LITTLE ROCK — Cutting the amount of lottery-funded scholarships for college freshmen and increasing the awards the longer students remain in school would reduce the number of Arkansas students who go to college in the first place, former Lt. Gov. Bill Halter said Tuesday.

Halter, who spearheaded a successful drive in 2008 to establish a state lottery to fund college scholarships, criticized a tiered scholarship system being considered among ways to address a projected shortfall in scholarship funding.

The legislative committee that oversees the lottery program took up the issue Tuesday.

A proposal by Sen. Johnny Key, R-Mountain Home, co-chairman of the committee, would set scholarships at $2,000 for freshmen and increase the amount by $1,000 each year, maxing out at to $5,000 for seniors.

The proposal would make no distinction between four-year universities and two-year schools.

Currently, scholarship amounts are $4,500 for four-year schools and $2,250 for two-year institutions.

In the fiscal year that ended June 30, the lottery generated nearly $98 million for scholarships. Shane Broadway, interim director of the state Department of Higher Education, told the panel the lottery-funded Academic Challenge Scholarship program is projected to award 34,126 scholarships for the 2012-13 school year at a cost of $134 million.

The state provides $20 million in general revenue to the program each year, and the Department of Higher Education has a $20 million reserve of unspent lottery revenue. Broadway said the department should be able to meet its obligations this school year but likely will have to draw on the reserve, which is one-time money.

Heather Tackett, an analyst with the state Bureau of Legislative Research, told the panel that according to the bureau’s projections, at current levels of retention, expenditure rate and growth, the state’s outlay for scholarships will exceed revenues by more than $100 million in four years.

Key said the change he proposes would put all higher education institutions on equal footing and would reward success and encourage students to stay in school.

Not acting would increase the likelihood lawmakers would have to heighten eligibility requirements for scholarships, he said.

Speaking to reporters outside the committee room, Halter, who is considered a possible Democratic candidate for governor in 2014, criticized the idea.

"This is no way what was described to Arkansas voters in the campaign for the scholarship lottery," he said. ‘Many of you were out there with me at countless town hall meetings in which we said over and over again that the idea was to have a scholarship that was universal, simple and fair."

Though the Legislature set scholarship amounts after the lottery was approved, Halter said no one anticipated scholarship amounts as low as $2,000.

"The idea of cutting the first-year scholarship down to $2,000 undermines the main purpose for providing the scholarship assistance in the first place, which is to get students to go to college," he said.

Some legislators expressed concerns about the proposal.

"Three years of data is awfully short to throw the existing work out the window," said. Rep. Barry Hyde, D-North Little Rock.

Rep. Darrin Williams, D-Little Rock, said the original reason for setting different sholarships for four-year schools and two-year schools was to put them on a level playing field, because four-year schools are more expensive.

"Actually you’re disadvantaging, now, four-year institutions," he said.

Sen. Jimmy Jeffress, D-Crossett, defended the work of the committee.

"It’s really going to be hard for people to attend college if there’s no money for people to do it with," he said. "So we’ve got to look at various avenues. You know, it’s easy to sit on the sidelines and kibitz and make recommendations, but it’s really hard to be on the inside doing grunt work and trying to put together workable solutions."

Sen. Jonathan Dismang, R-Beebe, told reporters he believed Halter exaggerated what the lottery would be able to do when he was campaigning for it.

"The fact of the matter stands that we are about $23 million short in funding just to fund next year’s scholarships if we stay at the current pace that we are," he said.

Key said he believed Halter overpromised when he told voters the lottery would generate $100 million a year for scholarships.

"This is one idea of what hopefully will be many ideas to fix this cash flow issue that we have and that we will continue to have with our lottery scholarship," he said.