funding the arts and culture through dedicated state lotteries—part ii: opening the way for...

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Funding the arts and culture through dedicated state lotteries—Part II: Opening the way for alternative decision making and fundingstructuresJ.Mark Davidson Schuster aa Associate Professor, Department Of Urban Studies And Planning , Massachusetts Institute Of TechnologyPublished online: 24 Feb 2009.

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Funding the Arts and Culture throughDedicated State Lotteries—Part II:Opening the Way for Alternative DecisionMaking and Funding StructuresJ. Mark Davidson Schuster

Associate Professor, Department Of Urban Studies And PlanningMassachusetts Institute Of Technology

State lotteries have become an increasingly popular way of raising "new" re-sources for government programmes, particularly since the proven spectacularsuccess of Lotto games.1 It is not uncommon for the state to promise that therevenues from these lotteries will be used for "good causes,"2 partly out of agenuine desire to provide additional public resources to certain sectors of soci-ety and partly because of the politics that are necessary to develop support for alottery as a form of government activity. This political argument has two ele-ments: to encourage political support of the idea of a lottery and to encouragethe purchase of tickets among those who wish to support the sectors that will re-ceive lottery revenues, individuals who are not necessarily viewed as the pri-mary potential purchasers of lottery tickets. Thus, the dedicated lottery by whichlottery revenues are channeled to specified public purposes has become a par-ticularly popular government funding mechanism, especially in the field of thearts and culture.

Of primary importance to the cultural sector is the degree to which dedi-cated lottery revenues actually provide additional resources to the arts and cul-ture, and I have dealt with this question in Part I of this paper (Schuster, 1994).But another, perhaps less obvious, question is also of considerable interest:

• To what extent does the arrival of dedicated lottery funding lead to differ-ent ways of funding the arts and culture? Is this new money accompaniedby the creation of new funding structures with new decision making proce-dures, or is it simply folded into pre-existing structures and procedures?What are the implications of each?

Those countries, provinces, or cities where dedicated lotteries have been im-plemented and their revenues used for the arts and culture provide a widerange of cases from whose perspective the experience with lotteries as a fundingsource for the arts and culture can be viewed, and this combined experience is

Cultural Policy, Vol. 1, No. 2, pp. 329-354Reprints available directly from the publisherPhotocopying permitted by license only

© 1995 Harwood Academic Publishers GmbHéditions des archives contemporaines

Printed in the United States

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330 J. MARK DAVIDSON SCHUSTER

rich with variation. In some places the stream of lottery revenues and thestream of tax-based revenues have been clearly separated, in others the twosources of funding have been commingled without distinction; in some placesnew and distinct decision making procedures have been put in place to distrib-ute lottery money, in others the pre-existing decision making mechanisms havebeen used to distribute these "new" resources as well.

But the fact that lottery money has been used in a variety of innovative waysis not generally well understood, even within the arts and culture, and eventhose innovations that have achieved some external visibility have not alwaysbeen understood in the context of the lottery that made them possible.

THE HANDLING OF LOTTERY MONEY

State lottery money can come to the arts and culture sector in two ways:

• Lottery revenues might be folded into normal government revenues with-out being dedicated in advance to any particular government budget items.Even so, the arrival of lottery money might lead to an increase in particularbudget items, including the arts and culture, instead of to more generalacross-the-board increases.

• Lottery revenues might be dedicated, partially or entirely, to the arts andculture and visibly passed along to these types of activities. This transfer canbe structured in a variety of ways: as a complete transfer of lottery proceeds[the original, yet quickly abandoned plan in Massachusetts]; as a fixed per-centage of lottery proceeds [Western Australia and the United Kingdom]; oras the dedicated beneficiary of a particularly game, either as a one-off lot-tery [the lottery that helped build the Opera House in Sydney, Australia] orof one in the normal cycle of drawings.

Once it is dedicated and channeled to the arts and culture, lottery money can betreated in a variety of ways, and each of these (as well as combinations of them)can currently be found in one or another place.

• Lottery revenues might be folded into the normal budget of pre-existingagencies, with no distinction made by government as to which money is lot-tery money and which money comes from other government revenuesources [e.g., Western Australia, Ireland, New Zealand, and the likely out-come in the United Kingdom].

• Lottery revenues and tax-based revenues might both be provided as part ofthe normal budget of pre-existing agencies, with no distinction made bygovernment as to which money is lottery money and which money comesfrom other government revenue sources, but the recipient agency mightchoose to maintain separately identifiable funding paths even though it isnot required to do so by legislation or policy [Ontario].

• Lottery revenues might be provided to pre-existing agencies but with the

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DEDICATED STATE LOTTERIES: PART II 331

stipulation (or expectation) that distinctions be made as to which moneysare to be used for which programmatic purposes [Finland].

• Lottery revenues might be used as the opportunity to create a new fundingstructure that will develop its own programmes and policies [Massachusetts,Berlin].

• Lottery revenues might be dedicated not only to the arts and culture butalso to specific recipients or specific programmes. [Part of the BelgianLottery goes to a purchase fund to help prevent the export of works of art(Bolton, 1993).]

What are the pros and cons of establishing a separate decision making mech-anism? What are the arguments in favor of spending lottery money in a differ-ent way? These are the questions to which I now turn.

DEDICATED LOTTERIES AND THE ARTS—EIGHT CASES

In this paper, I look at eight dedicated lotteries and the experience that eachhas had with separating flows of money and implementing new programmesand policies, and I point out the advantages and pitfalls of the various ap-proaches. We will see that in practice it is not quite so easy to categorize thededicated lotteries according to the various ways of treating lottery money listedabove. There is considerable complexity within each of the dedicated lotteries,and there are often different ways of treating lottery money within the structureof a single lottery. Nevertheless, it will be important to remember this list ofconceptual possibilities, because it helps one remember the design choices thatgovernment makes, either implicitly or explicitly, in designating and creatingthe mechanisms that will be used to distribute revenues from dedicated statelotteries.

The descriptions that follow are neither complete accounts of the structure ofthe dedicated lottery nor complete accounts of the structure of arts funding ineach place. Rather, they are selective accounts focusing on the choices that havebeen made with respect to the decision making structure whereby dedicated lot-tery funding is allocated and on the issues raised by these choices. (More de-tailed financial descriptions of each of the lotteries for which detailed financialdata were available have already been presented in Part I of this paper(Schuster, 1994).)

I turn first to the recent case of the United Kingdom, where the design of thedisbursement mechanisms for lottery revenues was still under debate as I wrotethis paper. Then, I will consider several cases in which dedicated lottery moneyand tax-based revenues have, at least in theory, been commingled with no ap-parent distinction between them. Finally, I will turn to cases where various lev-els of distinction have been drawn between lottery moneys and tax-basedrevenues and where different programmatic initiatives and perhaps even differ-ent funding structures have been created for the handling of dedicated lotteryrevenues.

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The United Kingdom

The British government recently passed the National Lottery Act of 1993,which created a national lottery for the United Kingdom—the last country inthe European Economic Community to do so. The government has put the lot-tery out to tender for private operators, and the first revenues are expected inlate 1994 or early 1995. The revenues from this so-called "National Lottery forGood Causes" are to be dedicated to the arts, heritage, sports, charities, and,temporarily, to special projects to mark the millennium.

The idea of a national lottery in the U.K. had been around for some time, ashad the idea that if a lottery were to be created its revenues should not simplybe folded into general government revenues. The Royal Commission of1976-78, which was created to consider the idea of a national lottery, con-cluded:

One of the most appealing features of an independently administered but state spon-sored national lottery for good causes is that it escapes or by-passes the normalGovernment decision making procedures for resource allocation. In practice, aGovernment of any party, subject to day to day public and political pressures, finds itimpossible to vote more than meagre resources to good causes of the kind which aredesirable rather than essential. But the paradox is that while each individual causemay not be essential, it is essential for the health of our community that some re-sources are devoted to such purposes. There is a crucial need in our society for asource of substantial funds to provide support of a kind with which any Governmentexperiences great difficulty. The objective should not be to replace the function of cen-tral Government but rather to fill the gap created by the inevitable disappearance, in asociety where the accumulation of private wealth has become much more difficult, ofprivate support of worthy causes on a large scale . . . The proceeds of a national lotteryshould not only be allocated outside the normal Government machinery: they should be im-mune, subject to annual scrutiny by Parliament, from Government influence [emphasisadded] (Fiddick, 1992).

In this view—not the view that seems to have won the day—lottery revenuesshould be used differently from tax-based revenues; they would be used to in-crease the scope of public funding beyond that which is possible through thenormal political budgetary allocation process. Indeed, the White Paper (HomeOffice, 1992) stated that the government was "firmly of the view, however, thatthe proceeds should not be directed towards the main areas of public expendi-ture, and that it would be inappropriate for the lottery to be seen as a way offunding the National Health Service, education or similar major programmes."(This is reminiscent of the distinction made in New Zealand between "primary"and "secondary" expenditures of government. See below.)

Whether this point of view was simply a device for promoting political ac-ceptability or whether it was genuinely intended as a gesture to important, yetmarginal sectors of society is difficult to know. But what is clear is that at leastthis Royal Commission felt that this new money ought to be distributed differ-ently, most certainly not by central government agencies and perhaps not evenby pre-existing arm's length funding bodies, though that is not made clear inthe Commission's report.

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In the event, the Government has not chosen this path. The distribution ofnet lottery profits will be as follows:

• 20% dedicated to expenditure on the arts, of which 97.2% is to be distrib-uted by the Arts Council of Great Britain, and 2.8% is to be distributed bythe Arts Council of Northern Ireland;

• 20% dedicated to expenditure on sport, of which 83.3% is to be distributedby the Sports Council, 8.9% is to be distributed by the Scottish SportsCouncil, 5.0% is to be distributed by the Sports Council for Wales, and 2.8%is to be distributed by the Sports Council for Northern Ireland;

• 20% dedicated to expenditure on the national heritage with money to bedistributed by the Trustees of the National Heritage Memorial Fund for theacquisition, maintenance, or preservation of property as spelled out in theNational Heritage Act of 1980;

• 20% dedicated to charitable expenditures with money to be distributed by anewly created National Lottery Charities Board; and

• 20% dedicated to expenditure on projects to mark the year 2000 withmoney to be distributed by the Millennium Commission created by the Act.3

The details of this particular distribution formula are not particularly impor-tant to the current discussion, but it is essential to understand that any such dis-tribution formula is the result of several decisions. First, the government has todecide how to distribute the expected lottery revenues among the sectors towhich lottery revenues are to be dedicated. The British government has opted,at least for the moment, for equal division among its five targeted sectors. Then,the government has to decide what the distributing mechanism for lottery rev-enues will be within each sector. After considerable debate about whether itwould be desirable to imagine and create new, alternative funding structures,the British government has decided that in those sectors in which there are pre-existing agencies that have had experience with distributing government funds,those same agencies will be used once again. Moreover, within each of the sec-tors in which these pre-existing agencies function by geographic area, the distri-bution will be proportional to relative population.

These decisions, of course, were not made without considerable lobbying onthe part of existing agencies. When the government White Paper was publishedthe responses from the various pre-existing funding bodies were quite pre-dictable (Arts Council of Great Britain et al., 1992; National Council forVoluntary Organizations, 1992; Scottish Arts Council, 1992; Tom Owen, 1992;Museums and Galleries Commission, 1992; Committee of Arts MuseumCouncils, 1992; and Sports Council, 1992). Virtually without exception theysupported the creation of the lottery with the understanding that this wouldmean additional funding for their activities—lottery money would not be usedto substitute for normal tax revenue money—and the understanding that thepre-existing funding agencies comprised the only conceivable way of distribut-ing lottery money because of their presumed expertise in their various domains.

With respect to the final two sectors, new agencies are required. A speciallycreated and time-limited Millennium Commission will select and fund projects

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marking the millennium, but the trickiest area is with respect to charities, forwhich there is no pre-existing government funding agency. Over the years gov-ernment has, of course, signed contracts with various charitable agencies to im-plement public programs, but an agency whose job is simply to pass alongpublic resources to charities has never existed in the United Kingdom (or else-where, for that matter). Indeed, the reason that charities were included as in-tended recipients of lottery money in the U.K. is less a reflection of governmentfunding policy than a compromise with the charities who expect to see the rev-enues from their own fundraising lotteries eroded by the arrival of a nationallottery with a very different prize structure.

But even choosing pre-existing funding agencies to distribute dedicated lot-tery revenues does not necessarily mean that lottery money will be completelyintegrated into their budgets and used to support already existing programmes.Whether there will be any further stipulations as to how the lottery money is tobe used by these agencies in the U.K. remains to be finally worked out. Onemight imagine that these agencies would prefer to be given free rein with what-ever money is finally provided. With respect to the Arts Council of GreatBritain, for example, there is a long history of instances in which the ArtsCouncil has fought earmarking of items in its budget, even when that earmark-ing only applied to new amounts that were being added to its budget, as hap-pened, for example, when the government provided additional money to theArts Council to support artistic activity in London, which suffered a consider-able loss of resources with the abolition of the Greater London Council.

Yet, there has been considerable discussion that the government should takeadvantage of the opportunity to set lottery money aside, perhaps formally ear-marking it for projects that these funding agencies have not traditionally beenable to support either for financial reasons, where the financial requirementsare just too high relative to available resources, or political reasons, where pre-existing clients are simply too powerful in their claim on whatever financial re-sources are available. A particularly strong element in British thinking about theuse of lottery money has been the funding of capital projects that would other-wise be impossible, and it appears that capital projects will be an importantcomponent of lottery funded projects. But international experience has shownthat when lottery money is to be used for capital investment it is important thatthe lottery funding body coordinate with any bodies that will be expected toprovide ongoing operating support, an argument for vesting both decisions inthe same funding body.

The extent to which the new Minister of the Department for NationalHeritage will create clearly identified lottery projects funded through lottery re-ceipts in each of the sectors remains to be seen, but it would be truly surprisingif he did not use the opportunity both to build support for the lottery and tolaunch his own programmatic initiatives by publicly linking the lottery to the fi-nancing of specific popular and visible projects. At the same time, it would alsobe surprising if the regranting agencies did not resent ministerial intrusion intotheir decision making procedures.

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An unusual wrinkle in the United Kingdom was the idea, surfaced in theWhite Paper but later abandoned, of recording consumers' preferences at thepoint of sale of lottery tickets and using those preferences to shape the final dis-tribution of lottery revenues. Though exactly how this would be done was neverspelled out, it is significant in that it introduced into the debate a rather differ-ent idea as to in whose hands decision making concerning the expenditure oflottery revenues should be vested. Interestingly, a public opinion survey of citi-zens' reactions to various good causes that the government might help financewith lottery revenues showed that the ones that have been selected to receivelottery money are the ones that are least favored by citizens (NOP OmnibusServices, 1992). This, of course, may simply reflect the distinctions between "es-sential" and "desirable" or "primary" and "secondary" expenditures referred toabove.

In summary, though the intent in the United Kingdom seems to be to com-mingle lottery revenues and tax-based revenues, there are a number of identifi-able pressures leading toward some degree of separation. This seems to be thecase, as well, in other places where commingling has been the central principle.In a number of dedicated lotteries, the principle that seems to underlie the han-dling of lottery money is one of complete commingling with normal budget rev-enues, but a closer consideration usually points to ways in which these moneysare actually treated differently. The distinction may be a subtle one, but even soit may have an important effect on the arts and culture. I now turn to a consid-eration of several such lotteries.

Australia: The State of Western Australia

The Lotto Act of 1991 brought Lotto to the state of Western Australia, and in1982-83 the government introduced legislation to provide lottery fundingspecifically to health, community organizations, sport, and the arts. The appro-priate government ministers are given the right to determine the distribution ofthese moneys, making use of individuals, organizations, or government depart-ments to provide consultation or to actually distribute the money. In practice,nearly all of the lottery money going to the arts is distributed by the WesternAustralia Department for the Arts, a government department that serves as thedistributing agency for both lottery and tax-based revenues. Some other lotterymoney may be spent on the arts and culture from time to time; the LotteriesCommission, for example, has its own community grants programme and hasbeen very supportive of cultural initiatives. Since July 1992 the Festival of Perthand the commercial film industry in the state of Western Australia have beendesignated by law as additional earmarked beneficiaries of lottery money.

Within the Department for the Arts grants are distributed through the nor-mal peer panel review process according to pre-established program criteria.(Legally, the Department for the Arts makes recommendations to the Ministerfor the Arts with regards to grants, and it is the Minister who ultimately ap-proves grants for payment.) Tax-based revenues allocated through the normal

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government budget process (from the Consolidated Revenue Fund) and lotteryrevenues are commingled with no distinction drawn between the two. Thus,grant recipients have no way of knowing whether their particular grant wasmade possible through lottery money.

Within the Department, however, the chart of accounts is structured so thateach grant payment is allocated from an identified funding source. This proce-dure is used for internal accounting purposes and does not seem to have beenused in any type of lobbying effort (i.e., for more lottery money to support pro-jects of a particular type that has been attributed to lottery funding). However,in its annual report the Department does mention special initiatives as havingbeen funded out of lottery money. Thus, though the intent is to treat all moneyas part of one pool, there is some movement around the edges to separatelyidentify lottery money and lottery funded initiatives.

Ireland

The Irish National Lottery was established by the National Lottery Act of 1986,which specified that its beneficiaries would be the arts, culture, and heritage;youth, sport, and amenities; health and welfare; and the Irish language.Legally, the allocation of lottery funds is the responsibility of the Cabinetthrough the Department of Finance. This means that the Prime Minister's officecan have considerable influence in the allocation of lottery money, and not sur-prisingly this has created some controversy among opposition parties, whichwould prefer an independent body to ensure that lottery funds are not used asa substitute for government spending and to insulate decisions from govern-ment. In the view of Anne Kelly (1989), "The National lottery has accentuatedthe central role of the Department of the Taoiseach [Prime Minister] in arts pol-icy and administration. On the negative side this could mean a certain politi-cization of the arts and a weakening of the role of the Arts Council. A morepositive interpretation is one that would see the development of the Lottery asan opportunity for involving all departments of State in cultural development.However this would mean active policy decisions and coordination of activitiesrather than the ad hoc approach that has so far been adopted in the allocationof Lottery funds."

The Irish Arts Council, the primary arm's length arts funding agency, re-ceives money from the National Lottery but only about 23% of the lotterymoney that is actually used for the arts and culture. Clients of the Arts Councilfollow standard procedures in applying for Arts Council support and do notknow whether that support comes out of tax-based revenues or lottery rev-enues. Most recipients of lottery funding, however, receive their moneythrough the Department of Arts, Culture and the Gaeltacht [Irish speakingareas], the rough equivalent of a Ministry of Culture. Interestingly, these fund-ing programmes also include grants to arts projects and to cultural organiza-tions, grants that prior to the arrival of lottery money would have been madeunder the auspices of the Arts Council.

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The general principle is that tax-based revenues and lottery revenues are com-mingled with no distinction drawn between them, yet once again the actual situa-tion is a bit more complicated than this simple principle would suggest. Whenasked, arts funding officials are easily able to identify specific uses to which lotterymoneys have been put including financing capital expenditures, replacing grantsfrom Exchequer sources (substitution), and clearing accumulated deficits for cer-tain institutions (Brereton, 1993), indicating that they do draw some distinction be-tween what is made possible by the two different sources of revenue.

New Zealand

Profits of the New Zealand Lottery, which was created in 1962, are to be distrib-uted for charitable purposes, which are defined to include "any charitable, phil-anthropic, or cultural purposes and any purpose that is beneficial to thecommunity of to any significant section of the community." A general attempthas been made to distinguish between "secondary social services," which the lot-tery will fund, and "primary social services," which are seen as the government'sresponsibility.

Games are operated by the Lotteries Commission, which turns its profits overto the New Zealand Lottery Grants Board (LGB). The LGB, in turn, is responsi-ble for distributing lottery money through various decision making mecha-nisms. These include three designated "distributing agencies"—The QueenElizabeth II Arts Council of New Zealand, the New Zealand Film Commission,and the Hillary Commission for Recreation and Sport—and seven distributioncommittees—Aged, Welfare, Youth, Medical Research, Science Research,Community Facilities, General Charitable Purposes, and a separate fund at thediscretion of the Minister of Internal Affairs.

The distributing agencies, however, are not required to honor the distinctionbetween secondary social services and primary social services in their fundingdecisions. Indeed, this would not be possible as lottery revenues are commin-gled with tax-based revenues within these agencies, and they make no such dis-tinction in their normal funding decisions. Thus, this distinction is not relevantin cultural expenditures that go through the Arts Council or the FilmCommission.

As the primary distributing agency for the arts and culture, the QEII ArtsCouncil makes no internal distinction between tax-based revenues and lotteryrevenues in its funding decisions; lottery money is folded into the available bud-get. As a distributing agency it is not required to be separately accountable tothe Lottery Grants Board, and it is exempt from following the usual LGB fund-ing criteria by which it interprets its statutory obligation to make grants for"charitable purposes." The Arts Council is financially accountable solely to theMinister of Cultural Affairs and, through the Minister, to Parliament. QEII hasan implicit contract with the government of the day that it will carry out itsstatutory functions until they are changed by Parliament. Otherwise, it makespolicy and funding decisions without direction from the Minister or the LGB.

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Yet, as we have already observed with other dedicated lotteries, theory andpractice often diverge. In 1990, prior to reaching an agreement on the fixedpercentage of lottery proceeds that it would be guaranteed by government, theArts Council tried to identify the areas of the Council's operations that were ofmost relevance to the Lottery Grants Board in the hope that this would solidifyits claim on lottery money. But " . . . while the Council's planning made it possi-ble to establish priorities for funding within its own programs, it wasn't reallypossible to distinguish between those most appropriate to Government objec-tives and those more closely related to Lottery Grants Board policy (Stark,1990)." At that time, the Arts Council advocated the development of "a coherentpolicy framework for all areas of Lottery Grants Board activity," but it is a bithard to know exactly what that would mean in practice, especially since the ArtsCouncil tends to be jealous of its own statutory independence.

The Lottery Grants Board, like the QEII Arts Council, nominally operatesindependently of government, but the extent ofthat independence is debatable.The LGB is chaired by the Minister of Internal Affairs (who, until the lastchange of government in 1990, was also the Minister responsible for the cul-tural sector). As a result, the Board is likely to be responsive to Ministerial "re-quests" (such as that which led to the provision of fixed percentages of lotteryrevenues for some agencies, or the making of grants for special national eventsand commemorations).

To fully understand these dynamics, however, it is important to recognizethat in the years following the passage of the Gaming and Lotteries Act of 1977,the range of cultural activities funded by government, whether by vote or bylottery, expanded greatly. The sums available on the lottery side increased par-ticularly rapidly. Key agencies such as the New Zealand Film Commission andthe New Zealand Film Archive did not even exist in the earlier period and thegovernment's notion of what constituted "cultural affairs" was much narrower.Moreover, the many governmental and quasi-governmental cultural agenciesthat support cultural projects and activities have become increasingly reliant onlottery funding. The government has depended on the Lottery Grants Board'swillingness to fund special projects that would earlier have been largely the re-sponsibility of government, e.g., the costs of New Zealand's participation in theBrisbane Expo or activities commemorating the 150th anniversary of the sign-ing of the Treaty of Waitangi in 1990.

Even so, the Lottery Grants Board claims that lottery funds are not usuallyavailable for projects that are the responsibility of central or local governmentor that are eligible for funds from central or local government. Lottery commit-tees do try to steer away from commitments that would entail long-term fund-ing because they cannot guarantee what money they will have to distribute inthe future—the implication being that tax-based revenues are more predictableand that these sorts of expenditures may be more appropriate for central orlocal government to make. Nevertheless, one might argue that the presence oflottery revenues has allowed the government to broaden its definition of thearts and culture, particularly in an institutional sense, making new, separate ini-

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tiatives possible, and in this sense there has been a conceptual separation of lot-tery and tax revenue moneys.

In each of these cases government has, in principle, commingled funds with-out distinction and provided them, at least in part, to pre-existing agencies. Yet,even with this principle, in each case some form of conceptual separation hasoccurred. These cases suggest that there is a natural tendency toward the sepa-ration of lottery funded initiatives, whether for simple accounting purposes, forincreased ministerial control, for lobbying for increased funding by recipientagencies, or for the funding of completely new initiatives that, for whatever rea-son, had hitherto been impossible.

In other places, the revenues from dedicated lotteries have clearly beentreated differently from tax-based revenues. The cases of Finland and theCanadian province of Ontario occupy a middle ground between complete com-mingling and complete separation.

Finland

In Finland lottery revenues have been used for the arts and culture since 1926when the criminal code was amended to permit a licensed lottery that wasgranted to the Finnish Opera and the National Theatre (Tuomikoski-Leskelä,1977). In addition, 35 percent of the lottery profits were credited to the state forscience, the arts, and sport. After the second World War, the lottery was used tohelp rebuild the cultural infrastructure of the country before either a ministryor an arts council was in place. Lottery revenues have long been the predomi-nant source of state funding for the arts narrowly defined, though they are onlya modest percentage of total cultural expenditures by the Finnish state(Schuster, 1994). The percentage of lottery revenues to be dedicated to the artsand culture has, until very recently, been fixed by legislation. When the firstmajor budgetary cuts were taken in culture in the early 1990s, specified per-centages were lifted, and this relaxation led to an increase in the relative per-centage going to the arts. In 1992, for example, 38.6% of lottery revenues wasprovided to the arts.

In theory, lottery revenues dedicated to the arts and culture are combinedwith tax-based revenues and passed by the Ministry of Finance without furtherdistinction to the cultural side of the Ministry of Education. In practice, the pic-ture is a bit more complicated (Heikkinen, 1993; Kajantie, 1993). Over theyears the Ministry of Education has lobbied, in effect, to move more and moreexpenditures onto tax-based revenues as a way of increasing its budgetary allo-cation, and until 1992 the Ministry of Education had succeeded in growing thetax-based revenue side of its budget. The Ministry managed, for example, tomove music schools to the budget side (though they are now being moved backto the lottery side).

The Ministry of Finance, on the other hand, wishes to move more and moreexpenditures to the lottery side, effectively taking those activities off budget bytaking them off tax-based revenues as a source of funding. Among other things,

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this has meant that the state's contribution to the ongoing operating costs of cul-tural institutions has begun to be moved to the lottery side. A new expensiveopera has been built, but the Ministry has not been able to get its operationalexpenditures to the tax-based revenue side of the budget; it is now on the lot-tery side.

Moreover, the Finnish system of supporting the arts and culture has tradi-tionally been based on very detailed regulations and laws at all levels of govern-ment, stipulating, among other things, quotas among various art forms, thequalifications that applicants must meet, and conditions attached to using statesupport. In practice, this means that it is very difficult to find money for newinitiatives, especially with short notice. Over the years lottery revenues haveprovided one source of money for flexible funding projects, but that flexibilityhas been gradually eroded. Thus, even though the Ministry of Education haslong received more lottery revenues than tax-based revenues for its culturalprograms, an increasing percentage of that lottery money is tied up by "bindingagreements" through which government stipulates how that money is to bespent. The percentage of lottery money subject to binding agreements in thisway has risen from 56% in 1991 to 77% in 1993. As a result of these changes thestrategy of attempting to reserve lottery money for new initiatives has brokendown.

Thus, with respect to the question of separation or commingling of lotteryfunds and tax revenues, Finland seems to fall in the middle. Funds appear to becommingled, yet restrictions are put on their expenditure by government andrecipient agencies devise separation and dedication strategies in order to fur-ther their own budgetary goals.

Canada: The Province Of Ontario

Lotteries were legalized in Canada in the late sixties. By the early seventies theprovinces of Quebec and Manitoba were operating lotteries, and by the mid-seventies all provinces as well as the federal government were running lotteries.By 1985 a set of agreements concerning interlottery coordination led to the fed-eral government leaving the lottery field in exchange for $24 million per year(in constant 1979 dollars) and a one time payment of $100 million for theCalgary Olympics. The provinces took over nation-wide lotteries through thecreation of the Interprovincial Lottery Corporation.

As far as funding for the arts and culture is concerned, the Culture InitiativesProgram of the federal Department of Communications receives a portion ofthé settlement moneys received annually by the federal government, but theimportant lottery funding for the arts and culture is found at the provinciallevel. Three of the five provincial lotteries—Ontario, British Columbia, and theWestern Canada Lottery Corporation—explicitly provide money directly to thearts and culture, but the most important of these is Ontario. Whereas in mostprovinces lottery moneys are generally thought of as the outcome of fundrais-ing in a nonprofit context and are, therefore, generally used to support a vari-ety of community-based activities, often including the arts and culture, in

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Ontario lottery money is used to support professional artistic and cultural activi-ties (Cheney, 1988).

The Ontario Lottery Corporation Act of 1974 provided that the net proceedsof the provincial lottery would be deposited along with tax-based revenues inthe province's Consolidated Revenue Fund, but these lottery revenues would bemade "available for the promotion and development of physical fitness, sports,recreational and cultural activities and facilities" and, therefore, distinguishedfrom tax-based moneys in the Fund. Two of Ontario's lottery games, Wintarioand Lottario, are earmarked for culture, sports and recreational activity(Cheney, 1988; Ministries of Culture and Communications, Citizenship, andTourism and Recreation, 1991; Ontario Ministry of Culture andCommunications, 1991; Chartrand and Ruston, 1982; and Sullivan, 1988).Profits are deposited in the Consolidated Revenue Fund, and then three min-istries (the Ministry of Tourism and Recreation, the Ministry of Citizenship, andthe Ministry of Culture and Communications) make their annual budget sub-missions to the government through the normal procedure. The government'sTreasury Board decides what proportion of lottery revenues a particularMinistry will receive each year, but once that decision is made the Board doesnot make any further distinction between lottery-based revenues, tax-based rev-enues, or other revenues. Taking the example of the Ministry of Culture andCommunications, lottery funds vary between 5% and 15% of the Ministry's bud-get; in fiscal 1992 it received 42 million Canadian dollars from lottery revenues(approximately 8.5% of its budget).

These three Ministries make it their practice to identify the proportion oftheir estimated expenditures that is specifically tied to lottery moneys, and gen-erally they restrict expenditures out of these moneys to specific one-time-onlyprojects such as capital expenditures or pilot programmes, using lottery money"for programs or facilities that would not otherwise have been funded (OntarioMinistry of Culture and Communications, 1991)." The Ministries have tried toavoid using lottery funds for ongoing operating expenditures because they fearthat lottery revenues may be less predictable from year to year than other rev-enues, particularly as they face competition from newer lotteries. Thus, theseMinistries practice internal separation of lottery and tax-based revenues, eventhough they are neither required nor expected to do so.

Having chosen to separate lottery moneys, the Ministries responsible for cul-ture in Ontario have, over the years, launched a number of innovative pro-grams, announcing each time that they were made possible through lotterymoney. The first initiative, the Try Us Program, invited clients of the Ministryto come forward with their own programmatic ideas. It was designed so that theMinistry could detect patterns of need among its clients and build long-termprogrammes around those needs by being responsive to the field. Another ini-tiative, the Wintario Capital Grants Program, supported purchase, constructionor renovation of culture and recreational facilities, as well as conservation ofheritage buildings. The Wintario Halfback Program created a voucher systemwhereby losing lottery tickets would retain half of their face value and could beredeemed for purchase of various cultural goods and services. This innovative

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program, extremely successful and one of the few demand-side voucher pro-grammes to have every been implemented in support of the arts and culture,4 isfurther described in the box. And two matching grant programmes designed toimprove the financial stability of cultural institutions—the Arts Challenge Fund,which was targeted at achieving long-term financial stability, and theInvestment in the Arts program, which was intended to attract corporate dona-tions—were also funded. Considerable amounts of lottery money have also goneto support government cultural agencies, such as the science museum inSudbury, the Ontario Science Centre, and TV Ontario, rather than as grants tothe arts and culture community.

THE WINTARIO HALFBACK PROGRAM

Perhaps the most innovative arts funding program to be created with dedi-cated lottery moneys is the Wintario Halfback Program, which operated from1978 to 1983 in the province of Ontario, Canada (Donoghue, 1992; West,1985; Policy Planning Secretariat, 1983; and Chartrand and Ruston, 1992).Through this programme, designed to assist the Canadian cultural industriesby encouraging the consumption of their products, holders of losing lotterytickets in the provincial lottery were offered a discount on Canadian culturalproducts. Each losing lottery ticket was automatically converted into a voucherworth half of its face value; a losing ticket that originally cost $1.00 became avoucher worth 500. Thus, this programme is also noteworthy because it is oneof the very few arts funding programmes that have seriously tried the voucheridea, leaving ultimate decision making in the hands of consumers.

Each of the four different phases of the Halfback Program specified thecultural products that could be purchased with the vouchers and any limitson their redemption:

• January to April 1978. The first phase of the programme offered a rebatetoward purchases of books written by Canadians or of subscriptions toCanadian magazines. The maximum rebate was $2.00. 100 magazinesand 450 retail booksellers participated in the programme, and 1,200,000tickets were refunded (total rebate of $600,000) and used to purchase225,000 books and 100,000 magazine subscriptions. 1,000 schools and li-braries organized pools to purchase publications for their collections.

• May to September 1979. In the second phase of the programme the re-bate could be used toward the purchase of Canadian recordings and ad-missions to Canadian feature films. The maximum rebate was again$2.00—a sizable rebate on the $3 film prices and $5 record prices of thetime. Canadian tapes and records worth more than $1.3 million werepurchased with a rebate; 200,000 people used the discount to attendCanadian feature films; and one and a half million tickets were cashed in.

• July to December 1981. The third phase allowed a rebate for admissionto selected performing arts events and, in some cases, subscription series.

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About 300 performing arts companies participated. Again, the maximumrebate was $2.00. Special discounts were also available to students and se-nior citizens. During the same period there was also a programme for thepurchase of Canadian paperback books, and in this programme the maxi-mum rebate was set at $1.00 for books costing at least $1.25.

• November 1982 into 1983. The fourth phase was broader, providing re-bates on the purchase of books by a Canadian author. In this case thelimit was half the retail price of the book or $15.00, whichever was less.During the first four months of this phase over a million tickets were re-deemed.

Other variations were also made available for limited periods. In one pro-ject schools and school boards could collect losing tickets and use them tobring cultural programmes into schools. In another, the programme was ex-panded to rebates on admission to art galleries and museums.

All in all, the Halfback programme was a considerable success. The prob-lem was that it became increasingly expensive exactly because it was so popu-lar. In one calendar year the Halfback Program paid out some $3 million.The programme had been conceived as a time-limited program, and whenWintario revenues began to fall and less money was available to distribute inthe form of rebates, this programme was discontinued in favor of other artsand culture programmes that were making their own demands on this poolof money.

Once again, even though tax-based revenues and lottery revenues flowing tothe ministries dealing with cultural affairs are commingled, the recipient agen-cies have worked very hard to reseparate those flows of money after their re-ceipt. This has undoubtedly been done for a combination of reasons includingthe desire to protect this new revenue source and the desire to take advantageof the opportunity to implement truly innovative programs and funding mech-anisms.

But one of the most important facts to notice in the Ontario case is what didnot happen. The Ontario Arts Council, the province's arm's length arts council,has not been included in the lottery funding loop; rather, lottery revenues havebeen kept by the various ministries and used in agreement with ministerial pol-icy. This is due to a combination of the Arts Council's antipathy, if not hostility,toward lottery funding as opposed to tax-based funding; the government's de-sire to increase government revenues through a lottery despite pockets of inter-nal, and external, resistance; and the government's desire to align lotteryfunding with government policy. In this result lie important implications for thetypes of artistic and cultural activities that are to be supported with lotterymoney.

Finally, I consider two cases where the creation of a dedicated lottery was ac-companied by the creation of a completely new alternative funding structure.

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The United States: The State Of Massachusetts

Perhaps the clearest case of creating a new arts funding structure with new deci-sion making procedures is the case of the State of Massachusetts. TheMassachusetts Council on the Arts and Humanities (MCAH), a state-levelagency modeled on the National Endowment for the Arts, was created in 1966.The agency grew slowly but steadily through the 60s and 70s, but from 1980through 1988 its budget grew dramatically from $2.8 million to $22.2 million.

But parallel events had also led to the creation of a second arts fundingagency reliant on lottery revenues and with very different grant making proce-dures. In 1973 a special commission was created by the state legislature to sug-gest ways of improving state arts funding at the grass roots level by offsettingMCAH's emphasis on the major cultural institutions in the major cities of thestate. The concept of a state lottery for the arts was introduced in 1976, but itwas not until 1979 that legislation creating an Arts Lottery and stipulating thatall of the net lottery proceeds would be distributed to locally designated artscouncils was finally passed. The Massachusetts Arts Lottery Council (MALC), anagency completely separate from MCAH, was created, and local councils thatwould distribute the lottery's proceeds were formed or designated.

The state's first Arts Lottery game—$5.00 tickets with monthly drawings—was a failure and was withdrawn. A redesigned $1.00 weekly lottery, christenedMegabucks, was introduced in 1982 and became a financial success, so much sothat in 1983 the legislature capped the amount of lottery revenues going to theArts Lottery Council at $3 million per year. In 1987 that cap was increased to$5 million, where it remained until 1990.

Lottery revenues dedicated to the arts are distributed to the local councils(now 335 in the state) according to the state's general revenue sharing formula.At the outset each council was guaranteed a minimum of $500 per cycle, a floorthat was later raised to $1,000. (The bulk of the remaining profits of the lotteryare also distributed by this formula, but in the form of local aid to the towns andcommunities of the state with no specified purpose.)

The local arts lottery councils make their funding decisions in the context ofa broad set of statewide principles (Massachusetts Arts Lottery Council, 1986?):

• Lottery funds should support arts and cultural activities and facilities inMassachusetts, should encourage projects that have demonstrated commu-nity support, and should add to existing programs and not be used to re-place existing funding;5

• Projects should not depend solely on Arts Lottery funding for an extendedperiod of time, should be for the broad public good, and should be accessi-ble and available to the general public.

Though unexceptional, this decision making structure for state cultural ex-penditures represented a significant departure from, and challenge to, the un-derlying principles and behavior of the Massachusetts Council for the Arts andHumanities, and for a number of years tax-based revenues for the arts and lot-

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tery revenues for the arts were strictly separated and allocated through thesetwo very different funding mechanisms.

The peak funding level for the arts and culture in Massachusetts wasachieved in 1988 with MCAH at $21.7 million and MALC at $5.4 million. But infiscal 1990 MCAH found itself in a political fight with the State Legislature. TheCouncil had fought increased earmarking of its budget by particular legislatorsin 1988 and 1989, the state had entered into a period of fiscal austerity, and artsfunding programmes had come under national attack from the political right.These factors led the State House of Representatives to recommend zero fund-ing for MCAH for 1990.

Eventually a compromise was reached with a forced marriage in January1990. The two agencies were merged as the Massachusetts Cultural Council,and the total appropriation for the combined agency was set at $17.7 million, $5million out of lottery money and the rest from state tax-based revenues. In 1991the combined budget was reduced further to $12.6 million and the agency wastaken completely off state tax revenues and made entirely reliant on lottery rev-enues. The fact that new Massachusetts Cultural Council was taken completelyoff budget is particularly ironic because the Massachusetts Arts Lottery Councilhad had its own (perhaps unenforceable) non-substitution rule concerning itsallocations to local towns and communities (Massachusetts Arts Lottery Council,1986?):

Arts Lottery funds are not intended to substitute for, replace, or relieve existing re-sponsibility for public funding of programs in the arts and humanities. Communitiesmust not supplant or replace existing funding in the arts and humanities with ArtsLottery funds. This is particularly important in areas such as school and library cul-tural programs which are already an integral part of the communities' budgets.Therefore, an application by a public agency should demonstrate a new need, ordinar-ily be for a one-time expenditure, and be matched by other funds.

Despite the merger of the two agencies and even though the combinedagency was only receiving revenues from the lottery, the state legislature stillspecified a split in the programme budget between local style "arts lottery" pro-grammes ($3.8 million) and MCAH-style "statewide competitive" grant pro-grammes ($7.6 million). Presumably the legislature insisted on this split to keepthe MCAH side from swallowing up the MALC side. By 1992, the total budgetof the combined Massachusetts Cultural Council had declined further to $3.6million. At this point the state legislature stopped requiring any particular divi-sion between arts lottery and statewide competitive programmes, but the MCCBoard decided on its own to increase the proportion of programme funds dedi-cated to arts lottery programmes to one half of the programme budget. (For fis-cal 1993 the total budget began to increase once again, growing to $6.1 million,with the Council deciding to dedicate $2.2 million in programme money to artslottery programmes and $3.3 million to competitive statewide grants.)

The decision to maintain arts lottery style programmes even when they wereno longer mandated by the Legislature is an important one to notice in the con-text of the current paper. The criticism that led to the creation of the Arts

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Lottery in the first place—that MCAH would not on its own choose to supportlocal grassroots projects—seems to have been successfully overcome by the cre-ation and track record of the Arts Lottery. It is, of course, not insignificant thatthe Arts Lottery created a large network of clients and supporters of the artsfunding system. They became powerful political allies. One might cogentlyargue that the creation of the Arts Lottery and the Massachusetts Arts LotteryCouncil was ultimately what saved the style of programmes implemented by theMassachusetts Council on the Arts and Humanities by preserving them in thenewly organized Massachusetts Cultural Council, which only became politicallyviable by the inclusion of lottery-style programmes.6

Germany: The City Of Berlin

In Germany, as in the United States, the Länder (states) and the major citiesenjoy sovereignty with respect to government lotteries. As a result, there is con-siderable variation across the Länder: in some cases all of the net proceeds ofthe lottery are simply folded into the budget of the Land, in other cases theserevenues may be separated out and put to specific purposes.

Taking just one example of the latter approach, in Berlin the lottery pro-ceeds that are dedicated to social, charitable, cultural, civic and sports projectsare channeled to the Stiftung Deutsche Klassenlotterie, a separate foundation thatdecides the use and distribution of these proceeds (Reissiger, 1992?). Thus,these revenues are not folded into the normal budgets of the various ministriesconcerned with these sectors. The advantages of creating this separate structureare seen to be threefold: (1) the use of money for specific purposes can be as-sured and there is less concern about substitution of lottery money for tax rev-enue money when they are administered by separate agencies, (2) thefoundation structure is much more suitable than the structure of public agen-cies for reaching decisions on short notice, such as has happened, for example,with the purchase for public collections of works of art that unexpectedly cameon the market, and (3) the foundation structure can react with more flexibilityto ideas that do not develop in accordance with the normal budget cycle.

Applications for funding are made to the foundation. If the application meetsthe technical requirements of the foundation, it is sent to the relevant ministryfor comment and a check of eligibility and appropriateness, and this opinion isprovided to the foundation. The foundation's board (three members elected bythe lower house of Parliament and three members appointed by the Senate)then makes the final decision. Thus, the decision making mechanism is verymuch like an American private grant-making foundation. Though not com-pletely separated from the various government ministries, the foundation en-joys a degree of independence and flexibility.

The major criticism of this method of handling lottery revenues comes fromthose who prefer to view lottery revenues as, and to treat them like, any otherform of local revenue. For them, the foundation is a "shadow budget" that

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funds projects or activities that come within the umbrella of the city's generalbudget, but because they are financed out of foundation funds through deci-sions made by foundation members rather than by directly elected public offi-cials, they are not subject to the same accountability and control.

INTERPRETING THE DATA

Though these eight cases do not provide a complete map of the dedicated lot-tery terrain, they do include nearly all of the major state lotteries currently ded-icated to the arts and culture. More importantly for my purposes here, theydocument well the wide range of ways in which dedicated lottery revenues havebeen handled. Many of the differences across these cases can be attributed todifferences in the particular evolution of arts funding in each place and to dif-ferences in the cultural contexts within which these funding systems operate,but other differences can be attributed to policy and programme choices thatresulted from an analysis of the opportunities presented by the arrival of dedi-cated lottery revenues. Even more striking, perhaps, are the similarities acrossthese cases. Let me begin my analysis of the implications of the data presentedin the cases by looking first at the most striking of these similarities and then byturning to the differences.

If these cases are representative, then their aggregate experience suggeststhat with a dedicated lottery it is very tempting to go one step further and sepa-rate lottery revenues from tax revenues in the funding stream. Even in thosecases where commingling is the espoused principle for treating lottery moneys,forms of separation are in evidence.

That this would happen should not be too surprising. A number of factorslead to such separation. Agencies in the arts funding system may prefer separa-tion because the separation of the two streams may be thought to be useful inprotecting budget increases on both the lottery and tax-based revenue sides.Thus, the argument would be, "Lottery moneys make possible these lottery pro-grammes and tax-based revenues make possible those other programmes. Wecan't possibly cut either one." This would mean, of course, that arts agencieswould have to lobby for their budgets on two fronts rather than on just one.

These agencies might also prefer separation because they feel that only clearseparation would make new programmes and policy initiatives possible. Anyfunding agency that has been operating within a funding system for a pro-longed period of time has undoubtedly worked out a delicate balance withother actors in its sector, particularly with its revenue clients, and it may be ex-tremely difficult to break with past practices, even though it might be seen asdesirable. Arian (1989) and Grampp (1989) have both, for example, made argu-ments along these lines with respect to arts funding in the United States. Thispoint also applies, of course, to the dynamics that one can expect within the cul-tural sector once lottery revenues have become a "normal" part of the fundingpattern. In a report issued at a moment when the government of Ontario began

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to relax the boundaries of the sectors to which lottery proceeds were to be dedi-cated, the concerned Ministries pointed out flatly, "Since the establishment oflotteries in this province, the client community identified itself with the proceeds[emphasis added] (Ministries of Culture and Communications, Citizenship, andTourism and Recreation, 1991)." Given these pressures, the arrival of lotterymoney and the clear separation of that money from previous revenue streamsmay provide a window of opportunity within which new initiatives can belaunched unconstrained by prior commitments. This is clearest in the cases ofOntario, Massachusetts, and Berlin, though it is also seen in the new culturalinitiatives made possible by lottery money in New Zealand.

To suggest that lottery money causes new ways of doing business would be toostrong, but to say that its arrival affords the opportunity to try something newwould be quite accurate. If the innovations identified in the various cases havebeen less than successful, it is more attributable to programme design than tothe fact that it was lottery money that was involved, but the fact remains that theimportance of lottery money was that it provided the opportunity for a breakfrom past funding practices. Indeed, the arrival of a dedicated lottery may pro-vide one of the few real opportunities that such a government funding agencywill ever have to break with past practices or implement truly new ideas, andthe evidence in the cases discussed here is that governments have generally notregretted that break; they are very proud of the programme innovations under-taken with lottery funding, even those that have since been discontinued.

Appleyard, anticipating the creation of the National Lottery in the UnitedKingdom, argued strongly for the creation of "an independent body spendingthe lottery funds rather than simply handing them over to existing institutionssuch as the Arts Council. Substitution would, thereby, be more easily detectedsince the lottery money would be kept obviously separate. Such a body wouldhave the added benefit of allowing specific projects to be advertised as being thefruits of the lottery, thus reinforcing the virtuous 'good cause' aspect of thegame. But no such body is yet planned—in spite of intense lobbying—so the lot-tery money will just vanish into the same old black holes (Appleyard, 1993)."While basing his argument on substitution grounds, his argument would havebeen even stronger if it had been based on window of opportunity grounds.Indeed, his closing phrase, "the same old black holes," suggests that this mayhave been on his mind.

Central government may prefer separation too. For a government that ispromoting a state lottery as a new revenue-raising mechanism, at the end of theday there will be political pressure to identify what lottery money has accom-plished, and only if it has been clearly separated from tax revenues can anycredible claim about its accomplishments be made. (This point has not been loston lottery operators, who fill their annual reports with references to the goodprojects funded (Clotfelter and Cook, 1989).) Also, because of the link betweenlotteries and gambling, it may be particularly important for government to care-fully account for lottery revenues separately in order to demonstrate that noth-ing illegal is happening with the handling of those revenues.

On the other hand, there are some countervailing tendencies that lead away

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from separation of funding streams, if not away from dedicated lotteries moregenerally. Perhaps the most powerful argument against separation and againstdedication would be to argue that all public revenues should be treated thesame and every sector should have to make its most effective case to call uponthose resources. Wouldn't a taxpayer prefer to have all demands for publicmoney competing on a level playing field without any artificially protected do-mains?

From a practical standpoint, the separation of revenue streams and the cre-ation of new decision making and funding structures can cause increases in ad-ministrative costs and other problems associated with programme proliferation.If the various funding sources and funding mechanisms are not sufficiently ar-ticulated, then potential clients can be confused as to where one goes to get sup-port for which initiatives, and funding agencies can find themselves engaged inwarfare as they feel that they are encroaching on one another's turf.

One would expect that the promise of new money for the arts and culturethrough lotteries would have been welcomed with open arms by the sector, butthis has not always been the case. Arts councils, in particular, have fought lotter-ies. They have done so not only because of moral reservations, or because of afear of marginalization (lottery money would bring them more within the realmof the "entertainment" industry), or because of a fear that this source of financewould prove fickle and unreliable in the long run, but also because of a fear ofcompeting centers of power in arts decision making. In particular, they foresawthe fact that arts funding decision making would no longer be vested entirely inthe hands of the arts council, but would be exerted in ways in which overt poli-tics could have more influence. Yet, this is exactly what has happened in a num-ber of places. Government, committed to increasing the revenues for the artsand culture through a dedicated lottery (or to using the arts and culture as abeneficiary to make the whole idea of lotteries more palatable), has respondedto the arts council's concerns not by abandoning plans for a lottery but ratherby pushing forward, creating the lottery, and punishing the arts council for itsopposition by turning over the dedicated lottery revenues to another decisionmaking agency, often parallel Ministries of Culture, many of which were cre-ated in the same period as the lotteries were. These Ministries often end up incompetition with the pre-existing arts council creating confusion and duplica-tion in arts funding. Chartrand and Ruston (1982) in their review of theCanadian experience with lotteries and the arts argue exactly this point andcaution arts councils about adopting anti-lottery stances.

The places in which dedicated lotteries have been implemented have gener-ally been places in which the British-style arm's length arts council has been thetraditional form of support for the arts and culture. Countries where the min-istry structure has predominated tend not to implement dedicated lotteries,though they do typically have state lotteries. In part, this may be a measure ofthese countries' commitment to the arts and culture, a commitment in whichthe arts and culture are seen as fundamental and are funded relatively gener-ously out of public revenues (from whatever source), so that there is no appar-ent need for protected sources of income for the sector.

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To what extent does the arrival of lottery money signal the decline of arm'slength arts funding decisions? In Ontario the arrival of lottery money coincidedwith the creation of the Ministry of Culture and Recreation. In New Zealandgrowth and change in arts funding has been associated with the arrival of aministry structure and the growth of lottery money. The proposal to create anational lottery in the United Kingdom accompanied the decision to create aDepartment of National Heritage, widely understood as a Ministry of Culture,whose head in fact holds the title of "Minister." In Massachusetts and in Berlinnew agencies were created to handle lottery money in different ways.

But this trend does not so much mark a decline in arm's length funding—these agencies still remain strong and, with the exception of Massachusetts, lot-tery money seems to have increased the resources at their disposal (Schuster,1994). Rather, there has been a marked increase in other centers of decisionmaking power. In any event, the increasing importance of programmes thatmake funding decisions in a more overtly political manner, as opposed to thosedecisions that have been traditionally insulated through arm's length agencies,is of concern to many in the arts funding system who feel that lottery money hastended to flow to ministry or ministry-like structures with a resulting differencein the style of decisions made. At the very least, the rise of dedicated lotterieshas accompanied, if not promoted, the general process of convergence that hasbeen occurring between the ministry and the arts council models of arts fund-ing (Cummings and Schuster, 1989).

One of the primary criticisms of collecting public revenues through lotteriesis that a lottery amounts to a regressive tax and is therefore unacceptable.Chartrand and Ruston (1982) have pointed out that collecting public revenuesthrough lotteries meets neither the principle of benefit taxation, in which taxa-tion is roughly calibrated in proportion to the benefit the taxpayer expects toreceive in return, nor the principle of ability to pay, in which taxation is propor-tional to your ability to pay. Whether one views lottery expenditures as a formof taxation and therefore subject to this way of thinking about the distributionof costs and benefits in the provision of public goods and services, or as a formof voluntary payment for which such analyses are inappropriate and irrelevant,one still has to recognize that who pays for and who benefits from the arts andculture has been a particularly problematic issue in arts policy debates.Audiences for the arts and culture have traditionally been drawn from the besteducated and most well-off segments of society, and, at the very least, a consid-erable element in most public policies toward the arts and culture has been thebroadening of the audience to other segments of society.

Although these results are not widely known, research in cultural economicshas suggested that contrary to expectations, at least in the United States, thesystem of finance of the arts and culture is actually mildly redistributive, beingpaid for by those who are slightly better off than those who benefit (Feld et al.91983; Netzer, 1992). Nevertheless, it is quite clear that a cost-benefit analysis ap-plied to lottery funding of the arts would not come to the same conclusion. Themore important that lottery funding becomes as a source of public resources forthe arts and culture, the more susceptible that funding becomes to this type of

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equity analysis and the more problematic it may prove to be as a dedicatedsource of funding for a sector that benefits mainly the upper levels of society.

Following this line of logic, one might argue that there is a natural affinitybetween lottery funding and certain types of programme initiatives that are per-haps more populist in nature or that reach more effectively to a wider segmentof the population. From this perspective the creation of Arts Lottery Councils inall of the cities and towns of Massachusetts to distribute Arts Lottery grants orthe Wintario Halfback Program exemplify the types of programmes that mightbe most "lottery-like" in this sense. In these programmes one can see an echo ofthe European principle of "subsidiarity," which stipulates that decisions onfunding be made as close as possible to where the activity that is to be funded istaking place. Lottery funding may be a place to give particular substance to theprinciple of subsidiarity.

It would seem clear that an advantage of dedicating a lottery, particularly ifthat dedication is paired with an identifiable distribution mechanism, is that theavailable money can be assured of being allocated to the intended use (i.e. otheruses are precluded). While this is true in one sense, it always has to be judged inthe context of the concern about financial substitution. If dedicating lottery rev-enues to a particular use means that fewer tax resources will flow to that use,then there may be little, if any, growth in support, despite the fact of dedication(Schuster, 1994). Nevertheless, the relative certainty of dedicated funds mayprove reassuring to arts funding agencies, particularly in an era where the prin-ciple of government funding for the arts has come under increasing philosophi-cal attack and increasing budgetary pressures.

CONCLUSION

Whether a lottery is the right solution for augmenting government revenues,whether a dedicated lottery is the right solution for augmenting governmentrevenues for a particular sector, and whether separation of funding streams isthe right solution for handling dedicated lottery revenues once they have beenreceived by a particular sector, are all subtle questions that have to be judgedseparately in each context. With respect to separation—the primary emphasis ofthis paper—there is a strong set of factors that move toward the separation oflottery revenues from tax-based revenues, and there is virtually no evidencethat that decision has been regretted in any of the places that it has been made.Separation has well served a variety of programmatic and political goals. To theextent that dedicated lottery moneys and the separation of those lottery moneysopen up a window of opportunity that allows for the possibility of breaking withold practices and for the implementing of new ideas, they command the atten-tion of those who are concerning with government policy vis-à-vis the arts andculture and the funding of that policy.

In concluding, I would be remiss if I did not note that in my analysis of theuse of dedicated state lotteries to fund the arts and culture I have arrived, fi-nally, at a paradox. In Part I of this paper I concluded by suggesting that from

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a financial standpoint, and particularly from the standpoint of finding increasedresources for the arts and culture, commingling of lottery revenues with tax-based revenues might be the superior strategy (Schuster, 1994). Yet, here, inPart II as I have turned my attention to the programmatic initiatives that mightbe made possible by lottery-based funding, I have concluded by suggesting thatseparation is likely to be the superior strategy. In different places different ac-tors in the arts funding system have made very different choices about how lot-tery-based funding would be blended into pre-existing funding systems, andthose choices have often reflected this trade-off between additionality in re-sources and programmatic opportunities. What will resolve this paradox willnot be increasingly clever designs for the arts funding system; rather, it is onlylikely to be resolved through increased public, and public sector, commitmentto the arts and culture, a change that is unlikely to be affected one way or theother by the availability of dedicated lottery money.

ACKNOWLEDGMENTS

This paper was made possible through a sabbatical support grant from theDirección General de Investigación Científica y Técnica of the Spanish Ministryof Education and Science, the support of the London Arts Board, and, for sup-plemental research on Ireland, a grant from the Arts Council of Great Britain.To all three agencies I am extremely grateful. I am also grateful to the many in-dividuals who responded to my inquiries and provided me with clarifications aswell as with further ideas to explore: New Zealand—Jane Kominik, Ministry ofCultural Affairs and Ruth Delaney, Queen Elizabeth II Arts Council; UnitedKingdom—Christopher Gordon, English Regional Arts Boards, JeanHorstman, London Arts Board and Eleanor Stokes, London School ofEconomics; Western Australia—Andrea Hull, Department for the Arts;Commonwealth of Massachusetts, USA—Rose Austin and Charlie McDermott,Massachusetts Cultural Council; Ireland—Adrian Munnelly, David McConnell,and Marian Fitzgibbon, the Arts Council, David Denny and David Moloney,Department of Finance, Anne Kelly, University College Dublin and MajellaBrereton and John O'Hagan, Trinity College Dublin; Ontario, Canada—JohnRuston, the Canada Council and Lin Donoghue, Ontario Ministry of Culture,Tourism and Recreation; Finland—Merja Heikkinen, the Arts Council ofFinland, Ritva Mitchell, the Council of Europe, and Marianna Kajantie,Secretary for Cultural Affairs, City of Helsinki. The ideas contained in thispaper are mine or those of the individuals whose work I have cited; they do notrepresent the official view of the organizations for which they work.

NOTES

1. When used in this context, one needs to be a bit careful with the word "new." In a fundamentalsense, every dollar that is raised by government, whether by taxation, through fees for service,

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through fines, or through lottery profits, is a new dollar that the government did not have at its dis-posal previously.2. The phrase "good causes" also seems odd if one thinks more broadly about the expenditure of

public resources. Would a public expenditure be tolerated if it were felt to be an expenditure fora "bad cause?"

3. The Act further stipulates that allocations to the Millennium Commission will disappear at theend of the year 2000 and the other four sectors will increase their share of the proceeds propor-tionately, that the percentages to each of the five sectors can be changed subject to a minimum of5%, and that the Act can be amended to included other bodies as distributing agents.

4. The only other such program I have come across operated in Minneapolis/St. Paul, Minnesotafrom the mid 1970s to the early 1980s and is described by Heilbrun and Gray (1993).

5. Unfortunately, this lottery mechanism has not proven as successful in dedicating new revenuesfor the arts and allocating them in new ways as it might have been. It is particularly difficult toevaluate the work of the local arts lottery councils because there is no way of accounting for theexpenditure of money once it reaches the local level—if it is not spent on the arts, it is simplyfolded back into the local budget without distinction, so the effect of dedication can be lost.

6. I am grateful to Charlie McDermott of the Massachusetts Cultural Council for this observation.

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