Sen Caldwell: ….subcommittee to order. And the first thing on the agenda is comments by the chair. I will remind everybody this is our last meeting of this legislature session, and I want to thank Representative Deffenbaugh for being such a good co-chair on this committee while we’ve been here. He has covered for me and I have tried to cover for him. But I will ask if you have any comments.

 

Rep Deffenbaugh: I do appreciate y’all’s patience with us and with me especially. It’s been a real blessing to serve in the House of Representatives and I’ll never forget it. Probably won’t forget a lot of people either. Thanks.

 

Sen Caldwell: Thank you. With that said, we’re going to review the Office of Arkansas Lottery report. Exhibit C. Mr. Hagler.

 

Monthly lottery revenues


Hagler (Lottery): Thank you, Mr. Chair. Thank you, members. We appreciate the opportunity to appear here before you today. On your overhead screen, you’ll find our usual monthly report, and I’m pretty pleased to report the numbers that you’re going to see today. And I’m mindful of the time and the lateness in the year. And so I’m going to hit the high points. If I miss something that draws your attention, just ask a question and we’ll circle back and deal with that as well. If you look at the screen, you will see this is November comparative. So this is November 2022 to November 2021. So where were we last year versus where are we today? And at the end of November of 2022, our monthly sales were $58,517,136. That compares with $47,112,703 in 2021. That’s a 24.2% increase. Now that’s pretty eye-popping numbers. Double-digit increase, a quarter of an increase on a total. Then it begs the question, where’s all that coming from? And I think this is a perfect example to go back and talk about the vagaries of outsized jackpots. We’ve definitely benefited from two sizable jackpots in this fiscal year. And what those do is, is that changes the dynamics of the lottery financials. The draw games generally will generate about a 45% margin, where our instant tickets are considerably less. You might be looking at 10, 12, 15 percent. So obviously it’s to our benefit to sell as many draw tickets as we can. And when you see a big jackpot run like that, you’ll see a rush to the till. And so I’m not going to say it’s 100% behind the outsized number. I do believe that our game portfolio, both in November and what we have just launched in December, are being well received. It’s not every month that I run into people who want to compliment us on our game portfolio, but the last both in November and recently with our December launch, I’ve had people literally walk up and say, “Hey, those are great games, tell your guys we really appreciate it.” So we think we’re trending right there. One of the other things that we look at when we look at this sheet is if you look down at total operating expenses, clearly with sales come expenses. So when you see a 24.2% uptick, then you’re going to drop down and you’re going to see, well, what was the expenses? Expenses, obviously, are going to go up. You’re conducting more business, you’re paying more prizes, you’re paying commissions. It was 14.6%. So when you see the spread between 24 and 14, we’ve done well in managing our expenses. So we feel like the metrics around the lottery and the lottery games are sound. November net proceeds, $10,657,989. that compares to $7,228,778 in 2021. That’s a 47% increase. You cannot expect that every year, and you can’t expect that every month. But we’ll take those every time we can. So that’s why we participate in the multistate games. That’s the advantage that they give us. They really can serve to boost your balance sheet. I think one thing I would caution is, is when we do budget, we back those large jackpot numbers out, and we try to come in internally with what we believe, in our opinion, would have been a normal month for draw sales. And then we may add a little bit to that, or we may haircut that. But regardless, when we present the 2024 budget by example, you’ll see that when we compare year over year, and you’ll say, well, why did you do so well in November of 2022, but yet in November of 2023, you’re projecting something far less? It’s because we do not forecast these large jackpots. You can go an entire year without one of them. We’ve been very fortunate. We’ve had two this year. So I say that simply as a word of caution, that I have to caution myself when I see these numbers, when they first hit my desk and your mind runs wild and you start extrapolating, but what could the world look like? And then you have to temper that and say, well, but what is the world likely to look like?

 

Hagler (Lottery): Let me swing through here to year-to-date November. And this is a year-over-year comparison, year to date. So we’re at the five-month mark right now. So right now we’ve done $252,224,486. That’s in five months. So if you take that number, and we say this cautiously, but again, we’re trying to forecast here, and you extrapolate that out, we’re on track for either our best or our second-best year. If I were a guessing man, or a betting man, if you will, I would say probably second-best year on gross revenues if in fact we continue to trend. And I don’t want to jinx us, but we do like the way net proceeds are trending. If you look at the net proceeds number at the bottom of the page, you’ll see $46,941,542. That’s a 19.5% increase. But if you take $46 million and you extrapolate from that, that is pushing you into record net proceeds numbers if we continue to trend. You got to be positive. And we don’t want to jinx ourselves by the same token. My obligation is to tell you where we’re at and how we see it. So we’re trending well there. If we move to year to date versus budget, you’ll see that we’re 17% over what our expected sales were. We’re 41% above what we expected net proceeds to be at this point. So with that out there floating, we feel like, again, we’re trending in the right direction. We’re cautious. We know there could be tough months ahead. We know that the Fed just raised rates another 50 basis points today. Rates are going up, consumers are being crimped, and people are beginning to live on credit. That will impact lottery sales. We’re mindful of that. That one will cover– I’m going to swing through here, and these are our monthly numbers for county. You’ll see a trend here, and usually, I’ll tell you what the top five counties were, and there’s six counties that kind of play in the top five. We did have a surprise in November. Pulaski obviously led the way. Washington County finished second. Benton County was third. Craighead was fourth. Those four are typically always in the top five or six play. But Saline County popped up into number five. And so when we look at that and we say, “Well, wait a minute, what happened to Jefferson County? What happened to Faulkner County?” Because normally those are two counties that we would expect to see there. You start looking a little deeper at the demographics, and now you’re starting to see, well, could it be that certain areas of the state prefer draw games more than instant games, or is there a pocket of people who will play instant games exclusively? We’re starting to look at it a little differently now, and we think that when we’re tracking this by county, and then you break down the demographics of that county, and it’s very interesting to see. We’re going to continue to dig there, and we’re going to see what we can find. With digital distribution kind of on the front and digital marketing and you’re out here in social media, we want to make sure that the message that we’re sending into these areas is the message that they want to hear. And that is, if you want to play these games, here they are. But the overriding message is always and you’ll always hear us say this, it’s raising net proceeds but it’s raising net proceeds in a responsible manner. And I always tell our team, “We’ve got to remember those last four words: in a responsible manner.” It’s not just that we could sell more lottery tickets. It’s are we doing it responsibly? So we look at that. We are mindful of the counties. We are mindful of average income. These are things that we do talk about. So rest assured, those are on our radar as well.

 

Hagler (Lottery): We always report the retailer loss, debt set off, and income tax. There were no retailer losses. The total debt set off was $14,501. But if you look– I always run the total since inception– so when you look at total debt set off, you’re looking at back taxes owed to DFA, Office of Child Support Enforcement. Since the inception of the lottery, we’ve collected $2.3 million in money that probably otherwise would not have been collected or certainly not as quickly. And then if you look at income taxes withheld, total income taxes withheld from inception are $160 million. We’re just shy of that. So those are the benefits, kind of the ancillary benefits that run alongside the lottery in general that really perhaps don’t get the attention that they should, but we’re committed to that. I’ve put here the current games that we’re offering in November. These are what rolled out in November. We’re trying some new things. Mike Smith, who’s here with me today, is our gaming director. He’s been in the business for decades, and he’s always trying to keep these games fresh. And we had the Betty Boop– I had the question about the Betty Boop game one day, so I wanted to come in with another exciting game we have, and that is the Peppermint Payout. And it’s the first ticket that we’ve offered that smells like peppermint. So if you have a non-winning ticket, we would encourage you to go ahead and enter that in our players’ club for a second chance drawing. But we also would recommend that you keep that in your car. It’ll make it smell really good. We provide and I’ve tried to enhance this report and give you, I’ve said, I think in the last meeting, we’re trying to give you information that we would think you might want to know. Putting ourselves in your shoes as best as we understand that at times, some of this may be superfluous. If it is, we’re certainly willing to remove that, but we’ll add anything that you would like to see. One of the things that I did, though, and I don’t want to sit and belabor it during your time here today is we’ve asked each of our major term vendors, Intralot and Scientific Games to provide sections to this report that essentially are a report to you. So it’s their report to you outlining the services that they provide to us at the lottery. So we don’t tell them how to do this. This is just simply something that– so here’s your SciGames report, and that’s a section there that you’ve got. You can thumb through there and see the actual layout of SciGames as far as personnel. They break down the financials, their November highlights. Intralot does the same thing. And we’ll continue to offer those to you unless you tell us that that’s not necessary. Other than that, I’ll entertain any questions. I hope I’ve given you the highlights. Again, I’m mindful of the time.

 

Sen Caldwell: Representative Ray. You’re 108. I turned you off. Turn back on.

 

Rep Ray: Thank you, Mr. Chair. You used a phrase alluding to increasing sales. You said ‘in a responsible manner.’ Can you just elaborate on what you mean by that?

 

Hagler (Lottery): Sure. We think that it’s incumbent upon us to be good community stewards of what we call a public trust. We think the lottery is a public trust and we think it’s a little different than the average, what you would refer to as a pleasure play. Or you’ll hear them say, “Oh, that’s one of the sin agencies: alcohol, medical marijuana, the lottery, casinos, racing.” But one thing that we think is that there are a lot of people who really are not in favor of gaming, but they understand what the lottery does. And I have people tell me routinely when I’m out speaking to groups, “I’m really not a gambler, but I like playing the lottery because I know even if I don’t win, it’s going to a good cause.” And that’s kind of the way we see it too. And so we don’t want to be on every street corner, in every run-down liquor store, and every rundown convenience store. We believe the lottery is something that ought to be kind of protected and almost cherished. It’s generating a considerable amount of money for Arkansas students. And we don’t want to just take a shotgun approach to it. We want to be good stewards. We want to be good members of the community.

 

Rep Ray: Okay. The other thing I wanted to ask is you mentioned there were some counties that typically don’t perform as high as they do and they had moved up or whatnot, and you said you were going to break down the demographics on who’s buying and who prefers which type of game. Can you elaborate more on what those demographics are?

 

Hagler (Lottery): Lottery is sold anonymously at the counter, so there’s no way we know the true demographic of the buyer. All we can do is look at county demographics and look at sales. And you can only draw a certain level of correlation to that, but at least it gives you some ideas to what is selling. So if you look at a county and you see that you’re seeing a strong sell-through on instant tickets, that’s going to be a county who in our mind prefers instant tickets. You may find a county, we see this in northwest Arkansas where Benton County and Washington County, have good appetites for draw games. You could draw a lot of questions as to why is that the case, but it seems to be the case. It’s nothing that we would use to direct the business at a granular level. It’s more just kind of a view of it and kind of a feel. It’s very much kind of a touch position, and it’s simply just so that we can be efficient. I don’t want to be marketing games in a county that’s not interested in draw games digitally. Our main advertising goes statewide, but we’re more and more– and I think you’ve probably heard it from other agencies that engage with consumers too. It’s all about engagement with the consumer and getting them the message that they’re looking for.

 

Rep Ray: So the demographics that you’re looking at are strictly based on geography? They’re not based on income level or race or anything like that?

 

Hagler (Lottery): Well, we see what we see. We just started this process. This is just something that we started noticing. And really it came as a result of preparing this report. And as we prepared the report and we began to calculate the data by county – and I don’t know how it was done prior to my arrival, but suddenly the light switch went on with me – it’s very clear that there are certain counties that are more active during certain times than others. So by way of example, if we launch new instant tickets and we see a spike in a county, then that’s going to tell us something about that county and their appetite for scratch tickets. If we see a spike on a big draw jackpot, again, it’s insightful for us. It’s just us knowing your customer is really what it’s about. We don’t know who our players are. They’re anonymous. That’s one of the beauties of playing the lottery is, is if you want to go play a lottery, not everybody in your neighborhood is going to know that. By the same token, we try to look for generalities, trends. I do think household income is indicative because that’s that’s also indicative of discretionary income. So you’re going to be looking there to see, well, if they have low income in that county, are they selling more $20 tickets, more $5 tickets, more $1 tickets? And it gives us more of a feel for how that particular populace views the lottery.

 

Rep Ray: Thank you.

 

Sen Caldwell: Senator Rice.

 

Sen Rice: You mentioned the amount of taxes collected. Do you have any breakout that shows– are you able to take child support back in arrears and those things or any tax liens? Do you do that too? Do you have any breakout for that shows the number of people or the dollar amount?

 

Hagler (Lottery): Just have the dollar amount here on the screen as you see. So on the debt set off with DFA and Office of Child Support Enforcement, what you’re seeing there in the first column is November of 2022. So by example, on child support enforcement, we collected $1,176 in child support arrearages through lottery winners who came in to claim their prize. And then to the right column is since inception. So since inception, in the case of child support through redeeming lottery tickets, the lottery has recovered $677,176.

 

Sen Rice: Thank you. I never got to see that. Thanks.

 

Hagler (Lottery): Yes, sir.

 

Sen Caldwell: Senator Hammer.

 

Sen Hammer: Thank you, Mr. Chair. You referenced about you all are keeping an eye on the future with the economy, inflation, and all those sort of things. Your ability to project out, do you use an actuary to help establish what your predictions are as far as what the future would be? Because if we’re enjoying a real healthy environment now, how are you projecting and how far out are you projecting before it would turn down, or can you just talk about that for me?

 

Hagler (Lottery): Sure. We do it internally and it’s a process where senior managers in the lottery sit down. We look at other lotteries that we consider to be peer lotteries. We try to see what trends are happening around our border states because we obviously compete at the borders. We watch economic data and I think that’s– we’re watching that more now than perhaps in the past. Again, I can’t speak to how it was done before I got there, but usually, we believe that you’ll see economic indicators that will portend either an uptick or a downtick. It’s all about discretionary income. So anything that impacts discretionary income is something we’re concerned about. So let’s say that you have a tax increase. Let’s say groceries go up, fuel, although fuel is just a single metric, it’s an important metric. When we look right now, all we can see is that Fed comments, Fed seems hawkish. If the Fed is hawkish and they’re going to increase rates, or they’re going to hold rates at a higher level over a period of time, that’s going to have a certain impact on the lottery. And as we plan, our calendar will account for that. I know Representative Ray had asked for a strategic plan and we did complete that and sent that over. It’s difficult in the lottery world to forecast too far out because of the vagaries of the jackpots. You literally are playing in an uncertain world. But what we do look at are the indicators that we can see. Discretionary income, consumer price index, credit card debt, any of those things are indicative to us that the economy is going one way or the other.

 

Sen Hammer: Okay. Thank you.

 

Sen Caldwell: Seeing no other questions, we appreciate your report on that. We’ll move on to item D. And we will review Department of Higher Ed, invoice reimbursement. Mr. Hagler, do you have that?

 

Hagler (Lottery): I do have exhibit D. Yes, sir.

 

Sen Caldwell: Exhibit D. Yes, sir.

 

Higher Ed expense reimbursements


Hagler (Lottery): With regard to exhibit D, this report was issued on November the 1 of 2022. And this is a statutory report that the lottery is required to file annually. It’s subject to section 23-115-801 subsection D3. And what we do here is we provide to you all of the expense reimbursement requests that we’ve received from ADHE, designating what’s been paid and what hasn’t. And in this instance, we’ve given you two numbers. So by way of example, we have not reimbursed for their current physical expenses. We did reimburse for fiscal 2022. They’ve given us an estimated budget of $1,421,933 as what we can expect. Typically, what we’ve done in the past is we would reserve $500,000. We budgeted $500,000 because that’s about what those expenses have been in years prior. We did get surprised a bit on the 2022 reimbursement. The actual reimbursement was $1,723,995.31. We had budgeted for $500,000 and obviously that impacted net proceeds. And I think that’s why we have– and I may have made mention– if I haven’t, I meant to. Currently, what we do is ADHE sends over their expense reimbursement to the lottery, and we pay it. We don’t control it. It just hits the desk. And it’s there. And you write the check. But right now, it’s being carried as an expense of the lottery. So it’s an off boarded expense of ADHE.

 

Hagler (Lottery): And what we would like to do, and we think it cleans up the accounting, and it removes an ADHE expense from our financials, is currently, we carry that as a lottery expense, so it hits my G&A. I can’t control the expense, but I’m obligated to explain the expense. And because it’s an above the line expense, it impacts net proceeds return on sales. Last session we saw, and I think it’s been introduced before, by my understanding, a bill that was proposing to implement a targeted mandate that required the lottery to return a certain percentage. This is the kind of expense that’s floating above the line in the lottery right now that really should be off of our financials. It’s an expense that we believe should come from net proceeds. Net proceeds are there to fund scholarships. And while we have a statutory obligation to reimburse them for expenses associated with providing scholarships with the money provided by the lottery– not all their scholarships, but the scholarships that lottery money pays for– we believe that could come out of net proceeds, and it actually would be a cleaner accounting. And from my chief fiscal officer’s point of view, it brings us closer in line with what you would see in a traditional gap accounting.

 

Hagler (Lottery): Now what we have right now is essentially an expense carried by a subsidiary. And it skews our numbers, and I think it plays to those who would impose a targeted mandate on the lottery, when in fact, we run a very, very efficient lottery for our size. We certainly have no qualms about paying their expenses. We understand those are expenses. The legislature in previous years saw fit that the lottery proceeds should cover that. And the statute doesn’t specifically say where the money should come from, but historically, it has just literally been carried as an expense by a lottery, and we would just like to see that reimbursement come from that proceeds. We think it keeps everybody accountable, and it cleans up the financials between the two.

 

Sen Caldwell: Okay. We have several questions. So Senator Hickey, I recognize you.

 

Sen Hickey: Yes, sir. And I agree. This is always something I want us to look at. And I think that we were possibly going to run legislation because I’d like to see this for the five-year period, and I ask about this all the time. But let me ask you, have you researched the constitutional amendment? Because I was thinking there was something within the constitutional amendment itself that allowed them to do that.

 

Hagler (Lottery): No, sir. I haven’t. We simply looked to the lottery statute and derived the language from there. But we certainly will do so.

 

Sen Hickey: Ms. Markham may want to– because either they’re possibly– because a few years ago we went all the way through that. And I may be mistaken, but it seems like to me there may have possibly been some language within that. One other question from you, and again, we can ask Ms. Markham. Did you all delve into these expenses? I see that they’re listed here, and I assume they give you. And we may have talked about this a month or two ago, but the professional fees this time was a $1.1 million. Do we know exactly what those professional fees were? Is that something we need to ask them?

 

Hagler (Lottery): I would defer to them.

 

Sen Hickey: Okay. I’ll do that in a minute, Mr. Chair. Thank you.

 

Hagler (Lottery): Thank you, sir.

 

Sen Caldwell: Senator Hammer.

 

Sen Hammer: Thank you, Mr. Chair. And I don’t know if this will be you or Dr. Markham, but in looking at the expenses for 2022, and then looking at the budget for 2023, so professional fees in 2022 is like $1.1 million, but they’re only budgeting for 2023 half a million. And I’m just wondering, what accounts for the low request or the drop in the low request?

 

Hagler (Lottery): Senator, we don’t have any clarity behind the numbers.

 

Sen Hammer: Okay. Appropriate time, Mr. Chair.

 

Sen Caldwell: Ms. Markham, would you come head to the table, please? If you would, both please identify yourself for the record.

 

Markham ADHE: Yes, sir. Maria Markham, Director of the Division of Higher Education. My Assistant Director, Nick Fuller, is the Assistant Director for Finance. The one-time expenditure was for the rebuild of the financial aid application system. We went from the universal software to the SAMS program. That is something that we discussed with this group and with lottery prior to entering into that contract. We only have a one year expenditure, because once the build is complete, all we’ll have is the maintenance after that. So our budgeted expense on that will just be maintenance after the 2022 year.

 

Sen Hammer: Was that under capital outlay or under professional fees?

 

Markham ADHE: Professional fees.

 

Sen Hammer: Okay. And so the increase– professional service match is 80 in 2022, but you’re asking for an increase, about double. The justification for the increase is in the other categories. Can you just hit on what those are that you’re asking for more than what the actual 2022 expenses were?

 

Markham ADHE: I’m going to let Nick take that one.

 

Sen Hammer: Okay.

 

So the increase would be for an additional IT staff member on the salary matching piece, to manage. Because we moved the application portal in-house rather than being hosted by what used to be INA that hosted the universal portal. We’ve developed the new system in-house and have staff working on that. So the large increases were due to the build that began in fiscal 2022 and finished in this fiscal year. And then the ongoing updates will just be the maintenance and then the additional IT staff member.

 

Sen Hammer: Okay. All right. Thank you.

 

Sen Caldwell: Senator Hickey, you’re recognized.

 

Sen Hickey: Yes. And I guess, first, I will go to that. All right. So we’re taking on this new person, though, have we done any cost analysis? Is our net better? And if so, by how much? Approximate. You don’t have to get specific.

 

Fuller ADHE: It should net out expenses about even. The issue is bringing the person in-house rather than contracting with the company and updating to the more user-friendly portal that’s not 10 years old. So it’s not going to cost a large increase more to do this. It’s going to net out about the same as what we would be paying to the contracted people to host the old website.

 

Sen Hickey: Okay. And whenever you get the specifics, if the Chair didn’t mind, I’d like to know them down to the close within a dollar or two.

 

Fuller ADHE: Yes, sir.

 

Sen Hickey: Another thing, back to what the director was discussing, Director Markham, do you remember, is there something within that constitutional amendment that requires this, or is that just something I’ve dreamed up?

 

Markham ADHE: So I don’t remember if you’re talking about where the accounting for the cost is, if that’s in statute or in the constitutional amendment. I know when we reviewed prior to the changes last time, we looked at several things, but I don’t think that was one of them. So I’ll have to research that. From an ADHE perspective, we’re agnostic as to when that accounting for the expenses of the scholarship administration happens. It won’t change the way we do business. So, yeah.

 

Sen Hickey: Right. I mean, of course, you all would just come before us with Budget. And maybe if we were able to do this, I don’t know if we’d want to see it in your overall or if we’d want to have a subsection or something since it was lottery. I guess we’d have to figure that out, so.

 

Markham ADHE: Right.

 

Sen Hickey: Okay. All right. Thank you.

 

Sen Caldwell: Okay. Seeing no other questions, we will move on to item E. And that would be ADHE’s recommendation for the Challenge Scholarship Program.  If you would, again, Dr. Markham, state your name for the record.

 

Markham ADHE: Yes. Maria Markham, Director of Division of Higher Education.

 

Sen Caldwell: You’re recognized.

 

Academic Challenge recommendations


Markham ADHE: Okay. Going to read from the phone here. I did make two recommendations for improvements to the Arkansas Academic Challenge Scholarship Program. Both of these I made, I believe, in the last legislative session as well. One is for an addition to a needs-based component to the Academic Challenge Program based on the federally defined contribution from a family. It would be a sliding scale that would allow our low-income students to receive higher levels of support throughout their academic career. As we saw in the slides before, we have a pretty healthy net proceeds balance that we have to draw from. And with a declining student population in the state, we will have more and more money that we can use to support those students who need it the most.
My other recommendation, and I’ve made this one before, we actually had a bill drafted last time, and we ran out of time in session, and it didn’t get through. But I really need an appeals process for both Academic Challenge and all of the other scholarship programs. We’re very directive on the requirements for both eligibility and continuing eligibility. We have a lot of students that miss a deadline or fail to meet an eligibility requirement for extenuating circumstances, and I’m not granted any discretion to hear an appeal. So I would like to have an appeals committee, much like on a campus, when students come forward and have extenuating circumstances, and they would like to petition for reinstatement of their scholarship. So we would be able to make those decisions when those cases arise. So those are my two recommendations. I’m happy to take any questions.

 

Sen Caldwell: Ms. Garrity, would you come to the desk, please?  Senator Hammer, you’re recognized.

 

Needs-based decisions


Sen Hammer: Thank you. I just need to get my mind around it. The previous testimony was that we’re seeing a bumper crop right now, but anticipated that the revenues will fall off. Subsequently, we might drop down. If we go with your first recommendation, and we were to do that, and then money begins to decrease or gets tight, how would that work as far as making sure that there’s not something that is disadvantaging those that may not fit that X amount?

 

Markham ADHE: Sure. So the bill that was proposed in the last session, Governor Hutchinson has approved that to be part of our agency package for the next session. And it’s identical. And there was a clause that it was subject to funds available, so we couldn’t overspend. And so we would slide that scale down, basically. We would reduce the awards based on how much money we had available.

 

Sen Hammer: So it would be only as funds increase?

 

Markham ADHE: Yes.

 

Sen Hammer: I just don’t want to disadvantage one population over trying to advantage another population.

 

Markham ADHE: Sure. The regular Challenge would pay first. So this would be an additive to that award, and it would not move those students behind, basically.

 

Sen Hammer: That’s what I don’t ,want to see happen. All right, thank you.

 

Sen Caldwell: Senator Hickey.

 

Sen Hickey: Something just occurred to me sitting here. Of course, if we’re not limited by that constitutional amendment on that and do what they want, and I know that we may not want to go down this road, but my recollection is we also put state dollars every year into the scholarship program. So as far as the state, the thing is, is we’re just taking it out of one pocket and putting in another. So from a budgetary standpoint, if we wanted to back that off, if we can come to a number, $1.5 million, we could actually back that off what we’re putting into the scholarship, I believe, every year. So that we could, as far as getting that through the session, we can tell everybody there’s not going to be a net increase out of our general revenue. And I think that that would actually fix their accounting problem too. So that just occurred to me because I’d actually forgot about the general revenue that we’re putting in every year.

 

Markham ADHE: Right. The first $20 million that we spend is GR, so using that to account for the expenses of the lottery.

 

Appeals process


Sen Hickey: Exactly. I never thought of that. Like I said, just sitting here, hearing you all talking, and stuff. Back to your continuing eligibility requirements, and I guess the thing is I want to be very careful whenever we do that. And we make sure that if you’re going to do a bill or something that it is very specific because, of course, the revenue from the lottery is up and that’s helping us to make sure we’re solvent. But as you know, one of the main ways that we did that, of course, is because of students that were not meeting their eligibility requirements in like the first year. So in your appeals process, let’s just say somebody does not maintain their hours or whatever, are those type of things, what you’re talking about, that you’re going to want to have exceptions on? Or is it solely that someone had a family member die and they missed the date that you said?

 

Markham ADHE: Right. Those are the types of things that I would really like to have some discretion over. And I get calls from members, great guy, go to college, was in an accident, didn’t know there was a deadline, and wasn’t able to put his scholarship on hold. He laid out for six months. And now I don’t have any recourse. I can’t help that kid out, even if, obviously, there was a good reason. I’m not talking about SAP. So students who made all Fs and didn’t do what they were supposed to do, that’s not something that typically an appeals committee would even hear. They might file an application and the committee would look at it and say, no, that’s not.

 

Sen Hickey: Okay. If there’s some way to limit that. So those specifics come through the first bill so that we don’t have to go through amending and saying, no, we’re not going to do that. If we could do that on the front end, just to make sure, because that would be a point of contention, for lack of a better word.

 

Markham ADHE: Sure. And there are circumstances on continuing eligibility where we actually penalize our better students. So we have students who took summer classes and paid for their own stuff. Or they took more hours in one semester and they paid for some of those on their own. And then they get to their final few semesters and they don’t need 15 hours, they only need 12, and they want to take a grad class, and they get caught up in this SAP issue where they’re actually an exceptional student, but they lose their Challenge because of the way the rules are written. So those types of things.

 

Sen Hickey: Thank you.

 

Sen Caldwell: Representative Ray.

 

Rep Ray: Thank you. Dr. Markham, on the two changes that you’re envisioning, would they also apply on the Workforce Challenge?

 

Markham ADHE: For the appeals? Yes. I would like for that to apply to all state scholarships, an opportunity to appeal. For the Academic Challenge Plus, that’s what we called it last time. That’s a kicker, basically to the Academic Challenge for low-income students. It would not apply for Workforce Challenge. We could talk about that. I would love to explore that, but this was just for Academic Challenge.

 

Rep Ray: Is there a specific reason you wouldn’t want it to apply to the Workforce Challenge?

 

Markham ADHE: The only reason I can think of is students who apply for Workforce Challenge typically don’t have to apply for the FAFSA. So we wouldn’t have a calculation on their estimated family contribution to go off of. Workforce Challenge many times is for non credit training, and the FAFSA is not a requirement.

 

Rep Ray: And were there any changes that you had considered making to the Workforce Challenge?

 

Markham ADHE: I’ve talked with Senator English several times about that, about increasing the amount. I’m always willing to increase the amount. Or if we can broaden the categories, yes.

 

Rep Ray: Okay. Thank you.

 

Sen Caldwell: Okay. Seeing no other questions. We thank you very much for your time.

 

Markham ADHE: Thank you.

 

Sen Caldwell: Okay, members, moving on to item F. This is our annual report. If you have a copy of it, I won’t read it. But it reports to chairmans, co-chairs of ALC, things that we’re required by state law to comply with. In fact, we met three times this year, and Arkansas Lottery Oversight Committee should continue to provide oversight to the operations and activities of the Department of Finance and Administration Office of the Lottery. Arkansas Lottery Oversight Committee should continue to review the Department of Finance Administration Office of Arkansas Lottery’s implementation of Scientific Games, Inc., INTRALOT, Inc., and Camelot Global Services term contracts. And that we should continue to monitor the funds available to guarantee Arkansas Academic Challenge Scholarship and Workforce Challenge Scholarship remain solvent within its parameters. I think that’s what Senator Hickey was alluding to, that we want to make sure that we remain solvent. I will need a motion for that. So moved, Senator Hickey. And second? Thank you very much. We got a second. All in favor, say aye. All opposed. If no other business, we are adjourned. Excuse me. I’m sorry, Senator Hickey, I didn’t ask you. Hold on.

 

Sen Hickey: Mr. Chair. Also, and I guess it needs to come out of this committee because we tried to do joint rules, and I know the House didn’t actually pass theirs. We did pass legislation in the last session which requires anything that’s going to affect the scholarship lottery to be done by a certain time. So I see Majority Leader Richmond down there. I just want everybody to remember that, because that probably needs to be relayed to both the House and the Senate, that we do have that legislation and if members have intentions of doing that. Because there’s a process that we go to that shows how much it’s going to cost and that it’s not going to help affect our solvency. And it does have to be done within a certain number of days after the session starts. And forgive me, I don’t remember what that is. So we’ll have to research that.

 

Sen Caldwell: Okay. Mr. Hagler, let me ask you a question. If you would come back to the table, please? Ms. Garrity asked me. You all had some proposed rules that didn’t get out in time for public comment. Do you want to comment on that or make a statement on that?

 

Hagler (Lottery): Absolutely. This was our first time to go through the rule revision process. The rules had not been significantly revised at the lottery during the 13 years since its inception. And obviously, it still made reference to the Lottery Commission. It had other things in the rules that are no longer consistent with actual practice. It never referenced that we were part of DFA, and just needed to clean up the entire set of rules. We went through the process. We did have a public hearing. We had one citizen show up. We had no objections. We thought we were off to the races and found out that we had missed a very important step in the process. And that was at the beginning, we did not send a draft to BLR. They got, they got a draft, but they got it much later. So we went back. We went to emergency rules. We asked for emergency rules. That was granted for a period of 120 days. And we started the process over. Our public hearing will be on December 21 at 9 a.m. at Lottery Headquarters. We expect that to go smoothly. And we will be, at that point, completing the process and winding that down. We fully expect to have those rules finalized, completed, and implemented in January.

 

Sen Caldwell: Very good.

 

Hagler (Lottery): Thank you, sir.

 

Sen Caldwell: Regular routine, kind of ran out of time because of session coming up. Okay. All right. Any other comment or question? If not, we are adjourned.