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Way back when the lottery was created in 2005 lawmakers thought they ought to keep tabs on this new money maker for the state. They also thought they ought to keep tabs on their future selves to make sure they actually spent the money on education rather than filling the gaps during some unforeseen fiscal crisis. So they appointed a Lottery Oversight Committee staffed folks who were neither lottery experts nor lawmakers.

The result has been a kind of predictable forum where reports from various agencies are reviewed, everyone gets a hearty handshake and goes about their business. So it was kind of unusual today to see the committee get its hackles raised over the lottery reserve fund.

The fund was designed as a $50 million buffer so that there would be cash on hand in case the state-sponsored gambling enterprise experienced an off quarter and some program funded by lottery dollars needed a boost. (Lottery proceeds are split along a statutory formula between school construction, class size reduction, pre-kindergarten programs and college scholarships.)

Elizabeth Grovenstein, assistant state budget officer for education, was telling the committee about the past year of economic turmoil. And she told them that during the height of the crisis, Gov. Bev Perdue used the $50 million reserve fund along with several other pots of cash, to keep the state afloat.

That fund stayed empty until sometime after the new fiscal year when a new infusion of lottery cash put $16.6 million back in. But the fund hasn’t gotten back to $50 million.

“So is there an intent to repay that into the fund?” asked committee member Ronald Copely.

Grovenstein told the committee that the current version of the state budget will keep the account low “until the new biennium” in 2011.

“I’m not clear on that,” Copely asked again. “Does that mean there will be a repayment or will there not be a repayment?”

Grovenstein tried again, telling the committee that if the reserve fund was repaid, the programs supported by lottery proceeds would see less money. As well, much of the cash Perdue gathered from the lottery account and others went to pay for teacher payrolls, so you might be able to argue that the funds sort of went for their intended purpose of funding education. (Although, it's equally fair to point out that "making payroll" was not among the four statutorily authorized uses of lottery proceeds.)

Committee members seemed unconvinced.

“There is a requirement that a certain amount of this goes into the lottery reserve,” said Myron Coulter.

In the end, committee members had to settle for how the reserve fund might be repaid.

It turns out the Lottery Commission the people who actually run the games – were overly conservative in their revenue estimates for the year. As a result, the commission anticipates they’ll transfer $50 million more than originally budgeted to the state.

Brian Matteson, a staffer with the legislature’s Fiscal Research Division, explained lawmakers could use that money to replenish the reserve fund and head of a pending food-fight of the equity of lottery fund distributions. (A quirk in the law as it is written now would divide the $50 million among the systems where local taxpayers are putting the LEAST amount of money into their schools, pretty much the opposite of how the law is supposed to be structured.)

Committee members seemed to be happy with that explanation and I’d expect they’d pass it on the General Assembly as a recommendation.

Of course, it would be fair to point out that not every fund Perdue raided last year has a statutorily created oversight committee to advocate for its replenishment or a dedicated source of revenue.