Committee Addresses Lottery Issues

Special Report - November 1, 2010
A committee charged with overseeing and evaluating the North Carolina Lottery in order to offer recommendations to the Legislature expressed concerns at their October 28 meeting over the continually declining percentage of lottery revenues that go to education programs, and the possibility that lottery monies have been used to supplant other sources of education funding from the state. The Lottery Oversight Committee began its meeting by hearing a report from legislative staff on how lottery revenues are distributed, the history of lottery appropriations, and recent legislative action related to the lottery. According to that report, the General Assembly changed the Lottery Act in 2007 in order to allow the Lottery Commission more flexibility in determining what percentage of its revenues goes to prize payout and what percentage goes to education. Since the 2006-2007 fiscal year, the percentage of lottery revenues directed to education has dropped from 35 percent to 29 percent while the percentage of revenues directed to prize payout has increased. Over the same time, the dollar amount of revenue directed to education has increased from $325.5 million to $419.5 million in 2009-2010. Presenter Brian Matteson commented that lottery sales have been “remarkably resilient” in spite of the economic downturn—a fact about which we have written on several occasions.

A second report by the Lottery’s acting executive director Alice Garland showed that, thus far, the fiscal year 2011 sales are not on pace with last year’s sales. She opened her remarks by reminding the committee that at its core, the lottery is a sales organization, and their goal is to have a lot of people playing. The report attributed this year’s slower sales to several factors, one of which is the proliferation of sweepstakes cafes. The sweepstakes operations essentially operate as video poker casinos that require players to purchase phone or Internet time in order to gain access to games of chance. Garland told the committee that the cafes offer a similar experience to buying an instant ticket to play the lottery. According to Garland, instant ticket sales constitute 58 percent of the lottery’s total sales. With an increasing number of sweepstakes operations offering a similar experience, the lottery’s staple game has been losing money. The General Assembly passed HB 80—Ban Electronic Sweepstakes just this summer, which outlaws the sweepstakes activities as of December 1.

A topic often discussed by the Lottery Oversight Committee is the difference between supplanting and supplementing. The Committee is charged with studying whether lottery revenue is used to supplant education funding, as opposed to offering supplemental funding to existing revenue streams for education. Several committee members expressed a concern that the economic downturn has lead the General Assembly to rely on the lottery to make up for cuts made to education in order to balance the budget. The committee intimated a desire to explore the issue further and include their concerns in the annual report that they are beginning to prepare for the Legislature.

Related resources:
Lottery Funding Shifts From Education - September 30, 2010
Lottery Revenues Rise With Unemployment - February 2, 2010
Governor Seizes "Education" Lottery Funds - February 27, 2009
Lottery Revenue Fails to Make Significant Impact - September 25, 2007
Easley Recommends Increasing Lottery Prize Payouts - February 23, 2007
A Lottery Education: Dispelling the Education Lottery Myth - [PDF] - Findings - April 2004

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