Along with all of their other budget challenges, lawmakers this session will need to allocate an additional $10.1 million for the Education Lottery Trust Fund as the result of a determination made last month that lottery funds had been used to supplant rather than enhance education funding this year.

Back in 2004, Oklahoma voters established the state lottery via two state questions. The first, SQ 705, created the Lottery Commission and specified how lottery funds would be allocated. The second, SQ 706, created the Oklahoma Lottery Education Trust Fund into which lottery funds are deposited and stated that this fund could be spent only on specified education-related purposes. To ensure that money raised through the lottery would be used to enhance education spending and not allow existing education dollars to be diverted elsewhere, SQ 706 included “supplantation” language. This language was added to the State Constitution as Article X, Section 41.D :

In order to ensure that the funds from the trust fund are used to enhance and not supplant funding for education, the State Board of Equalization shall examine and investigate appropriations from the trust fund each year. At the meeting of the State Board of Equalization held within five (5) days after the monthly apportionment in February of each year, the State Board of Equalization shall issue a finding and report which shall state whether appropriations from the trust fund were used to enhance or supplant education funding.  If the State Board of Equalization finds that education funding was supplanted by funds from the trust fund, the Board shall specify the amount by which education funding was supplanted.  In this event, the Legislature shall not make any appropriations for the ensuing fiscal year until an appropriation in that amount is made to replenish the trust fund.

Although SQ 706 was silent on how to determine supplantation has occurred, the Office of Management and Enterprise Services (OMES) developed a calculation it uses each year to determine whether lottery funds enhanced or supplanted education funding. Even though the Legislature has cut overall education funding multiple times since SQ 706, the State Equalization Board had never found that appropriations from the Lottery Trust Fund supplanted education funding.

Until this year, that is. In February, the Equalization Board was presented with the finding that supplantation had taken place in FY 2017. According to the calculations by OMES (see Schedule 5), education funding was reduced in FY 2017 by 0.8 percent, while overall appropriations were cut just 0.5 percent. Therefore OMES found that the Oklahoma Education Lottery Trust Fund supplanted funding for education by 0.3 percent, or $10,144,171. The amount corresponds to 0.3 percent of the total appropriated in FY 2017 to the three agencies that receive lottery funds — common education, higher education, and career technology education, excluding spending on administration.

What Happens Now

Lawmakers must now appropriate $10,144,171 to the Lottery Trust Fund before they can make any appropriations for FY 2018. This money will then need to be appropriated from the Trust Fund according to the statutory requirements in Title 3A, Section 713: 45 percent to common education, 45 percent to higher education, and 5 percent each to the school consolidation fund and the teachers’ retirement system. It’s not clear whether this funding would be appropriated as supplemental funding for the current fiscal year or added to the certified FY 2018 Trust Fund appropriation ($59.6 million).

Lawmakers already have $713 million less for next year’s budget compared to this year. The $10 million needed to cover the supplantation gap will be another hurdle for legislators who already face a daunting challenge to balance the state budget. It may also compound the sense, already pervasive among Oklahomans, that the lottery has failed to significantly boost education funding. Lottery revenues have fallen to just over $50 million a year, which is less than 2 percent of what the Legislature appropriates for common and higher education. It’s also a fraction of the funding lost each year as a result of enormous tax cuts and tax breaks. Ultimately, it is these policies that have supplanted the funds that voters intended to go for education.