ALC-Lottery Oversight Subcommittee

We're going to call this meeting to order. So I'd like to go ahead and call up, um, Sharon Strong, and I'd like to recognize her. She is the new executive director of the Office of Arkansas Lottery. So please welcome her and, uh, if you could introduce yourself, we can get started. Can you hear me? OK, thank you. Chair McLendon, my name is Sharon Strong, and I'm the new executive director of the Arkansas Scholarship Lottery. Um, I want to thank you for having us here to report on the state of OAL. I started in this role on July 8, 2024. So I've been here about 2.5 months. Prior to that, I was a senior assistant attorney general, um, in the Medicaid fraud control unit. In the roughly 2.5 months that I've been with the lottery, I have spent considerable amount of time listening and learning about the lottery industry as a whole, as well as my individual employees, what they do, um, what. teams do to advance the mission of the lottery. And I am happy to report that the lottery is an agency of capable, hardworking, and responsible individuals who really do good work for our state and our communities. The long track record of the success that the lottery has experienced over the last several years can really be attributed to its people. There have been 2 significant personnel changes recently. We have a new director of marketing, Karen Reynolds. And we have a new director of investigation and enforcement, Blake Hudson. Ms. Reynolds joins us from the Department of Agriculture, and Mr. Hudson joins us from the office of the Attorney General. So, before I get into the numbers, um, I'd like to briefly report on some of the internal agency efforts that are being made over at the lottery? I have made some changes organizationally to further the effectiveness of our licensing division, moving it under the legal department. I have also modified some of the roles within the agency, both functionally and physically where they are located within our space. We have implemented several new internal changes to improve communication and efficiency between our departments. I have met with leaders of the Department of Finance and Administration regarding an initiative to automate our licensing and have collaborated with regulatory officials at ABC, ATC, and marijuana to hopefully combine our efforts to this end and improve the customer experience that we have with our retailers. We've had a renewed focus on outreach. I have been interviewed, um, on a television station out of the Northwest Arkansas market and I am scheduled for additional radio and media interviews in the future. Um, we have had a presence at an ASU football game, a UCA football game. We've got one scheduled to be in Fayetteville in the future. We, um, and we will have a large presence at the Food Truck Festival this weekend, where we will be selling lottery tickets. I have attended a national lottery conference that was last week in Kansas City and have now established contacts with my counterparts in other states. And I'm linking my new executive team members, uh, with their counterparts in other states so that we can learn about best practices, trends, and issues in the lottery industry. So I'm going to direct your attention now to the PowerPoint exhibit A, or I think it's exhibit B actually. This first slide is a year over year comparison. And you'll see that our sales are down slightly. This is a nationwide trend that every lottery is experiencing currently. Uh, and this is because the multi-state games that we participate in Powerball and Mega Millions, had, uh, gigantic jackpots last year, which drives up sales of the lottery tickets. And this year our jackpot numbers haven't been as high. Um, despite this, our net proceeds are still up by 23.2%. Instant sales for the month of August were 39.8 million, which was 2.1 million less than fiscal year 2023, but was $300,000 better than budget. Online sales were 2. I'm sorry, 10.6 million, which was 3.6 million less than 2023. Um, like I said, 2023 had a $1 billion plus mega jackpot, but this was still $2.3 million better than budget. Our marketing and general administrative costs were $100,000 under budget. And this is not reflected here, but as of last week, our sales are up by 4% as compared to this time last year. And just this week we have had 2 $100 winners, one from Springdale and one from Hot Springs Village. We've had 1 $500,000 winner and won $100,000 winner. So if you ever thought that nobody wins the lottery. This week was, uh, evidence to the contrary. Um, I'm gonna, these numbers on the next couple of pages are Basically all the same numbers just sort of, uh, Analyzed a little bit differently. And this page shows that we transferred. $65.7 million to the Arkansas Department of Higher Education in fiscal year 2024. And then they refunded us $4.7 million in unused scholarship funds. Our reserve balance is 2.5 million. Uh, this page shows the, our debt set off and our income taxes and the amount of money that we send to, um, child support enforcement. If you're interested in the retail sales by county, that's what these two pages show. I And the 4 games that we have, that we released, um, on August twenty-seventh or a $1 a $3 a $5 and a $10. No ending dates have been determined yet for this game. Are there any questions? Members, do you have any questions? Representative Ray, you're recognized. Thank you, Madam Chair. Appreciate your report and congratulations on your new role. Um, I guess I, I'm, this is not directly about your report, but I have a few questions, um. One Um, Other than what was in the newspaper. I'm curious if you can tell us anything about the circumstances regarding the previous director and his departure from the office. Um, is there a specific concern or question that you had? I don't, I don't know much other than, um, What was in the paper and what I've been told that he, his departure was not requested by Secretary Hudson or the governor. OK, fair enough, um. Were there, weren't there some other Significant staff departures around the same time. Uh, can you tell me what positions those were? So the director of marketing and the director of security, um, both resigned around that same time. OK. Were those connected in, in any way? My understanding is no. OK. I guess That leads me to my next question, which would be, and I know, how long have you been in, in this new role? About 2.5 months since July 8th. So I'm, I'm curious given that it's, it's not a huge office and there were several. You know, important position departures within a short amount of time. I mean, in the 2 months that you've been there, and what is your What is I know you, you complimented the people who worked there, but what, what is your read on the office culture given there were a lot of these departures in a short amount of time. Do you have any concerns about the culture that you? Walked into in this department or this office at this time I do not have any concerns, um, the, the team that continued their business operations. Uh, Mike Smith, Jerry Fetzer, who's our CFO and others, um, really, kept the wheels on the bus and, and maintained, um, operations very well during that time. Um, I, and I also have received positive feedback on the current morale of the office and some of those, some of those, um, things that I mentioned about sort of streamlining and, um, making some changes to regarding communication and efficiencies of our office, I think have been well received. OK. Um, The position that you, that was recently filled, you mentioned one of them was. Director of investigations and enforcement. What, what does that position do? So, um, we've changed the, we're thinking about, I think we're going to change the title of security. So it was the previous security director. But I think what is more applicable and, and explains what that department does would be more, um, appropriately named investigation and enforcement. So what that department does is, If there is a loss, uh, a theft of tickets or, um, a retailer loss, they would investigate those tickets. They would, um, create a case file and then forward that, um, potential. Um, crime to the prosecuting attorney. To, to then handle appropriately. There are also, um, internal security measures because we sell both the Powerball and the Mega Millions games, um, where members of what's called muscle, which is our like a national association, um, which has its own security rules. And so that department ensures that those rules are Maintained and abided by internally as well as externally, um, the last thing I wanted to ask you about, um, you may have followed sort of these. Dueling op-eds and all of this online chatter that is going on between the casinos right now over this notion of i gaming. One of the things that keeps getting mentioned would is the potential effect of i gaming on the lottery. Um, I know you're new in this position, but I still want to ask, has your office, uh, does your office have any thoughts on the impact on the lottery of any sort of potential i-gaming proposal, and if not, do you have plans in the future to assess that, um, and provide the legislature with that. Assessment OK. Can we, can we bifurcate the question and start answer it however you'd like. OK, so. As far as the, the dueling op-eds go and what's been in the paper, that's. Going to be determined by the racing and the Department of Finance and Administration. So the lottery doesn't really, It doesn't really affect or it doesn't really. We won't really have a say in that, I guess, is what I'm trying to say. I understand that, but one of the points that keeps getting brought out is. That if there is a raffle style, I game, that it would be similar in nature to some of the products and services that you offer. And so the question is what impact would that have on the services that you offer and the scholarships that derive from that. And I don't know that, I don't know the answer to that. I would imagine that. People only have a certain amount of discretionary income to spend on entertainment, whether that be the movies, casinos, lottery, what have you. Uh, I, I do have a concern that it might affect the lottery, but I don't have any data at this point to tell me what others, how that's happened and, and how that's played out in other states, but it's certainly something that will be watching. Yeah, that's fair. I would, I just think as this, I think it sounds like we're probably in the early phases of that discussion. And so that may be something that your office wants to take an in-depth look at. Um, If that discussion gains more traction since it Probably affects your office pretty directly. That that's all. Thank you, Madam Chair. Thank you, Senator Hickey, you're recognized for question. Thank you, Madam Chair. Uh, if you don't know this, I understand. I'm not gonna put you on the spot, but there's just something on, on the comparative income statement. I don't know if you've got it in front of you. Just August 23 and August 24. OK. And it's just, and if it and maybe it's a timing thing. It's just very odd to me like your interest income right there. It was literally $100 more in 24. Than it was for August of 23, which I mean, I, I know rates if, if it was treasury, it was probably Similar even with 23 and 24, not, not to that. Do you know why that's that way? So we have a very favorable, um, agreement with Banggo ZK and because the interest rates were high, we, um, we were able to, uh, benefit from that. So do you know in 23 did we have this basically in a. Um Do you, so you're telling me back in 23, we had this in I can't be non-interest bearing, but it was 250,000 as a paired to 10,250,000. Now it's just, it's an unbelievable amount to me considering we probably had the same, you know, same balances or whatever. So. So I'd have to check on the exact numbers to see what the interest rates were, you know, compared year over year. Yeah, I understand, but even like if we're treasuries and we're moving a point, it wouldn't, it wouldn't move that needle, I don't think. But if you could find that for me, I'd, I'd greatly appreciate that. Thank you, ma'am. Senator Hammer, you're recognized for a question? Thank you Madam Chair, uh, recently there was a chain store, uh, convenience store named Squirrel went out of business. Did, did the lottery experience any losses as a result of that, or do you know? I know that we have no no retailer losses, and I believe that's Not reflected in this PowerPoint, but in the report that we sent. Um, it reflects zero retailer losses, which I believe would have been reflective if there was. And I believe that we, had some relationship with squirrel, but that that's been resolved at this point. financial loss to the lottery system to my knowledge. OK, so. Any other And I, I don't have that other report from me. I'm sorry, but any other outstanding losses as far as with the convenience store see at one time, there were some issues going on predating you and as far as you So Um, as of August 2024, we have $0 in retailer loss. OK, good deal. Thank you. And I've got a copy of that report if you'd like it. Any other questions from the committee? Representative Pilkington, you're recognized for question. Thank you, Madam Chair. Um, as you know, that we've, we've kind of changed in the ways we're able to pay for lottery tickets. I know during one of my first sessions we started allowing debit cards to be used, um, There's been so much discussion during this election cycle around cryptocurrency? Is there any plans or any discussion about ever being able to use cryptocurrency to buy lottery tickets. The only way that you can pay for a lottery ticket is a debit card or cash. Credit cards are not used and there's no. Nothing being considered otherwise. Got you. Do you not think that that is a secure financial tool to make a transaction with? I don't have an opinion on that. That's fine. Thank you. I have a question. Um, so I applaud your efforts to look to other states and to find those best practices as we look across them, do you have a feel for how Arkansas stands up to other states in terms of the percent of our proceeds that go directly to benefit students versus to administrative costs versus to vendors? So, um, I just looked at Georgia the other day and I know that their Hope scholarship gives a little more, um, to the students in Arkansas. In terms of our, um, Cost per dollar. I know, I believe that, um, The, um, information is 92 cents of every dollar that we earn goes back to Arkansans. So whether that be in terms of prize money, um, retailer commissions, um, the scholarships that are awarded and our employees, we have approximately 70 employees that are non-appropriated. So all of our money that we earn, it's not taxpayer dollars, 92 cents on every dollar goes back to serve our communities and our state. So in that 92 cents, you're including your operating expenses then? So that 8 cents would basically be vendor costs, is that what you're saying? I don't know that to be sure. I don't know that to be sure. I can double check on, on that specifically, but that's kind of my understanding. OK, and then do you have a feel for how, what percent of students going to, um, higher ed, are utilizing the scholarships. So I've had that same question. My understanding is Anybody who really takes advantage of the application process, um, and fits within that criteria, is able, you know, gets the scholarship. There's never been a year where The lottery has not. Funded what the Department of Highered has asked us to fund. OK. OK, thank you. Any other questions? OK. All right, let's go ahead and So, um, You need a copy? I've got a copy, but I guess it's not on here for y'all to view. I don't think it's on the OK, so, um, Our fiscal year 2025, we're two months into our fiscal year 2025 budget. Um, This first page shows The comparisons between the last two years and the fiscal year 2025. It's, uh, it's, it's fairly close. It's slightly. Um, it's just up slightly. And I'm happy to answer questions. I've also got my treasurer here, Brandy Ratcliffe, that I can defer to, um, if there's anything specific that I'm not sure about. OK, are there, um, any questions on the budget, members? Seeing new questions? Let's go ahead and move to item D, please. So I Uh, Nicko, yes. Thank you, Ms. Strong. Thank you. Nick Fuller, Assistant commissioner for the Division of Higher Education. Thank you. The exhibits for item D that we have for you are presentation of data related to the academic challenge and workforce challenge scholarships. These are required by code as part of the lottery that we report this information to you each year. Exhibit D1 is the Breakdown of the various demographics of students that received the academic Challenge for fiscal 24. You see there's a total of 26,117 students that received the scholarship. And $75 million that was paid out in scholarship awards. Now this is the, the preliminary data, there are students that have until October 1st to be able to submit. For that they were put on probationary status. They didn't meet the number of hours and things, so we won't know the full number of students until after October 1st, and then I'll bring you a, a post-October report later in the year. Which you will see, I believe, item. D3 in the packet is last year's post-October report. For fiscal 23. Not to jump around in the packet, but that, that is what it will look like and has more of a breakdown on the eve the five-year history of awards and dollar amount given, and then the breakdown between traditional academic challenge, non-traditional, and The various numbers of students in those various categories. It's for item D2, that is the fiscal 24 report on the workforce challenge that is the $800 per Program that we award for workforce programs. You see there was quite a bit of a jump in the awards and that from a fiscal 23. You know, Open to any questions you may have on these, these 1st 3 items. Members, do you have any questions? Mr. Fuller. Do you have a gender and ethnicity breakdown for the scholarships, those charts, that's what those are, a breakdown between gender and ethnicity for, for each of those. And then broken down by the ones that completed and dropped and are still eligible. Representative Ray, you're recognized. Thank you, Madam Chair. Um, Basically the same question I had for Director Strong, you know, all this talk about, um, i gaming and online raffles has the department given any thought to what impact that might have on the lottery and if so, Is, are you able to quantify that? What can you share? We have not looked, looked at that currently, you know, we're, we're still looking at The current balances we have of those lottery revenues of how we can get more students to utilize the program we have now without looking forward into, to what the revenues might, might be in the future, we you know we're, we're still sitting on quite a collection of balance we haven't been able to award to students that we're working to figure out how we can get in the pockets of those students. Say that again. You know, at, at the current award levels we're giving out every possible award that we can to eligible students that apply. And we're looking at, we've awarded around $75 million each year in the past few years, is well under what we've done in the past and well under collections of lottery each year, so there's a balance that has been growing. So we're we're trying to find ways to market more of those students get more of them to apply so we can get the dollars to the students get on campus. Is that because there's, is that because there's fewer students or than in previous years or what's the reason there has been over the past few years, especially since COVID. In the years prior to that we were over 30 33,000 students we're awarding and we're looking at, you know, 260, 27,000 a year now. That might be helpful to see like in a line graph year by year if y'all, if you'll have that information, that'd be interesting. OK, thank you. Senator Hammer, you're recognized for question. Thank you. Thank you, Madam Chair. I'm sorry, are we on exhibit C which one are we on? We're on 12, and 3. I'd like to back up to see when the chair would allow whenever you get done with this stuff, ask a question, please. Can you clarify for me when it talks about the students that are dropped, are they dropping out of the program or were they disqualified from the program. they're more than likely they're either disqualified because they didn't make the number of hours or GPA or they've dropped out of school or have not completed, you know, had 0 hours, so they were dropped from the program. Is there any obligation to have that money repaid? If they drop. No, ma'am. No, we, I will say we do have a requirement if the students enrolled in 0 hours in the first semester, they're not awarded the second semester of that year. So that does kind of mitigate some of those losses. OK. Senator Hammer, do you have a question on, for Mr. Fuller? OK, great. Go ahead following up on that, the. I'm sorry, where is it in the report because I was looking at something else. Whereas in the report as far as the amount that we lost by, you know, because we gave them those scholarships and then they dropped at first. I know that bill that was passed was kind of a safety net, but it was like. The, the, the next semester after the fact, the best we could do at the time. I, I, I don't have that breakout for those individuals. I don't have that in, in this report, but I, I should be able to pull that fairly easy from the system, the new system we have now. I know when we had that you had that question a few years ago. It was a little more difficult for me to pull, but with our new scholarship system. I should be able to get that fairly easy for you. OK. So, Madam Chair, I'd like to request you send that to the staff and send that out to all the members, please, and, and then are you able to identify. And make sure we're on the same page that number that is a result of that legislation. he did. Is that on this one? OK, sorry. There you go. Can you get that number 2, or is that in this report, I should be able to get that based based on, you know, what level they were when they were enrolled and awarded. How much we save from them not having the second semester. All right, thank you, Madam Chair, I'll get back in the queue for C. Thank you. Thank you, Representative Painter, did you have a question for Mr. Fuller? You're recognized loss of students like 32,000 to 26,000, is that mostly traditional students? For the most part, yes. Are, are we seeing with kind of the economy that's coming, you know, that we kind of have right now, are we seeing any increase in like non-traditional students applying or I, I don't know that we've seen a trend of an increase in them, but we have not seen as much of a drop in that in those non-traditional. Thank you, Madam Chair. Representative Pilkington, you're recognized for question. Thank you, Madam Chair. Um, I'm sure you have this information, but I didn't see it here. Can we get a breakdown of all the institutions of higher ed, how many scholarships are currently going to those institutions and just have a breakdown across the state. I'd be really curious to see, uh, see that number. Thank you. Yes, yes, I, I have a chart I can send for the breakdown for the institution and the awards by county. Fantastic. I would like both those sets of information. Thank you I'll get those sent to Brandon Senator Hickey recognize her question. Well, Senator Chesterfield's mic's not working, so she's gonna use my mind full disclosure though. I don't know if I agree with what she's gonna ask. Since we've now got these special Senator Chesterfield, yeah. Yeah, thank you, Mr. Chair and thank you, Senator Hickey. Madam Chair, thank you. Um, Nick, one of the things that I, I constantly talk about when I visit with you and and the commissioner is that. I We're not advertising. And these are still some of the best kept secrets in the state of Arkansas. There's no mandate for our counselors to make sure these kids know about the scholarships. There's no mandate for the colleges to make sure that they get those grades and the hours that the children take into the Department of Higher Ed and I think that that is one of those things that is a key reason. While more people are not taking advantage of it. And I know I've worked with you and the commissioner to try to get that information out and Madam Chair, until we start saying we've got stuff, people still don't know, even though this has been around for a while. And so I would ask that the committee continue to just push. For the information to get out because we have money for children. And they would have the opportunity then, and, and older children like myself want to go back to school, uh, would be able to get that money that is being put aside and pretty soon unused and maybe we start taking it back, which I think would be unfortunate. What your green egg. Yes ma'am, we are working on trying to get information to show those students, you know, how much is available for each of you. So it's not as daunting of a number that you have to go get these $30,040,000 of loans, we have state Resources that can help you get into college, you know, with little to no debt to get you out and they don't know that it's out there and so they think, you know, it's not an opportunity for them because they don't have the resources for it. And we are working on that. And some of them never heard of our futures, which will allow them to have 2 years of an education for virtually nothing and we need those kids to get that skill set that's available through these two-year programs. Uh, thank you, thank you, Madam Chair and thank you, Senator Hickey. Mr. Fuller, how are you marketing this information to schools so that seniors are and older people are able to figure out what scholarships are available. So we do have a few marketing campaigns that go through a lot of the social media applications and my, my communications director is not here, but she's the one that oversees that, but I think it was 3 or 4 years ago that you all added in a marketing budget for us to be able to start spending money on advertising these. So it's, it's been a steady increase, but it's been a slow process of getting it. Get the information out there. So we are working a lot of the, the digital media channels is more of the younger students are on the digital media rather than but you said you're still seeing 7000 less students taking advantage even with those programs in place. All right. Are there any other questions? Senator Hamer, do you have a question and the question, um, To that, I might, I'm on C which is back to budget. I think this is, is right. Is this we're still on the lottery commission's budget. OK, so let me ask this question for the amount of money you've got in your budget for advertising, are you using all your money that's in your budget for advertising and did you increase it or what was the reason for not increasing it so you could advertise more. We, we have not spent up to the, the full line item. We, we have $295,000 allocated each year appro appropriated in in our act. And I think we've gotten up to 250 is what we spent last year. So we're, we're pushing up to it, but I haven't got to the level. Of spending and that's not. That's not funded from lottery funds. That advertising is not, that comes from my general revenue allocation for scholarships is where I transfer that from. So it, it is not a lottery expense for the advertising. Should it be? Or would you care to answer that? That is not my determination. Thank you. Members, any other questions? Then let's move on to item E, please. Adam is going to be reports on the expenditures of the Ted office in relation to scholarships, E1. Going to be the general revenue and lottery deposits as well as the expenses for the Lottery trust account, the first item showing where we had the balance of $4.7 million that we returned to the Office of Lottery at the beginning of this year. As we we overestimated the amount of funds we were going to disperse out when we requested the transfer by that 4.7. The next page is the list of all of the scholarships that we currently administer to the higher education grants fund with the expenses from fiscal 24 as well as the budget for each program for 25. If you'll see the top one, the academic challenge only shows the $200 million. That's the $20 million of general revenue that's allocated each year to go to the the challenge scholarship. We are required to fund $20 million in general revenue before lottery proceeds are used. And, and then the the last page of exhibit E1 is the balance, the deposits of the $61 million and then $58 million expenditures of that higher ed grants fund. And that grants fund does include general revenues as well as educational excellence trust fund revenues is where those come from. OK. Any, um, anything driving the military dependent? Decreased by more than 50% not requested in preparation increase for that. It, it actually, we had been spending 1.4 prior to the 24 year and we added the ability for that to be used at private institutions. And so that's what drove the increase, and so you will be seeing a request come through your committee for additional appropriation this year as well. And then, and then changes in the legislative session being requested to be able to make sure we cover those. OK, thank you. Any other questions, members on item E1. Sing then. Let's move on to E2, please. E2 is the request for, well, this is the report to you all on the financial report for the administration of the academic Challenge lottery program. This is also the request that's in the, the lotteries report. We ask them for reimbursement for our administrative expenses. As you'll see that total $693,000 for fiscal 24, that is a reduction of Almost $500,000 from last year. Any questions on item E2? OK, seeing none, Mr. Fuller, thank you for your time. I appreciate it, Ms. Strong, would you come back up? And Senator Hammond, you are recognized. Coming up Oh, Would you introduce yourself for the record, please? I'm Brandy Ratcliffe. I'm the treasurer for the lottery. Thank you. Senator Hammer, uh, I'm going back to Senator Hickey's question about the interest rate. And it was in 22 to 23, it was 2.48 million then in 23 to 24 with 3 million and now you're projecting 9.7 million, correct? I was looking either at the budget sheet or on our handout. I'm, I'm picking it up on exhibit C on the back page. Yes, exhibit C the back page is where I spotted it. And it's not over on the budget sheet, but I picked it up on that last page. On the way enclosure two is more detailed. Your question 9.9.7. Yes, the interest rate you're projecting. To go from 3 million up to 9.7 million and it says increase based on interest rate negotiated with the Bank OCK. Is that correct? Yes, that's correct. So I had, I, I did get an answer on Senator Hickey's question about that. OK, if you don't mind, go ahead. In September, September 2nd of 2023 is when our contract with Bank OCK was amended. To Require that the interest rate was paid at the Federal funds target rate minus 1.25%. So that would account for that increase. And then we, um, negotiated. With them Which is how We derived that amount for our fiscal year 2025 budget. OK, so talk to me about the negotiations. Is that opened up to all banks or was this just the initiative of and that you've been on the job, how long? 2.5 months. So, um, so that, that all happened before I got here, but my understanding is that contract, I believe was in place for 3 years with 21-year extensions. And so that was, um, an extension uh. Just a renewal of that contract that had already been in place. So is that the first year extension or the 2 year extension so so we could go back for one more after this before you have to go back out and and shop it, right? OK. All right. Thank you. Thank you, Madam Chair. Thank you. Any other questions? All right. Thank you both for being here. Thank you all. I appreciate this opportunity and, um, look forward to working with you all. Thank you. All right, I think everything has been heard. We're not voting on anything today, so if there's no other business before the committee, we are adjourned.