Protect & Restore County Lottery Funds for School Construction Adopted Budget Eliminates Guaranteed Lottery Funds for School Construction • The 2014 State budget, S402, rewrote the lottery statutes and eliminate the 40% statutory guarantee of net lottery proceeds for school construction, a dedicated funding stream in place since the lottery’s inception in 2005 • Counties have counted on this statutory funding stream to issue bond indebtedness for school construction, with 70 counties dedicating their lottery proceeds to repay school debt service; smaller counties have banked lottery proceeds to amass sufficient funding for major school construction or renovation projects • Elimination of the 40% statutory guarantee discourages new county investments in school construction projects, and may result in future legislatures using the county share of lottery proceeds for expenses other than school capital needs Counties Need Increased Lottery Funds for Demonstrated School Capital Demands •

During the height of the “Great Recession,” State appropriations for school construction lottery funds have been allocated at $100 million annually for the past three years, or roughly 22% of the total; the same amount is proposed for 2015

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Based on the state’s 2014 budget for lottery proceeds available for appropriation, 40% of net proceeds of $480 million in net lottery sales = $192 million; $100 million = 20% or half of the original lottery set aside for school construction

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To date, counties have received $972 million in lottery proceeds in 9 years, and have committed $908 million to capital projects approved by NC-DPI; 78% of 2013 lottery funds were allocated for county debt service for school capital needs

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Lottery proceeds are the only state-collected funds now directed at school construction—the corporate tax set aside (ADM Fund) was permanently eliminated in 2014

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The 2011 North Carolina Public Schools Facility Needs Survey put school capital needs at $8.2 billion

Legislators are being asked to: 1. Restore the statutory guarantee that 40% of net lottery proceeds are to be allocated to counties for school capital needs 2.

Increase the annual appropriation of lottery proceeds for school construction each year as the state’s economic conditions improve, until the 40% allocation is fully restored 215 N. Dawson St., Raleigh, NC 27603 * Phone: (919) 715-2893 * Fax: (919) 733-1065 * www.ncacc.org

4/15/2014

Lottery Oversight Committee

Lottery Funds Designated for  School Construction

Rebecca Troutman, IGR Director North Carolina Association of  County Commissioners April 15, 2014

In the Beginning… • NC 2005 Lottery Act (H1023) establishes “STATE LOTTERY TO  SUPPORT SCHOOL CONSTRUCTION…”

• NC 2005 Appropriations Act (S622) rewrites lottery act to allow for:

Why School Construction? • Physical confirmation of new education  investment • NC‐DPI 2005 School Facility Needs Survey  reports $10 billion in school construction,  addition, renovation projects • Rapidly growing student population outpaced  county funding capacity • State previously issued state debt for school  construction

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4/15/2014

County Lottery Funds Appropriated  Annually in State Budget

Process for Accessing Funds • State application process • Requires joint submission from Board of  County Commissioners & Board of Education • Includes: – Project description – Estimated cost – Signed contracts

Counties Maximize Funds Thru Debt Issuance

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Why Issue Debt? • Finance over useful life of capital investment—all  users contribute to funding • Capitalize on market conditions—historically low  interest rates & lower construction costs • Keep up with demand for facilities—delay in projects  and renovation = more costly catch up later • Capitalize on matching federal grant/financing  funds—e.g. federal stimulus with $373 million in  schools 7

2008 “Great Recession” Scales Back  State Lottery Funding

County Lottery Funds Set at $100  Million Insufficient for School Needs • 40% of net lottery proceeds reduced to 22% – Due $192 million in 2013‐14 v. $100 million

• Counties scramble to replace debt service dollars • No other state funds for school construction – 2013 Tax Simplification Act permanently eliminated  corporate tax set aside

• NC‐DPI 2011 School Facility Needs Survey = $8.2  billion

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Counties Contribute Billions to Schools

Sources of Current Expense Per  Pupil Funding (Excludes Nutrition) $9,000 $8,000

24%

$7,000 $6,000 $5,000

22% County dollars becoming more important

$4,000 $3,000

73%

$2,000

67%

$1,000 $0 NC DPI Statistical Profile

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 State Federal County

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Counties Report Uses & Actions to  Manage Funding Cuts Uses of Lottery?

No.

School debt services New construction/additions Planning of new facilities Renovations

70 20 17 37

Manage Reductions?

No.

Used county fund balance to replace lottery funds Reduce allocations to other programs

30 19

Delayed or canceled school capital project

33

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4/15/2014

County School Capital Funding Drops in  Recession, Per Capita

Per capita school capital funding drops from $181 to $63

Loss of ADM Funds Compounds Loss of County  Lottery Funding

2013 State Appropriations Act Strips  Lottery Allocation Language

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Counties Talk with Legislators

Counties Ask to Restore Lottery  Allocation No. 1 county priority for 2014 Short Session: • Restore county lottery allocation language of  40% of net proceeds • Restore county lottery allocation to 40% – Recognize state’s funding difficulties • Restore unexpected & unbudgeted excess 2014‐15 • Begin step up to 40% net proceeds over several years

Questions &  Comments

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