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RALEIGH — When lawmakers created the lottery in 2005, supporters pledged the state-run gambling enterprise would be additional money for education and not take the place of tax dollars.

Lottery opponents were skeptical of that promise from the beginning, and they say the $19 billion budget the General Assembly approved last week leaves little doubt that lottery revenue will be used to replace lost education money rather than provide new funding for public schools.

“If anybody still had some vestige of hope of the lottery not supplanting, they should be able to let go of that,” said Sen. Phil Berger, an Eden Republican who opposed the lottery’s creation.

This year’s budget does three things that could be interpreted as shifting lottery funds to replace state tax dollars:

• $35 million in unclaimed lottery prize money and excess receipts will be held to help fill a potential $518 million gap if Congress does not provide an anticipated but as-yet unapproved boost to Medicaid funding.
• $63 million has been shifted away from school construction into class-size reduction, a program used to make sure teacher-to-student ratios don’t balloon in lower grades.

Class-size reduction is one of four uses specified in the original lottery law, but money put into the program mingles with tax dollars, making it hard to parse what is a supplement versus a replacement for school funding in the best of times. With lawmakers cutting funding for schools, the distinction is even more blurry.

• The budget authorizes counties to shift what they do get in school construction funding to pay for classroom teachers. School districts that decide to make such a shift would be using lottery money to replace lost state-level funding.

When asked about shifting local lottery funds from construction needs to paying teachers, Laurie Hogan, a spokeswoman for Guilford County Schools, said administrators have not yet seen this budget provision nor have they approached school board members with the potential for making the switch.

“History shows with other states that we have to be careful here or it will become a giant shell game,” said Les Merritt, who was state auditor when the lottery was crafted. At the time, the Republican warned then-Gov. Mike Easley, a Democrat, that there were insufficient safeguards in place to ensure lottery funds wouldn’t be abused.

“It was very easy to stick to the plan when there was plenty of money coming in,” Merritt said. “None of those promises meant much.”

Those “promises” were written into the original lottery law, but the General Assembly rewrites reams of law every year, including the state budget.

“I don’t think there were very many people, even at the time, on either side of the debate who believed those promises,” said Rob Schofield, with N.C. Policy Watch, which characterizes itself as a progressive think tank.

Budgets over the past five years have eroded the idea that lottery funds would “supplement not supplant,” he said, but “this most recent budget puts the nail in the coffin of that argument.

“The lottery has become what we always thought it would be — just another source of revenue for the state, a very regressive and ill-conceived way to raise money.”

By any standard, there is not plenty of money coming into state coffers now. Budget writers have had to pare state-funded spending and could be forced to grapple with a $3.5 billion deficit next year.

Faced with cutting funding for classrooms or reshuffling lottery funds, Democratic leaders said the decision was easy.

“We’ve tried very hard to make sure it (lottery money) is 100 percent going for education,” House Speaker Joe Hackney said. “These are hard times, and it may be that innovation and saving teaching positions is a higher priority at this time.”

Rep. Maggie Jeffus, a Greensboro Democrat and one of the lead House budget writers, said she wouldn’t even characterize the use of lottery funds as supplanting.

“It depends on how you look at it,” she said. “I would say no. I would say also we’re in extremely unusual circumstances this year, and they warrant some unusual decision-making.

“As far as using the lottery money to retain teachers, I think its certainly better to retain jobs and keep the teachers in the classrooms to educate students.”

Gov. Bev Perdue cast the deciding vote to create the lottery when she broke a tie in the Senate as lieutenant governor in 2005.

“I said I would watch out for supplanting — I meant that,” Perdue said last week. But, she said, the economy has been slow to bounce back and as a result, the state needed to do things it ordinarily would not.

“Sometimes you have to do what you have to do,” Perdue said. 

Contact Mark Binker at (919) 832-5549 or mark.binker@news-record.com