South Carolina taxpayers increasingly are paying the tab for scholarships given to the state’s college students.
Those scholarships were sold to the public as being paid for by profits from the state’s lottery. However, the lottery never has paid the full cost of the scholarships, leaving taxpayers to make up the difference.
Taxpayers now are paying almost $80 million a year to cover the cost of the two most popular scholarships promised to S.C. students.
As the state faces challenges to spend more on K-12 education and road repair, that expense — which has doubled over the last decade — could come under increasing scrutiny.
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“We can’t continue just to fund everything,” said state Sen. Wes Hayes, R-York, who chairs a Senate budget panel that handles money for K-12 education.
A solution to the funding gap would not be popular.
Legislators could reduce the amount the college scholarships are worth or toughen the academic criteria high school students must meet to earn the lottery scholarships offered to college-bound students.
The scholarship that most students qualify for is the LIFE scholarship.
Currently, students must meet two of three criteria to qualify for a LIFE scholarship: Earn a cumulative 3.0 grade point average, make an 1,100 on the math and critical reading sections of the SAT or a 24 on the ACT, or rank in the top 30 percent of their graduating class.
Last year, the cost to the state for LIFE scholarships was $177.9 million. The lottery paid $118.2 million of that cost. Taxpayers picked up the $59.7 million difference, money that came from the state’s general fund. A decade ago, that difference was only $29 million.
The problem isn’t South Carolina’s immensely profitable lottery. The lottery’s operating profits, after paying prizes and expenses, have increased to $331 million from $278 million over that same decade, money that goes to the state to pay for college scholarships and some K-12 needs.
The problem is that more S.C. students are qualifying for the popular scholarships.
Reduce awards or toughen criteria?
Lawmakers could reduce the amount the lottery scholarships are worth, up to $5,000 for the LIFE scholarship and $6,700 for the more exclusive Palmetto Fellows scholarship, which increases to $7,500 for a student’s sophomore, junior and senior years. Extra money also is available if students major in math or science.
Lawmakers also could make it harder to earn a lottery scholarship, increasing the grade point average, SAT or class rank requirements, for instance.
The problem with either reducing the value of the scholarships or toughening the academic requirements is that a commitment has been made to S.C. families and students that, if they meet the criteria, they will receive a scholarship, Hayes said.
If changes are made to the scholarship amounts or requirements, they should be made over time to be fair, said Hayes, who said he has not decided what the solution should be.
But the state’s competing budget priorities could focus legislative attention on the scholarship shortfall when lawmakers begin their session in January.
Legislators will be wrestling with finding more money to address a K-12 school equity lawsuit and repair the state’s roads, Hayes said, adding that those needs will force lawmakers to prioritize where to spend general fund dollars.
Another commitment the general fund subsidizes is property tax relief given homeowners as part of Act 388. A penny sales tax, added to pay for that tax relief, never has raised enough to pay Act 388’s promises.
‘A voluntary tax’
The lottery-financed scholarships have fierce advocates.
Former Democratic Gov. Jim Hodges ran his 1998 campaign on the platform of an “education lottery.”
“Everybody was for greater investment in higher education, but nobody wanted to pay more taxes,” Hodges said. “I saw the lottery as a voluntary tax.”
The lottery has been a spectacular success in netting more money than expected, Hodges said. And lottery scholarships have helped motivate more of the state’s best students to choose in-state schools. The scholarships also help pay for a majority of a student’s costs at two-year institutions, he said.
Hodges acknowledged there are competing interests in the state budget, including infrastructure and K-12 education. But, he added, higher education offers the best immediate payback.
S.C. residents with a college education earn more money, which generates more tax revenue for the state, he said.
Sen. John Courson, R-Richland, who chairs the Senate’s Education Committee and a budget panel that focuses on higher education, said he supports using general fund revenue to pay for scholarships.
The scholarships help retain South Carolina’s best and brightest students in the Palmetto State, Courson said.
Hoping to get lucky
There is a third option, beyond cutting scholarship amounts or making scholarships more difficult to earn.
The lottery could increase its profits.
The S.C. Education Lottery plans to launch a new game in January called Lucky for Life, said lottery executive director Paula Harper Bethea. The top prize in that game would be $1,000 a day for the rest of the winner’s life.
Bethea said she is hopeful Lucky for Life will add incrementally to the lottery’s profits. But that game only will be halfway through its first year when the state’s current fiscal year ends in June, so first-year revenues could be low.
“We’re about our players having a winning experience and transferring money to improve education in South Carolina,” she said.