By John Lyon
Arkansas News Bureau

LITTLE ROCK — With the state facing $100 million in budget cuts because of a revenue downturn, some legislators are wondering whether the new state lottery could be making a bad situation worse.

“My concerns right now are, how do the lottery sales affect the revenue for the state that we’re currently seeing a downturn in?” said state Rep. Rick Green, R-Van Buren.

“I don’t know how much it’s going to affect it, but I know it’s going to affect it some, because there’s a certain amount of money that’s expendable in this state, and if millions of dollars are suddenly being funneled toward lottery scholarships, then obviously that money has got to be coming from somewhere,” Green said.

The lottery to fund college scholarships started Sept. 28 with instant-win games and added Powerball on Saturday. The lottery is projected by lottery officials to take in about $400 million a year in ticket sales.

Green noted about 25 percent of the proceeds will go to scholarships, with the rest going to prizes and administrative costs.

“People don’t have an extra amount of money in their wallet today versus Aug. 1 to be using, so if they’re buying a good number of lottery tickets each week, then what would the money have been spent on (without the lottery)? … I think that the majority of people certainly wanted the lottery, and the idea of scholarships is a great idea, but at what cost to something else?” Green said.

Gov. Mike Beebe’s recent decision to cut $100 million from the current fiscal year’s budget was based on a drop in revenues that predated the lottery’s launch, but some lawmakers say they’ve heard comments from retailers that suggest the lottery could be adding to the problem.

Rep. Garry Smith, D-Camden, said a retailer in his district — whom he declined to name — recently told him lottery ticket sales were eating into sales of other products inside his stores.

“For instance, people come in with a $20 bill that they would normally buy milk, eggs, probably some alcoholic beverage or whatever, and maybe $3 worth of gas. Now they buy a lottery ticket first. They may get the gas so they can have enough to go home, but the other sales seem to be suffering,” Smith said.

The state does not collect a sales tax from the sale of lottery tickets, although it does collect taxes from prize winners.

Smith said he isn’t ready to say that this was a bad time for the state to start a lottery, but he said the lottery’s impact on the economy is something that should be studied.

“We’re trying to get ahead with education, and that’s my goal too, but our economy is very weak right now,” he said.

Rep. Johnnie Roebuck, D-Arkadelphia, said she would like to see more information about how the lottery is affecting the economy, but it may be difficult to separate the lottery from other factors.

“It may be because of (rising) gas prices, it may be because somebody has been laid off,” Roebuck said. “There’s so many variables of why people may not be buying a gallon of milk but they’re buying a quart.”

John Shelnutt, an economist with the Arkansas Department of Finance and Administration, said he did not know how the state could determine what affect the lottery is having on sales of taxable goods.

“I think it’s going to be next to impossible to really break it out, to really make a confident statement about it, partly because it could be pulling from lottery sales in surrounding states, so you have that adjustment in addition to the larger question about consumption,” Shelnutt said.

Lottery Director Ernie Passailaigue said no study is planned to determine the lottery’s impact on the economy, but he said the impact is easy to see.

“If you read the news releases out of Oklahoma last month, they’re going to cut their revenue budget in the Oklahoma lottery by $12 million because of Arkansans keeping their money in Arkansas. And that’s true for Missouri, that’s true for Tennessee, that’s true for Texas and that’s true for Louisiana,” he said.

Passailaigue also said no one ever puts a pencil to the cost of Arkansas’ low college graduation rate, which the lottery is intended to improve.

“Arkansas right now, as I recollect, is 48th in the country in terms of college graduates, and that has to be a terrible toll … because you don’t have the educational levels you need to attract the industry that you need to lift all boats in Arkansas,” he said.

But despite the benefits, could the lottery be putting a damper on sales tax collections?

Passailaigue pointed to a 1997 study by the National Association of Convenience Stores which found that lottery customers spend more than twice as much per store visit than non-lottery customers and that lottery customers buy at least one non-lottery item on 95 percent of visits.

Some have complained recently about long lines at convenience stores, “and the reason they’re complaining is that they never had lines before because people would pay at the pump and leave,” Passailaigue said.

That’s been the experience of Vickie Sosebee, a supervisor at EZ Mart on Rogers Avenue in Fort Smith, who said she’s seen an increase in sales of non-lottery items in the past month.

“I think they went up a little bit, just for more customers coming in the store,” Sosebee said. “Bottled beverage sales are up a little bit, candy sales are up a little bit.”

But Peggy Bryant, co-owner of Gas Plus on West 4th Street in Fordyce, said sales of non-lottery items inside her store have decreased.

“Probably the economy in Fordyce has a lot to do with it. They (wood and paper manufacturer Georgia-Pacific) just shut down our biggest plant here and everybody is on unemployment,” Bryant said.

“But they’re still buying lottery tickets,” she said. “It’s amazing. They’re cashing their unemployment check and buying tickets.”