Lottery Money a Bad Gamble

As the Powerball jackpot soared over a billion dollars, much of the discussion in the Tar Heel State turned to the North Carolina Education Lottery and what that money does for public education.

The conventional wisdom says it’s a pretty simple equation: more money spent on the lottery means more money for education. However, it’s not that simple, especially if you look at how the money is spent as well as the other costs associated with running a billion-dollar state lottery.

First, let’s say the lottery is generating money for public education. Since 2007 the lottery has provided over $3 billion for public education in North Carolina. Critics will immediately say lottery funding merely supplanted existing funding and didn’t add to it. That’s a question for another time. In 2007-08, the lottery generated $325.5 million for public education. In 2014-15 that figure rose to about $529 million, about 4 percent of actual total spent on public education.

The lottery has been controversial from the beginning. Legislation to approve the lottery only passed after two Republican senators were absent for a vote and then-Lt. Gov. Beverly Perdue broke a tie vote. Although it was nine years ago, the divisions haven’t healed. The lottery is still considered a controversial topic. Republicans and conservatives oppose the lottery because it encourages gambling. Democrats support the lottery because it provides revenue to the public schools and gives citizens a chance to win big prize money. What’s wrong with a little fun? they ask. But how much revenue, and what does that “fun” cost?

To see a graph of lottery spending, click here.

 

 

 

 

 

 

Source: North Carolina Education Lottery

One of the ways legislators gained sufficient support to approve the lottery was to assure others that lottery money was getting into the classroom. The first lottery in 2006-07 brought in about $325 million, with $236 million going to K-12 schools. Proceeds were divided accordingly: 40 percent for school construction, 10 percent for scholarships, and 50 percent for class-size reduction, teacher salaries and pre-school programs for at-risk 4-year-olds. A quick review of the history of the lottery shows a significant amount of lottery money has always been outside K-12 classrooms on things like scholarships, capital costs, pre-K programs and other things.

This past year, lawmakers included a provision in the budget bill saying $529 million in lottery money should be spent as follows: noninstructional personnel ($310 million). pre-K program ($78.2 million), Public School Building Capital Fund ($100 million), scholarships for needy students ($30.5 million), and UNC financial aid ($10.7 million).

It’s not difficult to see in the last few years that a higher percentage of lottery funds have been spent outside the classroom. Last year the legislature prohibited LEAs from using lottery funds to pay teachers, believing lottery funding is too unstable a source of funding. (Of course, that ducks the question of why it is OK to have unstable sources of funding for other personnel such as guidance counselors, librarians or janitors). That said, with those numbers only about 21 percent of funding is directly getting into the classroom.

Yet if you look beyond the simple numbers there are other problems as well. Table I provides a chart of money for education and total annual revenue raised by the lottery, by year. If you look at recent years, payouts to education don’t seem to be keeping pace with the increase in revenue. Since 2007, the prize money as a percentage of total revenue has increased from 52.2 percent to 62.3 percent. I understand the percentage is set by the legislature. Still, revenue and payouts are expanding but payouts to education are not.

The lottery’s mission is to maximize sales and provide as much money for education as possible. But at times, such actions work at cross-purposes. In order to keep sales strong in down years like 2013-14, the lottery has had to boost sales and increase player payouts.

A recent performance audit on the North Carolina Education Lottery by the Delehanty Consulting had mixed results. On the plus side, it showed that North Carolina was the only state lottery to increase sales and profits each year of its existence. However, it also showed that five nearby states – Tennessee, South Carolina, Georgia, Kentucky and Virginia – all had higher lottery profits per capita (ranging from $51 to $90 per capita) than North Carolina ($48.59).

While no one denies that the lottery distributions to education are large and growing, there is still growing unease about funding education through gambling. Such sentiments are stamped on the lottery legislation which limits NC Education Lottery budgets for advertising to 1 percent of total revenue.

No amount of money can erase the underlying problem. Every time government hands out money from the lottery, it should ask: Doesn’t gambling undermine the fundamental messages schools seek to instill in students: working hard, getting a good education and taking responsibility for yourself? It’s also hard to ignore the reality that the majority of those that play the North Carolina Education Lottery are low-income people and that the lottery serves as a voluntary tax on those that can least afford it.

I don’t imagine I’m the only one uncomfortable with telling children to work hard, play by the rules, get a good education, only to turn around and have state government push the lottery’s message of “hitting it big” plastered on commercials and advertisements

The lottery has sent over $3 billion to public education in North Carolina. That’s a lot of money, but it shouldn’t prevent us from asking: where is the money really going and what’s the real cost of the lottery? We know less and less money seems to be getting into the classroom and that encouraging gambling undermines the message of honest work. For these reasons, larger Powerball jackpots and the NC Education Lottery are still a bad bet.