where does illinois lottery money go

Illinois Lottery Exacerbates Inequities in Chicago

Communities on the South and West Side buy disproportionately more lottery tickets but do not see returns to their schools

E very year, the Illinois State Lottery contributes hundreds of millions of dollars to help fund public education in Illinois, but areas with high lottery sales often also have school districts that remain severely underfunded.

“We’ve lost too many schools and then we see [existing schools] fighting for more money from Springfield,” said Scotty McBryde, an eighteen-year Chatham resident and daily lottery player. “But the pots of the lottery are getting huge, so where is the money going?”

Illinois has not had a budget for nineteen months, instead relying on stopgap spending to fund social services such as public education. Illinois also has one of the least equitable school funding formulas in the country. Earlier this month, a bipartisan commission created by Governor Bruce Rauner published a report highlighting the wide funding gaps between high- and low-income school districts in Illinois.

The use of Illinois lottery funds is especially important to McBryde and other South Side residents, who contribute a significant portion of the lottery’s total revenue. About seventy percent of Illinois’s lottery funds come from the Chicago Metropolitan Area, and spending within Chicago is concentrated in communities of color on the South and West Sides, according to new research by Kasey Henricks, a sociologist at the University of Illinois at Chicago.

“Given that you have some communities on the South and West Sides that generate $20 million a year, compared to a couple million dollars a year in Lincoln Park, there’s no mystery in terms of who that money is coming from,” Henricks said in an interview.

Since 1985, Illinois has directed its lottery proceeds into the Common School Fund, which distributes money to school districts across the state. The lottery annually contributes around $670 million towards K-12 education, or about ten percent of the state’s total K-12 spending. In its history, the lottery has provided over $19 billion to public education and millions to other causes, the Lottery said in an email.

However, the lottery does not actually increase the amount of money that goes to schools: lottery funds replace existing funds rather than supplementing them. For every dollar from the lottery that goes into the Common School Fund, a dollar from another state revenue source comes out, explained Ralph Martire, Executive Director of the Center for Tax and Budget Accountability.

“Many people believed…that the net revenue from the lottery, after paying winners and the administrative costs, was going to be an additional investment in the K-12 education system. It has never been that,” said Martire.

On a Saturday morning at Hollywood Food Market on the border of Chatham and Greater Grand Crossing, several lottery players only had a vague idea of how Illinois uses funds from the lottery. Although most knew the lottery has traditionally helped fund public education, they were not sure whether this is still the case.

“I thought it was for schools, but the way it sounds, it’s not anymore. I don’t know what happened,” Mable Benjamin, a lifelong Chatham resident and daily lottery player, said.

While the lottery allows Illinois to spend less money from its General Fund on education, communities on the South and West Sides pick up the cost. Out of the nearly $2.2 billion of lottery sales in 2011, about $1.5 billion came from the Chicago Metropolitan Area, according to Henricks’s study. Moreover, much of the money generated in Chicago came from communities of color on the South and West Sides—Henricks found that each one-percent increase in a community’s white residents decreases lottery sales by $44,746.

“[It challenges] this whole notion that Chicagoans are a public charge, especially working-class minority folks, that they’re taking from the system rather than giving to the system,” said Henricks.

Neighborhoods in the ZIP code 60619—including Chatham, Avalon Park, and Greater Grand Crossing—purchased about $27 million of lottery tickets, the most in the Chicago Metro Area. The ZIP code 60628, which covers Pullman, Roseland, and Riverdale, bought about $21 million. In comparison, many suburban ZIP codes fell below $2 million in annual lottery sales.

“Because marginalized communities are the primary source for lottery revenues, the [school funding] formula ends up circulating this money out of these communities and spreads it across all communities,” Henricks writes in his book, aptly named State Looteries: Historical Continuity, Rearticulations of Racism, and American Taxation.

In an email, the Lottery warned against solely examining gross sales per ZIP code, as such an analysis does not account for population density, sales per capita, and sales by customers who do not reside in the ZIP code in which they purchased their ticket. In his analysis, Henricks did account for population size and still found that communities of color disproportionately buy lottery tickets.

Because of the scope of the state’s budget crisis, both Henricks and Martire said funds from the lottery still aren’t enough to sustain the system; Illinois needs to increase the total amount of funding devoted to education regardless. Martire estimates that the state would need an additional $3.8 billion dollars to fund a quality education for every child, well outside of the $670 million that the lottery is capable of generating.

“What the state really needs to do is adjust its income and sales taxes to work in a modern economy,” said Martire.

Though the lottery’s contribution to the Common School Fund is likely to remain untouched in the near future, there are reforms that can make it more equitable. The Lottery described its recent efforts to appeal to a broader base of players, including launching Internet lottery sales, expanding its presence in major store chains, and searching for a private manager with the ability to attract higher-income players.

Henricks also sees opportunities for the lottery to be reformed while continuing to generate revenue. His proposals include promoting games with larger jackpots—which tend to attract wealthier players—and distributing more lottery funds to communities that disproportionally contribute to the lottery.

“Imagine, if we considered where [money from the lottery] is generated from, and then we pumped it right back into the community, whether it’s through improving schools in their local districts or providing small business grants. I mean there’s a variety of things you could do with that money that could really generate social mobility,” Henricks said.

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Communities on the South and West Side buy disproportionately more lottery tickets, but do not see returns to their schools.

Why The Illinois Lottery’s Been No Jackpot For Schools

Gail Tate worries about Illinois schools.

“I hear the stories, especially this past year, about every school district having to borrow money,” she says. “Schools are having to close.”

Yet, Gail says, “the lottery continues!”

Gail, a retiree originally from Chicago and now living in Naperville, asked Curious City: Where are the profits from the Illinois Lottery going? I thought they were going to education.

Gail says she was old enough to vote when the lottery passed the Illinois General Assembly in 1973 and — in her recollection — it was created to fund education in the state.

It’s a common belief: Gail says her friends share it, and there’s plenty of evidence it’s widespread online, too.

@richardroeper There is the ethos that when you buy an Illinois lottery ticket the money goes to education. Well that’s how it was sold.

This is terrible. I thought the lottery was supposed to fund education in Illinois.

How is it that the illinois lottery is supposed to go to the schools and we are currently cutting the education of the kids

Ok … a common belief, but a correct one?

We dug into old lottery legislation, pored over spreadsheets, interviewed lottery experts, and we found that, yes, most of the lottery’s annual profits do go to the state’s education fund. We’ve packed a tweetable answer along those lines below, complete with a detailed chart.

But there’s something more at the heart of Gail’s question, and data (let alone a tweet) won’t address it. If Gail, her friends and a whole lot of Illinoisans suspect the lottery and schools are joined at the hip, what’s the real relationship between the two?

That relationship, it turns out, is complicated, has proven slippery and — importantly — it has changed a great deal since the lottery opened for business four decades ago. With literally billions of dollars of lottery revenue coming in while Illinois schools sometimes struggled …

Well, that’s a story worth more than a tweet, and we invite you to follow along.

The Tweetable answer

In fiscal year 2015, 24 percent of Illinois Lottery sales ended up in the state’s public K-12 schools.

That 24 percent comes after prize payouts and administrative costs, of course. A smidge of the sales (.29 percent) went toward the state’s Capital Project Fund, which pays for public construction projects.

In raw figures, the lottery’s contribution to schools (technically, payments into the Common School Fund) was $678 million, which seems impressive until you know that that contribution made up just 6.6 percent of Illinois’ public schools spending.

This is just a recent snapshot, though. To start seeing the complexity of the relationship between the lottery and school funding, click through the three eras in the chart below.

There are surprises there, starting with the origin of the lottery in the early ‘70s.

The idea that the lottery was created to fund education in Illinois might be prevalent, but it happens to be off base.

“I would say that’s probably the most prevalent myth about Illinois government, that the lottery was created to fund education,” says Charles Wheeler, who covered state government for the Chicago Sun-Times in the 1970s. He’s currently the Director of the Public Affairs Reporting Program at the University of Illinois, Springfield.

“That’s simply not the case,” he says. “The lottery legislation was part of a compromise package whose main purpose was to provide additional funding to help out the Chicago Transit Authority.”

Or, as Wheeler put it in a 1973 Chicago Sun-Times article: “The lottery was included in the [ Regional Transit Authority ] compromise as a potential source of revenue to replace funds designated for an annual subsidy to the RTA.”

Wheeler points out that early drafts of the final legislation would have dedicated at least some profits to education. Citizens who didn’t follow the entire debate closely, he says, may have had actual events “overshadowed by the expectation that ultimately [the lottery] will be for schools.”

For its first decade, the Illinois Lottery deposited profits into the state’s General Revenue Fund. But then, in 1985, something strange happened. In a moment of life imitating art, Illinois lawmakers decided that lottery profits should in fact go towards education funding.

“Legislators were, I guess, frustrated or tired or fed up with having to explain to constituents, ‘No, we didn’t pass it for the schools,” Wheeler says. “So they finally just said, ‘Alright, go ahead. We will just put the money into the schools.’”

With Illinois Lottery money routed to an education fund post-1985, schools saw a big boost, right?

Lottery funding for education has turned into something of a shell game, according to Christopher Mooney, Director of the Institute of Government and Public Affairs at the University of Illinois.

Here’s what he means. Let’s say the General Assembly intended to spend 100 dollars in a year on K-12 schools. Without a lottery, the 100 dollars would come from the general fund. But, if the lottery can kick 10 dollars toward schools, legislators have two choices: they could spend money on schools above and beyond the original 100 dollars, or they could lower the contribution from the General Fund.

Mooney says Illinois legislators typically take the second mindset.

“We’ll have the same amount for the schools,” he says, “and we can use that ten dollars for something else.”

Mooney describes legislators’ motivation to approve a lottery or any other form of legalized gambling with two words: “free revenue.” It’s money coming into the state that doesn’t require lawmakers to raise taxes, and risk their constituents’ wrath.

A 1997 article published in State & Local Government Review titled “Lotteries for Education: Windfall or Hoax?” found that, in the period initially following the adoption of an education-funding lottery, state spending on education increases. But over the long term, state spending on education declines. A 2007 New York Times review of state lottery programs concluded that, though lotteries were contributing to education funding, they accounted for a small percentage of school funding and that they were shrinking at the time.

These trends have played out in Illinois:

Mooney says part of the Illinois Lottery’s sluggish overall growth (and its sluggish growth in contributions to education) can be attributed to lawmakers dipping back into the “free revenue” pot; in 1990 Illinois legalized riverboat casino gambling, and in 2009 the state legalized video gambling.

“If there’s this sum demand for gambling services out there, the more opportunities there are, the more that can be satiated in other ways,” he says.

During the Great Recession, state lawmakers changed the lottery in a way that permanently limited its financial contribution to education.

To combat the recession’s effects in Illinois, then-Governor Pat Quinn put together a massive, first-in-a-decade capital bill to fund construction projects (and construction jobs) around the state.

The bill cost tens of billions of dollars. And legislators (surprise, surprise!) turned to the lottery for help.

Roger Eddy was a Republican legislator at the time, serving southern Illinois’ 109th House district. He says legislators felt that the weak economy couldn’t stand a hike in income taxes. “Lotteries and other forms of gaming are kind of a voluntary tax,” he says.

Legislation paired with the 2009 capital bill made two major changes to the lottery. First, it made Illinois’ Lottery the first in the country to be operated by a private manager . The company that won the contract, Northstar, promised annual growth of 10.6 percent a year.

Second, legislators wanted some of that money to pay for capital projects, so they capped how much money the Illinois Lottery pays into the Common School Fund. From 2010 on, the lottery has contributed its 2009 level to school funding, adjusted for inflation. Almost all of the rest of the money the lottery makes is routed into the Capital Projects fund.

Translation: Even if the lottery had an absolutely banner year, and legislators didn’t siphon the money out the other side in the form of decreased state spending, it wouldn’t matter; the lottery’s contribution to education is limited.

That scenario has yet to come up because Northstar struggled to live up to its big promises. Instead, the lottery lost money between fiscal year 2013 and 2014. The company was fired by current Governor Bruce Rauner , but will remain in charge until a new private manager is found.

The siren song of the Illinois Lottery

So, the short answer to Gail’s question is that much of the Illinois Lottery’s profits do go towards k-12 education, and have since the 1980s. Still, the lottery hasn’t lived up to the expectations of lottery players, who may still believe that the money they spend on it goes directly to schools on top of regular state funding. Nor has the lottery satisfied the expectations of lawmakers who turn to it, and other forms of legalized gambling, as a windfall that has no political price.

Gail says she was “shocked” to learn that the lottery was started with commuters, not kids, in mind. She says she doesn’t know whether people who play the lottery regularly are that concerned about where profits go, but “as people hear the story, there might be some who drop off. And then I would suggest they donate directly to the schools.”

Roger Eddy would probably agree with that sentiment. In addition to being a former state representative, Eddy is the current Executive Director of the Illinois Association of School Boards.

“I think everyone gets frustrated when something that was supposed to increase funding for education didn’t turn out to really do it in the manner everyone perceived it would,” he says.

He hopes the General Assembly will somehow expand what’s heading into the General Fund. If that happens going forward, he says, there’d be more money available for education.

“We need to rely on sustainable and reliable sources of revenue to fund our schools, and not play these shell games,” he says.

More about our questioner

Gail Tate grew up in Chicago’s Englewood neighborhood, but she’s lived in the western suburb of Naperville since 1971. She spent 28 years working at AT&T Bell Laboratories, first in the mail room and later as an engineer and director. She also worked at the University of Illinois, Champaign, and Argonne National Laboratories.

Gail says she doesn’t play the lottery, but some of her cousins and in-laws do.

“I’ll educate them,” she says. “I’ll ask, [do] they have the same perception I did? And if they did, then I’ll give them the facts.”

Miles Bryan is WBEZ’s Midday News Producer. Follow him @miles_bryan

Schools are really crimped for cash. Hold up, wasn’t the lottery supposed to help with that?