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Lottery will replace $1B in state money 

Bill was changed after passage

When Gov. Mike Easley signed the bill establishing a state lottery, it contained language that supported years of promises he made about the purpose and intent of the new source of revenue: "[N]et revenues generated by the lottery shall not supplant revenues already expended or expected to be expended for those public purposes, and lottery net revenues shall supplement rather than be used as substitute funds."

But when the bill was amended to become part of the budget bill, that language was quietly dropped. Now, budget documents show that lottery money is already slated to replace appropriations from the general fund.

A five-year budget forecast prepared by the North Carolina Office of State Budget and Management states that revenue from the "education" lottery will replace general fund money that is currently funding class-size reduction and More-at-Four, the state's pre-kindergarten education program for poor and at-risk 4-year-olds.

Every year after the budget is passed by the General Assembly, the budget goes through a bond-rating review process to evaluate how creditworthy the state is. A state budget office PowerPoint presentation for the state's bond-rating agency shows that $62.5 million of lottery revenue will replace class-size reduction and More-at-Four appropriations from the general fund this 2005-06 fiscal year. A total of $66 million general fund dollars was originally budgeted for More-at-Four; $137 million was budgeted for class size reduction.

"All of the academic research shows almost invariably that every state that has a lottery for a particular purpose, the lottery has supplanted funds previously devoted to that purpose," says Chuck Neely, an attorney at Maupin Taylor who was a spokesperson for Citizens United Against the Lottery, an organization that formed in 2001 to fight Easley's push for lottery legislation. "It's not surprising to me that this has happened in North Carolina." He continues: "The lottery is going to programs that are already funded by state government. We thought from the very outset that the funds would just go for those purposes."

Dan Gerlach, the governor's senior policy advisor for fiscal affairs, says it had been Gov. Easley's intention all along to replace some general fund money with lottery revenue. "What the governor has said all along is that he never intended that the additional teachers needed to reduce class size and the More-at-Four program be funded through the general fund," he says. "The general money was fronted, kind of like an upfront loan."

In 2002, Easley sidestepped the legislature and issued an executive order mandating expenditures for the More-at-Four and class-size reduction programs in response to Wake Superior Court Judge Howard Manning's Leandro case ruling, which required that the state provide enough money to ensure a sound basic education for all North Carolina children. Manning ordered the state to increase funding to rural and urban counties with high numbers of at-risk students after five poorer counties sued the state, saying the existing system neglected low-wealth schools.

"I think it means that we have been misled about what the lottery means to education," says Chris Fitzsimon, head of the public policy organization N.C. Policy Watch and a former member of Neely's anti-lottery group. "The opponents of the lottery were correct when we said that the lottery wouldn't help education at all. It will simply replace money that's already being spent."

According to the budget office's five-year forecast, $62.5 million of lottery revenues will replace general fund appropriations for More-at-Four and class-size reduction this fiscal year, increasing to $210 million in fiscal year 2006-07, $227 million in fiscal year 2007-08, $246 million in 2008-09, and $267 million in 2009-10. That's a projected total of more than $1 billion in lottery money replacing general fund expenditures over five years.

"The governor had gone to the legislature each year for more money for More-at-Four and for class-size reduction before we had a lottery," says Fitzsimon. "I strongly believe that he would have done that had the lottery never been enacted."

Gerlach acknowledges that the money "would have continued to be fronted out of the general fund until such time that the lottery was put in place."

Gerlach says the general fund dollars the lottery revenue frees up will be put back into education programs like raising teachers' salaries, but it's impossible to predict where the money will go.

Neely, a conservative, says, "It's just another source of funding for government programs." Fitzsimon, a progressive, says, "My big fear is that the money will be used for some sort of tax reduction instead of investing it back into the people of the state, including schools."

"When budget writers sit down to do the budget, they aren't going to be nearly as willing to give the schools more money if the lottery is paying for education spending," Fitzsimon says. "It's true across the board in education programs. It leads the public and others to think that when we're buying lottery tickets, our schools are taken care of."

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