North Carolina lawmakers and policymakers should make a decision about the future of the North Carolina Education Lottery, including potentially reducing the percentage of proceeds that go to public education, North Carolina State Auditor Dave Boliek said in a new report.
The state's education lottery has for years not met its goal of giving out at least 38% of proceeds to public education, according to the report, which was released Tuesday. The state statute outlining the program says at least 50% should go toward paying out winnings. About half of the education funds typically go toward K-12 school construction and much of the remainder goes toward support personnel for K-12 schools, with relatively small amounts going toward North Carolina's Pre-K program for lower-income families and college scholarships.
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Boliek said Tuesday, in announcing the findings of a performance audit of the North Carolina Education Lottery, that the nature of the lottery has changed, resulting in both a need to increase digital winners' payouts to encourage further gambling and in an ongoing decline in the percentage of sales that results in public school funding.
That has also resulted in a disconnect between what the lottery is and what the public thinks the lottery is, he said.
"The public should expect a certain level of performance with the education lottery," Boliek said.
Boliek didn't suggest a new goal for what the law should say but said there should be a consistent percentage or dollar amount each year given to education.
The audit recommends the state should decide whether the lottery's goal is to maximize funds for education or maintain a target percentage of funding toward education -- or find a balance.
In a response to the audit, North Carolina Education Lottery CEO Mark Michalko said setting those goals aren't compatible in a modern lottery environment. He wrote that lawmakers should reconsider the 38% figure but that the lottery will "work to meet consumer demand, remain competitive and maximize return to education."
"We work very hard to maximize the dollars returned for education and appreciate the shared goal of public transparency and delivering critical education funding to North Carolina," Michalko said in the written audit response, which was included in the audit report.
Tuesday's performance audit reiterated findings Boliek announced in December and findings that education advocacy groups have made over the years.
In December, a fiscal audit of the lottery found that increased proceeds aren't translating into proportional increases in public education funding.
From the 2022-23 fiscal year through the 2024-25 fiscal year, gross lottery sales increased from $4.3 billion to $6.6 billion, a 53.5% increase. Over that same time, school funding from those proceeds increased from $1.02 billion to $1.08 billion, a 5.9% increase. The share of proceeds from the lottery going to public education dropped from 23.4% to 16.3%.
The percentage of revenues going toward prize payouts rose over that time from 65.8% to 75.8%.
Digital instant games, which have higher payout rates to winners, didn't exist during the 2022-23 fiscal year but by the 2024-25 fiscal year comprised 40% of revenues. Retail games, which have lower relative payout rates, are declining slightly in revenues.
The lottery was initially established about two decades ago with a requirement that a certain amount of money go toward education, and that requirement turned into a guideline within a few years.
Despite growing competition in gaming, the lottery has generated more than $1 billion for the state during each of the past four years, state lottery officials said in a statement issued after the release of the audit report. Since its inception in 2006, the lottery has raised more than $13 billion for the state. More than 100 school construction projects have benefited from those grants over the lottery’s history, the lottery said.
“That success comes from a business strategy that introduced new games to grow the lottery audience, meet customer demands, and maximize revenue for education,” the lottery said in its statement.