The premise of the Ohio Lottery is supposed to be straightforward: A share of the proceeds from the lottery every year go to K-12 public schools. As you can see from the chart provided by the official state lottery system, the amount of the annual transfers has increased from a little over $600 million in fiscal 2002 to over $700 million in fiscal 2011. This year, however, despite a record haul for schools from the lottery of $771 million, according to the Associated Press, schools won't necessarily get more money.
The reason? Critics are alleging that state government is giving with one hand but taking away with the other. They say that GOP Gov. John Kasich's administration has taken out a dollar in general fund revenue to schools (and put it into the state's "rainy day" fund) for every dollar they provide to districts in lottery revenues, an accusation that state officials are denying in a Columbus Dispatch story. The story states that the $771 million is "just a small percentage" of the state's $8.6 billion in annual spending on schools. But district budget officials anywhere would probably break into a cold sweat at the prospect of losing nearly 9 percent of their state funding all in one go.
Recall that earlier this year, the record Mega Millions jackpot threw a brief spotlight onto the extra funding that the lottery-ticket-frenzy would supposedly provide to schools across the state. But in some states, lottery revenue isn't quite what it seems in terms of how much it helps schools. For example, this Houston Chronicle story notes that proceeds from the Texas lottery that can go to education are capped at $1 billion annually, and any additional lottery revenues are just dumped into the state's general fund. There's a sentiment—and not just in Ohio but nationally—that lottery funds are performing the dreaded role (for school funding advocates) of supplanting school revenues instead of acting as gravy that supplements them. In a year with record state lottery revenues, Ohio school leaders are in a prime position to highlight that dynamic.
But again, state officials in the Buckeye State deny this allegation, with Rob Nichols, a Kasich spokesman, lamenting that school officials "don't appear to understand how the system works." One would think there's a straightforward "yes or no" answer to this question, and the paper notes that this swap appears to have happened in at least one instance just over a decade ago.
One view, as articulated by the Tax Foundation points out, is that lotteries are "regressive" because poor people are largely responsible for generating the revenue. Not everyone shares this view. But to the extent that state education funding policies are designed to redress local funding inequities and level the playing field for less affluent students, lotteries to a large extent can be viewed as a mechanism for wealth transfer within poorer communities, from relatively poor adults to relatively poor children. This makes for a kind of shadow local tax, albeit one that is less transparent and relies on people's willingness to use small amounts of liquidity, rather than their home values.