Way back in May of 1972, Michigan voters approved a constitutional amendment to permit a state lottery. Even though the campaign focused on how the new money would be used for schools, the revenues were actually deposited into the state’s general fund. By the end of the decade, so many people were irate with this “broken promise” there was no choice but for legislators to change the law to keep the implied promise for the lottery revenues. Today, all net proceeds from the lottery are required to go to the school-aid fund. This provision generally held true until 2012. That’s when some creative budgeting began.
In 2012, the state budget was strained. The state needed to free up some general-fund revenues to keep state operations going. This is where the promises of protecting funds for K-12 education and the state’s needs for operational funds collided. The people who developed the state budget found a loophole in the constitution. The school-aid fund, which up until that time had been used for K-12 operations, could be used for higher-education purposes.
Here is how it worked. In 2011, the State of Michigan budget included $1.838 billion in general funds for operating community colleges and state universities. This year, general-fund appropriations are down to $1.046 billion for universities and community colleges. This is a 43 percent reduction in eight years. To fill the gap, $900 million in school-aid funds have been shifted away from K-12 schools and into the state budget for community colleges and universities. This was done so that the state could, in turn, effectively shift $900 million in general funds out of post-secondary education funding and prop up the rest of the state’s operations. This has been happening in increasing amounts since 2012.
To give perspective to the $900 million that has been shifted, that happens to be the same amount of money generated by the state lottery last year and deposited into the school-aid fund. In reality, the lottery money was poured into the top of the school-aid fund bucket and it flowed right out of the bottom of the bucket and into the state operations budget. While it looks like the lottery money is supporting our children, today it is simply propping up other state operations.
Now, for many local government officials, this sounds very similar to the revenue sharing story…and it should. Since 2002, the state has reduced payments to local governments so that the money, which had been promised to local governments under law, could instead be used to balance the state budget. In the coming year, $720 million will be diverted from cities, counties, villages, and townships from statutory revenue sharing to support the state general fund.
In summary, in the FY 19 state budget:
- $900 million in school-aid funds are shifted from K-12 to community colleges and universities, not to enhance those programs, but to shift an equal amount of money out of education budgets back to the state general fund;
- $720 million is diverted from funds promised to municipalities and counties to balance the state budget;
- In total, $1.6 billion, or 16 percent of the state’s general fund budget this year, was originally dedicated for K-12, municipal, and county operations.
No wonder people keep asking, “Whatever happened to the lottery money?”
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