House budget proposes increased lottery sales to pay 5% teacher raises

by Lynn Bonner and John Frank, News and Observer, June 10, 2014.

The state House introduced a $21.1 billion budget Tuesday morning that is substantially different from the Senate plan and exposes the wide gulf between House and Senate Republicans on how to pay for state priorities.

The biggest differences are over two of the most expensive obligations, education and Medicaid, the government insurance program for poor children and their parents, and elderly, blind and disabled people.

Increasing average teachers’ salaries that are dipping close to the bottom of national rankings and overhauling the Medicaid program dominated the political dialogue in the run-up to state budget season.

The House budget includes average 5 percent raises for teachers, who would not need to give up their tenure to get the increase. The Senate budget included 11 percent raises for teachers who relinquish their tenure. Senate leaders have been pushing to phase out or end tenure for several years.

Both the House and Senate budgets would raise minimum teacher pay to $33,000 a year.

The House proposes to generate money to pay for its teacher raises by having the N.C. Education Lottery increase its advertising budget from 1 percent to 2 percent of sales. The idea is that increased advertising will lead to increased lottery sales and revenue.

State employees would receive $1,000 raises, plus benefits.

Though the proposal would use money not yet in hand to pay for teacher raises, House leaders said they were assured of the accuracy of revenue estimates.

To help pay for the Senate proposal, Republicans running that chamber cut other areas of K-12 spending. For example, the Senate included no money for teacher assistants in second and third grades, eliminating funding for 7,400 positions.

The House budget pays for raises “in a way that isn’t necessarily at the expense of other educational cuts,” House Speaker Thom Tillis said. For example, the House budget keeps funding for teacher assistants intact.

Lottery shift draws rebukes

Championing a budget that encourages increased gambling is a marked difference in approach to the lottery for members of the party that opposed it for years.

If Republicans had been in charge in 2005, the year the lottery was enacted, it would have never made it to a vote, Tillis said.

“But it is here, and you can’t necessarily unring that bell when you’re talking about hundreds of millions of dollars going to education,” he said.

The lottery commission forecast it would generate $106 million more in sales by increasing its advertising from 1 percent of its annual revenues to 2 percent. The commission plans to spend $17 million on advertising in the next fiscal year, meaning the total could double to $34 million under the budget proposal.

An additional $56 million will come from higher-than-expected revenues this year and next.

The House budget also would take $19 million in lottery money earmarked for financial aid at the UNC system and $12 million set aside for the digital learning initiative – a priority of Gov. Pat McCrory – and put it toward other areas.

The lottery shift drew rebuke from Republicans and Democrats.

Rep. Debra Conrad, a Winston-Salem Republican, called it “the most disturbing piece” of the education budget.

“I do feel uncomfortable rolling the dice and betting on money that may not materialize,” she said.

Democratic Rep. Rick Glazier of Fayetteville objected to the policy shift, saying the lottery was designed to supplement education funding. “We are now effectively supplanting it,” he said. “This is not what the lottery was intended to do.”

Rep. Craig Horn, a Weddington Republican and lead education budget writer, said the lottery forecasts are “an exact science” and defended the move.

“We are in the process of actually doing what we said we were going to do when the lottery came in,” he said. “It’s the education lottery; well, lo and behold we are going to use the money for education.”

Alice Garland, N.C. Education Lottery executive director, said in an interview that the lottery revenue forecast is supported by a University of Texas study and a 2013 performance audit of the North Carolina lottery.

The performance audit noted that restricting the advertising budget to 1 percent reduces the opportunity to increase funding for education, Garland said.

“We’ve always believed that’s a pretty good way to grow sales,” she said of an advertising budget increase.

Tillis said there are enough votes to pass the budget, even though some House Republicans vigorously oppose the lottery.

Rep. Paul Stam of Apex, a vocal lottery opponent, said he would support the budget because it includes provisions of his “honesty in advertising” proposal that, among other things, requires ads to disclose the long odds of winning the giant jackpots.

But the Rev. Mark Creech, executive director of the Christian Action League, said he was “saddened” by an attempt to increase teacher pay “that rides on the backs of people’s addiction.”

‘A gambling problem’

The House plans to pass its budget by the end of the week. House and Senate negotiators will then meet to come up with a compromise. The next budget year begins July 1.

Senate Rules Committee Chairman Tom Apodaca said he couldn’t say how long it would take for the House and Senate to work out their significant differences. The Hendersonville Republican was unimpressed by the proposal for goosing lottery revenue.

“My first thought, they need to call the gambling hotline,” Apodaca said. “They seem to have a gambling problem.”

Tillis said he expects the negotiations to go smoothly.

“We have an opportunity to let the teacher assistants know that they’ve got a job in August,” he said. “We have an opportunity to let the starting teachers know that they’re going to get one of the largest pay increases they’ve ever gotten in modern North Carolina history. And they know two years from now they’re going to be up to national average.”

Medicaid differences

The House and Senate differ greatly on the state Medicaid program’s future and how much the health services will cost.

The House did not include Senate-proposed cuts to thousands of aged, blind, disabled and medically needy Medicaid beneficiaries.

While the Senate would add $206 million to the Medicaid budget to account for program growth and budget cuts that haven’t been achieved, the House creates a $117 million Medicaid reserve fund that the state budget office can tap into if program costs again outrun expenses.

The Senate, frustrated with the state Medicaid office operations, wants to break it away from the state Department of Health and Human Services. It wants the state to devise a plan to convert its Medicaid program to managed care.

The House keeps the state Medicaid office in DHHS.

The House budget includes $1 million for Medicaid changes, but Rep. Nelson Dollar, a lead budget writer, said the House would push forward with a proposal to form Accountable Care Organizations, or ACOs. McCrory, the N.C. Medical Society, and the N.C. Hospital Association prefer the ACO option.

The House proposal for ACOs is not in the budget but is in a separate bill Dollar co-sponsored.

“We are pleased that the House Budget moves Medicaid reform forward and takes a responsible approach to protecting North Carolina’s most vulnerable citizens,” DHHS spokesman Kevin Howell said in a statement.

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