Easley vows to perk up lottery

Staff WriterApril 8, 2007 

Gov. Mike Easley has a lottery itch he hopes players will scratch.

Faced with lagging sales, Easley wants to pump up prizes and spark a spending spree on North Carolina's instant ticket scratch-off lottery games starting this summer.

But numbers from other states suggest the governor's plan isn't a sure thing. And if it doesn't pan out, some of his key education programs would again face cuts or need taxpayer help to make ends meet. That is the situation this year after the lottery missed its goals.

Easley, a Democrat, is betting more prizes will cause a one-year sales jump that's much greater than what other states experienced when they tried the same thing in recent years.

Under the Easley plan, sales of instant tickets, the lottery's bread and butter, would increase by 101 percent in one year because of more prizes.

But when California increased its prize payout nearly 10 years ago, the sale of lottery tickets increased by 41 percent. New Mexico increased its prize payout in 1999 when its lottery was still new. Lottery sales jumped by 56 percent. Florida had similar results when it bumped its prize payout in 2002.

Philip J. Cook, a Duke University economics and public policy professor who has studied the lottery industry, said a one-year prediction is difficult to make, especially because North Carolina has just started its lottery.

"But there is a real question as to whether they would get the kind of bounce they expect from this," Cook said.

Lottery Director Tom Shaheen said he thinks it's possible that players could double what they have been spending, but he also acknowledged it might not happen. "To be honest, it won't be easy to get there," Shaheen said.

Several education programs depend on the lottery's proceeds, including teacher salaries in lower grades and Easley's More at Four program for nearly 20,000 4-year-olds identified as needing help before schooling.

Sales from the $1, $2, $5 and $10 tickets -- with names such as "Cash on the Spot" and "Downhome Dollars" -- also provide money for school construction in every county and for college scholarships to students from households that qualify as in need of aid.

The education budget that Easley has outlined relies on instant-ticket sales jumping from $500 million to slightly more than $1 billion in the next fiscal year, which begins July 1.

Easley's plan says overall lottery sales, which also includes Pick 3, Cash 5 and Powerball games, would reach $1.5 billion, a 50 percent increase from the lottery's first year.

If the lottery misses that target, those programs will have to be trimmed or officials will have to divert taxpayer and reserve money to plug gaps.

Easley said he has looked to lottery officials for guidance on what's possible and is hopeful the big increase can happen.

"If we give back more in prizes, as a result of that, we'll take more money in," Easley said in a recent interview.

The state's lottery commission, charged with oversight of the games' operations, hasn't taken a position.

Chairman John McArthur said the commission will likely study the issue and adopt the lottery's goals in May, which he said would be in time for lawmakers to take note.

Behind the numbers

Shaheen, the lottery director, came up with the number for Easley's plan. It's based on sales in neighboring states, which pay out more in prizes than North Carolina does.

Under the Easley plan, instant ticket payouts in North Carolina would increase from an average of about 53 percent of sales among all the scratch-off games now to about 63 percent. The payouts in drawing games, such as Powerball and Pick 3, would not change.

Virginia and Tennessee now pay back about 63 percent of sales for instant ticket prizes. South Carolina pays 68 percent. Georgia pays 70 percent.

For players, the changes would mean more winning tickets in stores, mostly at smaller prize levels. They'd also see increases in jackpot prizes, which range now from $500 for a Valentine's Day-themed game to $150,000 for a new game due on shelves this month.

Shaheen said that increasing prize payouts to match the state's neighbors should also lead to comparable per capita sales here.

The 101 percent increase forecast assumes that North Carolinians would play at a pace exceeding that of Virginians and Tennesseans on a per person basis, while lagging South Carolinians and Georgians in spending per person.

Shaheen acknowledged that North Carolinians might still end up playing less than others -- as records show they have so far. "If that's the case," he said, "we'll have to realize that the players in North Carolina seem to be different."

Already, the lottery is expecting to come up short of the goals set for its first fiscal year. Though the state had expected to bring in $1.2 billion in overall sales from all games through June 30, the lottery will be short of that by $200 million to $300 million, officials now say.

That means as much as $100 million less for education programs relying on the lottery. Any gap will be filled by transfers from the state's general fund and by dipping into a reserve created from the first few months of sales, officials have said.

Sales have declined since the games launched. A big complaint from players has been about relatively few prizes and winning tickets.

Education compromise

The Easley plan to boost prizes would be possible only by setting aside less as a percentage for education than what is now in the lottery law. Easley would cut it from 35 percent of lottery proceeds now for education to about 29 percent of sales in the next year.

Easley has indicated that legislators might not need to approve his plan for prize changes, though the state's lottery law sets the formula that would have to change under Easley's plan.

Legislators have yet to take up the issue as part of adopting a budget for the next fiscal year, but they have indicated they would need to OK a change.

Some key lawmakers are viewing the latest Easley plan -- and any ideas to tinker with the lottery -- with caution because the games have already missed the budget forecast in the first year.

"It looks like it's not going to come up to what they thought right now," said Rep. Jim Crawford, an Oxford Democrat and key budget writer. "Just my opinion, but I don't see us going in that direction with the changes being talked about."

If the Easley plan isn't adopted, Shaheen said he doesn't expect to substantially alter the amount of prizes but could make incremental increases due to cost savings.

Players, the lottery director said, could expect the same types of prizes in stores now.

Staff writer J. Andrew Curliss can be reached at 829-4840 or acurliss@newsobserver.com.

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