North Carolina Education Lottery: Education Program Funding and Legislative Update Brian Matteson NC General Assembly Fiscal Research Division Brianm@ncleg.net 1 April 12, 2012
Overview Lottery Education Program Funding Refresher Appropriations History 2010-12 Legislative Action Actual Funding by Program and County 2 April 12, 2012
Programs Receiving Lottery Net Revenues The NC Education Lottery (NCEL) provides support to counties and postsecondary students: Pre-K Funds provided to county on behalf of 4-year old students Class Size Reduction (K-3) Funds provided to local education authority (school district) School Construction (Pre-K-12) Funds provided to county and are spent with mutual agreement of county commissioners and school board College Scholarships (Postsecondary) Funds are earmarked for needy students and are delivered through NC postsecondary institutions on student s behalf 3 April 12, 2012
Determining Lottery Funds for Education Original Lottery Act Statute (S.L. 2005-344) set initial guidelines for allocating revenues: 50% for Prizes 35% for Education Programs 15% for Administrative Costs (8%) & Retailers (7%) It also created a Lottery Reserve Fund Initially fully funded at $50 million (1 st year revenues) Budget office allocates public school program funds to relevant agencies DPI, HHS and NCSEAA administer Lottery funding 4 April 12, 2012
2007 Change to NCEL Revenue Allocation S.L. 2007-323 Change Added flexibility to Lottery revenue distribution To the extent practicable, the The Commission shall allocate revenues to the North Carolina State Lottery Fund in the following manner: order to increase and maximize the available revenues for education purposes, and to the extent practicable, shall adhere to the following guidelines: IMPACT: Commission may set prize percentage over 50% if it will increase total net education transfers HYPOTHETICAL EXAMPLE: Before Change: $930M x 35% = $325M Flexible Percentage (S.L. 2007-323): $1,000M x 33% = $330M Net Change, Return to Education Programs: +$5 million 5 April 12, 2012
NCEL Annual Net Revenues Net revenues have grown every year after the elimination of the 35% requirement FY 2006-11 NCEL Return to Education ($ in Millions) Net Revenues Transferred to Education Programs Total Lottery Operating Revenues Net Revenues As % of Total FY 06 07 899 325.5* 35%* 2.5 FY 07 08 1,092 350 32% 3.5 FY 08 09 1,302 410.9 32% 6.5 FY 09 10 1,426 419.5 29% 18 FY 10 11 1,460 446.9 31% 7.3 Carryover Into Next FY *Approximately $13.5 million additional was carried into FY 06-07 from partial year sales in FY 05-06. The 35% refers only to revenues generated in FY 06-07. 6 April 12, 2012
Allocation of NCEL Education Funding Once Net Lottery Revenues (30-35%) are transferred to OSBM, they were typically allocated for education programs as follows: 50% for Pre-K and Class Size Reduction Particular amounts for each activity not specified 40% for Public School Construction 65% based on Average Daily Membership (ADM) 35% based on local effort 10% for Scholarships for Needy Students 7 April 12, 2012
Lottery Act Allocations The Lottery Act has served as a guidepost for distributing net Lottery proceeds The NCGA may override the distribution guidelines at any time Typically has done so through the annual budget process Following slides reflect suggested Lottery Act distributions 8 April 12, 2012
NC Pre-K and Class Size Reduction 50% of net Lottery revenues dedicated to NC Pre- K and Class Size Reduction No specific percentage required for each program NC Pre-K Lottery funds are combined with General Fund monies to support Pre-K services in counties NC Pre-K Slots are awarded to counties and act as a guarantee for a State payment for a month of services for an eligible child County doesn t receive a Lottery or General Fund slot 9 April 12, 2012
Class Size Reduction Funds support class size allotments of 1 teacher per 17 students in grades K-3 Combined with General Fund support for teachers 25,051 State-supported K-3 teaching positions in FY 2009-10 Lottery proceeds supported 1,828 of those positions, with the remainder supported by the General Fund 10 April 12, 2012
Lottery School Construction Funding Only Lottery program with a two-tiered formula 65% of funds distributed by student headcount (ADM) 35% of funds distributed by local effort Funds are deposited into the Public School Building Capital Fund Both ADM and local effort funds distributed through PSBCF and are subject to most of its rules Only differences from other PSBCF funds: No required 1:3 local match and funds can t be used for technology 11 April 12, 2012
School Construction Formula Typical Distribution: Fictional Example Overall total funding appropriated at $350M Allocate 40% for construction $140M ADM Funding: 65% of $140M $91M distributed to Counties based on student count Local Effort Funding: 35% of $140M $49M 12 April 12, 2012
Lottery School Construction--Local Effort Allotment Formula Three steps to allocate Local Effort funding: 1. Determine effective county tax rate (ECTR) 2. Compare all county s ECTR to Statewide average ECTR and every county with an ECTR above the Statewide average is eligible 3. Distribute funds to eligible counties based on ADM 13 April 12, 2012
Funding Availability General Assembly appropriates annual funding levels for Lottery proceeds Based on estimates of availability from NCEL, State Budget and Fiscal Research Division Use of Education Lottery Reserve If available revenues fall below the appropriated amounts, the Governor may transfer an amount from the Reserve to equal the appropriation When revenues exceed appropriation 50% to Public School Building Capital Fund and 50% to NCSEAA for scholarships 14 April 12, 2012
Appropriations History: FY 05-06 & 06-07 The Lottery was started in 2005 and was only in operation for part of FY 2005-06 It generated $63 million in net revenues for education $50 million went to fill the Lottery Reserve and the remaining $13 million was carried into FY 2006-07 FY 2006-07 Process First full year of implementation NCGA appropriated $425 million in anticipated revenues according to Lottery Act 15 April 12, 2012
Appropriations History: FY 2006-07 While the NCGA appropriates Lottery net revenues at the beginning of a fiscal year, there is no guarantee the estimates will be realized. Funds were appropriated amongst the four programs in accordance with the Lottery Act guidelines FY 2006-07 #1: Budgeted #2: Actual Program $ % Of Total Program $ % Of Total Classroom Teachers 127,864,291 30.1% Classroom Teachers 79,123,036 24.3% More at Four 84,635,709 19.9% More at Four 84,635,709 26.0% School Capital 170,000,000 40.0% School Capital 131,006,996 40.2% Scholarships 42,500,000 10.0% Scholarships* 30,767,411 9.5% Total Funding 425,000,000 100.0% Total Funding 325,533,152 100.0% 16 April 12, 2012
Appropriations History: FY 2007-08 FY 2007-08 #1: Budgeted #2: Actual Program $ % Of Total Program $ % Of Total Classroom Teachers 90,364,291 25.8% Classroom Teachers 90,370,483 25.8% More at Four 84,635,709 24.2% More at Four 84,635,709 24.2% School Capital 140,000,000 40.0% School Capital 140,004,954 40.0% Scholarships 35,000,000 10.0% Scholarships 35,001,238 10.0% Total Funding 350,000,000 100.0% Total Funding 350,012,384 100.0% Funds were appropriated amongst the four programs in accordance with the Lottery Act guidelines 17 April 12, 2012
Appropriations History: FY 2008-09 FY 2008-09 #1: Budgeted #2: Actual Program $ % Of Total Program $ % Of Total Classroom Teachers* 108,114,291 28.0% Classroom Teachers 110,176,846 26.7% More at Four 84,635,709 22.0% More at Four 84,448,134 20.5% School Capital 154,200,000 40.0% School Capital 162,262,428 39.3% Scholarships 38,550,000 10.0% Scholarships 38,962,511 9.4% Lottery Reserve (non-add) 19,750,000 -- Lottery Reserve 16,576,050 4.0% Total Funding 385,500,000 100.0% Total Funding 412,425,969 100.0% Budget directed $19.75m to be transferred from Lottery Reserve to Classroom Teachers to cover a shortfall Governor declared budget emergency and $50 million reserve was redirected to other education purposes. $16.6 million of these funds were restored at year-end Budget also required that all counties received the same amount of School Capital funding per pupil 18 April 12, 2012
Appropriations History: FY 2009-10 FY 2009-10 #1: Budgeted #2: Actual Program $ % Of Total Program $ % Of Total Classroom Teachers 99,399,395 27.0% Classroom Teachers 99,399,395 23.7% More at Four 84,635,709 23.0% More at Four 84,635,709 20.2% School Capital 147,228,083 40.0% School Capital** 179,109,129 42.7% Scholarships 36,807,021 10.0% Scholarships 56,140,338 13.4% UNC Need-Based (non-add) - 0.0% UNC Need-Based (non-add) 19,333,317 Lottery Reserve - 0.0% Lottery Reserve - 0.0% Total Funding 368,070,208 100.0% Total Funding 419,284,571 100.0% FY 10-11 Budget made several modifications to FY 09-10 allocations in response to projected $51m windfall: Allocated $32 million in overages to School Capital so that every county received same per-pupil funding ($125/ADM) Set-aside $19.3 million to support UNC Need-Based Aid awards to be made in FY 10-11. These grants are not the same as the Lottery Scholarships 19 April 12, 2012
2010 Legislative Action In its FY 10-11 Budget (S.L. 2010-31) the NCGA also made some significant policy changes to how it appropriated FY 2010-11 projected net revenue: For the first time, it did not allocate funds according to the 50-40-10 guidelines in the Lottery Act It also allocated $35 million in FY 09-10 and 10-11 net revenues to cover a possible Medicaid funding shortfall caused if anticipated Federal funding was not realized S.L. 2010-31, Section 2.3 laid out a priority order directing the Director of the Budget to transfer certain resources to cover a shortfall if all or some of the Federal funds went unrealized 20 April 12, 2012
2010 Legislative Action (con t) Only $343 million of the $518 million in anticipated Medicaid funding was realized, requiring some net Lottery proceeds to be redirected The Lottery funding source is identified as, unclaimed Lottery prize money and excess receipts. $26.6 million in excess receipts and unclaimed prizes were transferred for this purpose This marks the first and only time the NCGA has authorized the use of Lottery net proceeds for a noneducational purpose While transfer is a departure from Lottery Act, it is allowable 21 April 12, 2012
Appropriations History: FY 2010-11 FY 2010-11 Lottery Act Allocation Guidelines Budgeted Amounts Actual Amounts Program $ % Total $ % Total $ % Total Classroom Teachers 136,038,041 31% 220,643,188 48% 206,667,972 45% Lottery Reserve (non-add) 16,808,076 16,808,076 More at Four 84,635,709 19% 79,635,709 17% 79,635,709 17% School Capital 176,539,000 40% 113,741,929 25% 108,145,132 23% Scholarships for Needy Students 44,134,750 10% 36,807,021 8% 41,943,983 9% UNC Need-Based Aid** - 0% 7,327,729 2% - 0% FMAP Medicaid Transfer 26,615,200 6% Total Funding 441,347,500 100% 458,155,576 100% 463,007,996 94% **Funds made available from Scholarships amount FY 10-11 Budget changed typical net revenue allocation Distributed $84 million more to Classroom Teachers than typical Lottery Act allocation Set-aside $7.3 million ($26.6m combined 09-10 & 10-11) to support UNC Need-Based Aid awards to be made in FY 10-11 22 April 12, 2012
2011 Legislative Action In its FY 11-12 Budget (S.L. 2011-145) the NCGA mostly continued the allocations made in FY 10-11 There was no Medicaid transfer or any other reallocation made for non-education purposes Any overrealized funds allocated to School Capital Lottery Act Allocation Guidelines Budgeted Amounts Program $ % Total $ % Total Classroom Teachers 132,851,106 31% 220,643,188 52% Pre-K (formerly More at Four) 79,635,709 19% 63,135,709 15% School Capital 169,989,452 40% 100,000,000 24% Scholarships for Needy Students 42,497,363 10% 30,450,000 7% UNC Need-Based Aid - 0% 10,744,733 3% Total Funding 424,973,630 100% 424,973,630 100% 23 April 12, 2012
Actual Funding by County Where does the money go? To the counties and scholarship recipients to which Lottery proceeds are earmarked Fiscal Research collaborates with DPI, UNC, SEAA and NCEL to compile an annual accounting of the distribution of Lottery funding Publicly available on NCEL website: http://www.nc-educationlottery.org/uploads/docs/beneficiary_brochure_fy2011.pdf 24 April 12, 2012
Actual Funding by County-Table Excerpt Fiscal Year 2009-10 NC Education Lottery Expenditures by County Class-Size Reduction Sch. Capital More at Four Scholarships TOTAL COUNTY NAME Teachers Expenditures Funding Expenditures 1 Slots 2 Number Spending EXPENDED Alamance County 27.88 1,515,975 2,809,925 1,107,845 229 534 636,667 6,070,412 Alexander County 7.00 380,625 701,101 298,942 62 144 170,090 1,550,758 Alleghany County 1.97 107,119 193,572 168,312 35 42 49,320 518,323 Anson County 4.78 259,913 490,581 401,939 83 75 78,900 1,231,334 Ashe County 3.98 216,413 403,463 404,451 84 93 111,012 1,135,339 Avery County 2.74 148,988 279,687 241,164 50 66 82,046 751,885 Beaufort County 8.79 477,956 901,702 452,182 94 211 215,125 2,046,965 Bertie County 3.43 186,506 366,557 419,524 87 80 87,750 1,060,337 Bladen County 6.46 351,263 644,861 680,785 141 128 148,902 1,825,811 Brunswick County 14.38 781,913 1,478,650 1,062,627 220 255 284,112 3,607,302 Buncombe County 36.89 2,005,894 3,679,114 829,000 172 681 832,932 7,346,940 Burke County 16.42 892,838 1,738,629 1,165,624 241 433 522,851 4,319,942 Cabarrus County 43.39 2,359,332 4,040,898 1,258,572 261 615 751,839 8,410,641 Caldwell County 16.16 878,700 1,633,432 394,403 82 375 441,535 3,348,070 Camden County 2.30 125,063 238,638 90,436 19 41 53,447 507,584 Carteret County 9.63 523,631 1,034,892 477,303 99 209 259,730 2,295,556 25 April 12, 2012