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Lottery: Promises and pitfalls

Dec 26, 2005, 8:42 am

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North Carolina Lottery

A look at problems and solutions of some state lotteries, as North Carolina leaders try to predict their own problems to come.

Art Johnson isn't a big gambler but plays the Florida lottery on occasion. No, not because it will help the Palm Beach County School District, where he is superintendent.

"I want to win," Johnson said with a laugh.

Ask him about the lottery's funding for education and Johnson is a lot less jovial.

"I'm unimpressed," said the former principal and school board member who now heads the ninth-largest district in the country.

A lot of school administrators have been "unimpressed" with state-run lotteries and their promised windfall for education. More often than not, they say, lottery revenue simply takes the place of tax dollars that were already being spent on schools.

Only one state — Georgia — is consistently cited as having adequately safeguarded its lottery revenue.

But right now, North Carolina does not have those same safeguards in place. With money expected to start flowing from the lottery to state coffers next year, experts say Tar Heel legislators will have to decide soon whether to follow Georgia's example — or potentially leave local school leaders unimpressed.

The problem

The Middle School portion is going up. The Northern Middle School/High School complex is currently under consrtuction, in Greensboro, NC, Wednesday Dec. 14, 2005.

Bob Scott was busy looking for ways to trim the budget at his Avon Lake School District in northeast Ohio, just west of Cleveland. Money from state and local government fell short of the district's needs, he said, and midyear budget trimming was needed.

Scott grimaced when asked why proceeds from Ohio's lottery didn't help schools avoid that type of situation.

"The money comes in (from the lottery), but the legislature can just take it right out on the other side," Scott said.

Since Ohio lottery revenue is mixed in with state tax dollars before being sent to school districts, it's impossible to show whether Ohio is spending more or less on schools than it would have without the lottery. Educators such as Scott say lottery money has merely taken the place of tax dollars, instead of bolstering education spending as promised.

They are not alone.

In 1998, Carl McCall, then-comptroller for the state of New York, called the idea that lotteries augment education spending "a myth" in a letter that accompanied an audit of how the state spent lottery money.

"Lottery money has never supplemented state aid; it doesn't today and it likely never will," McCall wrote.

Palm Beach's Johnson confirmed that was the case in Florida.

"Over time, you will see shortfalls in other areas being covered by dollars that would have otherwise gone to education," he said.

Rodney Stanley, a public administration professor at the University of Tennessee's Institute of Government, has written peer-reviewed papers that show lottery dollars do provide an initial short-term boost to state education spending.

But in almost all cases, he said, inflation and the cyclic nature of state budgets eat away at those gains.

"In my professional opinion," he said, "if you're going to have a lottery, it needs to look like Georgia's."

Georgia on their minds

The Middle School portion is going up. The Northern Middle School/High School complex is currently under consrtuction, in Greensboro, NC, Wednesday Dec. 14, 2005.

Before the first lottery ticket was sold in Georgia, voters put a constitutional amendment in place that requires that lottery revenue go toward certain education programs — a statewide pre-kindergarten program, upgrading computer technology and a college scholarship fund.

"It's very transparent that the money they're getting from the lottery is going toward education," said Joseph McCrary, a former research director at the Carl Vinson Institute of Government at the University of Georgia.

It also makes it easier to see if the state cuts back on other sources of funding. Clearly showing the lottery was benefiting students brought some skeptics around, McCrary said.

"It makes people more accepting of the lottery," he said. "One of the things that we found in our surveys is that if the lottery money didn't go for education, people wouldn't support it."

But other states, including Ohio, have had constitutional amendments earmarking the money for education.

Georgia was successful, observers say, because its lottery money was used to create popular programs that the state had never funded. That made it easy to track the money and made sure legislators kept their hands off it.

"We just can't leave it to the legislature annually to determine what kind of restrictions or limitation there might or might not be put in place," said Margaret Carnes, managing director of Charlotte Advocates for Education.

The nonprofit group has researched lottery funding in other states. It has joined with similar nonprofits across North Carolina, including the Guilford Educational Alliance, to mount a public education campaign and lobby for similar safeguards here.

They will likely find both help and hindrance in high places.

The debate at home

Brad Heinzen, site project manager. The Northern Middle School/High School complex is currently under consrtuction, in Greensboro, NC, Wednesday Dec. 14, 2005.

Since the lottery passed this summer, Gov. Mike Easley has said he supports creating a constitutional amendment for North Carolina similar to Georgia's.

It's a sentiment echoed by some of the lottery's biggest legislative supporters.

"We do not want to view the lottery as just another revenue source," said Sen. Tony Rand, a Fayetteville Democrat who helped navigate the lottery through dicey political waters.

"We need to view it as a dedicated source of money that goes where we said it was going to go when we passed the legislation — to education."

North Carolina's lottery law does require the money to go toward certain education programs: helping local districts with school construction, college scholarships, pre-kindergarten programs and class-size reduction.

But laws can be changed during any session of the legislature and there are legislators who say they are not sure they want to handcuff lottery proceeds with a constitutional amendment.

"We ought to give the lottery a run before we start tinkering with it," said Sen. Kay Hagan, a Greensboro Democrat who leads the committee that drafts the state budget. "My initial reaction is that the constitution is a document that should be amended in the fewest possible cases."

She said lottery proceeds should go toward education. But in times of crises, such as a natural disaster, the state needs flexibility to shift revenue streams to cover unexpected expenses, Hagan said.

Even if the state passes a constitutional amendment, there are other potential pitfalls for North Carolina.

Carnes said that the school-construction funding and college-scholarship programs are ideal places to put the money because the state traditionally doesn't spend money on those things.

But because the state already pays for some pre-kindergarten programs and teacher salaries, lottery money spent in those areas could end up just replacing tax dollars rather than boosting spending.

Even Georgia, the model state, has had problems. Lottery-funded programs have been victims of their own success. Demand for the state's HOPE scholarships is out-stripping revenue produced by the game.

The bottom line, say those with experience in handling lottery funding, is that state officials must be careful in how they handle lottery dollars and they must be realistic in setting their expectations.

"Don't let the politicians tell people it's going to be the salvation, the panacea that's going to save education," said Palm Beach's Johnson. "They're going to do it anyway, and at least some of the public will believe them. So you just have to get the facts out."

The Middle School portion is going up. The Northern Middle School/High School complex is currently under consrtuction, in Greensboro, NC, Wednesday Dec. 14, 2005.

The Northern Middle School/High School complex is currently under consrtuction, in Greensboro, NC, Wednesday Dec. 14, 2005.

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