US Counties Afraid of Budget Deficits Due to Law Changes on Lottery Distributions

In 2013 the US authorities decided to change the legislature regarding the lottery distributions, therefore currently some of the affected counties are worried that their budgets will be short.

The change, which was introduced in the US gambling laws, removed the requirement that 40% of lottery revenues should go for school construction under local control, 50% was allocated to class-size reduction and the last 10% to college scholarships.

The legislators were used to changing this distribution since 2009, so that they could compensate for drastic state budget deficits. Finally, last year, they managed to eliminate the formula completely, and still kept the condition that lottery revenues will be used for “education-related purposes”, which will be defined in each two-year budget.

Hard situation for some counties

Pete Brunstetter, Forsyth County Republican, co-chair of the Senate Appropriations committee, said for the gambling news representatives that the change is “just a cleanup of Lottery Act language.” He along with other supporters of the change commented that it just reflected the reality of the lottery money usage.

USA counties concerned about big deficits, due to changes in the legislature about lottery distributions

• So far 40% of the lottery revenues went for school construction

• 50% was allocated to class-size reduction

• 10% to college scholarships

On the other hand, the opposers of the new language, like Rockingham County, considered that the change will most probably cause deficits in this year’s budgets. Local authorities are already trying to find a solution for this hard situation by offering potential rising of taxes and reducing services.

Lance Metzler, Rockingham County Manager, explained that the main reason for the possible new mechanisms, is the fact that districts have taken loans to build schools, counting on the fact that they will receive all of the 40% lottery revenues, which would have been used towards the debt. Unfortunately for these counties, under the current legislation, they will receive only 22%.

More complications

Moreover, legislators also put an end to the set-aside from the corporate income tax, which was also used to help the funding of school construction, which caused even more reduction of the amount of money available to cover the debts.

Metzler explained that Rockingham County spent around $46 million in the last couple of years on school construction projects, therefore its debt is quite high.

The North Carolina Association of Country Commissioners calculated that the total loss from the set-aside corporate income tax and the lottery revenues is approximately $5.5 million in Rockingham County, since the 2009-2010 fiscal year. In Forsyth County the amount is $21.1 million and in Guilford County – $28.8 million.

Metzler calculated that the deficit from the debt in each of the next two years will be around $1 million. He added that it’s still unclear if the county's commissioners will decide to address the shortfall, but there will definitely be rising in revenues and cuts in service expenses.

Metzler said: “It's like at your own home, when you have an extra debt you weren't expecting that you have to pay. You have to cut something else you're doing or increase your income.”

Ray Jeffers, the president of NCACC and Commissioner of Person County, also commented that the counties have invested smart the lottery funds dedicated to school construction.

Jeffers presented the calculations that from 2006, when the Education Lottery started, up until June 2013, NC counties used around $806 million from the lottery funds, which is around 93% of the received funds. He added that there was almost nothing saved and the need for funds is still present.

Jeffers commented, “As our population continues to grow, the demands for new schools and renovations to existing facilities are increasing, making it imperative that counties continue to receive a significant share of lottery revenues.”

Unclear future

Metzler also stated that in addition to the deficits, the changes in the legislation will probably raise the borrowing costs in the future, because new debts will be riskier, due to the lack of lottery funds.

Not surprisingly, Metzler and other county representatives initiated a meeting with the state legislators, trying to persuade them to return the old funding formula, however, they didn't get any promises.

Metzler added that he doesn’t think that relying on the lottery funds, when taking debts, was a mistake for the counties: “When something is a general statute, that's the law. It's something you should be able to count on.”