News-Record.com

Both Americans for Prosperity and The Civitas Institute issued statements today condemning the lottery following the release of its first fiscal year audit. (For more on the audit, including a link, click here.)

From the AFP Release:

On behalf of grassroots membership of Americans for Prosperity-North Carolina, State Director Francis De Luca today called on Governor Mike Easley, Lottery Commission Chairman John McArthur and Executive Director Thomas Shaheen to explain why the NC Lottery has chosen to offer fat bonuses to lottery executives while not fully funding gambling addiction treatment.

“Governor Mike Easley and the North Carolina Lottery are busy creating new gamblers but are not funding the promised treatment for addicted gamblers,” said De Luca. “They have made a choice to offer big bonuses rather than treat compulsive gamblers. There should be no bonuses (already in excess of $1 million) until the lottery folks first give the Department of Health and Human Services the full $1 million they are required to give for Gambling Addiction Programs. Only $2,274 has been transferred to DHHS for gambling addiction programs so far!”

De Luca is calling for a public explanation of why the percentage of lottery revenue going to education is lower (27%) and the percentage going to prizes was higher (57%) than what was in the legislation authorizing the lottery. (35% and 50% respectively)

“The grassroots membership of AFP-NC wants an immediate explanation of why bonuses take priority over mental health services for problem gamblers, and why the full 35% is not going to fund education.”

First off, the 57 percent figure given for the prize payout is wrong, unless you cheat a little bit with the math. It’s closer to 51 percent.

Basically, the audit report covers the first nine months of there being a lottery organization and the first three months the lottery was selling tickets.

And it is perfectly fair and accurate to say that during that time, the lottery only transferred about 27 percent of its earnings to education.

I asked the lottery for a response. Deputy Director Alice Garland wrote this:

The first year of operation included 7 months of operations and 3 months of selling tickets. So that 3 months of revenues coming in had to cover 7 months of expenses going out. In addition, there were significant one-time start-up costs, including purchasing vehicles, computers, furniture, etc. I don’t think anyone expected the lottery to make the 35% the first year. In fact, the Legislature did not appropriate any lottery dollars in FY06 to beneficiary programs—a clear indication that the lottery was not expected to return 35%. Our first transfer of FY07 was slightly higher than 35%.

That’s a fair response, but AFP spokesman Dallas Woodhouse points out that the law doesn’t give any grace period for the first few months of operation and the lottery’s own website doesn’t make mention of a grace period.

I think it’s fair to expect the lottery to lag a little bit during its first quarter of operation, and it might be more fair to wait until March 30, 2007 and look at a full year of operations before jumping on them. But AFP and Civitas are advocacy groups that don't like the lottery, so they're unlikely to show any such forbearance.

The other area where AFP and Civitas criticize the lottery is that it did not transfer a promised $1 million to gambling addiction programs. Rather it paid about $2,274 to DHHS for those programs, far short of even what would have been a pro-rated amount of $225,000.

Again, from Garland:

This program is fully funded in FY 07. DHHS was not ready to receive the full appropriation in FY06. We have funded what they have requested. We worked closely with them at start-up and were very responsive to their needs.

The bottom line here is, I think, that both groups have a fair if not fatal criticism about the lottery. And if it was anything other than a highly controversial state-sponsored gambling enterprise, no one would be batting an eye right now. But, it is a controversial state sponsored gambling enterprise, so one can expect these sorts of criticism to continue.

More in Friday’s paper.