Manufacture NC’s Dream: Gambling on Poverty and Education

The big stories in North Carolina over the past few years have been heavy on attracting jobs, poverty, and education. Public education funding, common core repealing, teacher pay raises, medicaid, unemployment benefits, corporate tax cuts, and fracking. Sensationalized headlines–“Gambling with Teacher Pay” and reports of teachers leaving the state link on the homepages of most local news organizations. Even while understanding the need to cut spending in a strained economy, many still struggle to understand why the North Carolina General Assembly (NCGA) chose specifically to devalue public education. Why they would chose an income tax cut that then creates a dependency on funds for public education on powerball ticket sales? They are trying to manufacture NC’s dream by gambling on poverty on education. While ignoring how teacher’s–and quality public education– break the cycle of poverty.

Or maybe that IS the goal: keep the poor uneducated now, protect the availability of your low-cost workforce later.

 The North Carolina Education Lottery 

In 2013, the North Carolina Education Lottery (NCEL) spent $354,000 on advertising. They also added new games, brand-specific instant win tickets, and second-chance drawings for losing scratch-off tickets.

It worked; the sales for the NCEL in 2013 were up 5.4 percent from 2012, a total of $1.6 billion. After paying for lottery winner payments, advertising/marketing, and other expenses, $478 million remained.

“For the schools!” and “Look what we’ve accomplished for the children”– lines of self-congratulation fill in the spaces, crowding out other considerations like, “who buys all of these lottery tickets?” Are the poor more likely to bet on what has been sold to them as their best opportunity to escape poverty? Is there a demographic difference in the neighborhoods with the heaviest lottery retailer presence? Excellent questions, for another day.

Instead let’s look at the business plan that pulls profit data from a single year, rather than an average of several years, and then uses that single data point as the dollar amount justification for public education in the budget. Let me also note that there is $50 million cap limit for the Education Lottery Reserve Fund (a reserve fund can be thought of like a savings account with very specific rules in the general statutes for how they can be spent).

Why does that $50 million cap limit matter? Because the Reserve Fund is the account from which they will pull money to cover shortages in the regular Education Lottery Fund. The 2013-2015 biennium appropriations from that main fund total $505,600,707.

$505 million worth of line items for teacher pay raises, buildings, and scholarships, all dependent on successful lottery ticket sales–and unsuccessful lottery ticket winners–with the back-up cash funded from an account with less than 10 percent of the budget it’s intended to safeguard.

Simplified? I write and sell a book this year, and for this book, I am paid $300,000 dollars. To assist me with writing another book the following year I decide to hire a seven-person creative, and domestic support team. Using my anticipated future sales of >/= $300,000 as a starting point, I pay each person a salary of $42,847 dollars. My financial buffer should I miss my target book sales? A savings account balance of $30,000.

“But, why would they do that?” Why would lottery ticket sales become the logical choice for providing the funding for the key components of public education: the teacher salaries, scholarships, and supplies? Especially when the funding for public education IS ALREADY 8 years behind the rest of the country?

They insist that “The money has to come from somewhere!”

Yes, of course the money has to come from somewhere. Which leads right to my next “but, why would they do that” question. Generally, cost reduction is the first step for anyone when spending exceeds earned income. For example, in a personal budget you might skip your daily To Go lunch, or stop buying expensive coffeehouse drinks. But what happens when the frivolous costs have been eliminated, and you’re still broke? Perhaps you use ebay to sell a few extra assets, like your helicopter? Then, if cutting and selling doesn’t get there, your next step might be getting a second job– to increase income.

Knowing that North Carolina already faced a huge economic hole that would create deficits in core institutions such as public education, law enforcement, and healthcare, the NCGA decided on a curious path for raising revenue. First, they decided not to expand medicaid, losing 2 billion dollars in federal funds. Next they reduced weekly unemployment benefits, resulting in the forfeiture of $700 million in Emergency Unemployment Compensation payments in 2013.

State government earns its income with a combination of personal income tax, corporate income tax, and sales tax. Predictably, their next attempt to increase state revenue resulted in rewriting the tax code, adjusting personal income tax to a flat rate, eliminating the state earned income tax credit (EITC) from the most needy of NC’s working poor, canceling the estate tax, and, finally, reducing the corporate income tax rate from 6.9 percent to 6 percent in 2014 with a potential reduction of 3 percent effective in 2017.

The NCGA opted out of the federal unemployment insurance program in July 2013, which decreased benefit eligibility from 73 to 20 weeks, while also dropping the weekly benefit amount from $535 to $350. What has followed is a year’s worth of self-congratulatory boasts on the reduction of unemployment rates, but that’s not what happened at all! It’s more like this:

How to Misinterpret Unemployment Rate Reductions

Cutting eligibility cuts unemployment. That’s not the same as “having a job”.

Unemployment rates didn’t drop because 5 unemployed people found jobs; it dropped because those 5 people, having lost their eligibility for unemployment,  are no longer counted in the unemployment percentage. That certainly does not indicate a healing job market. In fact, the unanticipated $205 million dollar loss in personal income tax collection for 2014, and the newly-forecast $675 million dollar loss through 2018 pinpoints the location of missing unemployed. The Fiscal Research Division’s “Updated Personal Income Tax Projections” memo Senator Josh Stein states:

“As noted in the April 2014 Consensus Revenue report, growth in wages has lagged behind the original consensus forecast of May 2013. That slower wage growth pattern is embedded in the tax model and is the predominate reason the tax revenue estimates for July 2014 are lower than those estimated in July 2013.” (Emphasis theirs.)


You know another group of people with really slow wage growth? The unemployed.

They say, “Well, don’t you want our state to be more attractive to job-creating corporations? We have to attract those big corporations to NC to create more jobs.”

I understand that there are many people desperate for employment– any kind of employment. People that didn’t have the education and job training versatility needed to shift from the loss of textile manufacturing into a different field. Low wage work is better than no wage work. But those are short-term solutions. If we continue to devalue public education, especially in the poorer, rural counties, our workforce will be consist of of either high-level workers from the college-heavy towns, or the low-skilled workers only qualified call-center and warehouse work; we will lose the middle entirely.

Then I started thinking. Wait a minute, what sort of global manufacturers are they trying to attract to NC?

Does the maintenance of low-skilled/low-wage workers answer the “but, why would they do that?” question? Would legislators actually under-educate the citizenry to safeguard profits?

How can we save the citizens of North Carolina from joblessness and a life of welfare reality overshadowed by lottery-winning fantasy? What is, borrowing Tillis’s buzz phrase, the appropriate series of stepping stones between living in extreme poverty and realizing the American Dream?

Stepping Stone 1:

Lower environmental regulations in order to make ourselves attractive to different types of industry, like hydraulic fracturing, or “fracking”.  Fracking supporters like Sen. Bob Rucho insist this new-to-NC industry will deliver good-paying, permanent jobs. How good, and for how long, remains uncertain. The friendly industry-stacked members of the Mining and Energy Commission (MEC) prepared a report that states, quite clearly, “…it remains uncertain how much wealth, income or benefits from long‐term employment would accrue to Lee, Chatham and surrounding counties”. Vagaries reported as certainties should always result in a more skeptical literature review, even more so when it’s coming from people with an economic interest in environmental disaster. People with financial interests like George Howard, the co-founder and CEO of Restoration Systems, and also the MEC’s Vice-Chairman.

Stepping Stone 2:

Lower corporate income tax rates to a percentage comparable to the competition. Promise industry a series of tax creditsdiscretionary programs, and loads of other cost-savings programs, like the Industrial Revenue Bond, which provides tax-exempt financing for eligible new or expanded manufacturing facilities to lure these corporations into NC.

Stepping Stone 3:

Higher levels of education substantially improves the likelihood of an individual having a job and earning more. But if what you need to do to attract business is to ensure the availability of a low-wage earning workforce? Create barriers to quality education, like by adopting new Common Core Standards without any money for curriculum-aligned textbooks. Add in sweeping cuts to poverty-reduction programs, such as modifications to the income threshold and availability of childcare subsidies, SNAP benefits, and eliminating the EITC. Continue to inhibit access to healthcare for low-income women. Cut 53 weeks from unemployment benefits that would force workers into low-wage jobs of desperation.

But why would they do that?” Because they can, because we let them.