With NC Education Lottery Booming, Why Aren't Schools Flush? UNCC Study Tracks Answers
Every year at school budget time, UNC Charlotte education professor Walter Hart hears a similar question: "Why do you need more money? You’ve got the lottery."
Hart and two colleagues analyzed 10 years of results from the North Carolina Education Lottery to look at how well the state kept its promises and why so many people are confused about where the money goes. Their findings were published in the Journal of Education Finance.
"People perceive that boy, education is getting a lot of money out of this. So that raised the question: What were they really getting?" says Jim Watson, an associate professor in the UNCC education school's educational leadership program.
Watson and Hart, an assistant professor in the program, are both former superintendents: Watson for Lincoln County Schools and Hart for Hickory City Schools.
Both recall being intrigued by the lottery when North Carolina lawmakers approved it in 2005. And they've watched it grow: In 2007, the lottery brought in $886 million. Last year it was close to $3 billion. Mecklenburg County has been the largest recipient of lottery money over the years.
"From a revenue standpoint, it’s been a tremendous success," Watson says. "North Carolinians are playing the lottery in record numbers. Every year it’s just grown exponentially."
With help from colleague Carl Westine, an assistant professor in the educational leadership program, they dug into reports on lottery revenue and distribution from 2007 to 2017.
Their most basic finding is that North Carolina has delivered on its promise to use lottery revenue for education. There were a couple of exceptions during the Great Recession when some lottery money was diverted to help balance the budget.
But, as Hart notes, "not only did it generate money for education, but it continued to generate money for education even during the economic downturn."
Original Plans Were Revised
They also looked at what kind of education spending the lottery supports. And that’s where things get trickier. The original legislation spelled out four uses for the money: Hiring more elementary school teachers to reduce class sizes, creating free public prekindergarten, paying for school construction and providing college scholarships.
That law said 35% of revenue had to go to those causes, with the rest used for prizes and expenses. Half of the revenue stream was earmarked for K-3 class-size reductions and pre-K for at-risk 4-year-olds.
Another 40% was tagged for school construction, and 10% for scholarships.
In 2007, legislators relaxed those requirements and increased the amount of revenue that could go toward prizes. In 2013 the General Assembly gave itself authority to divvy up lottery money for any educational purpose.
The researchers found that over the lottery’s first decade, it did generate hundreds of millions of dollars for the four original purposes, though the amount often fluctuated from year to year. But the steadily-growing stream of dollars also got channeled to other uses, including some that had previously been covered by other tax revenue.
Teachers Vs. Support Staff
The study found that the lottery channeled $1.5 billion to classroom teaching positions during the first 10 years. But that would have been higher if lawmakers stuck to the original plan.
Lottery money for teaching positions disappeared in 2016, the researchers found. That year lawmakers spent $326 million from the lottery to pay for support staff, such as substitute teachers, office assistants and custodians.
In 2020, the lottery reports spending $385 million for support staff and nothing for new teaching jobs.
"Transportation, which has always been a state function, and they’ve always paid for it out of the general fund, over $21 million is going into school bus transportation," Watson added.
So instead of all the lottery money being added to education spending, it took the place of some education spending. Hart describes it this way: "The lottery was sold as icing on the cake, and over time it’s become more and more of the cake."
The researchers found the lottery provided $870 million for pre-K programs during the decade they reviewed, $1.34 billion for school construction and $366 million for college scholarships. In 2010 lawmakers added a need-based financial aid category as well, which got $11 million to $43 million a year.
Westine, the third researcher, calculated the relationship between lottery revenue and the state’s per-pupil spending over the years. There was no doubt that the amount of lottery money for education kept growing, but this measure was designed to take into account enrollment growth, inflation and the extent to which lottery money simply replaced other spending.
He found no correlation between lottery money growth and increased per-pupil spending. "What we find is that there's really just no impact," Westine said.
Former Governor Isn't Surprised
Mike Easley was governor when the lottery was approved. Now practicing law in Southport, Easley recalls pushing for a lottery as surrounding states launched lotteries for education and North Carolinians bought tickets.
"We were the only state that played the lottery and gave away the proceeds because that’s what we were doing," he said. "We were funding the other states, so I wanted to go on and get one in North Carolina."
He doesn’t regret that. But his reaction to the UNCC professors’ findings?
"It was a big disappointment," Easley said, "but not a surprise."
In interviews at the time, Easley called for a constitutional amendment to lock in how the lottery money would be spent. He warned that otherwise, North Carolina would follow a pattern becoming familiar in other states: Shifting the money to replace existing spending, a move he said would erode public confidence.
In the early 2000s, Easley and other Democrats held power in Raleigh and many Republicans were lottery skeptics. Gov. Bev Perdue, a Democrat, caught flak from Republicans in 2009 when she tapped lottery money to balance the budget. By 2013, Republicans held the governor’s office and dominated the legislature — and they’ve also used lottery revenue for education expenses that used to be funded other ways.
"The people who said, 'No, it’ll get supplanted so I don’t want to vote for it,' are the exact same ones who actually supplanted it in the long run," Easley said.
Big Perception Problem
Ultimately, Watson says the biggest problem may not lie in the nuances of lottery spending, but in the fact that most people have trouble grasping the complexities of education finance.
Lottery advertising tends to emphasize big cumulative numbers. The lottery’s website currently touts $8 billion raised for education in 15 years of lottery sales.
"And that’s where the big perception problem comes," Watson said. "The lottery is so visible and is marketed so well that people have this perception that just gobs and gobs and lots of money are flowing into public schools."
Watson teaches a graduate class in education finance. He often asks his students what they think is the main source of North Carolina’s education budget. Many say it’s the lottery. In reality, he says, "the No. 1 source for state funds is individual income tax. The second source is sales tax. The third source is corporate income tax."
In 2019, the lottery brought in $2.86 billion. About three-fourths of that went toward prizes, commissions, advertising and other administrative costs. That left almost $728 million for education. But that year’s education budget was more than $10 billion. By the time the lottery money was divvied up, with a big chunk going to county commissions to help with school construction costs, the Department of Public Instruction reports that lottery money accounted for not quite 4% of the state budget.
The professors have their own ideas about how to use lottery money, but Watson doubts anyone would want to do away with it now.
"Now that they’ve tasted this revenue, it’d be hard to go back," he said.
Instead, they say, voters and taxpayers need to understand that the lottery isn’t nearly enough to meet the needs of public schools. And they say public officials need to be clear about where the money goes.