; Borg, Mason, &
Shapiro, 1991; Fisher, 1996; Herring & Bledsoe, 1994).
In a relatively short period, revenue generated from lotteries in the U.S.
has grown rapidly. The actual percentage of lottery contributions going directly
to state budgets, however, is quite minimal (Kearney, 2005). In 2001, for
instance, contributions of lottery funds across 37 states averaged only 0.71%
of  total  budgetary  amounts.  Speciﬁcally,  state  lottery  contributions  ranged  
from a low of 0.28% in Montana to a high of 8.27% in Delaware (U.S. Census
Bureau, 2004). While lottery revenues constitute only a small percentage of
total public educational revenues, some argue that the percentage of lottery
proceeds   that   eventually   does   reach   public   education   signiﬁcantly   helps  
improve education funding problems (Odden & Picus, 2000).
A popular strategy for garnering support of state lotteries has been to
earmark  lottery  proﬁts  for  a  particular  public  service  program.  One  of  the  
most  popular  public  service  programs  earmarked  for  state  lottery  proﬁts  is  
public education (Borg & Manson, 1990; Evans & Zhang, 2005; Garrett,
2001). Of the 42 states and the District of Columbia presently with lotteries,
23  states  currently  earmark  lottery  proﬁts  speciﬁcally  for  public  education.  
In  this  article,  we  speciﬁcally  focused  on  identifying  state  lotteries  that  are  
economically  efﬁcient  at  channeling  monies  toward  public  education.  
Efﬁciency  was  measured  as  the  percentage  of  total  lottery  revenue  that  
was transferred to K-12 public education programs. The data in this study
was  gathered  from  multiple  sources,  including  state  annual  ﬁnancial  reports,  

Journal  of  Educational  Research  &  Policy  Studies

 23

independent audits, and state budget allocation reports for each state with a
lottery  for  the  ﬁscal  year  ending  in  2005.1    The  efﬁciency  measure  tells  us  how  
well state lotteries capture the revenue generated for supporting public K-12
education. It does not speak to how well states maximize the total revenue
generated through legalized gaming. It was essential to triangulate the data
using  multiple  layers  of  ﬁscal  reporting  data  to  tease  out  different  types  of  
education  targets  and  identify  siphons  on  the  revenue  stream  as  it  ﬂowed  from  
the lottery commissions to its eventual goal.
Based  on  our  research,  we  identiﬁed  three  broad  categories  of  revenue  
allocation  patterns  that  illustrate  how  state  lottery  policy  affects  the  ﬂow  of  
money to K-12 public educational programs. These three categories of state
lottery revenue allocation patterns include: (a) lotteries for non-education
programs, (b) general fund lotteries, and (c) public education lotteries.
Lotteries for Non-Education Programs
  The  ﬁrst  category  of  state  lottery  allocation  patterns,  reﬂect  11  states  
that predominantly earmark revenue for programs other than K-12 public
education. These states currently include: Arizona, Colorado, Kansas,
Massachusetts, Minnesota, New Jersey, New Mexico, Pennsylvania, South
Dakota, Wisconsin, and Indiana. As Table 1 indicates, two of the states in
this subgroup, Colorado and New Jersey, do divert some funds for public
education, but overall the state lotteries in this subgroup of 11 provides the
least  ﬁscal  beneﬁt  for  K-­12  public  education  programs.  
In 2005, for example, New Jersey allocated approximately $95 million
dollars to K-12 public education programs out of $2.3 billion in total revenue.
There is no requirement in New Jersey’s lottery legislation that K-12 public
education in the state receive lottery funds, but it is one of several state programs
eligible to receive lottery money each year. Colorado legislation requires that
the Great Outdoors Colorado Fund receive 50% of lottery proceeds up to a
cap  of  $35  million  in  1992  dollars  (adjusted  for  inﬂation).  If  the  50%  dollar  
amount exceeds the cap, the remainder goes to underfunded public school
districts to address school facility safety issues.2 In 2005, this resulted in a
$1.7 million dollar transfer to K-12 public education in Colorado.
The most unique state lottery allocation policy is found in Massachusetts,
which  also  offers  a  beneﬁt  to  K-­12  public  education,  although  none  of  the  

Fall  2007  /  Volume  7,  Number  2

 24

revenue is directed to the state education fund. The Massachusetts state
legislature establishes a formula for directing lottery revenue to local
municipalities where it is used to support a variety of government services,
including K-12 public educational programs. Measuring the use of these funds
at a local level is beyond the scope of this study, but further research in this
area would help us better understand how local choice affects the allocation
patterns of state lottery proceeds.
States earmarking funds for programs other than public K-12 education
represent a broad geographic and program variability, but programs do tend to
reﬂect  older,  established  state  lotteries.  For  example,  all  but  1  of  the  11  states  
(New Mexico), has a lottery system older than 15 years and the most recently
established state lottery in this group has an education focus. New Mexico’s
lottery, founded in 1996, directs all lottery proceeds to fund Lottery Success
Scholarships. Following new legislation passed in 2001 (effective in 2002) all
lottery  proﬁts  were  earmarked  for  the  Lottery  Success  Scholarships  (Coughlin,  
Garrett, & Hernandez-Murillo, 2006). Prior to 2002, lottery proceeds were
divided between public school capital outlay and a tuition program. As
subsequently discussed, the focus on educational scholarship programs is a
trend that has dominated the most recent states to have adopted lotteries.
General Fund Lotteries
The second category of state lottery allocation patterns entails those
states that transferred lottery proceeds to their general fund. Eight states
(Connecticut, Delaware, Iowa, Maine, Maryland, Montana, North Dakota,
and Rhode Island) and the District of Columbia drive revenue to their state’s
general fund, and these lotteries are spread throughout the country. However,
they tend to be states with older lotteries. With the exception of North Dakota’s
lottery, founded in 2004, the other seven state lotteries in this category are
a minimum of 20 years old, and the majority of them are over 30 years old.
Many   of   the   state   lotteries   in   Table   2   market   their   beneﬁt   to   public   K-­12  
education programs and go so far as to advertise the percentage of the general
fund allocation patterns to represent the lottery allocation pattern in support of
public education. However, since lottery revenue is rarely tracked beyond the
general fund, there is little data to support how much lottery money actually
supports   K-­12   public   educational   programs.   It   is   particularly   difﬁcult   to  

Journal  of  Educational  Research  &  Policy  Studies

 25

Table 1
States  Earmarking  Funds  for  Programs  Other  Than  K-­12  Public  Education
State

Arizona

Colorado

Kansas

Year of
Lottery

Primary Allocation

Revenue generated in
2005

1981

Local Transportation
fund.
County Assistance
fund.
Economic
development.
Heritage fund.

$116,392,900
distributed to the state.
$398,520,200 in total
lottery revenue.3

1983

1987

Massachusetts 1972

Minnesota

1990

Fall  2007  /  Volume  7,  Number  2

Great Outdoors
Colorado.
The Conservation
Trust Fund.
Colorado Division of
Parks and Outdoor
Recreation.
Economic
development.
Prison construction.
Juvenile detention
facilities.
Problem gambling
assistance.
Direct local aid is
distributed according
to a local aid formula
established by the
legislature.
Environment and
Natural Resources.
Trust Fund.
Game and Fish Fund.
General Fund.

$1,700,000 to K-12
education.
$444,500,000 in total
lottery revenue.4

$15,409,441 distributed
to the state.
$207,772,207 in total
lottery revenue.5
$936,133,995 in direct
local aid.
$4,482,911,000 in total
revenue.6
$59,000,000 distributed
to the state.
$381,489,741 in total
lottery revenue.7

 26

Table 1 (continued)

New Jersey

New Mexico

Pennsylvania

1970

1996

1971

South Dakota 1987

Wisconsin

Indiana

Higher Education.
Human Services.
K-12 Education.
Veteran’s Affairs.

$95,495,000 for K-12
education $812,047,000
distributed to the state.
$2,305,716,288 in total
revenue8

Lottery Success.
Scholarships.

$32,230,517 to the
lottery tuition fund.
$134,469,162 in total
revenue.9

Property tax/rent
relief.
Prescription drug
program.
Transportation.
Dept. of the Aging.
Capital Construction.
General Fund.
Property Tax
Reduction.
Department of
Human Services.

1988

Property tax relief.

1989

Teachers’ Retirement
Fund.
Police and Fire
Pension Fund.
Build Indiana Fund.

$870,541,807 to the
lottery fund.
$2,662,704,766 in total
lottery revenue.10
$119,321,058
distributed to the state.
$143,954,875 in total
revenue.11
$143,397,558 for
property tax relief.
$451,993,961 in total
lottery revenue.12
$143,880,204 distributed
to the state.
$739,633,055 in total
lottery revenue.13

Note. State lottery revenue data is taken from 2005 state-level annual lottery
reports.

Journal  of  Educational  Research  &  Policy  Studies

 27

Table 2
State  Lotteries  that  Transfer  Proceeds  to  the  State  General  Fund
State

Year of
Lottery

Primary
Allocation

Revenue Generated in 2005

$268,515,000 to the general
Connecticut 1972
General Fund.
fund. $959,706,000 in total
revenue.14
$71,450,000 to the general
District of
1982
General Fund.
fund. $234,931,000 in total
Columbia
revenue.15
$297,921,666 to the general
Delaware
1975
General Fund.
fund. $689,291,202 in total
revenue.16
$50,036,035 to the general
General Fund.
Iowa
1985
fund. $211,006,243 in total
Vision Iowa.
revenue.17
$52,300,000 to the general
Maine
1974
General Fund.
fund. $185,880,000 in total
revenue.
$477,098,364 to the general
fund out of
Maryland
1973
General Fund.
$1,485,732,850 in total
revenue.18
$6,222,555 to the general
Montana
1986
General Fund.
fund out of $33,842,650 in
total revenue.19
$5,838,005 to the general
North
2004
General Fund.
fund. $19,223,089 in total
Dakota
revenue.20
$307,549,648 to the general
Rhode
1974
General Fund.
fund. $1,634,938,802 in total
Island
revenue.21
Note. State lottery revenue data is taken from 2005 state-level annual lottery
reports.

Fall  2007  /  Volume  7,  Number  2

 28

make claims that lottery revenue provides additional revenue for public
education as opposed to supplanting previous funding.
Public Education Lotteries
The  third  and  ﬁnal  category  of  lottery  allocation  comprises  the  23  state  
lotteries  that  currently  earmark  revenue  support  speciﬁcally  for  public  K-­12  
education programs. Table 3 depicts these 23 states, as well as two states,
New Jersey and Colorado, from Table 1 that provide some support for K-12
public education, representing a total of 25 states that directly support K-12
public education with lottery revenue. A striking distinction between public
education-based lotteries and the previous two state lottery categories is the
number of newer lotteries that allocate funds directly to K-12 public education
programs. While only two states in the other two subgroup categories combined
were established as recently as 1996, ten of the state lotteries in Table 3 were
either created or became education lotteries since 1996. It is interesting to
note that even though directing lottery revenue to public education is a recent
trend, it is not a novel idea. The three oldest lotteries in the country (New
Hampshire, New York and New Jersey) are also public education lotteries.
The two state lotteries formed in the 1960’s (New Hampshire and New York)
earmark revenue exclusively for public education, and in 2005 both states
transferred over 30% of the lotteries’ total revenue to K-12 public education
programs.
States such as New Hampshire and New York provide the greatest
percentage of their total revenue for public K-12 education, largely because
they have dedicated all or most of the lottery proceeds for public education;
often through a state legislative mandate. Other factors affecting the percentage
of  revenue  ﬂowing  to  K-­12  public  education  include  the  amount  of  money  
spent on managing the lottery and the percentage of total revenue dedicated to
prizes. In 2005, seven states (Illinois, Louisiana, Michigan, New Hampshire,
New York, Ohio, and Virginia) contributed 30% or more of their total lottery
revenue to fund public K-12 programs (Coughlin et al., 2006). In each case,
less than 2% of total lottery revenue was transferred to other programs.
However, not every state that limits allocations to other programs fares this
well towards shifting revenue to public education.

Journal  of  Educational  Research  &  Policy  Studies

 29

Two states, Texas and Vermont, earmarked all of their lottery proceeds
to K-12 public education, but failed to reach the 30% mark. The state of
Washington committed only 3% of its total lottery proceeds to other programs,
but transferred only 22% of total revenue in 2005 for K-12 public education.
Moreover, money spent on overhead and commission to private vendors played
a  notable  role  in  the  ﬁscal  disparity  between  these  two  groups  of  lotteries,  but  
prize  payouts  have  a  far  greater  ﬁscal  impact.  The  three  states  of  Washington,  
Texas and Vermont commit between 61% and 63% of their total lottery revenue
to prizes, which is greater than any of the other seven states that made the
greatest percentage allocation towards public K-12 education. For example,
the state of Louisiana earmarks half of its total lottery revenue for prizes and
35% to public education.
Interestingly, the allocation pattern that has had the greatest negative
impact on public K-12 education revenues has been the trend to direct lottery
dollars to public higher education and scholarship programs. Twelve of the
current 25 lotteries that have earmarked some funds for public K-12 education
also  earmarked  a  signiﬁcant  portion  of  their  total  revenue  for  public  higher  
education and/or scholarships. The best known of these state lotteries is
Georgia’s Lottery for Education and the HOPE Scholarship program, which
funds merit-based scholarships, including student tuition, fees, as well as
a book stipend, to attend one of Georgia’s public colleges or universities
(Campbell, 2003). Nine state lotteries presently support scholarship programs,
including  the  ﬁve  most  recently  created  or  redesigned  state  education  lotteries.  
There is also a regional effect as a trend has evolved in southern states (Florida,
Georgia, South Carolina, North Carolina, Tennessee, Kentucky and Oklahoma)
offering lottery funded scholarship programs.
The percentage of total revenue directed to K-12 public education
tells  only  part  of  the  efﬁciency  story.  The  strength  of  a  state’s  lottery  policy  
to encourage the supplementing of existing budgets plays a critical role in
determining the impact of lottery proceeds on public K-12 spending. Several
states have made explicit efforts to ensure that lottery dollars are not as
fungible, or interchangeable, as they have been historically. South Carolina’s
lottery legislation, for example, states that, “proceeds of lottery games must
be used to support improvements and enhancements for educational purposes
and programs as provided by the General Assembly and that the net proceeds
must be used to supplement, not supplant, existing resources for educational

Fall  2007  /  Volume  7,  Number  2

 30

purposes and programs” (South Carolina Lottery Education Act, SECTION
59-150-350 C(2)).
Driving revenue to higher education programs and scholarship initiatives
is  indicative  of  a  larger  trend  to  allocate  education  dollars  to  speciﬁc  programs  
and guard against the fungible nature of lottery revenue when transferred to a
general education fund. In North Carolina, for example, K-12 public education
construction and class size reduction allocations are established by Section
18C-162 of the North Carolina State Lottery Act. In contrast, South Carolina
legislation leaves it up to the discretion of the state legislature to determine
the annual distribution of lottery funds. However, both states allocate lottery
revenue  to  speciﬁc  K-­12  public  education  programs  and  track  lottery  spending  
apart from other revenue sources. While earmarking on this level falls short
of ensuring lottery dollars are not fungible, its transparency and independence
from the general education fund make it easier to measure the extent to which
lottery dollars supplement previous public education spending. In states like
New York, where lottery dollars are deposited directly into the state’s general
education  fund,  it  is  much  more  difﬁcult  to  determine  the  extent  to  which  those  
funds  supplant  existing  spending.  It  is  also  difﬁcult  to  track  the  education  
lottery  dollar  in  New  York  to  speciﬁc  school  programs.  
On March 30, 2006, North Carolina became the 42nd and most recent
state to adopt a state-sanctioned lottery. North Carolina’s lottery policy has
followed recent and regional trends in several key ways. North Carolina’s
lottery  is  an  education  lottery  that  earmarks  funds  for  speciﬁc  programs  and  
tracks the lottery dollar independent of the general education fund spending.
After 5% of total revenue is placed in a reserve fund, the remaining net
revenue is distributed among three broad categories: class size reduction,
school construction, and college scholarships.
Discussion and Conclusions
Currently, 23 states mandated the allocation of at least a portion of the
lottery proceeds towards K-12 public education (a 24th state, New Jersey,
allocated a portion of lottery revenue to K-12 public education in 2005 but
was not mandated to do so, and a 25th  state,  Colorado,  directs  overﬂow  to  the  
state education fund after the primary earmark goals have been reached). Nine
states directed lottery revenue to the state’s general fund and the remaining

Journal  of  Educational  Research  &  Policy  Studies

 31

Table 3
State  Lotteries  that  Earmark  Funds  Speciﬁcally  for  K-­12  Public  Education

California

Year of
Lottery
Adoption
1985

Colorado

State

Total Revenue K-12 Allocation

% to
K-12

% to
Other

$3,333,620,669

$948,134,123

28

7

1983

$444,500,000

$1,700,000

<1

25

Florida

1986

$3,470,734,000

$650,039,045

19

15

Georgia

1993

$2,739,049,000

$270,909,450

10

19

Idaho

1989

$113,543,763

$13,000,000

11

11

Illinois

1974 (1985) $1,856,130,835

$619,496,973

33

0

Kentucky

1989

$707,300,000

$3,000,000

<1

22

Louisiana

1991

$306,962,028

$107,992,785

35

1

Michigan

1972 (1981) $2,090,132,247

$667,579,438

32

1

Missouri

1986

$785,597,632

$143,865,994

18

10

Nebraska

1993 (2004)

$100,658,171

$5,100,683

5

22

New Hampshire

1964

$228,956,280

$69,348,561

30

0

New Jersey

1970

$2,305,716,288

$95,495,000

4

31

New York

1967

$6,270,487,000

$2,062,702,000

33

0

North Carolina

2005

$216,905,691

$54,332,472

25

3

Ohio

1974 (1988) $2,164,857,239

$645,137,000

30

0

Oklahoma

2005

$58,180,145

$8,726,190

15

15

Oregon

1984 (1995)

$939,529,001

$60,237,188

6

36

South Carolina

2001

$960,149,462

$102,823,895

11

25

Tennessee

2004

$787,309,000

$31,873,000

4

25

Texas

1991 (1997) $3,663,413,888

$1,009,538,728

28

0

Vermont

1978 (1998)

$92,599,609

$20,354,442

22

0

Virginia

1988 (2000) $1,333,946,125

$423,500,000

32

0

Washington

1982 (2000)

$102,000,000

22

3

$458,131,553

West Virginia
1982 (2000) $1,399,074,000
$83,226,000
6
34
Note. The data in this table for the two most recent lottery states, North Carolina and
Oklahoma,  is  taken  from  ﬁscal  year  2006  while  the  rest  of  the  table  represents  ﬁscal  year  
2005 data. Year in parenthesis is when the current allocation pattern was established.
Fall  2007  /  Volume  7,  Number  2

 32

eleven states earmarked funds for programs other than K-12 public
education.
Collectively, state lotteries generate only a small fraction of total state
revenues allocated to K-12 public education. Nevertheless, earmarking
lottery  revenues  for  a  speciﬁc  purpose,  such  as  public  education,  is  a  more  
economically  efﬁcient  method  of  channeling  lottery  proﬁts  to  actually  reach  
public schools. For example, recent research by Evans and Zhang (2005)
that analyzed the impact of lottery revenue on state educational expenditures
revealed  that  up  to  50-­70%  of  earmarked  lottery  proﬁts  are  allocated  to  local  
school  districts  by  the  state,  and  at  least  80%  of  the  allocated  lottery  proﬁts  
are actually spent on public school related expenses.
A current analysis of lottery models in 42 states and the District of
Columbia reveals that there exists a clear recent trend towards earmarking
lottery revenue for public education. Over a 10-year period ranging from 1996
to  2006,  ﬁve  lotteries  were  formed  and  four  of  them  directed  all  or  part  of  
the  proceeds  to  K-­12  public  education.  During  that  same  period,  ﬁve  states  
passed legislation that shifted the allocation of lottery revenue towards public
education.
While  it  should  be  emphasized  that  state  lottery  proﬁts  should  never  
be  seen  as  a  major  source  for  ﬁnancing  today’s  public  schools,  our  research  
indicates that those 25 lotteries that currently earmark revenue for K-12 public
education   are   more   economically   efﬁcient   at   generating   revenue   for   K-­12  
public  schools  than  states  where  lottery  proﬁts  are  placed  into  a  general  fund.  It  
is  assumed  that  lottery  revenues  will  automatically  enhance  a  state’s  ﬁnancial  
support for public education by adding an additional, non-traditional revenue
source earmarked for public education (DeMitchell, 2000). Research by Jones
and  Amalﬁtano   (1994),   however,   tends   to   support   the   notion   of   the   state-­
sanctioned lottery as an “economic placebo” that does not appear to enhance
public support for public education. The three main results from Jones and
Amalﬁtano’s  1987  study  comparing  lottery  states  with  non-­lottery  states  were  
the  following:  (1)  There  was  no  statistically  signiﬁcant  difference  between  
states that used lottery funds to support public K-12 education compared to
those states that did not support with respect to indicators of support and effort
for education; (2) The state’s average percentage of general expenditures to
education was actually higher in non-lottery states at 23.5% compared to
15.3%  in  states  with  lotteries;;  (3)  Non-­lottery  states  contributed  a  larger  ﬁscal  

Journal  of  Educational  Research  &  Policy  Studies

 33

share of their income to support public K-12 education compared to states
that  had  adopted  a  lottery  (Jones  &  Amalﬁtano,  1994).  
Lotteries commit different shares of total revenue to overhead, prizes,
other  programs  and  K-­12  education.  These  ﬁscal  allotments  reﬂect  regional  
priorities, political pressures, and economic realities that vary from state to
state. It is rare that a state lottery transfers more than 30% of its total revenue
to the state in support of K-12 public education. In our review of lottery
ﬁscal   reports   for   the   ﬁscal   year   2005,   only   seven   states   cleared   the   30%  
benchmark. Overhead costs, commissions to vendors and prize allocations
had an effect on limiting the revenue available for education, but the most
signiﬁcant  siphon  on  education  dollars  was  the  diversiﬁcation  of  programs  
receiving lottery money. Interestingly, in most recently developed lotteries it
was educational programs outside of K-12 that was the biggest draw on K-12
public education’s share of lottery proceeds.
As the trend towards earmarking for education has grown, states have
increasingly drawn dollars away from K-12 to support higher education
and  scholarship  programs.  This  represents  a  signiﬁcant  shift  in  how  lottery  
dollars for education are spent, and while programs such as Georgia’s
HOPE scholarships are less fungible compared to general education fund
contributions, they are also diverting revenue away from the K-12 public
educational system.
The  most  efﬁcient  K-­12  public  education  lotteries  are  those  that  have  
the  following  ﬁve  characteristics:
(1) Contribute the largest percentage of revenue to K-12 education.
(2) Optimize the amount of prize money needed to sustain total
revenue growth.
(3)   Earmark  revenue  for  speciﬁc  K-­12  programs  in  a  way  that  does    
not supplant existing funds.
(4)   Trace  the  ﬂow  of  resources  to  the  program  level  to  measure  the    
impact of lottery revenue.
(5) Create a transparent accounting system to guard against
fungibility.
Given the myriad factors that limit a lottery’s effectiveness to support
K-­12  public  education,  what  are  the  implications  of  the  Jones  and  Amalﬁtano’s  
study on current lottery models? Are state-sanctioned lotteries “economic
placebos” for funding public K-12 schools or viable and reliable sources of

Fall  2007  /  Volume  7,  Number  2

 34

public education funding? More studies of fungibility applied to the newest
models of lottery revenue allocation will add critical data to that debate. A
closer examination and comparison of traditional lottery policies, newer
earmarking models, and unique efforts like Massachusetts’ allocation to local
instead  of  state  budgets  would  also  be  a  signiﬁcant  area  of  future  research.  
Perhaps part of the answer lies in considering the amount of revenue that
is generated for education as a percentage of the entire education budget. In
New York, for example, arguably the most successful lottery in the country, the
2005 state lottery generated $6,270,487,000 in total revenue and transferred
33% of that revenue ($2,062,702,000) to K-12 public education. Analyzing the
New York Lottery in terms of percentage transferred to K-12 public education,
it  ranks  second  in  the  country  (behind  Louisiana)  and  ranks  ﬁrst  in  both  total  
revenue and revenue for education. This amounts to 9.59% of total state
education aid or approximately $530 per pupil. While this kind of success is
rare, it is unclear exactly how much New York’s lottery is injecting towards
New York’s public education system as opposed to supplanting existing funds.
Regardless, although further study into the fungibility of New York’s lottery
revenue would be needed to determine the extent to which New York public
schools  are  ﬁnancial  winners  in  the  state  lottery,  it  seems  clear  that  the  state  
has  tapped  into  a  viable  and  signiﬁcant  source  of  voluntary  tax  revenue.  
By comparison, the most recent state to adopt a lottery, North Carolina,
has fallen woefully behind initial lottery revenue projections. With the revised
projections of proceeds for public education at $350 million, the state will be
forced to all but deplete its reserve fund to make up for the shortfall. When
the revenue stream is tracked through the lottery’s education earmarks the
impact on K-12 public educational programs is diminished further. After 5%
goes to the Education Lottery Reserve Fund, and 10% of the remainder for
scholarships, $281 million is left for K-12 public education. This results in
$203 per pupil to be spent on pre-k programs, class size reduction in early
grades and school construction related expenses.
Examples such as New York, North Carolina and Massachusetts show
us that a national picture of education lotteries is best described as a state
by state story that illustrates the vast differences in how they are developed,
allocate funds, and the level of success they enjoy. However, it is clearly not
a story to be read in a policy vacuum. There are discernable trends in how
lotteries are designed. The North Carolina model represents the most recent

Journal  of  Educational  Research  &  Policy  Studies

 35

iteration   of   state   lottery   policy   with   an   emphasis   on   speciﬁc   educational  
earmarking, scholarships and an attempt to moderate overhead and prize costs
to get state transfers near or over 30%. Ultimately, one might conclude that
a  ﬁscal  panacea  for  select  programs  in  one  state  can  sometimes  be  another  
state’s economic placebo.
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Journal  of  Educational  Research  &  Policy  Studies

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Endnotes
1

With the exception of the newest lotteries in North Carolina and Oklahoma where we
used 2006 data.
2
Colorado Lottery Annual Report (2005)
http://www.coloradolottery.com/documents/annual_report/2005GamesProceeds.pdf
3
Arizona Lottery Annual Report (2005)
http://www.arizonalottery.com/pdfs/annualreport_05.pdf
4
Colorado Lottery Annual Report (2005)
http://www.coloradolottery.com/documents/annual_report/2005MoneyTable.pdf
5
Kansas Lottery Annual Report 2005
http://www.kslottery.com/LotteryInfo/AnnualReport05.pdf
6
Massachusetts State Lottery Annual Report 2005
http://www.masslottery.com/pdfs/AnnualReport2005.pdf
7
Minnesota State Lottery Annual Report 2005
http://www.mnlottery.com/ar05/AnnualReport05.pdf
8
New Jersey Lottery: Give Your Dreams a Chance 2005 Annual Report
http://www.state.nj.us/lottery/money/annual_report_2005.pdf
9
New Mexico Lottery Authority Annual Report 2005
http://www.nmlottery.com/News/Annual_Reports/NMLA_Annual_Report_2005.pdf
10
Pennsylvania Lottery Annual Report 2005-2006
http://www.palottery.state.pa.us/lottery/cwp/view.asp?A=3&Q=479753
11
South Dakota Lottery 2005 Annual Report
http://www.sdlottery.org/pdf%20docs/annual%20report%2005.pdf
12
Wisconsin Lottery: Department of Revenue Audit 2006
http://www.legis.state.wi.us/LaB/reports/06-8Full.pdf
13
The Business of Fun 2005 Annual Report
http://www.in.gov/hoosierlottery/where_money_goes/05Hoosierlottery.pdf
14
Connecticut Lottery Comprehensive Annual Financial Report, 2005.
http://www.ctlottery.org/images/CAFR-FY05.pdf
15
DC’s Best Bet: Creating a Better Community Annual Report 2005
http://dclottery.com/pdfs/AnnRpt05.pdf
16
The Delaware Lottery 2005 Annual Report
http://www.lottery.state.de.us/pdf/2005annualreport.pdf
17
Celebrating our Past, Embracing our Future, 2005
http://www.ialottery.com/AboutUs/2005annualreportfinal.pdf
18
Maryland lottery fact sheet: fiscal year 2005 http://www.mdlottery.com/
19
Montana Lottery Annual Report 2005
http://www.montanalottery.com/reports_forms/annual_report_2005.pdf
20
North Dakota Lottery Bismarck, North Dakota Audit Report for the Year Ended June
30, 2005 Client Code 125.1 http://www.lottery.nd.gov/about/FinStatements/Audit05.pdf
21
Rhode Island Lottery A Component Unit of the State of Rhode Island and Providence
Plantations Comprehensive Annual Financial Report For the Fiscal Year Ended June 30,
2005 http://www.rilot.com/docs/financial/CAFR_FYE_June05.pdf

Fall  2007  /  Volume  7,  Number  2