Kentucky lawmakers diverted more than $100 million in lottery proceeds away from state financial aid programs for college students since 2009, and might take an additional $76 million over the next two years.
That's despite the fact that the General Assembly in 1998 decided that 100 percent of lottery proceeds would go to education, with most of the money aimed at helping students pay for college.
The legislature's decision to spend the money on other priorities further hurts an already fragile and inadequate financial aid system, according to some higher education experts. It's part of why the state denied need-based aid to 86,000 qualified students in 2013.
"That's a good number of students who don't get the award because we don't get the money," said Carl Rollins, executive director of the Kentucky Higher Education Assistance Authority. "It does certainly affect the students who have the most need — they don't get the full funding they should."
Students start applying for aid after Jan. 1, and the money usually runs out by February. The shortfall affects community college students the most, since they often decide to go to school later in the year.
A report released Tuesday from the Kentucky Center for Economic Policy goes further in its criticism of Kentucky's student aid program. In addition to an overall lack of funding, the report concluded that too much of what the state spends goes to those who need it least.
In 2013, at least 46 percent of merit aid went to students from families that make more than $75,000 a year, the report found.
"It's our opinion that it's time for Kentucky to talk about comprehensive state financial aid reform given that tuition has gone up at least 200 percent since 1998 but financial aid programs haven't really changed over that time," said Jason Bailey, director of KCEP.
Overall, the average Kentucky student's debt spiked 40 percent from 2008 to 2012, from $15,951 to $22,384, according to state higher education officials.
Financial struggles appear to be having a major impact on the graduation rates of low-income students, particularly adult students. According to information from the Council on Postsecondary Education, the bachelor degree graduation rate for low-income Kentuckians fell to 34.5 percent in 2012 from 46.2 in 2009.
Council President Robert King said his agency has long been concerned about inadequate financial aid because of the threefold problems it causes: more pressure on universities to raise institutional aid, more debt for students, and some students becoming so discouraged they might not to college at all.
"There is no question that the needs of the state and particularly of our lowest income citizens have outstripped the resources that are being made available," King said.
Suzanne Tasayco is student government president at Gateway Community and Technical College in Northern Kentucky. She said it seems particularly unfair that the need-based aid is first come, first served.
"It is an issue, and we should have more funding," she said. "If you qualify for the aid, it should be equal."
The Kentucky Higher Education Assistance Authority provides three main sources of financial aid:
■ The College Assistance Program (CAP) helps low-income students;
■ The Kentucky Tuition Grant (KTG) program helps pay for private colleges;
■ The Kentucky Educational Excellence Scholarship is a merit-based grant in which students earn monetary awards for their grades and test scores during high school.
According to state law, need-based aid is supposed to get 55 percent of lottery revenue. In 2014, it received 47 percent.
The legislature always fully funds KEES because those grants have been promised to families, Rollins said.
It's a popular program that in 2013 gave about $102 million to 68,661 students. However, $20 million of that amount went to students whose families made $100,000 or more in 2013, according to the KCEP report.
"In a time of higher college costs and increasing inequality, the state should put greater focus on those less able to pay for college through making reforms that prioritize need-based aid," Bailey said. "We should do that at the same time we are more adequately funding the higher education institutions themselves to keep costs down."
Rollins said it's not surprising that a large chunk of aid goes to students from high-income families, since grades and test scores are so highly correlated with family income. But the largest number of awards goes to low-income families, he said.
"I think if you look back over the last 12 years at the growth in college enrollment, particularly at the community college level, I think KEES deserves a great deal of credit for that growth," Rollins said.
Right now, KEES is fully funded at about $102 million a year, and is projected to be funded over the next two years at about $109 million and $113 million.
In contrast, the CAP fund for low-income students requested $83.6 million in fiscal year 2015, but Gov. Steve Beshear's proposed budget recommends just $59 million.
The KCEP report recommends fully funding CAP, partly through giving it all the money that lawmakers divert to the General Fund each year.
It's unlikely lawmakers will follow that recommendation until the state finds new sources of revenue, said House budget committee Chairman Rick Rand, D-Bedford.
He said there's no debate over moving the money, which is desperately needed in the General Fund, which pays for most state government programs.
"It's not something I like to do, but we're at a point where we almost have to do it," said Rand, pointing out that the largest portion of General Fund dollars already goes to K-12 and higher education. "If not, we'd be taking more out of higher education."
Beshear's budget recommends restoring $284 million to K-12 after five years of flat funding, but state universities would see 2.5 percent cuts to their operating budgets.
Beshear's budget also recommends diverting a larger chunk of lottery proceeds to the General Fund — $33.7 million in FY 2015 and $42.7 million in FY 2016.
The lottery's overall revenues are expected to go up in the next two years, from $233 million in 2014 to $258 million in 2016. Howard Kline, chief financial officer of the Kentucky Lottery Corporation, said the expected increase is due to the introduction of Keno, which started last fall.
Linda Blackford: (859) 231-1359 Twitter: @lbblackfordLinda Blackford: (859) 231-1359. Twitter: @lbblackford