The Arkansas Scholarship Lottery is starting a new bonding program, a move that will sharply cut bond fees for the roughly 1,900 retailers who sell lottery tickets.
Officials say they hope the change will help them attract additional retailers; the number of outlets selling tickets hasn't changed much over the past five years.
Retailers are required to be bonded to protect the lottery against losses that occur when tickets are stolen or the business is unable to pay for the tickets activated and sold, lottery Director Bishop Woosley said.
The lottery's net proceeds have helped finance more than 30,000 Arkansas Academic Challenge Scholarships during each of the past five fiscal years.
Lottery retailers have paid anywhere from $200 to $800 apiece to purchase a surety bond through an insurance company, according to the state's financial impact statement on the lottery's new bonding program.
A new emergency rule approved by the Arkansas Legislative Council on Aug. 21 establishes a self-bonding program administered through the lottery, said Woosley, who has been the lottery's director since February 2012.
Act 1076 of 2015-- sponsored by state Rep. Chris Richey, D-Helena-West Helena -- opened the door for the lottery to adopt this new rule.
The new rule requires that retailers participate in the self-bond program by paying a $100 bond fee for each retailer location, Woosley said. The rule authorizes the lottery's director to increase or decrease the annual bond, as warranted by the amount of defaulted obligations, to no less than $75 or more than $200.
"We expect to allow retailers to use this self-bonding program in early September," he said.
"It is the hope that the change will reduce the costs to our retailers to be a lottery retailer, encourage those retailers whose bond [cost] has increased substantially over the past few years to continue as retailers and to attract new retailers, who have been dissuaded from being a retailer due to the high bond costs," Woosley said.
Polly Martin, president of Arkansas Grocers and Retail Merchants Association that represents about 1,000 stores, said Thursday that the new bonding requirement for lottery retailers is "a pretty good idea.
"It will lower the overall cost on all of them," she said.
The new requirement may enable a retailer that's "marginal with their financial standing" to not have to seek a letter of credit for a bonding company, Martin said.
"They'll be doing [their bonding] through the lottery."
Woosley said other costs assessed to lottery retailers include application fees of $100 for a new retailer with a store selling tickets and $25 to add an additional store in a chain and a $10 annual fidelity fee.
The $10 fidelity fee is used to cover losses the commission office may experience due to nonfeasance, misfeasance, or malfeasance of a retailer, he said.
Once collected, the fidelity fees are placed in the fidelity fund to be used in the event of a loss.
"The bond fund is the first line of insurance in the event of a loss. The fidelity fund is a secondary fund which can be accessed if necessary," Woosley said in an email. "In essence, the fidelity fund acts as a secondary line of insurance against retailer loss."
Lottery retailers are paid a 5 percent commission on all lottery sales and a 1 percent commission on winning tickets that they cash, he said. In addition, retailers get a 1 percent commission for winning tickets with $10,000 prizes and above that they sell, Woosley said.
The lottery started selling tickets on Sept. 28, 2009, and revenues and net proceeds for college scholarships peaked in fiscal 2012 when the lottery raised $97.5 million for college scholarships.
But lottery revenues and net proceeds have dipped each of the past three fiscal years.
During fiscal year 2015 that ended June 30, the lottery raised $72.4 million for college scholarships -- a drop of $9 million from the previous fiscal year.
The Legislature has cut the size of scholarships for some future recipients three times in recent years, partly because of the lottery's net proceeds falling short of projections.
Before the Arkansas lottery began selling tickets, then-lottery Director Ernie Passailaigue said lottery officials had asked vendors to be prepared to handle up to 2,500 retail locations at the start of the lottery because "we want to have enough cushion in case there is a flood of applications."
Initially, about 1,500 retailers signed up; since then, the number has hovered just below 1,900 at the end of September during 2010, 2011, 2012, 2013 and 2014, according to the lottery's reports to the Legislature. The number of retailers was 1,904 on July 31.
Metro on 08/28/2015