Jimmy Naife

NASHVILLE — House and Senate efforts to resolve a yearlong standoff on how to spend some Tennessee Education Lottery funds are running into new problems as a result of lower-than-expected lottery growth, top lawmakers said.

“Apparently, instead of getting closer together, there are certain areas where we’re getting further apart,” Lt. Gov. Ron Ramsey, R-Blountville, the Senate speaker, said last week.

The lieutenant governor and House Speaker Jimmy Naifeh, D-Covington, said they hope they can resolve the dispute before legislation comes to the floor. Last year, differences resulted in a legislative train wreck that blocked many lottery-funded scholarship improvements.

Lawmakers have been arguing about how to expand lottery-funded college scholarship programs as well as the separate but related issue of what to do with an estimated $410 million in lottery surpluses that have built up since 2004.

Prior to the latest lottery projections, some consensus had appeared to be building between Senate Republicans, who control key Senate committees, and House majority Democrats regarding the use of recurring lottery growth to lower the grade-point average required to retain a lottery-funded scholarship.

Proposals call for lowering the retention GPA from the current 3.0 to 2.75. The move, a key sticking point last year, would cost an estimated $17. 5 million.

This year, lawmakers thought they would see $17 million to $27 million in recurring lottery growth. While Senate Republicans wanted to phase in the lower GPA retention standard and Democrats wanted it implemented immediately, the dispute over whether to lower the retention standard at all had been resolved.

But lower-than-expected growth effectively means there will be only about $9 million or so in recurring funds, Rep. Naifeh said.

So now, House Democrats want to put about $360 million of lottery surpluses into an “endowment.” The interest generated would be used to pay for expansions of the existing lottery-funded scholarship program. The remaining $50 million would be retained in a reserve required by law.

“We have talked to the comptroller and the treasurer about the possibility of it,” Rep. Naifeh said, noting the endowment could generate $16 million to $18 million a year.

Adding that kind of money to the $9 million could generate as much as $27 million, Rep. Naifeh said. After using the $17 million to lower the lottery retention GPA to 2.75 “that would give $10 million (extra), we could determined what we needed to do with,” Rep. Naifeh said.

But House Democrats’ proposal is aggravating ongoing disputes on what to do with the surplus. Senate Republicans and their House GOP counterparts insist $100 million to $150 million in lottery surpluses be distributed among the state’s 136 school districts for K-12 building projects.

“I think the state Senate feels strongly we need to give some money to K-12 capital projects,” Lt. Gov. Ramsey said, noting the Tennessee Constitution permits “excess” lottery proceeds to be used for K-12 capital outlay.

The House plan, Lt. Gov. Ramsey said, would take K-12 capital construction “off the table forever, and I’d hope we could reach a compromise there.”

But Rep. Naifeh argued, “There’s a lot of members of the House that think and feel that would just be throwing that money away and we’d never see it again. It’d be gone.”

The House Democratic proposal also may be somewhat at odds with Democratic Gov. Phil Bredesen’s own idea.

Gov. Bredesen has called for creating a $200 million endowment and using the interest to fund an expansion of needs-based scholarships for poorer students. It would generate about $9 million, the administration estimates.

Gov. Bredesen’s proposal is being sponsored by Sen. Andy Berke, D-Chattanooga.

Sen. Berke said while some lottery money already is used for needs-based scholarships, “what we can do by turning that into an endowment is increase the return that we get and thereby add more people to the list of individuals who get need-based opportunities to go to school.”

The senator said, “My hope is that we’re going to continue forward and pass this bill in the Senate.”

Asked what would happen absent an agreement with the Senate, Rep. Naifeh said, “I don’t think nothing will pass. I think we’ll get something passed.”

Both he and Lt. Gov. Ramsey said they hope to get leaders together this week to forge some type of agreement.