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Little help from lottery: N.C.’s education games falling short of promises

coverAs people across North Carolina daydream about what they would do if they won millions from playing the lottery, they probably don’t give much thought to how the money is spent every time they buy a losing ticket. 

The North Carolina Education Lottery Commission would argue that no one is a loser when lottery revenue goes to fund education, but local school boards throughout the state might beg to differ. State lottery revenues have increased every year since it was launched in 2006, yet local school districts don’t feel like they are reaping the benefits.

School officials say they were promised that lottery money would enhance education funding and provide additional funding for school construction projects. In reality, school districts are receiving less money every year for capital projects. 

“When the state sold the public on the lottery, which I believe was 2006, it was sold as an education lottery and 40 percent of the proceeds were supposed to go to schools to help fund construction,” said Macon County Commissioner Kevin Corbin, a Republican who is running for the District 120 House seat and was a long-time member of the school board. “The fact is the current year that we’re in right now, it’s not 40 percent of the proceeds but 17 percent of the proceeds are going into education, so that needs to be corrected.”

The North Carolina Education Lottery brought in more than $1.9 billion in 2015 and is projected to surpass $2 billion in 2016. However, Chris Bushnell, a spokesperson with the N.C. Education Lottery Commission, said about 62 percent of that revenue is returned to lottery players through prizes while another 11.4 percent goes to administrative costs and retailer commissioners. That leaves about 26 percent — or $516 million — of the revenue for education each year. 

“Our role in the process is to have popular games and send the earnings to the state. We’ve been able to return more money for education every year and we expect to give $529 million this year to education,” Bushnell said. “But the legislature passes a budget every two years and they decide which programs receive funding and the formula changes over time.”

 

Deceptive numbers

Over the last nine years, the lottery has contributed $4 billion to K-12 education —funding school construction, pre-K programs, college scholarships and keeping teachers in the classrooms. 

The state may tout that $4 billion has gone to education, but school officials say that number can be a bit disingenuous. 

Bill Nolte, associate superintendent for Haywood County Schools, said lottery funding was supposed to provide additional funding for education, but it seems like every year legislators are budgeting less for education from the general fund and relying on lottery funds to make up the difference. Before the lottery was created, the counties received state funding for capital projects through the ADM (average daily membership) allotment, but now that money has disappeared.

“ADM is what the state used to give us, but that went away and they supplanted that with lottery funds,” Nolte said. “In an ideal world they would have not supplanted the ADM and they would have given us the lottery funds. And as sales increased across the state, funding would increase, but instead it’s been cut in half.”

Looking at the amount of lottery funding Haywood County has received for capital projects over the last nine years, the numbers have been all over the board. The county started out getting $373,459 in 2007 and received just over $1 million in 2011 when the state was receiving federal stimulus dollars, but that allocation was cut in half the next year. Haywood County is expecting to receive only $179,000 in 2016. The uncertainty in funding makes it difficult for the school system to rely on lottery funds for maintenance or construction projects. 

“We don’t spend money unless it’s sitting there — we can’t rely on it because it’s so inconsistent,” Nolte said. 

Rep. Joe Sam Queen, D-Waynesville, said it’s a fairly easy problem to fix since legislators have the authority to change the lottery funding formula. 

“Lottery monies have been moved around, but we need to put a lockbox on it,” he said. “I’d be OK with the lottery if it still went to education like it’s supposed to.”

 

Bipartisan concerns

Politicians on both sides of the spectrum have expressed disappointment in how the lottery system has played out. They know the lottery was supposed to be an education supplement but it has become an easier way for the General Assembly to balance the budget.   

“I haven’t talked to a single elected state official — Republican or Democrat — that has denied that’s what happened,” Nolte said. 

So where is the general fund money going if it isn’t going toward education?

Queen said he knows exactly where it’s going. 

“The lottery was sold to the public as extra money for education, but Republican legislators have cut the base funding and supplanted the revenue from the lottery, so the net hasn’t been positive for education,” he said. “And that base funding has been given away in tax cuts to the wealthiest individuals and corporations in North Carolina.”

Queen said Republican legislators have been deceptive in saying that education spending has increased over the last few years while the party has been in the majority in Raleigh. 

“They’ve been cutting education for the last two years and backfilled it with lottery money,” he said. “And they haven’t even restored the funding cuts that were necessary during the recession.”

During the recession, North Carolina benefitted from more than $15 million in federal stimulus money. Nearly $3 million of that went to the Department of Public Instruction, but after that money dried up and the state budget began to recover, the education budget never did. 

“They like to say state funding has continued to grow for education, but that’s only true if you ignore the revenue sharing during the recession,” Queen said. 

Sen. Jim Davis, R-Franklin, was out of the country and couldn’t be reached for comment on the issue, but he has defended the Republican-led legislature’s education spending numerous times in the last several years. While education funding reached a low of $7 billion in 2010 under Democrat leadership, Davis boasts that the Republican leadership has increased the education budget every year since 2011. Last year’s education budget reached up to $8.1 billion. 

“The state spending has increased significantly since the Republicans assumed leadership of the General Assembly,” Davis states on his website for re-election. “Federal stimulus money that the Democrats used to pad the education budget ran out, but Republicans added over $1 billion in state spending afterwards.”

 

Analyzing the system

Conservative and liberal groups have also weighed in on how the state’s lottery system is working. The John Locke Foundation, a conservative think tank based in Raleigh, opposed the creation of the lottery in 2005. Foundation spokesperson Terry Stoops said the foundation doesn’t have an official stance on the lottery but overall agrees with liberal counterparts that lotteries are simply bad policy. 

Jon Sanders, director of regulatory studies with John Locke Foundation, wrote an analysis of the lottery in 2014. He found what most people already know to be true — the money is being used to replace state funding for education. He pointed out that the supplanting problem didn’t begin with the Republicans — former Democrat Gov. Mike Easley announced in 2006 that half of the lottery revenue would replace existing education spending before the first lottery ticket was ever sold. 

Sanders also reported that former Democrat Gov. Bev Perdue transferred $50 million from the lottery reserves into the general fund in 2009, as well as $37.6 million intended for school construction, which was later returned.

“The North Carolina Education Lottery was born of corruption, from its inception as a bill, to its lobbying, to its rushed enactment in the N.C. House and Senate in the face of the state’s constitutional requirement that revenue bills face multiple votes on successive days, to its false promise to and exploitation of the state’s poorest and most desperate citizens,” Sanders wrote.

Sanders’ final recommendations were to either end the state lottery, allow private gambling to eliminate the state’s monopoly on the system or reform the lottery to use education proceeds more effectively.

Progress N.C., a left-leaning think tank, agrees the system has not been managed properly since its inception, but it put more of the blame on Republicans for changing the lottery funding formula when they took over leadership in 2011.  

Before 2011, the general breakdown of lottery proceeds was 50 percent for class-size reduction in early grades and pre-kindergarten programs for at-risk students, 40 percent for school construction and 10 percent for scholarships for needy students. The 2011-2012 budget allocates 66.8 percent for class-size reduction, 23.5 percent for school construction, and 9.7 percent for scholarships to university students.

Logan Smith, communications director with Progress N.C., said the General Assembly made the decision in 2011 to use $26 million in lottery revenue to cover a Medicaid shortfall, which is why Haywood County lost half a million dollars in lottery funding between the 2010-11 and 2011-12 school years.

In 2012, she said, lawmakers reduced the percentage of overall lottery revenue that goes to education from 35 percent to 29 percent. Now the percentage is down to 26 percent. 

“The bottom line is that because of this broken promise on lottery funding, as well as the explosion of charter schools after the cap was lifted in 2011, public school districts across the state are losing more and more permanent funding as lawmakers refuse to even keep pace with enrollment and inflation,” Smith said. “School districts are being forced into the lose-lose situation of either having to raise local taxes to make up the difference, or cutting services and closing schools like Central Elementary.”

In an analysis by the North Carolina Justice Center, Matthew Ellinwood called the lottery a “failed experiment” that turned out even worse than most people predicted. 

“North Carolina spent less on K-12 education in the 2010-11 school year than it did in the last school year before the lottery came into existence, even without accounting for inflation or increases in the student population,” Ellinwood reported. 

According to state budget reports, the 2010-11 education budget was $7.15 billion compared to the 2006-07 education budget of $7.37 billion. Even though the state saw a net gain of 41,043 students during that time, funding and the number of teachers decreased.

Aside from the funding issue, Ellinwood said, lottery critics on both sides of the aisle feel the lottery is nothing more than a regressive tax that mainly falls on the poor.

“The original justification that the lottery would provide a beneficial supplement to education funding that outweighs these evils is no longer valid since the state now spends less on education funding than it did before the lottery was enacted,” he said. “The lottery is now a tax on the poor that brings gambling into the state’s communities without adding anything. Local school boards only receive direct lottery funding for capital projects.”

 

What other states are doing

Every state operates its lottery system a bit differently. Florida and Georgia both use a majority of their lottery funds to send high-school graduates to college.

Georgia’s HOPE Scholarship, which is funded through lottery proceeds, provides students with a free undergraduate college education as long as they graduate high school with a B average and maintain a B average throughout college. 

More than $980 million in lottery funds is put toward education in Georgia each year through HOPE and pre-K programs. Since the Georgia lottery began in 1992, more than 1.7 million students have been able to attend colleges through Georgia’s HOPE scholarship program; more than 1.4 million 4-year-olds have attended pre-K programs and all of Georgia’s public schools have benefited from more than $1.8 billion in capital outlay, computer and technology upgrades.

Georgia’s lottery ranks No. 2 of all traditional state lotteries in terms of highest per capita returns to beneficiaries. Last year’s total returns for HOPE and pre-K were the ninth highest in the nation (surpassed by states with much larger populations like California, Texas and New York).

“They have HOPE in Georgia, and that’s where they put a majority of their lottery money — they have funded higher education and got the results,” Queen said. “I wish we could do that in North Carolina and then we would have to fund schools out of normal revenue.”

The Florida Lottery is similar to Georgia’s in that it provides graduating seniors with college tuition through the Bright Futures Scholarship program. Since the Florida Lottery was established in 1997, lottery funds contributed to more than $4.8 billion to send more than 725,000 students to college. 

The $1.5 billion collected from the lottery each year in Florida goes toward scholarships, K-12 school construction and pre-K programs. 

While Georgia and Florida lotteries may be more simplistic and easier for people to understand, Bushnell with the N.C. Lottery Commission said it didn’t mean that North Carolina’s system was broken.

“Georgia’s results are very visible — you can draw a straight line to it — but we’re still very proud of the money we’re able to return to education,” he said. “That’s why we try to spread the word and tell people they may or may not get lucky, but they will definitely help education when they buy a ticket.”

 

 

Where does the money go?

Over the last nine years, the North Carolina Lottery has contributed $4 billion to K-12 education — encompassing capital projects, pre-K programs, college scholarships and teacher salaries.

Lottery funds have always supported specific education initiatives in all North Carolina counties. Each year in the state budget, the legislature can adjust how lottery dollars are allocated. 

Breakdown of lottery revenue in 2015 ($1.97 billion — total lottery revenue)

• 62.4 percent — Player prizes

• 26.2 percent — Education

• 7 percent — Retailer commissions

• 4.4 percent — Administrative expenses

Breakdown of 26.2 percent (or $516 million) for education funding in 2015

• 58 percent — Non-instructional support personnel

• 19 percent — school construction

• 15 percent — Pre-K programs

• 6 percent — Need-based college scholarships

• 2 percent — UNC need-based financial aid

 

How have WNC counties benefitted?

Haywood County — $18,766,526 total since 2007

  • Teacher salaries (142 positions K-3)—$7.6 million
  • School construction—$5.5 million
  • Pre-K programs—$2.6 million
  • College scholarships—$1.9 million
  • Financial aid—$486,753

* For fiscal year 2015, $546,425 in lottery funds was allocated to Haywood County to pay for the salaries of teachers’ assistants.

Jackson County — $9,506,243 since 2007

  • Teacher salaries (70 positions K-3)—$3.7 million
  • School construction—$2.6 million
  • Pre-K programs—$1.4 million
  • College scholarships—$1 million 
  • Financial aid—$432,420

* For fiscal year 2015, $263,791 in lottery funds were allocated to Jackson County to pay for the salaries of teachers’ assistants.

Macon County — $12,283,750 since 2007

  • Teacher salaries—$4.5 million
  • School construction—$3.1 million
  • Pre-K programs—$2.4 million
  • College scholarships—$1.5 million
  • Financial aid—$327,271

* For fiscal year 2015, $336,369 in lottery funds were allocated to Macon County to pay for the salaries of teachers’ assistants.

Swain County — $5,905,010 since 2007

  • Teacher salaries—$1.9 million
  • School construction—$1.4 million
  • Pre-K programs—$1.9 million
  • College scholarships—$397,588 
  • Financial aid—$114,565

* For fiscal year 2015, $150,971 in lottery funds were allocated to Swain County to pay for the salaries of teachers’ assistants.

 

Construction money

Local school districts have received the following amounts each year for school construction from lottery funds.

Haywood

  • 2016—$178,149 (estimated)
  • 2015—$538,509 
  • 2014—$524,946
  • 2013—$515,028
  • 2012—$481,759
  • 2011—$1,047,044
  • 2010—$951,013
  • 2009—$560,088
  • 2008—$466,389

Jackson

  • 2016—$255,181 (estimated)
  • 2015—$251,574
  • 2014—$246,533
  • 2013—$247,887
  • 2012—$247,662
  • 2011—$274,917
  • 2010—$457,693
  • 2009—$424,824
  • 2008—$232,407

Macon

  • 2016—$299,713 (estimated)
  • 2015—$294,528
  • 2014—$297,732 
  • 2013—301,298
  • 2012—$299,514
  • 2011—$330,230
  • 2010—$530,586
  • 2009—$498,983
  • 2008—$274,821

Swain

  • 2016—$140,545 (estimated)
  • 2015—$139,824
  • 2014—$134,054
  • 2013—$135,199
  • 2012—$135,045
  • 2011—$145,370
  • 2010—$243,282
  • 2009—$212,805
  • 2008—$116,392

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