Loosened restrictions on prizes boosts revenue to the state

RALEIGH, N.C. — The North Carolina Education Lottery may not be recession-proof, but it's posting financial returns that would be a long shot for almost any other business in this economic environment.

The lottery generated $1.29 billion in sales in the fiscal year that concluded at the end of June, according to unaudited figures provided by the commission that oversees the games. That's a 19 percent increase over the $1.08 billion in gross sales tallied in fiscal 2008.

"I think that overall we raised a great deal of money for the education programs, and we did it responsibly," says Executive Director Thomas Shaheen.

About one-third of the lottery's revenue is used to fund education in the state. The organization provided $411 million for education in the most recently completed fiscal year.

That money is sliced pretty thinly. After 5 percent is taken out for the lottery's reserve fund, the remaining money is allocated in three ways:

• 50 percent goes to reduce class sizes and for More-at-Four pre-kindergarten programs;
• 40 percent is used for school construction;
• 10 percent is used for college scholarships.

Cutting the pie into so many slices across different programs and in different counties means that no one ends up with a windfall. The class size reduction and pre-K money provided by the lottery makes up only 2.24 percent of the public schools' operating fund. Yet that doesn't mean bureaucrats aren't happy to see it.

"Every little bit helps. There's no question about that," says Vanessa Jeter, director of the communications and information division at the North Carolina Department of Public Instruction.

The majority of the lottery revenue goes to pay for the expenses associated with operating the endeavor, including payouts to players. Shaheen estimates that 58 percent — or about $750 million — of total revenue was used as prize money in fiscal 2009.

Retailers received 7 percent of the overall revenue, while 3 percent went to the lottery's operations, where 225 people work.

Shaheen says the General Assembly eased restrictions on the lottery in the summer of 2007, a move that allowed the organization to pay out more in prizes. He attributes a lot of the revenue growth over the past couple of years to those increases in prize payouts.

While sales were sizably ahead of 2008, Shaheen says the growth rate slowed in the latter half of the recently completed fiscal year. "The economy turning downward started to stifle that growth," he says.

The decline has him forecasting that the lottery will be able to generate only $370 million for education next year — a 10 percent decline.

Earlier this year, in an effort to balance the state budget, Gov. Beverly Perdue took $50 million from the lottery's operational reserve and another $37 million in lottery money that was set to be distributed to local school districts.

But the lottery hasn't proven to be a remedy for the state's financial woes. That's not surprising to Ran Coble, executive director of the nonprofit North Carolina Center for Public Policy Research.

Research that the center conducted during the debate over the establishment of the lottery several years ago indicated that it would be a reliable source of revenue, but not a large one. States that have lotteries get only about 2 percent of their budget revenue from those lotteries, Coble says.

North Carolina's lottery, which was created in 2005, currently offers about three dozen different scratch-off ticket games as well as four computerized games. About 50 new scratch-off games are introduced annually, with older ones phased out as part of a process designed to keep the action fresh for players.