I heard a very informative presentation this morning by Jason Sabo on the likely impact of state budget cuts on our local community and the nonprofit sector, at large. (On a side note, I think I would love his job — he takes a complex, fear-ridden topic like the state budget and breaks it down into easily understandable chunks.) After his talk, I had several ideas and questions floating around my head, so I did some cursory research and crunched a few numbers.

 

I remembered that the Texas Lottery is supposed to support education, but I wasn’t sure how or to what extent. I discovered that in 2010, the Texas Lottery Commission contributed approximately $1 billion to the Foundation School Fund, which just so happens to be one of the big-ticket items that Mr. Sabo mentioned is on the state’s chopping block. That $1 billion represents 27% of lottery revenues, after 62% went to prizes paid and some smaller percentages to retail commissions and administration. (I was pleasantly surprised to see that administration (read: overhead) was only 5%. I don’t see any way to increase the percentage devoted to education except to decrease the percentage of prizes paid (by making the lottery even more statistically unattainable), which would be counter-productive because of the public backlash that would ensue.

 

I also discovered that the Foundation School Program has an endowed fund called the Permanent School Fund. As a development professional, this piqued my interest, so I investigated further. The Texas Education Agency (TEA) reported that the fund grew to $25 billion (market value) in 2010. That’s $25,000,000,000 in nice, round numbers.

 

What struck me as particularly interesting was the amount that the fund is releasing. Bear with me in the weeds here for a bit …

 

Most endowed funds with which I am familiar (private foundation funds, endowed university funds, etc.) typically allocate approximately 5% annually. The percentage is often based on a rolling calculation over a few years’ period of time to compensate for spikes and dips in the market, but 5% is a good benchmark for comparison purposes. For example, if you establish an endowed scholarship with a gift of $100,000, you can reasonably expect that your gift will generate somewhere in the ballpark of $5,000/year. The beauty of an endowed fund, of course, is that it lasts into perpetuity–only the earnings are spent, not the principal (“corpus”).

 

So, back to the Permanent School Fund. The fund plans to release $1.9 billion during the 2012-2013 biennium, which is a two-year period. According to my calculations, that represents only 3.8% of the fund value. A 5% disbursement would be closer to $1.25 billion each year, or, say, $2.5 billion in the biennium. That’s a difference of $600 million.

 

In the grand scheme of a $16 BILLION state budget shortfall still remaining (after the Rainy Day Fund is tapped, payments deferred to the next fiscal year, etc.), $600 million may not seem like much, but it’s a step. If we can find ways to cull a few hundred million from elsewhere in the budget, then it does add up.

 

I will leave you with one of my favorite quotes from Mr. Sabo’s presentation: “Good politics always trumps good policy.” I’ve got to find a way to work that into one of my fiscal administration papers. 😉