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Following the money: How much of NC Education Lottery funds go to education?

WLOS Asheville/Greenville logo WLOS Asheville/Greenville 9/9/2021 Kimberly King
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North Carolina’s Education Lottery generated a record $936 million for public schools, scholarships and education in 2021. But a News 13 investigation has found some mountain counties are shut-out of the tens-of-millions in lottery grants other counties can get to build huge new schools.

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Caption: Following the money: How much of NC Education Lottery funds go to education?

Macon County Schools Superintendent Chris Baldwin said his district has never been able to access millions in the “needs-based” grant program overseen by legislators. Because the county doesn’t have enough local capital from property tax revenue, Franklin High School, with buildings dating back 70 years, has never been replaced.

“A lot of times, there are leaks from the air conditioners overhead,” Franklin High maintenance supervisor Rick Scott said.

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Buckets catch ceiling drips in the high school cafeteria. Exposed pipes can be seen above the leaks

“That was probably put in years ago,” Scott said.

The campus has multiple levels, buildings and breezeways where students must go outside and then walk back in other buildings. School officials deem it a safety concern if there ever was an emergency on the grounds where all students needed to go inside and be accounted for.

Other issues include an inability to get cell phone calls out of some of the older buildings should there be a school emergency. The campus also isn’t very handicap accessible.

“My physical challenges are stairs sometimes, and doing doors,” said Franklin High School sophomore Patrick Faetz, who has cerebral palsy.

Modern schools have automatic door push buttons. Faetz said walking the school’s numerous hallways, going from building to building, class to class and climbing stairs can sometimes get exhausting.

“I could use an elevator, absolutely,” Faetz, 16, said.

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But other mountain school districts have reaped the benefits of multi-million-dollar North Carolina Education Lottery grants. McDowell County Schools received $15 million in lottery funds to help build the new Old Fort Elementary School in 2018. Rutherford County Schools received a $15 million grant in 2019 to build a new Rutherford-Spindale Middle School.

Mitchell County Schools received $15 million for a new elementary and middle school, though the project was put on hold because of rising construction costs and delays Superintendent Chad Calhoud said happened when the district had challenges finding land on which to build.

“I do think the way the money’s distributed for construction is unfair,” Baldwin said. "Three-hundred-thousand dollars per year won't go very far in improving the facilities.”

News 13 confirmed through North Carolina Department of Education documents that Macon County received $325,856 for capital construction costs in 2020. That allotment came from a different pot of lottery funds, based on student population in a district over a school year.

The other needs-based school construction program was created by North Carolina legislators in 2017 to help districts that didn’t have enough local revenue from property taxes to build. Each year, districts categorized as distressed can apply for the “needs-based” funds if the counties are a Tier 1 or Tier 2 county. Those counties are deemed distressed. The fund utilizes a Tier 1, Tier 2 and Tier 3 categorization for districts using a state formula that factors in economic issues.

“As long as we're identified as a Tier 3 county, it means you're economically successful, that works against you,” said Gary Shields, a Macon County commissioner and former principal at Franklin High.

The state’s budget, where a revamping of the needs-based formula could take place, is still not passed.

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Baldwin said the tier system isn’t fair to counties like Macon, where two affluent areas, including Highlands, bump the county out of the distressed tier status.

“Most of the residents in Macon County are not as economically successful as is reflected by that tier status,” Baldwin said.

“The tier system in North Carolina clearly is not working,” State Sen. Chuck Edwards said.

Edwards is working with other Republican lawmakers to create a new formula that would allow more North Carolina counties to apply for construction grants. But it still may not happen.

Proposals put forth in recent months by state legislators included letting all but five of the state’s richest districts access the needs-based construction funds.

The NC Education Lottery set records for revenue during the COVID-19 pandemic, which lottery spokesman Van Denton said included $234 million more than what was expected. Denton said, under current law, that surplus money could go into the Needs-Based Public School Capital Fund. But the budget is still being reviewed, and the current law could get revised.

Record lottery revenues

The North Carolina Education Lottery raised a record $936 million for education programs in fiscal year 2021. Record ticket sales resulted in $3.8 billion in revenues during the pandemic.

And while lottery staff have successfully generated year-to-year revenue growth since 2006, when the Education Lottery began, the percentage state legislators have allocated for public schools has steadily gone down. Starting in 2007, the percentage earmarked for education was at 36%, according to lottery records. A chart provided by the Education Lottery shows the steady erosion of that percentage to below 30% by 2011 and below 25% by 2019. While the percentage has gone down, with hundreds of millions in increased revenues, millions going to education have also gone up.

“You can’t spend a percentage,” Edwards said. “And I think the conversation needs to turn from what the percentage is to what the dollar amount is we’re generating for education in North Carolina. But the question remains, if revenues are increasing, why legislators haven’t focused on keeping a steadier percentage for schools so that even more millions could be going to help education. Georgia legislators have focused on doing that as legislators over time whittled down the percentage of the state’s education lottery going to education moving it closer to a 30% allotment of the total pie. The lottery commission is investing more in prizes and more incentives for retailers to sell the lottery tickets."

“I think that that doesn’t make a whole lot of sense, considering they want to call it an education lottery and not even half of it is going towards education,” Franklin High senior Claire Holland said.

Still, the senior who wants to go into the medical field hopes to land a North Carolina lottery scholarship.

“I’m aware there are scholarships from the lottery. But, honestly, I haven’t heard a whole lot about it at our school. I don’t really know of anybody that's ever gotten a scholarship from the lottery,” Holland said.

NC LOTTERY RAISES A RECORD $936 MILLION TO SUPPORT EDUCATION

News 13 has learned scholarship recipients' names are kept secret to protect privacy. And while legislators have allotted millions to go to college scholarships, News 13 has learned the average scholarship is just more than $1000 per student.

Students aren’t awarded scholarships based on achievement but rather need. According to state records, in 2019-20, all 22,255 eligible students got funding totaling $23,343,258.

While North Carolina doesn’t release names, South Carolina’s Education Lottery site prominently displays some of its scholarship recipients as part of it’s advertising and branding for where that state’s lottery monies go.

Millions of dollars have gone to schools and education, but there are still state leaders who have strong feelings about issues with a state operating a gambling entity like a lottery.

“There was this overhanging thing about would the money really go education,” said State Rep. Susan Fisher, who in 2006 originally opposed the lottery.

She ultimately voted for it with conditions.

“That a minimal amount of money be spent on advertising,” Fisher said.

Over the decades, the specific percentage earmarked for construction of schools has dropped from about 40% of the education budget from the lottery to 23%. But legislators have put about $100,000,000 towards the capital construction pot for the past several years.

Still, there are mountain school district superintendents who think legislators need to keep a steady percentage in the long-term for school construction since that was the goal when the lottery began.

$3.8 billion revenues NC Education Lottery:

  • 64.62% - Prizes $2.46 billion
  • 24.56% - Education $936 million
  • 6.91% - Retailer commissions and incentives $263 million
  • 1.89% - Gaming system services and licenses $72 million
  • 0.73% - Lottery salaries, wages, benefits $27,908 million
  • 0.75% - Lottery advertising $28 million
  • 0.46% - Lottery administration $17.451 million
  • 0.08% - Lottery responsible gaming initiatives $3.1 million

Current allocations of Lottery Education dollars go to the following six pots:

  • Pre-K program for low-income families
  • Construction of schools
  • College scholarships and school grants
  • Salaries for substitute teachers and custodians
  • Transportation fuel and driver salaries

“In North Carolina, our commission and the lottery staff strive to strike the right balance on prizes and to keep administrative expenses low so that it can maximize how much it raises each year for education,” lottery spokesman Van Denton said. “That strategy has paid off significantly for education. In its first year, when the lottery was restricted, it only achieved $885 million in sales and only raised $315 million for education. As the lottery improved its product and the prizes it pays to players, it became more popular, sales increased, and the money raised for education increased too.”

Denton said administrative expenses have been 4.5% or less, and in recent years were 4%, including advertising, which is less than 1 percent.

“The lottery is proud of its efforts to keep administrative expenses low," Denton said.

Fisher said the premise of the Education Lottery was to supplement school districts. But, based on current allocations, Fisher thinks it’s supplanting or replacing funding for districts that should come from the state’s general fund for education.

Edwards disagreed, saying he was comfortable with the way the funds are being allocated.

News 13 spoke with more than 10 district superintendents, some of whom agreed with Fisher that lottery funds are being used to prop up district operating costs, making school budgets dependent on lottery money.

Still, lottery funds make up a small percentage of what the state funds for schools. Over the years, the lottery has been used to help pay teachers, for “digital learning” in 2014 and to covering a Medicaid shortfall in 2011.

In Macon County, Baldwin simply wants to help his students get a new school he thinks they’re entitled to, just like students in other districts.

“I think it's a bit of a mislabel to call it the Education Lottery, when I’m told only 17-24% actually goes to schools,” Baldwin said.

North Carolina lawmakers, not lottery officials, decide how dollars are allocated from year to year.

To reach Kimberly King with an investigative tip email her at: kmking@wlos.com

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