spotlight 405 just not worth the gamble: the nc education lottery's many problems have a common...

8/7/2019 Spotlight 405 Just Not Worth the Gamble: The NC Education Lottery's many problems have a common solution

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spot lightNo. 405 – February 2, 2011

J ust N ot W orth the G ambleThe NC Education Lottery’s many problems have a common solution

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t he North Carolina Education Lottery was created in August 2005 and began selling Scratch-O tickOver the next ew months and years, the lottery quickly added games, including the multi-state PowMega Millions.

Who b n f rom h Nor h c rolin edu ion Lo r ?

The nominal purpose o the lottery is to raise money or public education. Fi ty percent o lottery toward class-size reduction and the More at Four program, 40 percent goes toward school construction, maining 10 percent goes toward college scholarships.1

The lottery was sold as a way to boost education spending in North Carolina,2 but that has historically been“ alse promise” o education lotteries to their states. In their study o 11 state education lotteries in the 19associate pro essor o mathematics Donald E. Miller and associate pro essor o political science Patrick Mary’s College ound that

The popularity o lotteries and legalized gambling is based in part on their claim to painlesslyprovide additional revenue to needed state unctions. The most popular purpose to which theserevenues have been devoted is education. However, we have demonstrated that these are alsepromises or education. States are likely todecrease their growth o spending or educationupon operating a lottery designated or that purpose. Furthermore, the decrease in the rate o growth is a long-term unction o lottery adoption that occurs regardless o revenue generatedby the lottery.3 (Emphasis in original.)

On closer examination o the lotteries’ impact on education spending, Miller and Pierce ound wha“an even more perverse portrait”: this long-term decline in education spending ollowed an immediate in spending growth. Education spending spikes initially, citizens and policymakers in er the lottery is depromised, and education spending overall declines in the ollowing years.4

igur 1. annu l Grow h in unding, Publi s hool v . h R o h G n r l und, y 1996-2010



3

Most revealing, Miller and Pierce fnd that

Regardless o the state or the time at which its lottery operated, educational spending declinedonce a state put a lottery into operation. Hence, the pattern o a declining rate o spending isnot simply an arti act o state fscal problems in the 1980s. The present analysis indicates thatstates without lotteries maintained and increased their educational spending more than stateswith lotteries.6 (Emphasis in original.)

Miller and Pierce conclude that lottery revenue is not used to increase education spending, and as to wrevenues go, they note that “lottery revenue constitutes a very small percentage o total revenue” and po

unds replace general revenue. In short, they fnd that

To conclude, lottery revenue is unlikely to materially increase unding or education--and per-haps any other purpose. However, such revenue has political returns or governors that aresignifcant.7

Lottery unds going to replace general revenue (also called supplanting) rather than supplement educating is a problem that has overtly dogged the NC Education Lottery rom its onset, just as critics predicte8 In early2006, be ore the frst lottery ticket was even sold, Gov. Mike Easley announced that hal o the expectedrevenues would go to replace current education spending.9 In 2009 Gov. Bev Perdue trans erred $50 million rLottery Reserve into the General Fund, as well as $37.6 million intended or school construction (later ret10

By 2009 the problem had gotten so bad that some state legislators sponsored legislation to remove “rom the name o the North Carolina Education Lottery, out o concern or truth in advertising.11 In 2010, WRAL p

igur 2. compon n o h G n r l und, y 1996-2010 5

Public education, lottery trans ers, stimulus unds, and the rest



lished a report entitled “Lottery is replacement, no addition in school budgets,” which ound that “since theestablished … [education] spending slowly increased, but the actual percentage o the general und allotttion has dropped.”13

This report looked at how state spending on public (preK-12) education and the rest o the General Funthe 15-year period rom Fiscal Year (FY) 1996 to FY 2010, with the lottery years highlighted. The resul1 show that, per Miller and Pierce, the rate o growth in education spending spiked early in the lottery’sbut since then education spending — despite being supplemented by not only the lottery but also, in FY 20stimulus unds — has declined at a markedly aster rate than has the rest o the General Fund.1

Figure 2 o ers a year-by-year look at the General Fund, with preK-12 education spending highlightelustrates that North Carolina as an education lottery state boasts the very problems that Miller and Pierce obthe 11 education lottery states they studied — a declining rate o spending or education, especially in comthe rest o the state budget. (Note: This nding isnot to argue that increasing the rate o spending is itsel the improving preK-12 education in North Carolina. It is instead to contrast with the promises o lottery propto test the lottery according to its own standards rst. For ways to improve preK-12 education through mouse o scarce resources, see the discussion and notes listed under Item 1 under “Conclusion and Possible the end o this report.)

Who plays the lotte y?

A 2007Spotlight report on N.C. lottery sales ound that “property tax rates, unemployment rates and povewere the best predictors o a county’s lottery sales to adults.”15With the counties su ering under the varying ethe deep recession, the predictive actors o especially unemployment and poverty are graver now, but witmore entrenched, they remain the best predictors o a county’s lottery sales.

This report analyzed N.C. lottery sales per adult in each county in conjunction with county poverty rathousehold incomes, unemployment rates, and property tax rates. It also examined counties according to t

Table 1. Lotte y sales, pove ty, une ploy ent, and p ope ty ta es n No th Ca ol na,by county econo c d st ess level, FY 2009 12

Top 10lottery

counties

NCaverage

Tier One counties(most economically

distressed)

Tier Twocounties

Tier Three counties(least economically

distressed)

Lottery sales per adult $389 $180 $211 $197 $159

Povertyrate 22.8 % 1 .6 % 20.3 % 15.6 % 12. %

Medianhouseholdincome

$35,109 $ 6,57 $36,188 $ 2,776 $51,550

Unemploymentrate 11.8 % 10.6 % 12.2 % 10.7 % 9.6 %

Property tax rate

(cents per $100valuation) 71.72 61.67 68.09 56.79 58.69



5

Table 2. Lotte y sales, pove ty, une ploy ent, and p ope ty ta es nT e One ( ost econo cally d st essed) count es, FY 2009 16

KEY: Top 10 lottery counties named in ALL CAPS BOLD

Ranks amongthe bottom hal o counties

Ranks amongthe bottom 25 counties


Tier OneCounty

Sales peradult,FY09

Statewiderank

(1=highest)

Povertyrate2008

Statewiderank

(1=highest)

Est. medianhousehold

income, 2008

Statewiderank

(1=lowest)Unemploymentrate, 2009 avg.

Statewiderank

(1=highest)

Countyproperty tax

rates, 2009-10

Statewiderank

(1=highest)

Alexander $98.63 86 12.7% 81 $ , 60 68 1 .3% 12 $0.6050 Alleghany $106. 7 82 18.5 30 $33,82 15 11. 39 $0. 300 Anson $20 . 5 33 23. 11 $3 ,012 16 1 .8 6 $0.89 0Beau ort $285.22 11 19.1 27 $38,6 1 0 10.9 53 $0.6000Bertie $272.68 13 23.3 13 $31,375 10.5 56 $0.7800 1Bladen $270.62 1 2 .0 7 $29,0 3 1 11.7 33 $0.7 00Burke $169.55 53 15.5 5 $37,225 31 1 .5 10 $0.5200 7Caldwell $1 5.51 67 15. 56 $ 0,966 52 15. 5 $0.6599Camden $117.31 78 8.7 99 $56, 2 95 8.0 95 $0.5900 6Caswell $1 6.00 66 18.9 29 $39,693 8 12.6 21 $0.6290Chowan $153.86 62 18.5 31 $38,330 38 11.1 8 $0.6850

Clay $ 5.52 99 15.2 57 $38,0 9 3 11.2 5 $0. 300Cleveland $155.97 61 17.5 0 $39,0 9 1 .6 9 $0.7200Columbus $202.7 35 21.9 20 $33,329 10 12. 25 $0.8150EDgECOmBE $379.15 22.6 16 $33,3 6 11 16.1 2 $0.8600Gates $85.19 91 15.7 52 $ ,737 72 7. 98 $0.6 00Graham $69.30 96 17.7 38 $32,835 9 16.1 1 $0.5800 6Greene $175.92 50 21.7 21 $38,530 39 10.6 55 $0.7560 2HALiFAx $ 01.02 3 23.7 9 $31, 95 5 13.1 17 $0.6800 3Hert ord $239.26 23 22.7 15 $3 ,131 19 9.3 78 $0.9100HYDE $376.33 5 22. 17 $3 ,868 21 8.3 92 $0.5200 7Jones $2 2.57 21 18.0 35 $38,672 1 10.2 66 $0.7000 3LENOir $363.5 6 23.5 10 $32, 57 8 11. 38 $0.8000 1mArTiN $325.79 9 23. 12 $35,072 22 10.3 61 $0.6700Mcdowell $152.23 6 1 .6 65 $37,39 33 1 .8 7 $0.5500Mitchell $85.29 90 17.2 2 $35,195 23 11.8 32 $0. 00Montgomery $2 3. 6 20 19.6 26 $37,180 30 13.0 19 $0.6200Northampton $22 .25 26 26.6 $31,05 3 10.9 52 $0.7800Richmond $203.53 3 23.7 8 $30,7 3 2 13.3 16 $0.8100Robeson $220.85 27 30. 1 $31, 99 6 11. 37 $0.8000Rockingham $187.16 1 16.2 6 $38,267 37 12.9 20 $0.7150Ruther ord $133.30 69 16.8 $36,866 29 15.6 $0.5300Scotland $20 . 7 32 27.6 2 $33,36 12 16.1 3 $1.0200Surry $98. 7 87 15.9 8 $37,282 32 12.1 29 $0.5820 6TYrrELL $305.99 10 26.9 3 $31,732 7 10.3 60 $0.6700

VANCE $ 25.72 2 25.7 5 $3 ,093 18 13.1 18 $0.7820 1Warren $173.70 52 2 . 6 $33,632 13 12.5 23 $0.6000 5WASHiNgTON $3 2.09 8 23.2 1 $3 ,027 17 11.2 $0.7900Wayne $250.28 18 18.3 33 $39,93 9 9.0 82 $0.76 0Wilkes $130. 5 71 20.9 23 $3 ,692 20 12.2 26 $0.5700Tier averages $211.09 20.3% $36,188 12.2% $0.6809 (per $100 valuation)



6

Tier TwoCounty

Sales peradult,FY09

Statewiderank

(1=highest)

Povertyrate2008

Statewiderank

(1=highest)


income, 2008

Statewiderank


Statewiderank

(1=highest)

Countyproperty tax

rates, 2009-10

Statewiderank

(1=highest)

Alamance $228.99 25 15.8% 50 $ 3,769 6 12.0% 31 $0.5200 Ashe $102.00 8 15.8 9 $35,689 2 11. 0 $0. 250 Avery $95.18 88 17.6 39 $36,8 28 8.8 8 $0.3900Catawba $205.55 31 13.8 77 $ 3,737 63 1 . 11 $0.5350Cherokee $78. 6 92 17.9 36 $33,6 5 1 1 .6 8 $0.3850Craven $2 7.39 19 1 .9 62 $ 5,7 7 75 9.8 70 $0.6100Cumberland $25 .67 17 15.8 51 $ ,658 70 9.2 79 $0.7660Currituck $153.10 63 9.7 96 $55,7 5 9 7.0 99 $0.3200 9Dare $132.11 70 9.3 97 $55,122 92 9.6 75 $0.2600 9Davidson $158.71 60 1 .5 67 $ ,136 66 12.6 22 $0.5 00Davie $121.06 76 10.8 93 $52, 08 90 11. 2 $0.6200Duplin $282. 12 20.5 2 $36,682 27 9.1 80 $0.6900Franklin $2 1. 3 22 1 .1 69 $ 6,189 78 10. 59 $0.8225Gaston $177.70 6 15.1 59 $ 6,265 79 1 .0 13 $0.8350Granville $269.61 15 13.7 79 $ 8, 68 8 10.3 6 $0.8250Harnett $166.86 55 15.2 58 $ 3,626 62 11.1 9 $0.7250 2Haywood $1 2.93 68 1 .5 66 $39,0 2 3 9.8 69 $0.51 0Hoke $192. 6 37 19.6 25 $ 0,351 50 8. 89 $0.7000Jackson $109.3 80 16.9 3 $ 1,506 53 8.5 87 $0.2800Lee $26 . 16 13.9 73 $ 5,297 73 13.7 1 $0.7500Lincoln $1 7.00 65 12. 86 $ 9,7 3 86 13.6 15 $0.5700Macon $72.50 9 13.8 7 $38,989 2 10. 58 $0.26 0Madison $38.96 100 17.7 37 $38,077 36 9.7 71 $0.5100 7NASH $ 37. 9 1 15.5 55 $ ,719 71 12.5 2 $0.6700Pamlico $201.03 36 16.3 5 $ 2, 79 5 9. 76 $0.6525Pasquotank $18 .90 3 17.3 1 $ 3,135 61 9.6 73 $0.5850Perquimans $86.28 89 18.1 3 $39, 77 6 10.1 67 $0. 100Person $206.39 30 13.7 78 $ ,630 69 11. 1 $0.7000Pitt $237.88 2 22.0 19 $ 0,7 2 51 10.3 62 $0.6650Polk $70.5 95 12.3 87 $ ,362 67 8.8 85 $0.5200 7Randolph $122. 0 75 1 .1 68 $ 2, 80 55 11.5 36 $0.5550Rowan $177.30 9 15.6 53 $ 3,096 60 12.2 27 $0.5950Sampson $21 .7 28 22.1 18 $38,065 35 8. 88 $0.8 50Stanly $160.58 59 12.7 83 $ 5,673 7 11.7 35 $0.6700Stokes $129.20 72 1 .9 60 $ 2,958 59 10.5 57 $0.6000Swain $66.77 97 16.1 7 $36,382 26 11.3 3 $0.3300 9Transylvania $10 .11 83 12. 85 $ 2,608 56 9.0 83 $0.39 9Watauga $78.06 93 18.9 28 $39, 90 7 7.5 97 $0.3130 9WiLSON $359.0 7 21.0 22 $39,285 5 12.1 30 $0.7300 2 Yadkin $100.12 85 13.8 75 $ 2,77 57 10.3 63 $0.7 00 Yancey $58.71 98 18. 32 $35,707 25 11.7 3 $0. 500Tier averages $196.95 15.6% $42,776 10.7% $0.5679 (per $100 valuation)

Table 3. Lotte y sales, pove ty, une ploy ent, and p ope ty ta es n T e Two count es, FY 2009 16







7

ment o Commerce’s economic development tier designations. Tier One counties are considered the most

distressed; Tier Three, the least economically distressed.17

Table 1 provides an overview o tier lottery sales per adult in 2009. The statewide average o lotteradult was $180. The average o lottery sales per adult in the most economically distressed counties in theOne) was higher, at $211 per adult, as was the average in Tier Two counties ($197 per adult). The least ecdistressed counties had lottery sales below the statewide average ($159 per adult).

The top 10 counties in terms o lottery sales averaged $389 per adult, over twice the statewide averagthe ten counties (Edgecombe, Hali ax, Hyde, Lenoir, Martin, Tyrrell, Vance, and Washington) were amoneconomically distressed counties in the state. The other two (Nash and Wilson) were among Tier Two coun

Compared with the state average, these counties had a ar higher poverty rate (22.8 percent vs.1 .6higher unemployment (11.8 percent vs. 10.6 percent), lower incomes, and much higher property taxes.

Tables 2 through look at county-by-county lottery sales per adult, poverty rate, median household incoployment rate, and county property tax rate. A ew highlights:

The average poverty rate in Tier One counties, where lottery sales were highest, was a whopping 20.3 p

Unemployment and property tax rates were highest in Tier One counties, and median income levels we

Poverty and unemployment rates were successively lower in Tier Two and Tier Three counties, and lolikewise stepped down. Median income levels successively increased in Tier Two and Tier Three coun

•

•

•

Tier ThreeCounty

Sales peradult,FY09

Statewiderank

(1=highest)

Povertyrate2008

Statewiderank

(1=highest)


income, 2008

Statewiderank


Statewiderank

(1=highest)

Countyproperty tax

rates, 2009-10

Statewiderank

(1=highest)

Brunswick $165.31 56 11.9% 88 $ 6,686 80 11.0% 50 $0.3050Buncombe $12 .10 7 13.9 72 $ 3,805 65 8.6 86 $0.5250Cabarrus $177.38 8 9.9 95 $56,7 7 96 11.2 7 $0.6300Carteret $207.18 29 11.8 89 $ 9, 3 85 8.2 93 $0.2300 1Chatham $179.06 5 10.3 9 $57,677 98 8.1 9 $0.6022 5Durham $191.59 39 13.8 76 $51,292 89 7.9 96 $0.7081 3Forsyth $167.59 5 1 .9 61 $ 7,318 81 9.7 72 $0.67 0Guil ord $186.16 2 13.6 80 $ 7,836 82 11.0 51 $0.737Henderson $108.85 81 12.7 82 $ 6,0 7 76 9.1 81 $0. 620Iredell $161.73 58 11.6 90 $50,971 87 12.2 28 $0. 50 8Johnston $192.00 38 12.7 8 $52, 3 91 10.1 68 $0.7800

Mecklenburg $127.88 73 10.9 92 $57,293 97 10.8 5 $0.8387Moore $17 .3 51 11.6 91 $ 8,250 83 9.6 7 $0. 650New Hanover $187.59 0 1 .0 70 $51,098 88 9. 77 $0. 525Onslow $177.50 7 1 .8 63 $ 6,186 77 8. 90 $0.5900Orange $117.6 77 13.9 71 $55,522 93 6.6 100 $0.8580Pender $181.60 1 .8 6 $ 2,872 58 11.2 6 $0.6500Union $11 .20 79 8.6 100 $62, 78 99 10.3 65 $0.6650Wake $162.19 57 9.2 98 $65, 87 100 8. 91 $0.53 0Tier averages $158.60 12.4% $51,550 9.6% $0.5869 (per $100 valuation)

Table 4. Lotte y sales, pove ty, une ploy ent, and p ope ty ta es nT e Th ee (least econo cally d st essed) count es, FY 2009 16







8

Analys s

In short order the North Carolina Education Lottery has become, by design, a very visible contributor tounding in the state. By that act, it would seem to be irreplaceable. Nevertheless, by virtue o observab

trends and the recurrence o supplanting, the lottery contributes nounique fow to education unding.However redundant, the lottery is also a state unding source that many North Carolinians nd immo

either religious belie or concern or social justice or both. Perceived immorality o the lottery is no smallthat it is a state monopoly; i.e., something endorsed and promoted under the aegis o the State o Nortwhose name it bears.

Certainly a ree society allows many private enterprises to fourish despite their being regarded by maas wrong. Government is neutral towards those enterprises, as it should be. I goods, services, real propeinvolved, the government becomes involved inso ar as they are taxable.18

Furthermore, in generating tax revenue — as opposed to “pro t” revenue — rom any private enterprisavoids taking upon itsel the high administrative costs o conducting the enterprise itsel .19As it is, the lottery requirabout three dollars to produce one dollar or education (that is without accounting or supplanting).20 In other word

the state has erected a very costly system o capturing money rom citizens that converts a rather small pinto education unding. But when accounting or supplanting, it is essentially an expensive machine to raisvarious public programsoutside o education.

Many concerns arise any time a government engages in market activities. O top importance is askinthe activity is a proper role o government. Protecting the lives, rights, and property o its citizens are wition a government’s primary reason or being. Protecting markets, establishing the rule o law, having a wcitizenry, and having an e cient transportation system are among the other generally accepted governme

Some o those ancillary government roles involve providing things that could be achieved in the priva— including such things as education, roads, public parks, water, sewage, etc. Usually doing so involves nenues but rather providing the good to the public at or (usually) below cost, with taxpayers bearing the rest. ally held assumption is that the public bene t o having those goods widely available outweighs the cost in providing them.

Then there is the curious case o government monopolies on goods not generally held to be bene cial nor provided at or below cost. In North Carolina, those would include, or example, the Alcohol Beverage Csystem and the lottery.

Since 2010, deregulating the ABC system has become a viable option or N.C.21 Many ABC proponents aragainst it on the basis o maximizing state revenues, but research and results in other states have shown thalation would not necessarily a ect revenue rom liquor sales negatively.22 O course, the ABC system wasn’t setgrow state revenues, but to restrict citizens’ access to “demon rum” in the a termath o the 21st AmendmeConstitution, which repealed Prohibition.

The lottery, on the other hand, was set up speci cally to raise revenue or a speci c purpose (regardo ten that purpose is thwarted).23 Nevertheless, it has led to calls to restrict citizens’ access to other orms o especially the ast-growing sweepstakes ca es. (As o this writing, the state’s recent ban on sweepstakes g2 is stilbe ore the North Carolina Court o Appeals. Guil ord County Superior Court Judge John Craig ruled thathe law banning video sweepstakes was overbroad and constituted a prior restriction on ree expression. the appellate court denied the state’s request or a stay o that ruling and declined to ast-track the case.25)

The interests o maintaining the monopoly here thwarts the evolution o a market, leaving those citize



9

Carolina who wish to gamble stuck not only with the orm o gambling with the worst odds o winning,one that tends to lose the public’s interest over time regardless o prize amounts26 and is increasingly subject to wresearchers call “lottery atigue.”27

State lotteries’ tendency to lose the public’s interest over time also likely exacerbates their negative education spending.

con lu ion nd Po ibl R orm

The issues surrounding the North Carolina Education Lottery may seem intractable, but i anything, theto get thornier over time.

The clearest and best solution is to eliminate it now.end h lo r nd r urn o mor hon , di-r orm o du ion unding . The state lottery has not become an irreplaceable unding source in short years o its existence.

Furthermore, the state budgeting process is itsel in dire need o overhaul, with the state acing adefcit o 17 percent o the General Fund28 and an inability to pay $43.4 billion in promised health and p

benefts to state employees.29

Spending re orm as it pertains to education would center on li ting thecharter schools, making better use o technology, expanding the North Carolina Virtual Public School30 wideninschool-choice options, including virtual schools as well as virtual charter schools (which should be exeenrollment restrictions),31 decreasing the administrative overhead o public school systems while aligninnel changes more closely to enrollment changes,32 paying teachers or meritorious per ormance in the class3removing barriers to state certifcation to expand the pool o qualifed teachers,34 and rethinking the ine ecDropout Prevention Grants program,35 among other ideas.

Ending the lottery would address concerns about its taking advantage o the poor and unemployedquestions (including as a state monopoly), as well as its ine ectiveness at supplementing education

Another route would be tod r gul g mbling in Nor h c rolin , which would allow gambling industridevelop and compete in the state,36 including not just the sweepstakes ca es but also Internet poker,37 private casnos,38 horseracing, etc. Those industries would contribute to job creation39 and also, through responsible taxatto education and the General Fund. It would remove the state rom being a seller (the only seller) orelated materials,40 which is no worthwhile role or any government to have.

Having gambling deregulated in North Carolina would countermand the keeping-up-with-the-Joneor a state lottery (the silly idea that a North Carolinian buying a lottery ticket in another state had e

withheld money rom North Carolina’s public schools, which was a staple41 o Gov. Mike Easley’s speeches), wider market would no doubt attract gambling enthusiasts rom other states.

Deregulating gambling would address the concerns over the lottery’s ine ectiveness at supplemen

tion unding and whether the state should be a monopoly provider o gambling goods. Still, deregulatin North Carolina would continue to draw opposition on moral grounds, but that could not possibly be as a vote o confdence in the state lottery. There are reasons to oppose a state lottery without being ano legalized gambling — but it would require some twisted logic to oppose legalized gambling whilestate lottery.

Short o repealing the lottery, state leaders could at least address the issue o lottery unds not beingtively by choosing tor orm h lo r o o u du ion pro d mor iv l .

1.

2.

3.



10

Toward that end, John Locke Foundation Director o Education Studies Dr. Terry Stoops has arguollowing re orms:

Eliminate unding or class-size reductions, which the state’s own assessment has shown has nostudents’ academic per ormance

Eliminate unding o other unproven programs, such as Smart Start and More at FourIncrease unding or school construction

Fund school construction cost-saving incentives

Provide unding or all public schools, including charter schools42

In short, doing absolutely nothing about the lottery would be the worst o all possible outcomes. Jon Sanders is Associate Director o Research at the John Locke Foundatio

end No1. For the trans er o net revenues o the North Carolina Education Lottery, see §18C-164, North Carolina General Statutes,www.ncga.state.

nc.us/EnactedLegislation/Statutes/HTML/ByChapter/Chapter_18C.html .2. E.g., “’This goes a long way toward solving our problems,’ said House Speaker Jim Black, the Matthews Democrat who largely

the passage [o the lottery in the House] in hopes o recouping more money or the state’s schools” (Mark Johnson and Shari places bet on lottery,”Charlotte Observer , April 7, 2005); “supporters o a Tar Heel lottery [said that] North Carolina’s numbers gamsupplement current education spending” and “The lottery law passed last summer included a promise that proceeds wouldn’t repeducation revenue” (“Lottery’s promise,”The News & Observer , Feb. 15, 2006).

3. Donald E. Miller and Patrick A. Pierce, “Lotteries or Education: Wind all or Hoax?”,State and Local Government Review , (1997) Vol.29, pp.34-42,www.saintmarys.edu/~ppierce/pierce51.html ; see also discussion in Peter Schmidt, “Experts Question States’ Reliance oGambling Revenue to Support Education; the Social Costs Are High, They Say: They charge lawmakers engage in a shell game,

little new money or schools andcolleges,” The Chronicle o Higher Education

, Sept. 13, 1996, p. A40.4. Ibid.

5. Under “Public education budget,” the amounts or “Lottery trans ers” donot include scholarship unds, which go to college-bound studand there ore are included instead in “The rest o the General Fund;” also, the FY 2010 budget or North Carolina includes $3

ederal American Recovery and Reinvestment Act stimulus unds or K-12 education (out o over $1.6 Billion in ederal stimbudget); see Joseph Coletti, “Budget Crisis Is Opportunity: Bigger budget or FY’11 shows need or policy re orm,” John LocSpotlight No. 395, July 20, 2010, johnlocke.org/research/show/spotlights/246 .

6. Miller and Pierce,op. cit., note 3.7. Ibid.

8. Among them it is worth quoting rom a sta editorial rom the Fayetteville Observer on April 6, 2005, which was prescient. Entitled “DiThis Class” and subtitled “Our View: From any perspective, the state’s commitment to education is taking a sharp turn or the weditorial states,

I we do get a lottery, it won’t be used as the governor and top legislators have promised — as additional unding, a supplement that willhelp us achieve even greater educational improvements. I the lottery means to ll the budget short all and avert a disastrous demolitiono educational progress, then we will gain nothing. It’s just one more dedicated und that betrays its own name — a new revenue streamthat the governor and legislature will use as they please.

9. “Easley O fcials: Lottery Money Will Replace Some School Spending,” WRAL, Feb. 14, 2006,www.wral.com/news/local/story/1091447 . Notalso that the Easley administration’s projections o lottery sales were highly optimistic, as the total lottery proceeds or educatiover $283,000 (with only about $75,000 going to More at Four), North Carolina Education Lottery, FY ‘07 Benefciary Brochurewww.nc-

educationlottery.org/about_where-the-money-goes.aspx .10. “Editorial: Perdue’s lottery grab violates state’s promise,” News & Record , March 4, 2009,www.news-record.com/content/2009/03/03/

article/editorial_perdues_lottery_grab_violates_states_promise ; Amanda Vuke, “Lottery Funds Continue to Be Diverted or UnauthorPurposes: Few sa eguards to prevent raids by General Assembly, governor,”Carolina Journal Online , Aug. 25, 2010,www.carolinajournal.com/articles/display_story.html?id=6778 ; “Perdue Fully Restores School Lottery Funds,” press release, O fce o Gov. Bev Perdue, 2009,www.governor.state.nc.us/NewsItems/PressReleaseDetail.aspx?newsItemID=594 (note that the unds were withheld in February 2and restored in August 2009 without interest).

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11. Mike Charbonneau, “Raid on lottery unds prompt call or name change,” WRAL, March 10, 2009,www.wral.com/news/local/politics/story/4708703 .

12. County lottery sales fgures: the North Carolina Education Lottery Commission; adult population: the North Carolina State Demo fce,www.osbm.state.nc.us/demog/countytotals_agegroup_2009.html ; poverty rates and estimated median household income by counU.S. Census Bureau, Small Area Income and Poverty Estimates,www.census.gov/did/www/saipe/county.html ; average unemployment ra2009, by county: North Carolina Employment Security Commission, eslmi40.esc.state.nc.us/ThematicLAUS/cl asp/CLFAASY.asp ; countyproperty tax rates, 2009-10: N.C. Department o Revenue,dornc.com/publications/propertyrates.html .

13. Cullen Browder, “Lottery is replacement, no addition in school budgets,” WRAL, May 10, 2010,www.wral.com/news/local/wral_investigates/story/7561544 .

14. See note 5.15. Joseph Coletti, “Eastern NC’s Lottery Bug: Counties with higher taxes and unemployment play more,” John Locke FoundationSpotlight No.

316, March 21, 2007, johnlocke.org/research/show/spotlights/165 .16. See note 12.17. The N.C. Department o Commerce annually ranks the state’s 100 counties based on economic well-being and assigns each a T

designation. The 40 most distressed counties are designated as Tier One, the next 41 as Tier Two, and the 19 least distressed as T(www.nccommerce.com/en/BusinessServices/SupportYourBusiness/Incentives/CountyTierDesignations2010.htm ).

18. Those taxes would, in a ree society, be based on sound principles o taxation. See Dr. Roy Cordato, “Re orming the Sales Taxliberty, prosperity, and sound principles o taxation,” John Locke FoundationSpotlight No. 394, July 12, 2010, johnlocke.org/research/show/spotlights/245 .

19. See Dr. Roy Cordato’s explanation or measuring the administrative costs o a state lottery against its usable revenue, containeTax: State Lottery Is Ine fcient Way to Collect Revenue,” John Locke FoundationSpotlight , Feb. 27, 2001, johnlocke.org/research/show/spotlights/38 .

20. In FY 2010, the requirements or the base budget or the NC Education Lottery proceeds was $1,220,574,690 (North CarolinaRecommended Operating Budget 2009-11, General Fund, Department o Commerce, p. 294), while the lottery distributed $400education (North Carolina Education Lottery, FY ‘10 Benefciary Brochure,www.nc-educationlottery.org/about_where-the-money-goes.aspx ).

21. Gov. Bev Perdue recently came out against deregulating liquor sales in North Carolina (see Cullen Browder and Renee Chou, “Popposes privatizing liquor sales,” WRAL, Jan. 20, 2011,www.wral.com/news/local/politics/story/8971783 ), but the issue itsel is still bethe legislature (see Lynn Bonner and Rob Christensen, “Privatizing ABC system will be a legislative issue,”The News & Observer , Jan. 21,2011,www.newsobserver.com/2011/01/21/934181/privatizing-abc-system-will-be.html ).

22. Geo rey Segal and Geo rey Underwood, “Divesting the Pennsylvania Liquor Control Board,” Testimony to Pennsylvania SPolicy Committee, April 18, 2007,reason.org/ les/ 7 7554148c4ea620727a4243e7d49020.pd .

23. In terms o sound principles o taxation, note that the purpose — education — is ar removed rom the unding tool (except, wags’ remarks about lotteries being a tax on the undereducated).

24. House Bill 80, “Ban Electronic Sweepstakes,”www.ncga.state.nc.us/gascripts/billlookup/billlookup.pl?Session=2009&BillID=H80 , passedJuly 10, 2010, and signed into law by Gov. Bev Perdue on July 20.

25. See Hest Industries, Inc. v. State o North Carolina, www.wral.com/asset/news/state/2010/11/29/8696624/Sweepstakes_ca e_ruling.pd ;also see “Appeals court won’t delay sweepstakes ruling,” WRAL, Jan. 7, 2011,www.wral.com/news/state/story/8900823 .

26. Dr. Michael L. Walden, “How ‘Elastic’ Are Lottery Sales,”Carolina Journal Online , Aug. 20, 2007,www.carolinajournal.com/opinions/display_story.html?id=4259 .27. Lottery atigue is well discussed in the research literature; a brie explanation is given in, e.g., Sarah David Spears, “Ad agenci

lottery,” Atlanta Business Chronicle , Feb. 27, 2006,www.bizjournals.com/atlanta/stories/2006/02/27/story3.html : David Forrest, an economist with the Centre or Study o Gambling at the University o Sal ord in the United Kingdom, studies lotteriesall over the world. He said most lotteries start out strong due to the novelty o the product, but lag a ter 10 years or so as the public gets‘lottery atigue.’ ‘The general picture in the U.S. seems to be that lotteries are always threatened with this boredom,’ Forrest said.

28. “North Carolina’s FY 2011-12 Budget Gap,” Fiscal Brie , Fiscal Research Division o the North Carolina General Assembly, Dwww.ncleg.net/ scalresearch/ rd_reports/ rd_reports_pd s/Fiscal_Brie s/Fiscal%20Brie _%20FY%202011-12%20Budget%20Gap.pd ; alsosee Joseph Coletti, “Budget Crisis Is Opportunity: Bigger budget or FY’11 shows need or policy re orm,” John Locke FoundSpotlight No. 395, July 20, 2010, johnlocke.org/research/show/spotlights/246.

29. “Financial State o North Carolina As o June 30, 2010,” Institute or Truth in Accounting, Jan. 10, 2011,northcarolina.statebudgetwatch.org/ les/2011/01/NC-2010-Tri old-2.pd .

30. See Dr. Terry Stoops, “Good Classroom ‘Disruption’: Use the Internet to expand educational options in rural school districts,” J

FoundationSpotlight No. 396, Aug. 16, 2010, johnlocke.org/research/show/spotlights/247 .31. Ibid.

32. Dr. Terry Stoops, “No Bureaucrat Le t Behind: N.C. Public Schools Add Sta at a Much Faster Rate Than Enrollment,” John LFoundationSpotlight No. 373, May 28, 2009, johnlocke.org/research/show/spotlights/224 .

33. Dr. Terry Stoops, “Per ormance Pay or Teachers: Increasing Student Achievement in Schools with Critical Needs,” John Lock Policy Report , September 2008, johnlocke.org/research/show/policy reports/175 .

34. “School Standards and Testing,” John Locke Foundation Agenda 2010 , johnlocke.org/agenda2010/schoolstandardsandtesting.html ; “TheFirst 100 Days: Eleven Action Items or the 2011 Legislative Session,” John Locke Foundation, johnlocke.org/research/show/policyreports/224 .

35. Dr. Terry Stoops, “Dropout Prevention Grants: Legislators Need to Rethink Their Approach to the Dropout Problem”, John LockSpotlight No. 371, May 24, 2009, johnlocke.org/research/show/spotlights/222 .



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36. See, e.g., Cullen Browder, “Gambling becoming a sa er bet in N.C.,” WRAL, Jan. 27, 2010,www.wral.com/news/local/wral_investigates/story/6899807 :

Once taboo in North Carolina, gambling appears to be a growth industry.

The casino on the Cherokee reservation in the North Carolina mountains, which already draws 2 million people a year, is expanding, as isthe North Carolina Education Lottery, which will join the Mega Millions multi-state lottery game next week.

As law en orcement waits or legal guidance – a challenge to the state ban on video poker will likely go be ore the Supreme Court this year

– the gaming industry continues building its market share in the state. The newest rontier is in so-called sweepstakes ca es, which areopening across North Carolina. …

37. Pending legislation in Cali ornia would legalize Internet poker in that state; a casinos group commissioned a study o the issuethey claim, in short order raise over $100 million per year in state revenues. See Sajid Farooq, “Forget Cellphones; Casinos Say P Answer to State’s Budget Woes,” NBC Bay Area, Jan. 14, 2011,www.nbcbayarea.com/news/politics/Forget-Cellphones-Casinos-Say-Poker-Is- Answer-to-States-Budget-Woes-113497784.html .

38. Op. cit. , note 35, second quoted paragraph.39. In the sweepstakes ca es industry alone, estimates range rom 5,800 to 10,000 people employed. In 2010 alone, approximately

sweepstakes ca es opened in strip shopping centers statewide. See Cullen Browder, “Sweepstakes ca es look or way around stWRAL, Nov. 29, 2010,www.wral.com/news/state/story/8696624 , and Bryan Mims, “Luck runs out or employees o sweepstakes caWRAL, Nov. 26 , 2010, www.wral.com/news/state/story/8688369 . Furthermore, opportunities or expanded horse breeding and traininindustries could potentially beneft rural communities in North Carolina.

40. With the exception, o course, o the casino on the Cherokee reservation, which is another issue entirely.41. A ew examples:

The truth is, North Carolina is already unding smaller classes and education improvements. Un ortunately, we’re unding them in otherstates ... in Virginia, in Georgia, and soon in South Carolina and Tennessee. We are spending hundreds o millions o dollars — NorthCarolina’s dollars — to build new schools in other states, while we’re packing our kids in trailers at home. We are the only state that playsthe lottery and gives away the proceeds.

I want to keep North Carolina’s money in North Carolina’s schools or North Carolina’s children. Those resources could, and should, stayhome. Now I am not saying a lottery or education is the only solution, it’s just one solution. I anyone has a better idea ... i anyone hasanother way to nd the $400 million to $500 million or education, I am open to it.

— Gov. Mike Easley, State o the State Address 2001,www.stateline.org/live/details/speech?contentId=16092 .

Tonight, I tell you that we are also paying or schools in South Carolina and soon in Tennessee.

When you are sitting here this year, struggling with the budget, just remember that your colleagues in 39 other states have a revenuesource that you do not have. That makes it more di cult or you to improve education and keep taxes down.

Now I heard you loud and clear last year that you do not want a lottery in the budget. But now you hear me — and a strong majority o our people — loud and clear. We want to keep North Carolina education money in North Carolina.

— Gov. Mike Easley, State o the State Address 2003,www.stateline.org/live/details/speech?contentId=16176 .Since I delivered my rst state o the state address, hundreds o millions o North Carolina dollars have gone to education in SouthCarolina, Georgia, Virginia and Tennessee. Our people are playing the lottery. We just need to decide which schools we should und, otherstates or ours.

I am or unding our schools.

— Gov. Mike Easley, State o the State Address 2005,www.stateline.org/live/details/speech?contentId=16618 .

42. Dr. Terry Stoops, “A Lottery That Helps Students: How Lottery Proceeds Should Be Spent or Education,” John Locke FoundatSpotlight No. 280, Feb. 15, 2006, johnlocke.org/research/show/spotlights/127 .

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