Area counties lose out in lotteryDistribution formula shortchanges those with rapid growth

Friday, March 24, 2006 posted 11:13 AM EST

BURGAW | Formulas used to figure the distribution of profits from the N.C. Education Lottery will keep more than 40 counties in North Carolina ? including Brunswick, New Hanover and Pender ? from receiving their full share, state estimates show.

Why? In large part, it?s an unwelcome side effect of the area?s booming real estate market. Rising market values can drag down something called an effective tax rate. And, that rate is key to calculations North Carolina will use to distribute 35 cents of every dollar doled out to counties for education.

That has Pender County looking to band together with the other shortchanged counties to try to change the formula.

After the state takes money out of lottery ticket sales to pay for admini?strative and other costs, 65 percent of the remaining proceeds will be distributed to counties for public school construction.

The other 35 percent will be based on whether a county has at least the state average effective tax rate. The effective rate depends in large part on how a county?s official property tax base compares with actual market values. If market values are higher, it can reduce a county?s effective tax rate.

If the rate is below the state average, counties receive less than their full share of the 35 percent.

In its first year, the lottery is projected to bring in more than $161 million. Of that, Pender County will receive $558,260, or 0.3 percent, because the county?s effective tax rate is below the state average of 59 cents, according to estimates from the state Department of Public Instruction.

What?s hurt Pender County is high property appreciation since the county?s revaluation in 2003. Overall, property values are at about 75 percent of their market value. That translates into a lower sales-to-tax ratio.

New Hanover County?s effective tax rate is less than 1 percent under the state average, according to county budget director Cam Griffin. That sliver of difference will cost the county an estimated $1.8 million. It was projected that if the county were at 100 percent of the state average, it would receive nearly $3.6 million.

Estimates reveal that Bruns?wick County will receive a little more than $850,000.

Some area officials say student population, not tax rates, should be the driving force behind how state lottery proceeds are shared with counties.

?I would just like to see it based on (average enrollment),? Pender County Manager John Bauer said. ?Why does it have to be more complicated than necessary??

Counties seek more

Earlier this week, Bauer asked Pender County commissioners to join with the other counties whose effective tax rates are below the state average to contact their legislators and get the formula changed.

?I?ll be very supportive of that because that formula does cheat some counties,? Rep. Carolyn Justice, R-Pender, said. ?My counties are going to end up with so much less than it appeared they would. I think it needed to go back to the counties on, say, population.?

That makes sense to Rep. Danny McComas, R-New Hanover.

?We need to make sure we get that 35 percent,? he said. ?This is what was promised to the people that it would go to education. I think it?s absolutely, definitely imperative we support that.?

He too was surprised to find that the county he represents will not get its full share.

?That was something that, when we debated the lottery, nothing was said about the fact that this was going to be the situation,? he said.

Brunswick County Manager Marty Lawing said he sees benefits in joining the other counties to challenge the formula.

?We?re in that situation, and it?s unfortunate to be penalized for that reason and if there?s an effort among those counties, I?m sure that we would be inclined to work with them to accomplish that goal,? Lawing said. ?We have a lot of growth here. We have a lot of school capital needs. If there?s 40 or more counties, that?s quite a bit of critical mass to try to get something changed.?

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