Spotlight Report

One of the most common arguments in favor of a state lottery for North Carolina is that the Virginia Lottery attracts as much as $100 million in lottery ticket purchases from North Carolinians. But this revenue loss is exaggerated and dwarfed by the loss of revenue to out-of-state corporations that North Carolina would experience with a lottery. In reality, Virginia receives at most $34 million in state revenues from N.C. residents, while management fees paid out-of-state for operating a N.C. lottery would be at least $36 million.

As one way of closing the state's ever-widening budget gap, Senate leader Marc Basnight has suggested that the state consider requiring retailers to pay sales taxes by electronic fund transfer rather than by check, thus allowing the state to collect additional interest on the money. This would constitute a hidden but costly tax increase on North Carolina businesses hobbling the state's economy as it slips towards a possible recession. Far better ways to close the gap exist.

Gov. Mike Easley and the General Assembly face half-billion-dollar budget deficits (at least) for FY 2000-01 and FY 2001-02. But the problem need not become a crisis. State leaders now have an opportunity to restructure government programs and rethink state responsibilities. Budget savings previously recommended by Locke analysts would yield nearly $600 million this year and $743 million next year enough to close the gap without raising taxes or increasing state debt.

North Carolina's 1999-2001 budget cycle presents state lawmakers and the Hunt administration with a fiscal challenge — planned spending increases exceed predicted revenues by hundreds of millions of dollars. Some lawmakers and the news media have blamed four years of tax cuts and recent court decisions. This is misleading. By far the biggest cause of the problem was excessive spending growth during much of the 1990s. If state leaders had exercised even modest spending restraint, there would be no fiscal challenge awaiting the state this year.

As state leaders debate yet another proposal for a state lottery this year, they should consider the equity issues raised by using proceeds to fund college scholarships, as done in Georgia and proposed in previous N.C. bills. The family income of freshmen entering a UNC system school averaged $55,000 in 1997, while the median income of UNC-Chapel Hill freshmen was about $75,000.1 By comparison, if a North Carolina lottery follows Virginia's pattern of participation, the median household income of lottery players would be only $29,000.2