A headline on Page 1B of the City & State section of some editions Tuesday mischaracterized how lottery proceeds can be spent. By law, lottery money must go directly to specified education initiatives. Lottery legislation, however, does not limit what can then be done with existing state money that is already going to those same initiatives the lottery will support.
Even before the first ticket in North Carolina's new lottery has been sold, the state's auditor is focused on a point crucial in the lottery debate: Where will the proceeds go?
Republican Auditor Les Merritt and representatives of Democratic Gov. Mike Easley have begun meetings to try to clearly lay out what's spent now so the questions will be easily answered in years to come.
But the exchange has produced what is a surprise to some: Easley officials readily acknowledge that up to half the lottery proceeds won't be treated as additional money for all of the education efforts the lottery is specified by law to fund.
Instead, Easley intends to use half the lottery revenue to replace -- and not add to -- roughly $200 million now being spent to reduce class sizes in lower grades and help at-risk pre-kindergartners, two of Easley's major education programs.
The governor says it's time to pay back the general fund, the state's main account, for money that has been going to those efforts since he took office.
In a recent presentation to debt-rating agencies, state budget planners said $210 million of lottery proceeds will "replace General Fund fronting" of existing expenditures for the pre-kindergarten program More at Four and reducing class sizes in kindergarten through third grade.
Easley said as much early last year, when he gave his State of the State address to legislators.
"You have fronted money ..." Easley said then. "From day one, I have said an education lottery should pay for these items."
With the lottery now in place, Easley wants to take the money going to those programs (it is calculated at $203 million this fiscal year) and spend it elsewhere. His administration will not yet detail exactly where.
But Easley fiscal adviser Dan Gerlach said in interviews that it will go for education. He said current spending on education will go up next year.
Gerlach said a big part of the freed-up cash will help pay for a promised push to increase teacher pay to the national average.
Merritt and others aren't sure that the public is expecting lottery money to replace what's already going to those areas.
"There is a pretty big disconnect, I do believe, between what is the public perception and what the actual legislation allows about the uses of lottery revenue," Merritt said.
Legislators made almost daily pronouncements as the lottery was under consideration that they did not want to see lottery money replace, or supplant, money going to the programs it would finance.
By the end, as part of the complicated way the lottery was passed, that's not how it turned out.
On Aug. 31, Easley signed a lottery bill that promised the gambling proceeds would not replace existing school revenue but instead would add to it.
But the state budget Easley had signed two weeks before actually trumps the lottery bill, and it specifically did not include that promise. The budget language deleted the state's pledge that its lottery proceeds would only add to current education spending.
Elaine Mejia, director of the N.C. Budget and Tax Center in Raleigh, which opposed the lottery, said the lottery's passage was sold on the idea that it would bring improvements in schools beyond what the state otherwise would have.
"In all likelihood, the public was hoodwinked," she said. "If the governor had said this will support education programs already in place, I doubt it would have passed."
Mejia has long argued that it's hard to show that lottery funding boosts education spending. In other states with lotteries for education, general tax funding for schools dropped over time.
"We warned that it wouldn't be new money," she said. "Will the money go for a tax cut? Better state employee pay? More prisons? We will never know."
Easley officials disagree, and they say they will clearly show at budget time this spring where the extra money they are freeing up from More at Four and the reducing class size programs will end up.
For his part, Merritt said he doesn't want to get too far into the policy debate. But he does want to establish "benchmarks" now for judging how the spending flows.
"Whatever measure is used," he wrote to Easley in December, "it will be important to show that the lottery expands education spending over what it would have been without the lottery."
In a reply to Merritt the next week, Easley wrote, "It seems obvious to me that the $400 million plus in new education lottery revenues will increase support for education."
Staff writer J. Andrew Curliss can be reached at 829-4840 or email@example.com.