LITTLE ROCK — If nothing changes, the state lottery is not expected to generate enough money to continue funding college scholarships beyond early 2014, a state legislative panel heard Tuesday.

The legislative oversight committee on the lottery has been considering a proposal by co-chairman Sen. Johnny Key, R-Mountain Home, to reduce lottery scholarship spending by awarding Academic Challenge Scholarships at different amounts for each grade level.

Under Key’s proposal, freshmen would receive $2,000, sophomores $3,000, juniors $4,000 and seniors $5,000. Currently, students receive $2,250 a year to attend a two-year school or $4,500 a year to attend a four-year school.

Setting scholarship amounts for the next fiscal year will be one of the tasks of the General Assembly when it convenes in January.

Shane Broadway, interim director of the state Department of Higher Education, told the legislative oversight committee on the lottery that if the department continues awarding scholarships in the current amounts it is projected to run out of funds in February 2014.

The lottery, which launched in 2009, had been projected to raise $98 million in the current fiscal year, but state Lottery Director Bishop Woosley told the panel Tuesday that if current trends continue it will not meet that goal.

Woosley told the commission the lottery’s gross revenues in the first four months of the fiscal year that began July 1 totaled $33.9 million, or $4.3 million below forecast. He said the lottery’s net revenues for scholarships during the same period totaled $6.6 million, or $1.2 million below forecast.

"I think at this point you’re probably safe to assume (net proceeds will be) somewhere in the $89 million to $90 million range if sales trends continue to hold as they have," Woosley said.

That would be at least a $7 million drop from the previous fiscal year, when the lottery raised $97 million for scholarships. Woosley said a hot summer and high gas prices likely contributed to the decline in sales.

While lottery sales are down, interest in the Academic Challenge Scholarship is up, according to Broadway, who told legislators that 1,218 more students received the scholarship this year than last year.

Rep. Barry Hyde, D-North Little Rock, asked Broadway if higher education officials had considered the possibility of reducing expenditures by changing eligibility requirements for the scholarship.

Broadway said the department was waiting to receive more direction from the committee as to what those changes might be before making any projections along those lines.

Sens. Linda Chesterfield, D-Little Rock, and Stephanie Flowers, D-Pine Bluff, said they were concerned about the idea of limiting access to the scholarships by raising eligibility standards.

"I certainly represent a district that puts a lot of money in the lottery, but we have very few of our students who are awarded these lottery scholarships, so I would just ask we proceed with caution with changing any eligibility that would make it more difficult for my constituents to get lottery scholarships," Flowers said.

Legislative analyst Heather Tackett told the panel that according to the projections of the state Bureau of Legislative Research, changing the eligibility requirements to make an ACT score of at least 19 a necessity — currently students can qualify with a 19 ACT score or a 2.5 grade point average — would save only a little over $6 million a year.

"Bottom line, it doesn’t really help much?" Flowers asked.

"Right," Tackett said.

Key and co-chairman Rep. Mark Perry, D-Jacksonville, both said after the hearing that establishing a tiered system of scholarship amounts appeared preferable to changing eligibility requirements. They said the committee was not yet ready to make a recommendation to the Legislature.