A select committee of the North Carolina Senate will consider the lottery bill approved on Wednesday by the N.C. House.
N.C. Senate President Pro Tem Marc Basnight, D-Dare, said he expects a lottery bill to pass. The Senate has approved lottery legislation in past years only to watch the bills die in a closely-divided House.
A lottery may shift spending priorities next fiscal year, and lawmakers will only have a few weeks to consider the ramifications of a state numbers game before making any decisions.
House and Senate rules require bills to pass by May 19 in at least one chamber to remain eligible for consideration. Bills that do not require state spending must be sent to drafting by Thursday in the House and introduced by April 20. Bills that would require an appropriation must be in drafting by May 4 and introduced by May 11 in the House. The Senate's bill drafting and submission deadlines ended March 23.
Meanwhile, North Carolina Gov. Mike Easley said Thursday that he remains anxious about the chances of securing final approval of a state lottery for education, even after celebrating a slim victory in the House.
"I'm still concerned about the Senate side," Easley said in an interview with reporters. "They've got some people who are opposed. We don't know that we have a guarantee there."
The governor also said he was concerned about how vague the House bill was about how lottery money will be spent.
In the House version, lottery proceeds estimated at $400 million would be devoted to school construction, college scholarships for needy students and unspecified education programs.
But he cautioned against senators loading down the bill with too many additional specifics that may make it difficult for the House to approve a final measure.
The governor said this bill passed, unlike the referendum bill that failed in the House in 2002, because House members realized education needs couldn't be met in the future without additional revenue.
"This year they finally came to the conclusion that there's no place else to go," he said.
Easley, who has sought a lottery for education since running for governor in 2000, said he's OK for the Senate to deliberate.
"These are new questions for the North Carolina legislators, and I would rather see them take their time before being like the dog who caught the car," he said.
Significant changes could crack the brittle coalition that was needed to pass the bill Wednesday.
The House would have to agree to any changes in the Senate or go to a conference committee to work out difference.
Easley would have to sign any bill for it to become law.
A handful of House members didn't make up their minds until just before or during the debate. Easley suggested the smaller details could be worked out in a separate bill to not lose the House majority.
Easley said Basnight made no promises to him that the bill would pass in the Senate, where Democrats hold a 29-21 advantage over Republicans. "The equation is pretty close," Easley said.
The current bill would set aside half of net lottery profits to local school construction. Another 25 percent would go to need-based scholarships, with the rest placed in an "Education Enhancement Fund" controlled by the General Assembly.
Easley said legislative leaders have expressed a commitment to use the fund money to expand class-size reduction and Easley's More at Four preschool program.
Some legislators and interest groups opposed to the lottery argued that the bill's language is flimsy on the General Assembly's intent not to use lottery funds to replace money already being spent on education.
They said it wouldn't prevent future sessions of the General Assembly from supplanting other funds with education dollars.
"A lottery in the long run does not mean more resources for education," said John Rustin with the N.C. Family Policy Council.
Easley said he was interested in going one step further, with a ballot referendum to change the state constitution. It would require the General Assembly to spend net lottery profits on education programs in addition to, not instead of, funding from other sources.
Easley said that current spending levels for More at Four and class-size reduction could be used as a base funding level, onto which lottery earnings would be added.
Opponents are also worried about bill language that would allow for lottery "games played on computer terminals."
They argue it could lead to a new form of video poker in which addicted gamblers could keep playing the numbers. Basnight has wanted to ban video poker outright for years, in contrast to Black, who only wants tighter restrictions on that industry.
If other states are any indicator, Easley said, the lottery could make video poker less relevant in North Carolina.
"Video poker will decrease dramatically once you have a lottery," the governor said.
House Speaker Praised By Lottery Supporters
Last week's narrow vote in the state House to approve a lottery happened under the leadership of House Speaker Jim Black, who set a lightning-fast timetable, appealed to members' loyalty and commitment to education, and listened to their concerns.
He also exercised his own considerable will to get the 61-59 vote.
As recently as three weeks ago, lottery supporters said they only had 50 votes.
Even lottery foes give Black credit for stitching together a fragile coalition that included many people who still say they are personally opposed to a numbers game.
Former House member Chuck Neely, who is now chairman of Citizens United Against the Lottery, said Black is an effective leader who shouldn't be underestimated.
In the N.C. Senate, at least five Democrats have already raised public concerns about the proposal, which could be enough to block passage if Republicans remained united in opposition.
But most expect that support will increase once Gov. Easley and the Senate leadership begin lobbying in that chamber.
If the lottery does pass in the Senate and is signed by Easley, the real work will begin: hiring the officers, developing the product line, creating the marketing plan and, finally, making the sale.
And it all will happen fast, if Easley and other lottery supporters have their way.
Easley wants the lottery to raise at least $400 million for schools each year. Legislative leaders want the money to start coming in within six months of a vote.
In other words, they would have to launch a $1.3 billion company -- in effect one of North Carolina's 30 largest, in terms of sales -- with the speed and efficiency of a nimble startup.
One thing in the state's favor is that it is so late to the game; 40 states already have lotteries, and Oklahoma is now starting one. North Carolina can learn from the experiences and mistakes of those that went before.
In January 2004, Tennessee sold its first scratch-off tickets -- seven months after Gov. Phil Bredesen signed legislation establishing the Tennessee Lottery. The state now offers a full slate of instant games and jackpots; it brought in $863 million in 2004, $246 million in profits for education.
"That's moving at a pretty breakneck speed with a whole lot of folks working 16-, 18-hour days, seven days a week," said Rebecca Paul, who runs the Tennessee Lottery and has started up lotteries there, in Georgia and in Florida.
"It's doable. And of course, for every day that you don't sell tickets, state education doesn't earn dollars."
Picking leaders, stores
The most important first steps, said David Gale, executive director of the North American Association of State and Provincial Lotteries, are appointing a governing body -- in North Carolina, it would be a nine-member state lottery commission -- and hiring a chief executive officer.
Oklahoma voters approved a lottery in November. But the state's new lottery commission is still searching for an executive director. That step is crucial if the state is to meet its goal of selling tickets by October, Gale said.
Another important consideration is how North Carolina will select lottery retailers.
On average, states tend to allow about one retailer per 2,000 residents; in North Carolina, that would translate into about 4,000 retailers.
Convenience stores and major grocery chains are likely to be the major sales points. But it's not a given that every interested store will be allowed to sell; the state will want to be careful to place expensive lottery equipment in only the smartest locations.
"That kind of thing we'll want to be involved in," said Fran Preston, who heads the N.C. Retail Merchants Association. "They're going to want the grocery chains, and we represent all of the grocery chains."
Another detail that's important to Preston is how long it takes to pay retailers.
Some of her members in other states say selling lottery tickets is not always a winning gambit: Stores are often required to pay out prizes upfront and then wait weeks, or even months, for reimbursement from the state.
That's one reason the retailers opposed the lottery bill. Another reason is concern that lottery sales would take away from sales of other products with higher profit margins, Preston said.
But now that the bill appears headed for passage, the group will become more involved, she said.
An enormous decision for the lottery commission will be choosing the company (or companies) to provide the system. The largest such business in the world, GTECH Corp. of Rhode Island, is paying four lobbyists in Raleigh this year to represent its interests in the legislative process.
Big money is at stake: GTECH got the contract for Tennessee's new system and stands to be paid up to $130 million over the seven-year life of the contract.
Angela Wiczek, GTECH's director of corporate communications, said the company would be able to launch North Carolina's first scratch-off tickets as quickly as 90 days after it is awarded a contract.
Selling tickets for jackpot drawings is trickier because it requires setting up a complicated computer system -- with terminals in each retail location -- that is often the largest network a state has, Wiczek said.
The state can either buy or lease the system, Wiczek said, and sign a maintenance contract with the company that wins the bid. The state might separately contract with a company to print the scratch-off games and might have a third contract for advertising.
That's one of the last big tasks before startup: developing a marketing plan. It's also one of the trickiest details, given the House bill's restrictions on advertising. The bill rules out radio, TV and billboard advertising -- all considered crucial in other states to sell the product.
Lotteries "are no different than any other company selling a product in a competing marketplace," said Gale, of the lottery association. "They have to promote their products in order to maintain and increase sales."
Gale noted that in Massachusetts, lawmakers restricted advertising a few years ago but lifted the restrictions a short time later because sales went down.
If the Senate and Easley stick with the House's advertising restrictions, the lottery commission will probably look for a sophisticated advertising company to develop posters, banners and other point-of-sale gimmicks to display where tickets are sold.
Even then, there is no guarantee that Easley's prediction of sending $400 million to schools each year will come true.