- Associated Press - Saturday, April 19, 2014

LITTLE ROCK, Ark. (AP) - The director of the Arkansas Department of Higher Education says the agency has been forced to temporarily tap some of its $20 million lottery reserve fund to cover its Academic Challenge scholarship obligations.

Director Shane Broadway warned the Legislature’s lottery oversight committee that the department could temporarily run out of funds to pay its scholarship obligations within three years under what he calls his worst-case scenario.

The department has spent nearly $113 million on lottery-financed Arkansas Academic Challenge scholarships in the fiscal year that ends June 30, a $20 million dip from the previous year, after the Legislature cut scholarships for some future recipients, the Arkansas Democrat-Gazette reported Saturday (http://bit.ly/1mm45LU ). The department handed out $59 million in scholarships in the fall semester and $54 million in the spring semester.

Broadway said that, for the first time, the department tapped some of its reserve fund in February to cover its obligations. The Legislature created the $20 million reserve fund in 2009 so the department would be able to cover its scholarship obligations if there are short-term shortages, Broadway said.

“To finish out paying for this spring’s semester, we had to request $12 million on Feb. 21 from the reserve fund,” he said. “That’s the first time that we had to use the reserve fund to pay for any of our semesters so far.”

The reserve fund has since been replenished and there is now about $1.3 million in the scholarship fund balance, “so we are starting to collect back to get prepared for the fall (semester scholarship payments),” Broadway said.

More than 30,000 college students a year have received these scholarships during the past four years.

The 2013 Legislature overhauled the scholarship program after the lottery’s net proceeds fell short of initial projections. Officials also underestimated the number of scholarships that would be awarded.

The lottery began selling tickets Sept. 28, 2009. Then-lottery Director Ernie Passailaigue advised lawmakers to expect the lottery to produce about $100 million a year for college scholarships. It raised $82.7 million for scholarships the first year; $94.2 million in fiscal 2011; $97.5 million in fiscal 2012; and $90 million in fiscal 2013. It has raised $59.9 million during the first nine months of fiscal 2014.

So far, the department has awarded about 8,400 Academic Challenge Scholarships to this spring’s high school graduates for the fall semester, Broadway said. The department is waiting for more information, such as ACT scores, for about 8,000 additional high school graduates to determine their eligibility, he said.

Lottery scholars also must have at least a 2.5 grade point average or score at least a 19 on the ACT college admissions exam or an equivalent score on a comparable college entrance exam. The application deadline is June 1.

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Information from: Arkansas Democrat-Gazette, http://www.arkansasonline.com