The News & Record
 

January 15, 2006

RALEIGH -- Call it the $350 million question about the state lottery: Will the money people shell out for all those scratch-off and Powerball tickets actually boost education spending or simply mingle willy-nilly with the billions of dollars that flow through North Carolina's coffers every year?

Since he signed the lottery into law this past summer, Gov. Mike Easley has pledged that money from the state gambling enterprise will boost education spending, not merely replace tax dollars that would have otherwise gone to fund the schools. Making sure he keeps this promise should be easy, the result of a relatively simple algebra problem, the governor's office says.

But State Auditor Leslie Merritt isn't so sure.

He worries that without more preparation by both the auditor's and the governor's offices, state officials will be unable to say if or how lottery proceeds benefited the state's education programs.

Merritt wrote to Easley and legislative leaders in early December seeking help in "establishing a benchmark" against which future education spending could be measured.

In a letter back, Easley wrote that the lottery law requires proceeds to be spent on education.

Easley also wrote, "My education budget for 2006-07 will include increased General Fund -- not lottery -- investments in education items such as teacher pay increases and bonuses, high school reform efforts."

But as for the benchmarking question, Easley wrote only that it should be relatively easy to establish spending benchmarks because the lottery-funded programs are relatively new.

That prompted Merritt to write back and request a meeting with the governor's top budget officials. In an interview last week, Merritt said he had not heard back from Easley or his staff but remains optimistic he will.

The lottery is expected to gross $1 billion a year once it is up and running, with about $350 million of that returning to education programs. It's that $350 million that Merritt is worried about.

There's a whiff of politics coloring this exchange. Merritt is a Republican, Easley is a Democrat, and both ran statewide campaigns for their posts. But Merritt said his exchange with Easley has less to do with politics than answering a question that will inevitably come up.

"The (lottery) bill that was passed certainly allows some or all of the money to replace current spending on education," Merritt said.

The stand-alone budget bill passed by legislators specifically forbade what is known as supplanting. But the annual budget bill modified the lottery's language and removed the nonsupplant language.

And legislative leaders are far from unanimous as to whether the state ought to be handcuffed in the way it uses lottery funds. Senate leaders, in particular, have said that ideally the lottery would support education but that the legislators would need flexibility in handling that money in case of an expensive hurricane cleanup or the like.

Still, Merritt said he thought the majority of the public believed that the lottery money should boost education spending and that it would eventually be his office's job to show whether it had.

By law, lottery money will be divided among school construction aid for the counties, a new college scholarship program, reductions in class size and support for prekindergarten programs.

All sides agree that it will be fairly easy to trace the lottery's impact on scholarships and school construction, since those are areas the state doesn't fund.

Merritt said the question gets murkier with regard to class size reduction and prekindergarten programs. So accountants in the auditor's office are trying to analyze the state funding currently going to those programs to make later comparisons easier.

That effort is unnecessary, say officials in the governor's office.

Lottery funds very well may displace tax dollars in funding one program or another. What's important, Easley's aides argue, is that the state's contribution of tax dollars overall toward education programs continues to climb.

In an e-mailed response to questions, Easley press secretary Sherri Johnson wrote:

"Gov. Easley has been very clear from Day One that the education lottery must supplement, not supplant, our education initiatives. Lottery support is necessary to ensure that reduced class sizes and academic pre-kindergarten is sustainable in the long run. The governor also supports a constitutional amendment to guarantee the use of education lottery funds for education purposes."

But as described by Dennis Patterson, a spokesman for the auditor's office, the accountants there think more specific information is needed.

"It sounds simple, but it isn't," Patterson said. "It's really detailed work."