Policy Research

Supplement or Supplant? Estimating the Impact of State Lottery Earmarks on Higher Education Funding

Elizabeth Bell, Wesley Wehde, Madeleine Stucky

Summary

States often designate lottery funds to their respective education budgets, higher education budgets in particular. This article examines the effect of these funds. It finds that despite a slight increase in overall appropriations and a large increase in merit-based financial aid, lottery funds for higher education also come with a decrease in need-based financial aid. Thus, these findings bring forward the question of whether lottery funds for higher education are additive or substituting for other funds.

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Policy Implications

The original purpose of lotteries funding state education was to bolster per-pupil spending. Instead, in an effort to circumvent raising taxes, politicians end up simply using lottery funds as a replacement—transferring money from the education budget to supplement other areas. This is a result of the often vague language with which lottery budgets are allocated. While lotteries do increase the higher education budget on net, the funding is funneled into merit-based financial need and decreases need-based financial aid. The potential implication of this is an increase in inequality, as need-based aid addresses inequality and merit-based aid compounds inequality.