Garland: House lottery plan would "seriously impact" lottery sales

by Andrew Curliss, Charlotte Observer, June 19, 2014.

The state’s lottery director said in public on Wednesday the lottery cannot meet a $106 million target set by lawmakers in the state House because they wrote several other lottery restrictions into their plan, undermining a signature part of the House budget that passed on Friday.

The lottery’s target would help finance pay raises averaging about 5 percent for school teachers across North Carolina, under the House plan.

In an interview, Alice Garland, the lottery’s director since 2011, said she expressed concern about missing the target privately to a key House budget writer, state Rep. Nelson Dollar, before the House adopted its spending plan – and that documents were provided to key officials.

She said she was told by Dollar to stay quiet about it.

Dollar, a Wake County Republican, said in an interview that he did not say anything to Garland after she expressed concerns to him last week. He said he believes the lottery can reach the target set by the House and that he acted without seeing anything “in writing” that gave him reason to revise the target.

The House plan relies on turbocharging lottery sales by more than 20 percent through increased advertising statewide. More sales would mean more profits for education. But Garland told lawmakers Wednesday that the restrictions also written into the budget would “seriously impact” lottery sales – and the forecast of profits for the teacher raises.

Garland said the lottery would miss the mark set by the House by about $47 million because of the restrictions.

State legislative and executive budget officials are now meeting to develop a revised consensus on what the lottery could produce under various scenarios. They hope to publish it by Friday.

State senators, who are advocating a different approach to paying for teacher raises, expressed deep concerns about the House plan after hearing from Garland in a committee meeting on Wednesday.

Republicans in the Senate called the House approach “foolishness” and an “absolute disaster.” A Democrat said it was a “gamble on gambling to pay teachers.”

Sen. Jerry Tillman, an Archdale Republican, summed up the sentiment, saying adopting a budget with a $47 million shortfall would be “crazy” and that tying teacher pay to more lottery revenue is “not serious about teacher raises.”

“If you’re serious about raising teacher pay, you won’t tie your hands,” Tillman said.

Senators want to increase teacher pay with a different approach. They would cut teacher assistants in second and third grades, and offer pay raises – averaging about 11 percent – only to teachers who give up tenure.

The teacher pay issue has emerged as a major sticking point among House and Senate leaders as they try to reconcile their competing versions of the state budget. They have begun work to resolve the differences and then present one plan to Gov. Pat McCrory by the end of the month.

Senate uses lottery, too

Dollar said the Senate could be missing the big picture. Already, the state uses lottery money to pay teacher salaries. In recent years, it has amounted to about $220 million a year, records show. That portion of lottery proceeds is generally characterized as money that reduced class sizes, too, because it has been used for teachers in the lowest elementary grades.

Dollar said that the House plan to boost sales through more overall advertising while adding curbs and openness to the games is a refinement of current policy, and should not be cast in dire terms. He pointed out that senators adopted a budget that relies on more than $500 million in lottery proceeds for education.

“My question for the Senate is – if they don’t like utilizing lottery funds for education, then are they prepared now to remove the $505 million in their version of the budget that relies on lottery funds, and $220 million of it going to teacher salaries?” Dollar said. “They are already relying on the lottery for teacher salaries and for their budget.”

Dollar said he was not as concerned as lottery officials about their forecast. He said reserves could cover shortfalls, and he has pointed out that the lottery beat projections in recent years by about $20 million a year.

Questions about the forecast adopted by the House rest on what effect the lottery would see from the restrictions, which were authored by state Rep. Paul Stam, an Apex Republican. He has packaged several reforms into a plan he calls the “honest lottery act.”

Difficult advertising restrictions

His reforms would prohibit the lottery from advertising in connection with collegiate events; require the lottery to post both lump sum and annual payouts when advertising jackpot games; and provide better information on odds.

Garland told senators the restrictions’ purpose was to “put the lottery out of business.”

She said the collegiate ad ban would be especially difficult. North Carolina has some of the nation’s best markets for college football and basketball viewership, and the lottery reaches players that way.

“We would need to buy many spots on programs with lesser audiences to replace the value of the ads during this prime viewing time,” Garland said. “Spending more to receive the same return is inefficient.”

She said billboards and other signage would have to be adapted to carry out the lump sum requirement. As it is now, the lottery advertises only the largest jackpot amount – which is paid only if winners accept an annual annuity. Most don’t, choosing to receive a lump sum payout that is much lower.

Displaying both prize amounts would be costly, Garland said, and confuse players and hurt sales. The lottery estimates that listing two amounts would reduce sales by about $40 million – which would cost about $15 million in profits for education.

Dollar said providing honest information about jackpots should not be so difficult and serves to keep the games from being deceptive.

“They are admitting that if they have to disclose the correct odds and the actual payout amounts that it would impact the sales,” Dollar said. “That’s what they are saying. I think that is an admission on their part that folks ought to reflect on.”