Lottery payoffs fall short for expected school funding

— Last year, North Carolina's governor, Mike Easley, finally delivered on his promise to start a lottery, making his state the most recent of the 42 states and the District of Columbia to cash in on legalized gambling.

If some voters in this Bible Belt state frowned on Easley's push to introduce gambling, others were persuaded by his argument that North Carolina's students were missing out on as much as $500 million in aid annually as residents crossed the border to buy lottery tickets elsewhere.

"Our people are playing the lottery," the governor said in an address two years ago that was a prelude to the creation of the North Carolina Education Lottery. "We just need to decide which schools we should fund: other states' or ours."

Pitches like this have become popular among lawmakers who, since states began legalizing lotteries more than 40 years ago, have sold gambling as a savior for cash-starved public schools andother government programs. Lotteries have raised billions of dollars, and of the 42 states that have them, 23 earmark all or some of the money for education.

For years, those states have heard complaints that not enough of their lottery revenue is used for education. Now, a New York Times examination of lottery documents, as well as interviews with lottery administrators and analysts, finds that lotteries accounted for less than 1 percent to 5 percent of the total revenue for kindergarten-through-12-gradeeducation last year in the states that use this money for schools.

In reality, most of the money raised by lotteries is used simply to sustain the games themselves, including marketing, prizes and vendor commissions. And as lotteries compete for a small number of core players and try to persuade occasional customers to play more, nearly every state has increased, or is considering increasing, the size of its prizes - further shrinking the percentage of each dollar going to education and other programs.

State lotteries raised more than $56 billion and returned $17 billion to the state governments last year. They spent more than $460 million last year on advertising, making them one of the nation's largest marketers. The 197,000 retailers that sell lottery products earned $3.3 billion in commissions in 2006.

Lottery advocates say the games live up to their public mandate. According to the North American Association of State and Provincial Lotteries, $234 billion has gone into state coffers since the first modern lottery was started in New Hampshire in 1964.

But among the states that earmark lottery money for education, lottery dollars accounted for 1 percent or less of the total elementary and secondary education financing (including all state, federal and local revenue) last year in at least five states, including New Jersey. New York had the highest percentage, 5.3 percent.

Five states - Georgia, Kentucky, New Mexico, South Carolina and Tennessee - direct lottery dollars primarily to college scholarships. North Carolina and Florida also give some money to scholarships.

At least five states - California, Missouri, New Jersey, Ohio and Washington - channel lottery money to higher education as well as elementary and secondary schools. In these states, too, lottery proceeds amount to less than 5 percent of the total education financing.

In at least four states - California, Illinois, Michigan and Texas - lottery dollars as a percentage of elementary and secondary education money has declined or remained flat over the last decade.

In California, for example, the lottery in 1985 accounted for almost 5 percent of all K-12 education dollars. Today, it makes up less than 2 percent, or about $1 billion, of the $54 billion the state spends on K-12 education, according to the California Budget Project, a nonprofit research group in Sacramento.

As the California Department of Education noted in its State Fact Book two years ago: "Although the public still perceives the lottery as making a significant difference in the funds available for education, it is a minor source that cannot be expected to provide major improvements in K-12 education."

Some state lotteries have fallen short of projections. In North Carolina, where officials were expecting the lottery to generate $400 million to $500 million a year for education, revenue reached just over $300 million in its first full year of operations. In Oklahoma, officials expectedschools to receive $52 million last year from the lottery, but the final tally was $15 million less.

Also, the portion of lottery money going to state programs is shrinking. When Missouri passed its lottery in 1985, it required that at least 45 percent of all proceeds go to the state, and the number went as high as 52 percent. Legislators revised the law, and the state now gets slightly less than 30 percent of proceeds. The Times review of documents from all 42 states with lotteries and the District of Columbia found that nearly all have increased payoutsand lowered the percentage going to programs. And those that have not changed their payout formulas are considering doing so.

Lawmakers and lottery officials defend the practices, saying schools and other programs still benefit from the extra money raised by lotteries.

"Too much of the focus is on percentages," said Gardner Gurney, acting director of the New York lottery. "My focus is on dollars. You can't spend percentages."

In 2000, New York state kept 38 percent of its lottery revenuefor education. That share has dropped to 32 percent, but the dollar amount rose from $1.3 billion in 2000 to $2.2 billion last year.

But Jerry McPeak, a Democratic state representative from Oklahoma, said states, including his own, that have committed to a certain percentage should not lower that number.

"I think if you pass a lottery and tell people that a certain proportion of those dollars are going to something like education, then you ought to keep your word," he said.

Front Section, Pages 5 on 10/07/2007

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