Wake Judge Must Decide Whether N.C. Lottery Law Method Was Legal

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In the seven months since the lottery was passed, state officials have overseen the installation of more than 4,000 ticket terminals statewide, hired 150 lottery workers and are preparing for an advertising blitz in advance of the March 30 sales of scratch-off tickets.

But Robert Orr, with the North Carolina Institute for Constitutional Law, said after a hearing in Wake County court that all of that work should stop.

"I think it's really unadvisable to be spending money and entering contracts and entering leases until this issue is finally resolved," Orr said.

Lawmakers, taxpayers and advocacy groups sued in December, complaining that the House and Senate each failed to hold two roll-call votes on separate days for the bill that created the North Carolina Education Lottery.

Judge Henry Hight said he would decide by the end of the week whether to uphold or overturn the law. Even if Hight voids the law, the courts could permit the lottery to sell the scratch-off tickets while appeals continue.

State lawyers are asking Hight to throw out the lawsuit, saying it was filed 3-½ months after the lottery became law and after much of the work to establish the game had started. Just Monday, the lottery issued bid requests to televise number drawings when those games begin in the fall.

The "plaintiffs could have avoided this by filing suit earlier," state attorney Norma Harrell said.

The key issue before Hight is whether the lottery is a tax since at least 35 cents of every dollar generated by the games are earmarked for education initiatives. If it's a tax, the plaintiffs argue, then legislators unlawfully passed the bill by not holding the separate votes required by the state's constitution.

"And if this is an education lottery, I would submit to you this 35 percent is the education tax," said Orr, who is representing many of the plaintiffs in the lawsuit.

But Harrell countered that consumers buy lottery tickets voluntarily, with the revenue generating benefits for both education and the people who win cash prizes. The lottery could generate more than $400 million for the public schools and college scholarships in its first full year.

"The lottery act does not impose a tax. There's no tax here," she said. "It's just a charge for buying a ticket."

Orr said the lottery's no different from buying a shirt at a department store and being required to pay sales tax.

The House approved the lottery bill last April in a 61-59 vote. In August, the Senate needed a tie-breaking vote from Lt. Gov. Beverly Perdue for the measure to pass 25-24. The lawsuit's plaintiffs include several people openly opposed to the lottery, but Orr reiterated Monday that the challenge has nothing to do with the merits of state-run gambling.

"This suit's not about the lottery. It's about a very specific constitutional issue involving two specific constitutional provisions," Orr said.

The lawsuit also challenges the Legislature's decision to allow the lottery to borrow up to $10 million to hire staff, find office space and enter contracts before the games started. Orr argues the General Assembly needed to give the money formally to the lottery. The state said it didn't have to do so.