New lottery figures show NC House budget would have shortfall

acurliss@newsobserver.comJune 20, 2014 

  • New lottery numbers

    Two memos issued late Friday update lottery forecasts and the possible effect of policy changes as proposed by the state House. Here’s a comparison of the old numbers, as presented by state lottery officials, and new ones produced Friday by legislative and executive budget officials:

    Category Old New (all numbers in millions)

    Lottery profits for FY14-15 $487.9 $520.6

    Increase ad spending (1% sales to 2%) $106 $56.5

    Adopt ad restrictions -$46.8m -$26.9m

    Source: N.C. Fiscal Research Division, N.C. Education Lottery, N&O research

Officials issued two memos late Friday with significantly revised forecasts of lottery profits and the financial effect of proposed changes in how the games are pitched to players. The numbers are a key part in how the state House wants to fund teacher pay raises in the next year.

The upshot, according to the figures provided in the memos, is that the House budget would be out of balance and short by about $44 million in what House members have been expecting to use for the teacher raises from the lottery.

The new financial forecasts cover three intertwined issues. The memos conclude:

• The lottery will likely bring in more money in the next budget year than originally thought.

That gives lawmakers more wiggle room when setting the state budget in the coming days. The extra income is forecast to be about $32.7 million.

• The state would not receive as much money for teacher pay raises as the House budget has anticipated by a major policy change.

House members backed a plan to increase lottery advertising to generate more sales and more profits. They expected about $106 million in extra proceeds from that, based on lottery staff estimates. But the new forecast says doubling ad spending would produce only $56.5 million more for education.

• Restrictions on advertising, also spelled out in the House budget, would not take as big a bite out of the lottery’s profits as lottery officials have said.

The new forecast says a ban on advertising in connection with college events and other restrictions the House wrote into its budget bill would cut into the lottery’s profits for education by about $26.9 million. The lottery has said the restrictions would cost more.

Lottery director Alice Garland told a Senate committee this week that the restrictions would amount to a $47 million hit on lottery proceeds. One of the memos says the lottery overstated the impact of the ad restrictions.

The memos were provided to leading lawmakers in the House and Senate late Friday as well as to legislative staff members. They were authored by Barry Boardman, a member of the nonpartisan legislative fiscal research office. Boardman’s updated forecast on the overall lottery receipts for the coming year was also described as a consensus revision made in consultation with the state budget office.

None of the key officials on the issue could be reached Friday in attempts made at the close of business and later.

The old numbers had become a crucial part of the closely watched budget negotiations as House and Senate leaders work to settle on a single budget plan to present to Gov. Pat McCrory for approval. The next budget year starts July 1.

House leaders have said they would take into account the latest numbers as they worked to settle the budget, and that money in other reserves and funds could be shifted to handle shortfalls.

Senators have been skeptical of the House plan, describing it in sharp terms as a mistake.

The Senate has not built teacher pay raises on changes to the lottery, instead backing a proposed pay raise coupled with cuts to teacher assistants and a mandate that teachers give up tenure.

The biggest change in the projections is in the prediction for what would happen if the lottery pumped up its advertising. Lottery officials had said that lifting a cap of 1 percent of sales to 2 percent would lead to a jump in sales – substantial profits for education. The spending would increase from about $17.5 million a year to about $35 million a year, under that plan.

But Boardman wrote that his staff reviewed several recent research reports on the effects of lottery advertising and sales, and they showed varied results. The new forecast relies mostly on experience in Texas and Florida, and also that there would be a “diminishing return” on the increased spending.

Boardman’s memo says North Carolina would see lottery profits of about $2.95 for every extra dollar spent on advertising. The lottery had forecast a much higher figure of about $6 per ad dollar spent.

Curliss: 919-829-4840; Twitter: @acurliss

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