The Texas Lottery and billions in school funding in limbo as deadline nears at Capitol

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State Sen. Bob Hall laid out a bill in a Senate State Affairs Committee hearing on Monday with one purpose: ending the Texas Lottery.

In a lengthy speech, the Edgewood Republican summarized all the problems at the Texas Lottery Commission that culminated in the agency allowing ticket sales he called illegal to occur. The only solution, Hall said, would be to abolish the game entirely.

“It’s definitely the nuclear option, but what you have described is incredibly disturbing,” Sen. Angela Paxton, R-McKinney, said to Hall during the hearing.

With less than 30 days left in the session, lawmakers must pass legislation to either continue or end the lottery. At stake is $2 billion in public school funding and millions of dollars to veterans’ programs it provides yearly.

Passing Senate Bill 1988 is not the only way the lottery could ultimately be abolished. Lawmakers must act on two key pieces of legislation to keep the lottery going past Sept. 1. First, lawmakers must return the lottery commission’s funding in the next biennial state budget proposal after a House amendment removed it entirely. Second, the Legislature must pass one of two “sunset” bills in each chamber. The lottery commission is under review by the Texas Sunset Advisory Commission, a legislative body that reviews state agencies every 12 years. The agency automatically closes if lawmakers do not renew it.

Neither of the two sunset bills — House Bill 1505 and Senate Bill 2402 — have been heard by their assigned committees. SB 1988 was also left pending in committee.

Much of the criticism of the Texas Lottery from Hall and others can be traced to lottery couriers, services that sell lottery tickets online. Couriers allow customers to play the lottery digitally by printing physical tickets at a licensed retail store their company owns and sending scanned photos of tickets to customers.

Hall and others have said rules the lottery commission approved over the years allowed couriers to operate in Texas contrary to state law and enabled illegal sales, including to minors and out-of-state customers.

“If the lottery commission were to adopt an official motto today, it would have to include unique words like lie, cheat, steal, mislead and cover-up,” Hall said during the hearing on SB 1988. “This bill is intended to send a strong message to not just the lottery commission, but to all state agencies that have assumed authority not given to them by the Legislature.”

A $2 billion gamble

While most of the lottery’s revenue goes to prize payouts, a little under 24% of the lottery’s $8 billion in annual sales goes to Texas public schools, according to the lottery commission. That funding supplants, but does not supplement, schools’ budget, said Chandra Villanueva, director of policy and advocacy for progressive nonprofit Every Texan.

The state budget for schools comes from several different funds, including the lottery. That means the game’s abolition would not immediately decrease actual money schools receive, but it would create a gap in the state’s budget.

“If we got rid of the lottery, it wouldn't impact schools at all, just like how if we go out and buy a bunch of lottery tickets today, it wouldn't create more funding for schools,” Villanueva said. “It's formula driven, and the state would just have to make it up through general revenue.”

A committee made up of members of the House and Senate will meet to hash out the final details of the budget. If the lottery is not going to provide the $2 billion, the committee must make up the shortfall. The harm to schools might still come, Villanueva said, depending on where lawmakers choose to pull the money from.

House Bill 2, a school funding increase that passed out of the House in April, seeks to add $8 billion to public education by giving raises to teachers, increasing school districts’ money per student and more. The House bill is awaiting Senate action, and Villanueva said some of the proposals in the bill could get cut to make up for a potential absence of lottery money.

“Unfortunately, because they've been so hesitant around funding public education, it would probably come out of any dollars that are set aside for formula increases that we're seeing in HB 2,” Villanueva said.

For Hall, the price of removing the corruption of the lottery commission is worth the trouble of finding money elsewhere in the budget to cover the losses.

“We keep billions of dollars around here like you or I would spend nickels and dimes, so it's not that significant,” Hall said.

That $2 billion to schools, while valuable, represents only a small fraction of public education funding in the state — about three days’ worth of education, Hall said. Although opponents of the lottery like Lt. Gov. Dan Patrick have been vocal, supporters have been less forthcoming. Hall said he’s heard from some fellow legislators who are concerned about the funding gaps, but not vehemently so.

“I don't find anybody anxious to defend the lottery and jump up for it,” Hall said in a recent interview with The Texas Tribune.

Supporters of the lottery’s continuation, like Rep. Josey Garcia, said ongoing support for the game won’t come without scrutiny. The San Antonio representative was one of a few Democrats in the House with amendments to the budget that would have pulled money away from the lottery to other programs, but said she values what the game offers Texans.

“If we know that there's potential mishandling, then there needs to be a full review and you need to rehire, because that one thing that we can't accept from our government is the mishandling of any resources,” Garcia said.

Despite her initial eyeing of the lottery’s funding for other purposes, Garcia said she still believes the game can be an honest source of revenue for the state.The lottery also provides roughly $26 million a year to the Texas Veterans Commission Fund for Veterans' Assistance, which provides grants for veteran services. Garcia, who is a veteran, said the programs the lottery supports for veterans deserves the same level of care she had while serving.

Almost all of the lottery commission’s funding comes from ticket revenue, which is stored in a separate account. If the sunset bills are not passed, the funds in the account — roughly $430 million, according to the Texas Comptroller’s office — would be placed back in the state’s general revenue in 2026.

“I was a logistician, and we had to account for our budget to the penny, and I just can't imagine that we wouldn't do the same for these programs,” Garcia said.

Standoff on courier regulations

Two major jackpot wins are at the heart of concerns involving couriers and lawmakers’ scrutiny of the services’ unclear ability to operate under state law. In April 2023, a $95 million jackpot was won after four retailers, some of whom were partnered with couriers, printed 99% of the 25.8 million possible ticket combinations. Those orders weren’t taken over the phone, but ticket-printing terminals were requested from the lottery commission by a lottery courier, Lottery.com, to complete the “bulk purchase.”

Another $83.5 million jackpot was won by an anonymous woman who bought the winning ticket in February on an app operated by the courier Jackpocket. Currently, state law prohibits selling lottery tickets by “telephone,” which some lawmakers, including Hall and Patrick, have said should apply to couriers’ website and app sales., Courier executives have said the law only applies to phone call orders.

Both of those jackpots have prompted state investigations from Attorney General Ken Paxton’s office and the Texas Rangers, a division of the Department of Public Safety.

Couriers have operated in the state for years as lottery commission officials claimed they could not regulate the services. That changed in February, when the lottery commission abruptly announced in late April it would ban couriers from operating.

One courier, Lotto.com, sued the commission over the rule and was granted a temporary restraining order by a Travis County district judge on Friday. In granting the restraining order, which allows Lotto.com to continue operating in Texas, the judge wrote there was “substantial likelihood” that Lotto.com’s claims would prevail in the suit.

Patrick named banning couriers from operating as one of his legislative priorities, and a bill being heard in the House on Tuesday seeks to go further than the lottery commission’s restrictions. Senate Bill 28, authored by Hall, would explicitly block online sales and criminalize lottery couriers, creating a misdemeanor for purchasing and selling the tickets online.

Another bill being heard during the same hearing does just the opposite: House Bill 3201 would allow lottery couriers to be licensed by the state to sell tickets online, but only after going through background checks and creating guardrails to prevent illegal purchases. Authored by Rep. John Bucy III, D-Austin, the bill also would require that couriers submit to yearly financial audits reviewing their sales.

In a statement to the Tribune after the lottery commission passed its courier ban, Bucy said the agency is overstepping by choosing to ban the services while legislators are discussing how they want to act on couriers.

“It’s outrageous that the Texas Lottery Commission — an unelected body — would take sweeping action like this in the middle of the legislative session, especially after claiming for years they had no authority to regulate these services,” Bucy said.

Disclosure: Every Texan and Texas Veterans Commission have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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