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Senate | June 18, 2014 | Committee Room | Appropriations

Full MP3 Audio File

Good Morning. Calling Senate Appropriations Committee to order please. Morning everyone. We'd like to start by welcoming our pages. If you would just raise your hand: Chandler Bird, Thomas McBryer, Sherri Cogeha(?), Robert Banner, Paul Wood, Destiny Morton, Kaitlyn Ebert, Will Dabbs, and Tyler Dabbs. Thank you for being here today. And thanks to our Sergeant-at-Arms Ernie Cheryl, Charles Marshalls, Annette Kessler, and Canton Lewis. Without objection we're going to make Senator Ford. [SPEAKER CHANGE] Madame Chair, at the appropriate time can we get some staff help with placing these documents within the committee website? [SPEAKER CHANGE] Yes. Without objection we're going to make three changes to the agenda today. We're still waiting for some of the staff presentations so we're going to bring the two bills that are at the end to the beginning of the agenda. Also, on the Medicaid differences report fiscal research is still waiting for some information so we're going to put that report over to tomorrow. Thank you. We'll go ahead and call Senator Brown. [SPEAKER CHANGE] Thank you Madame Chairman. I think everybody's looked at this bill probably enough. It's the P3 Bill. We passed our version out of the Senate a few weeks ago, a couple weeks ago. This is the House version of the bill. In commerce yesterday we went over the changes in the bill. I'm to the point and I think I've talked to the secretary about the bill as well, that I think it's time we moved this bill on with the understanding we'll probably have to continue working on this bill in long session. So, I'll try to answer any questions but I just ask for your support to leave the bill as it is and again we'll continue to work it as it progresses. So, Madame Chairman that's it. And I'd like for the secretary to speak if she could as well. [SPEAKER CHANGE] Senator Apodaca. [SPEAKER CHANGE] Madame Chairman, I'd like to make a motion of favorable report. [SPEAKER CHANGE] Discussion. [SPEAKER CHANGE] Let the secretary speak please. [SPEAKER CHANGE] Alright. Ed we're going to hold that motion for just a moment and allow Secretary Dacker to speak. Thank you. [SPEAKER CHANGE] Thank you Madame Chairman. I appreciate the opportunity to speak and ask for you support as Senator Brown has to move this bill forward as it has been presented. There's no perfect bill I have discovered in my short tenure here. But I think this is a strong bill that does what you and I had agreed we wanted to do. Which was facilitate the movement forward in the creation of partnership for North Carolina that positions us for better competitiveness. This is the first step in the process, an important step. And you've got the opportunity now to approve this so that it might move forward and we can make this into law very quickly. So, I appreciate your support. I think it's a bill that facilitates this in a very, very positive way. [SPEAKER CHANGE] Thank you Madame Secretary. Senator Rabin. [SPEAKER CHANGE] Thank you Madame Chair and Madame Secretary nice to see you this morning. All members of the committee I very much in favor of this partnership bill that's been brought forward and the work that's been done by our friends in the House and by Senator Brown. However, it cause me a great, great concern to see that the film portion that Senate had in this has been taken out. I can't emphasize that enough because that is an industry that if we do not support and if we don't come up with some money in this budget process we are going to loose. It's not like a normal bricks and mortar and bring them in business. This is a business that will not survive without what we do. I want to just make that forward and to air that and to make sure that as we go forward those of us that's supporting that bill are also trying to support the film program in some fashion. Thank you. [SPEAKER CHANGE] Thank you Senator Radin. Senator Brown. [SPEAKER CHANGE] Senator Radin, this is the companion bill coming over from the House. So the Senate bill that we passed is still over in the House with the film piece in it. So, it's still there it can be negotiated. So, I feel pretty confident that that will take place. [SPEAKER CHANGE] Thank you. We have a motion on the floor for a favorable report. All in favor say, aye. [SPEAKER CHANGE] Aye [SPEAKER CHANGE] Opposed. Bill passes. Thank you Senator Brown.

Senator Apodaca. Also I would like to announce to the committee that all committee documents are available on the committee's website. [SPEAKER CHANGES] Thank you Madam Chairman. i just heard the comments the secretary made and I want to let her know that she is now seeing the perfect bill. She said one didn't exist. Senate Bill 729 is the perfect bill. Senator Rucho, I'm trying to say, Senator Rucho, I'm trying to say something to the secretary, if you'd leave her alone and sit down. I was just telling the secretary this is the perfect bill she's been wanting to see so I wanted her to pay attention to this because the appropriations part of this bill is what is masterful. It hires, to synopsize it, we're going to hire 25 people, additional folks for Deener and 4 people for the Coal Ash Commission, and the beautiful thing is Duke Energy's going to pay for it, so I think that is the perfect appropriation. That is the only appropriations part in this bill and I ask for your support. [SPEAKER CHANGES] Questions or comments from committee? Senator Tillman? [SPEAKER CHANGES] A lot of work has been done on this bill and I believe both sides may not like it just a little bit so I do think, therefore, it probably is a perfect bill. I move for a vote on report. [SPEAKER CHANGES] All right, we'll hold that motion for just one moment. Senator Robinson? [SPEAKER CHANGES] Thank you, Madam Chair and just a comment and a question for Senator Apodaca. Thank you for, it looks, you know, you're doing better. You're doing a little bit better. [SPEAKER CHANGES] I can't take that kind of praise today. [SPEAKER CHANGES] And I think Senator Ford has probably indicated too we got a letter from North Carolina NTA in regards to the work it's been doing for 11 years on coal ash in terms of how to use the residuals and all of that and I certainly hope you'll, as we move forward, that we'll include them in that process. [SPEAKER CHANGES] Yes, ma'am, that is a key point in this bill because it's been said the plain reality is we don't have enough room to dispose of all this, so we've got to come up with creative ways so it will be welcome I'm sure. [SPEAKER CHANGES] Thank you Senator Robinson. Further comments or questions from committee? We have a motion for favorable report on the floor. All in favor say aye. [SPEAKER CHANGES] Aye. [SPEAKER CHANGES] Opposed. The bill passes. Thank you Senator Apodaca. All right, so the main purpose of this meeting is to review the budget differences between the House and the Senate. The budget's not covered by subcommittee reviews that are being conducted this week and we're particularly interested in some of the major differences, especially differences in the areas of the lottery and salaries and benefits. Is lottery prepared. All right, we're going to stand at ease for just a moment. Alice Garland, would you please come to the podium. If you would please come to the, well, thank you, for your presentation. While she's making her way, some of the most fundamental differences between the House and Senate budgets are related to the lottery. Alice Garland of the North Carolina Education Lottery is here today to explain the differences in the lottery revenue estimates in the House and Senate budgets. Later this week Fiscal Research and OSBN will provide us with a revised consensus estimate of lottery revenues. Ms. Garland. You're going to need to turn your microphone on. [SPEAKER CHANGES] Good morning. I'm Alice Garland, Executive Director of the North Carolina Education Lottery. I have with me in the audience my commission chair, Keith Valentine. Thank you so much for this opportunity to talk to you today about lottery sales and advertising. The Education Lottery's a sales and marketing organization. As such, advertising

Is we advertise our products in a very similar manner to all other retail sales enterprises. Our mission, as designated in our legislation is for us to maximize sales in order to maximize our return to education. Our instant ticket sales in this fiscal year that ends in a couple of weeks. Our testimony to the effectiveness of our lottery advertising; in fiscal 14, we changed our advertising strategy, we put more of our advertising dollars into prime time. We conducted our first Tuesday campaign and we advertised an entire group of tickets being launched as opposed to focusing on just one ticket. There changes produced a 16% increase in instant ticket sales in that product which, I think, really shows what advertising can do. The House appropriation chairs with very short notice, ask the lottery to provide scenarios for increase in the return to education by various dollar levels. We provided multiple scenarios, all of them based on today’s advertising conditions. None of the scenarios that we provided took into account additional advertising restrictions. You have requested that we discuss three different scenarios, advertising at one half percent, at 1% and 2% and the 1% is what we are allowed in out statute today. And what the impact on these scenarios would be of additional restrictions on advertising. As you review these scenarios, as we review them together, please keep in mind that the lottery primary sells at gas and convenient stores and we’re competing for our share of the player’s disposable income. Other retail products those stores, largely snacks and beverages spend anywhere from 4-10% of their sales on advertising. I’d like to turn to the handout, I believe that you all have – it’s a multicolored column. And these are the scenarios that we’re asked to present. I just wanna quickly review the 2 columns on the right. These are both fiscal 15, this upcoming fiscal year budgets. We provided the far right column in March of 13 for the biennium budget and then in the second column, we revised in April of this year; we had more fiscal 14 sales on which we based the revised budget, you’ll know if you look down at the dark green line at the bottom. That between March of 13 and April of 14, we increased that projection by about 20 million dollars, you have budgeted that 20 million dollars. That 20 million dollars is in your budget for fiscal 15. So if you’ll look at the middle green column labeled June 3, 2014 fiscal 15 commission. This is the budget as adopted by the Education Lottery Commission. It says that we’ll have sales of 1.8 billion and we will return to education, 488 million. This is based on having 1% for advertising and actually we’ve budgeted 0.94%, we still don’t budget the full 1%. It includes two new draw games, one in October of this year and one in March of next year. North Carolina has a very low number of draw games, we have 5 games; most states have 8 or more. This will start to bring us more in line with other states lotteries. The last time that we introduced a new draw game was in January of 2010. So, it’s been quite a while and that was the mega millions game and we have total confidence in meeting this number. If you move to left to the red column, this is what would happen if we only had one half of the percent to spend on advertising. Looking at a study done by the university of Texas using an econometric model and I will tell you that some of the study was pretty dense. Every one dollar decrease in advertising leads to a 20 dollar and 50 cent decrease in sales. So, this is the model that we used. It would reduce our sales by 186 million and reduce the return to education by 45 million bringing it to 444 million which really reverts us back to the amount that we returned to education in fiscal of 11. The impact on our advertising spend, because we would be spending essentially half of what we spend today, it would cut the agency fee ?? advertising out of ?? is our advertising agency.

it would cut our production costs. We would not be able to produce as many ads. It would seriously cut the dollars that we have available to make that media buy. We would be able to have no digital advertising on the internet and no print advertising. Our media buy, when we're buying actual airtime, radio or TV, would go from 12.2 million to 4.9 million for a statewide 12 month a year campaign that is a very small amount of money. It would seriously impact our ability to keep our product in front of our players and keeping product in front of players is critical to any sales and marketing organization. And in the final column, the 2% advertising shows what we could do if we had double the money and this is the column that we provided to the House Appropriations Chairs and this is the number that you have been seeing, that's the number you see in their budget. This would allow us to maintain a very strong, consistent player base. It would bring the total return for fiscal '15 from the lottery to 594 million, almost 600 million dollars. What this additional 1% would allow us to do, first we could place a media buy to advertise the Powerball and Mega Millions jackpots. Right now rely solely on our billboards and our jackpot signs. We don't make any media buys for those jackpots. It would allow us to have a monthly media buy for our instant product. That's that first Tuesday campaign. We do that about eight months, we did that about eight months this year. It would allow us to do it all 12 months. It would allow us to be able to advertise our in-state draw games, Carolina Cash 5, pick three, pick four, which we don't advertise, for the most part, right now. It would allow us to advertise our core instant games, we have two core families that are always available, much more regularly than we do now. It would give us sufficient dollars to advertise those two new draw games that I mentioned and that's really important. Again, from tihs same University of Texas study, they noted that a lottery needs well directed and well informed advertising efforts on new games or the games may not realize their full potential and if we're going to introduce two new games this year we absolutely want to meet the full potential of those two new games. Other changes that we would make in our strategies, in order to meet that 106 million dollar target, is we would move that March of '15 draw game that we're planning to September of '14, giving it six more months of sales in the fiscal year. That would then actually open a slot where we could add another draw game in March of '15, giving us four months of sales that we've not built in to any budget and it would allow us to add a higher price point game to our instant product. So all of this that I've mentioned in terms of what we could do if we had 2% would be a much more aggressive approach than the citizens have been accustomed to from the lottery but we believe, with this approach, that we can hit the 106 million increase in our return. The final thing that we were asked to talk about was the affect of House Bill 156, the provisions that the House added into the budget that would add lottery advertising restrictions. I would like to start by saying that the lottery has operated very responsibly over the last eight years. We keep our players, we look at our players as our customers and we take great pride in keeping them informed. We want our players to understand lottery games. We want them to know what the odds are for winning and what the prizes are. We share that information daily on multiple channels, advertising, marketing, communications and we have a customer service hotline dedicated to our players that answer questions every day from players about how to play our games. So we've worked really hard on that. And I will tell you that the author of this language wants to see the lottery fail and wants to put the lottery out of business and that is why those restrictions were put into the House budget. These restrictions would waste lottery dollars for making our advertising spend less efficient and this would result in getting a smaller return for that investment in advertising. As a sales and marketing organization we need to use.

...our advertising dollars absolutely to their best advantage and that needs to be making efficient buys. And the other thing is that when our sales drop it means that our retail commissions drop so our retail partners would also see a drop in their income. So what's the impact of these new restrictions that are in the house budget bill? The first is that there's a language in the bill that says that any time that we advertise a game that is an annuity we must also provide the cash value and we do that every place it is feasible to do that. The two places that we don't are on our 60 billboards and our 3,000 jackpot signs that are at retail. This would require that all that signage have both the annuity jackpot and the cash value. No other state does this. We would be the only state providing this kind of information on signage. It would require that the billboards have a second digit box so if you'll call to mind the billboard as you're driving down the highway would have to have a second digit box and the jackpot signs that you see at retail would have to have a second line of numbers. It would require satellite feed to send to the board that second number. That feed's not currently available. No one is sending that feed. That entire process would have to be established. There would be about an 18 month time frame for replacing the billboards and jackpot signs and we would be replacing boards and signs that still have a useful life. Absolutely not a wise investment of money. We also believe, and we have estimated this and the numbers, that we would lose powerball and mega million sales. On billboards you have a very short read and what we really want the player, when they see that billboard, to know is what's the jackpot. That's what folks care about. So if there's going to be a second number it's going to be confusing, no other states going to have this. One of the lessons of advertising is you've got to keep it simple and all we're doing is making it more confusing. We absolutely believe that we would be pushing sales to other states because other states wouldn't have this dual message. The third thing that these restrictions would do that would have, we think, a serious impact is that we would have a lost advertising opportunity by not being allowed to purchase a top tier programming during college athletic events. For the football season we have three of the top 25 media markets. For basketball season we have three of the top 10 media markets in the country. This is prime TV time and we're able to purchase that time now to try to get the same number of eyes, the number of viewers to see an ad, we would have to purchase about 3x the amount of time to make up for the loss of being able to advertise during college athletics. Again spending more money to receive the same value. Completely inefficient way to spend your money. So if the lottery is to operate like a business, which we very much try to do, very focused on our bottomline, these restrictions would seriously impact our ability to do so. So if you want to look at the dollar impact, if you'll go to your chart to the bottom two rows, mainly in red and... I've lost my page. So if you look at our current budget, the budget that my commission has passed. The budget under which we anticipate operating in fiscal '15, it would reduce our return to education by $44 million, taking us to $444 million back to fiscal '11 return amounts. A half percent advertising, that return would be reduced by $43 million, taking a return to $401 million which takes us back to what we are providing for education between fiscal year '08 and fiscal year '09 numbers. A serious turn back. Two percent advertising would reduce that return by $47 million taking us to $548 million for that return. So still an increase over what we are projecting. A steady state but obviously less than we could accomplish if we had 2% with no restrictions. One of the reasons that we have provided this information in kind of a financial state form is that we thought it would be helpful for you to see exactly how lottery dollars are being spent. So this is essentially a...

Our budget is showing revenues in and expenses out. And, that is what I wanted to bring to you and I’m happy to answer any questions. [SPEAKER CHANGES] Thank you Ms. Grand. Questions for our committee, Senator Brown? [SPEAKER CHANGES] Thank you Mr. Chairman, Ms. Chairman. Ms. Chairman, that’s what I said. Ms. Carl. Obviously in the budget that the house put together you used an additional I think you said 106 million dollars of lottery proceeds. What you’re saying is with the restrictions they put also in their budget, that that’s just not a feasible number in your opinion. [SPEAKER CHANGES] That is correct. We will not be able to get 106 million dollars with those restrictions. [SPEAKER CHANGES] I know you having a projection here that the restrictions would cost about 47 million dollars. I feel that you feel certain about these numbers to a point, but it is still hard to be certain, I guess. Because, the restrictions that are in the budget as well. These are the best guessed estimates I guess that you could come up with in a short period of time. [SPEAKER CHANGES] Yes, and really similar to how we do budget projections. We’re looking at sales figures from the past year, extrapolating from those figures for an impact on sales. In the other direction we’re doing the same thing. It’s our best projection but we believe it’s pretty close to accurate. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Senator Apodaca? [SPEAKER CHANGES] Thank you madame chairman. I would like to ask my first question to Senator Brown, if I may? [SPEAKER CHANGES] Do you yield? [SPEAKER CHANGES] Sure. [SPEAKER CHANGES] He yields. [SPEAKER CHANGES] Senator Brown, I was just thinking, and this goes for Senator Tucker too. If you going to have a big sale at your car business, next month. Would you go in and cut your advertising budget in half and expect to sell a substantial amount of cars more than you did this month? [SPEAKER CHANGES] Actually, believe it or not, I do have a big sale so I would like you to come by (laughter). [SPEAKER CHANGES] I’ll be happy to talk to you about it if you’ll deal for once, but anyway. [SPEAKER CHANGES] Absolutely not. And, I think the restrictions as well on the advertising is important. Because, where you place those buys and how you can place them is definitely important as far as returns go. [SPEAKER CHANGES] Follow up? [SPEAKER CHANGES] Thank you Senator. [SPEAKER CHANGES] Thank you. Senator Tillman? [SPEAKER CHANGES] Thank you Madame Chairman. Thank you Ms. Calla. You know, either you’re send a budget over like this. Putting something as important teacher raises on lottery receipts, and then cutting your arm off on how to raise this money. You either want to defeat the lottery and get rid of it, or make it ineffective, or you’re not serious about teacher raises. You cannot reduce your revenue from lotteries with this silly advertisement restrictions. We see how you can raise the money, and I think these figures are pretty good. The lottery’s track record on predictions have been very good. And, you’ve done an excellent job madam. Whether you’re for the lottery or not. That’s not the question. The question is now, let’s make it work. So, we need these silly restrictions off and we don’t need to put teacher salaries in the lottery money unless we are pretty sure we’re going to reach the 106 million dollars or whatever we happen to come up with. And, you show a whole lot more than that with your unrestricted 2%. What I’m saying is if you’re serious about teacher’s raises, you won’t tie your hands on the way to raise the money. [SPEAKER CHANGES] Thank you for your comments Senator Tillman. Senator (??)? [SPEAKER CHANGES] Thank you Madame Chairman and Ms. Calla (?). I found it interesting of all times that someone from the lottery were to come here. The first time they’ve ever admitted the fact they’re competing for the disposable incomes of the working families in our states. I’m going to come from this from a different perspective saying using this as a source of money for ongoing government expenses is really not a good business decision. What’s worse is if you look at your scenarios of between 2.75 and one eight billion dollars. That money that you’re competing with private sector, pretty much hits a dead end and doesn’t do anything. In essence, you’re actually hurting the economy by the more you expand this. By using disposable income for lottery rather than for purchasing Senator Brown’s car or Senator Apodaco’s products that he’s selling. The last thing I would want to do is expand this because we are working so hard to make the North Carolina economy a lot stronger...

And it would be an absolute disaster to base teacher salaries on something that is actually detrimental to this economy. [SPEAKER CHANGES] Thank you, excuse me, Sir Rucho. Would you like to respond Ms. ?? [SPEAKER CHANGES] Yes, thank you. I would I like to say that actually there are number ways that the lottery this money back into the economy. First and foremost are the prizes that we pay. Those, those dollars are going back into the economy and the big winners who come in… the first thing we say is what are you going to do with this money? And they say buy cars, buy houses, send my kids to college, renovate my house, take a vacation. That’s money going right back into the economy. The second thing is that we pay retailer commissions and that's income going to retailers. So, that’s money going back into the economy. And the third, is that we spend money with vendors in North Carolina. We have a significant ??? with their ad agency. We have a number of other contracts where, we’re spending money with contractors so, we are actually putting pretty decent amount of money back to the economy. [SPEAKER CHANGES] Sir Rucho [SPEAKER CHANGES] Yes ma’am, thank you. Aye do understand what you're describing but the real question was how much of a new economic impact would you get? And Aye would probably not ask everybody in this audience how many of them have been winners in the lottery. To win enough and buy a care from Senator Brown. So, Aye think that's a false premise but, thank you. [SPEAKER CHANGES] Thank you. Sir Apodaca. [SPEAKER CHANGES] I’m going to have to take issue with my dear friend from Charlotte. Well it’s the Charlotte thing. Senator Ford if you move will be fine. Okay, Mecklenburg County but anyway, I regress. We, we never bought lottery tickets until these big mega things and my wife, and if it goes over 200 million she goes out and buys lottery tickets. Now we don't spend a massive amount but Aye do feel like those of monies that you know, we were able to manage. And Aye don't think we’ve hurt the budget, and Aye think it puts money into the economy. Aye disagree with that Aye do think it ends up back in the economy in some fashion. It might not end up in a way that we want it to but it still comes back in. So, Aye just disagree with Senator Rucho. [SPEAKER CHANGES] Madame ??? [SPEAKER CHANGES] Thank you for your comments [SPEAKER CHANGES] And Aye know that doesn't happen often but. [SPEAKER CHANGES] Madame ?? [SPEAKER CHANGES] Senator [SPEAKER CHANGES] Can we ask if Senator Apodaca won one time? [SPEAKER CHANGES] He won five.. [SPEAKER CHANGES] Senator Apodaca do you yield? [SPEAKER CHANGES] Aye do, Mrs. Apodaca won twenty dollars, one time. [SPEAKER CHANGES] Congratulations! Senator Tillman. [SPEAKER CHANGES] Madame Chairmen. Aye think we are talking about, we got the lottery, we’re not talking about wether we ought to have it Senator Rucho. Or wether it is good for the economy or wether it is bad for the economy. Fools will play the lottery and now if we can attract more fools to play the lottery and they choose that. I'm not sticking a gun to their head. We are talking about will it produce enough revenue to put something like teacher raises, what Aye am looking at, in lottery receipts. Whether there dependable or not the Senator Rucho. Aye don't know but, Aye know there figures have been good ever since I've been looking at them. All Aye want to know is let's generate the money if we're going to go this route let's generate enough money to do what we’re talking about doing rather than, having a hundred million dollars hole in the budget which we will we will be looking at under the scenario of reducing the amount and in restricting the advertising. That's what we're building. We’re building a deficit if we did this crazy plan. [SPEAKER CHANGES] Thank you for your comments. Senator Brown. [SPEAKER CHANGES] Thank you Madame Chairmen. Ms. ?? Aye know that I’ve tried to look at the history of the lottery. Aye think every year, but one the projections of what they were generating was been more than, and what we think we thought, except that for that one particular year. And Aye think the economy dictates a lot of that as well, and… Would you say? Aye think Aye would say. And I'm just wondering your opinion on this. Is the way the system is set up now we do the best we can to project revenues and if it generates a little more we’ve been able use those in different ways in our education budget. To me that's the prudent way to run this instead of Aye guess pre spending those dollars on what we think may happen, and because you never know what the economy could do or if we go into recession three months now Aye think your projections on all these numbers would be a lot different probably, and so you know again, if you spend those dollars on the front end instead of the backend of which what we've been doing, Aye think that's the safe way to predict these. Aye know in business surely that would be the way I’d do it. Because, you never know what could happen in the economy. Would you say that is accurate?Aye mean, if we go into recession these numbers aren’t accurate anymore. [SPEAKER CHANGES] Ms.??

There are any number of factors that can impact sales. We have typically conservatively estimated for our budget. I’ve said several times that we would much rather overproduce and give you more money than you had budgeted than underproduce and have you scrambling to try to figure out how to make up for not getting lottery dollars. We don’t wanna put you into that situation, we don’t wanna be in that situation and fortunately that’s proven to work for us. I will tell you that the numbers that we’ve provided under the2% scenario, they’re not conservative numbers. They’re aggressive numbers. I have an amazingly dedicated staff that likes challenges. We were the fastest lottery startup in the country when we began and I think we just had a nice record, strong steady growth. We believe we can hit that target. [SPEAKER CHANGES] Senator ?? follow up. Senator Tucker. [SPEAKER CHANGES] Thank You, Ma’am Chair and Miss Garland over here. First of all, I think that gambling on teacher raises of a gambling entity is not a good, wise budget decision but that’s ?? here or there. The sincere original intent of the lottery was set up. There have been changes in the allocation of those dollars ?? that the general assembly has made. I remember when I was county commissioner. 40% of the lottery used to go to retire capital and capital debt for counties. Now it’s 25. So, it’s changed. Can you clarify a number for me, since the lottery started roughly 37% of the proceeds went back to the state and that number has consistently reduced down to around 26%. Can you tell me if that is correct and what the reason for that is coming from the lottery? [SPEAKER CHANGES] Miss Garland [SPEAKER CHANGES] Thank You. Yes, Senator Tucker that is correct. The 2007 legislature changed our statute to remove the percentages as mandates and instead made them guidelines and instead directed us to maximize sales in order to maximize revenues and that’s really what we’re about. So, that percentage doesn’t tell the story, it’s really the dollars and that’s what we focus on completely as how can we raise more dollars. States that have mandated a return of 35% are very low performing states and then several of those low performing states, the mandate has been removed and their sales skyrocketed. So, there’s a ton of hard solid data in the lottery industry to show what happens if you mandate a percentage return that’s high instead of focusing on dollar return and you really really do wanna focus on the dollar return because that’s how you can fund programs that you wanna fund. [SPEAKER CHANGES] Senator Tucker, follow up? [SPEAKER CHANGES] Just a follow up. So, you’ve dropped the percentage but the dollars that are going to education are going up. Is that what you’re telling me? [SPEAKER CHANGES] Correct. The dollars have gone up by typically 4-5% every year. [SPEAKER CHANGES] Just one more follow up, Ma’am Chair and I’m done. So, by reducing the percentage you’ve increased the dollars but if you maintain the same percentage as original intent we wouldn’t even be getting more dollars from the lottery for the education? Help me with the math. [SPEAKER CHANGES] You’d be getting significantly less. In fact, there’s a very recent audit – the Georgia lottery by the state auditor that looked at this very question and I spoke to dollars vs percentages and I’ve got data out of Texas, I’ve got data out of California. The product that we produce, we’re sales and marketing organization. The product we produce, the product we sell is priceless. [SPEAKER CHANGES] Senator Tucker, follow up? [SPEAKER CHANGES] Just one more clarification. My sixth grade math teacher would be mad if I didn’t ask this. So, if you’re contributing the old way, 37% of a 105 million; in the new way you’re contributing 26% of a 105 million, how is that more money for education? [SPEAKER CHANGES] Miss Garland. [SPEAKER CHANGES] We would not produce the 105 if we were returning 35%.

… to education. Players buy our games, players buy our tickets because they want to win money. If they have a lesser chance of winning because we’re reducing what we put into prizes, they will not buy our tickets, and so we want… The sales figure will drop considerably, and so you’re going to get 35 percent of a lower sales figure, so the question is do you want 35 percent of a lower figure, or do you want 26 percent of a significantly higher figure? [SPEAKER CHANGES] Senator Tucker? [SPEAKER CHANGES] Thank you, that’s fine. I just want to share with you that I firmly believe that I got a better chance of being struck by lightning than Ms. Apodaca winning the lottery. [SPEAKER CHANGES] Thank you. Senator Ford. [SPEAKER CHANGES] Thank you, Madam Chair. I’d like to get the opinion of the fiscal staff on the presentation from the folks from the lottery. [SPEAKER CHANGES] That is actually next up. [SPEAKER CHANGES] So are they going to give us their opinion based upon the presentation that we’re hearing now? [SPEAKER CHANGES] Evan Rodewald, Fiscal? [SPEAKER CHANGES] Thank you, Madam Chairman. Evan Rodewald, Fiscal Research. The finance team of Fiscal Research is working with state budget to investigate the lottery revenues, and they’re going to be presenting a consensus revenue forecast later this week. [SPEAKER CHANGES] Follow-up? [SPEAKER CHANGES] Follow-up. So thank you very much for that clarification. Folks, the jury’s still out as it relates to a second opinion, even on the numbers that we’re hearing here this morning, so I’m very, very interested in hearing from our own staff about what those look like, and last comment, Madam Chair. I agree with the comments. It’s very difficult to, in my opinion, to gamble on gambling to pay teachers. To me it’s fiscally irresponsible, and I don’t know how you get the consistency out of it unless you ma’am can share with me with some certainty that based upon your financial model, that you will be able to predict these kind of returns on a consistent basis. [SPEAKER CHANGES] Thank you, Senator Ford. Senator Robinson. [SPEAKER CHANGES] Thank you, Madam Chair. I had my hand up so long ago that I really forget I did. [SPEAKER CHANGES] A lot of people in the queue. [SPEAKER CHANGES] And then Senator Rucho was pulling my attention away, talking about Senator Apodaca’s wife. [SPEAKER CHANGES] And the Department of Revenue, actually. [SPEAKER CHANGES] But the question, and I’m not Senator Ford, so I was kind of looking at what we’re investing the operating expenses as opposed to the revenues, which gives us that net, and on the other end of it, we’re investing more than… in terms of the returns, it’s not a real great return, and I see what you’re saying, which supports the fact that we are not to be gambling with teacher salaries, is my point. But I saw an article in the paper in terms of who plays the lottery most, and do you have statistics on that in terms of who… what segment of the population of what area…? I know it’s not Senator Apodaca, but can you tell us who plays the most? [SPEAKER CHANGES] We… [SPEAKER CHANGES] Ms. Garland. [SPEAKER CHANGES] I don’t have statistics. What I would like to share is kind of empirical evidence, I guess. Every winner who wins 100 thousand or more must some into our headquarters to receive their winnings, and we interview every one of those folks, and that’s anywhere from three to five people a week, and they are a true cross-section of North Carolina. They are doctors, lawyers, accountants, bank executives, engineers, and they are blue collar workers, they are housewives. It is a real cross-section. They are in all 100 counties. They cover the gamut and they are North Carolina. [SPEAKER CHANGES] Thank you, Ms. Garland. Senator Bryant? [SPEAKER CHANGES] I was trying to get a handle on the restrictions. I presume they are – and maybe this is a question for you, Mr. Garland, or staff. Are they all covered in pages I guess 10 and 11 or so of the special provisions, or are they scattered throughout, and could somebody sort of highlight the key components of these restrictions? And then I was going to ask you something about the impact. I just want to know what we’re kind of all talking about. And is 156 just a sort of catch name?

Before the same items that are in the budget or is it a separately passed bill. That's the follow up question Senator Harrington. [SPEAKER CHANGES] Thank you. I'd like to recognize Brian Madison to give the details of your first question. [SPEAKER CHANGES] Thank you Madam Chair. Over here, straight in front of you Senator Bryant. Good morning. The items you are looking for in the House Budget begin on page 9 in section 5.2. You'll see below the area in which the lottery funds are appropriated in the House budget, there are a series of additional provisions that would govern and make changes to how the lottery may advertise under the House budget. Miss Garland had reviewed those with you in some detail, but you'll find them in block in that area. It's not identical I believe to the House Bill that was referred to, but I believe the bulk of that House Bill is reflected in the House budget with respect to advertising and changes there. [SPEAKER CHANGES] Senator Bryant, did you have a follow up with him or Miss Garland. [SPEAKER CHANGES] Yes, I heard you discuss or talk about something about advertising and if you could just review with me and I hope it's not at length one more time what are these restrictions and sort of the impact. [SPEAKER CHANGES] Miss Garland. [SPEAKER CHANGES] For example, I see something about the kind of games you can do or something and I don't really understand what that really means. [SPEAKER CHANGES] Right, and I apologize, I don't have that language right in front of me, but I think I pretty much have it printed in my head. The language on the games really just captures what we're doing today. We can provide instant games, which are the tickets that you scratch off, and draw games which are, draw games are ones where your numbers are drawn and that's why we call it a draw game. So that doesn't restrict what we're doing today. The three main concerns that we have in terms of those restrictions, the first is the language that speaks to the wins and annuity jackpot that you also have to also provide the cash value. We do that everywhere feasible. Where we don't do it is on the billboards and on the jackpot signs, that's the only two places we don't do it. It would be a tremendous expense and create great confusion to the players if we made that change. The second is the not being allowed to purchase advertising during college athletics, and I'm sure everybody in here realizes that college athletics I think in North Carolina are more important than professional athletics in terms of TV, and to deny us the opportunity to purchase advertising during that prime TV time would absolutely have an impact and would be very expensive to try to replace that with some other purchase. And third, we believe that the confusion created with having two sets of numbers on billboards and jackpot signs would actually push people away from Powerball and Mega Millions. [SPEAKER CHANGES] Thank you, Ms. Garland. Follow up, Senator Bryant. [SPEAKER CHANGES] Yes. So in the case of the annuitized, the payments over a period of time, your concern is not that if the buyer knew the value they would not buy it, it's just the space it takes. [SPEAKER CHANGES] Miss Garland. [SPEAKER CHANGES] Or it's both? [SPEAKER CHANGES] It's the confusion of having two numbers. So they're used to a billboard that has one number and if they're traveling from state to state they see that same number in South Carolina and Virginia that they see in North Carolina and all of the sudden there's a billboard with a second box and a second number and what on earth does that mean? What's that telling me and has North Carolina changed the game somehow? I'll just go to South Carolina or Virginia. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Senator Bryant, follow up. [SPEAKER CHANGES] And in terms of your odds, I'm looking at the provisions and you have to state the probability of winning the lowest prize and the largest prize or something, and how is that different from what you do now when you say what the odds are. [SPEAKER CHANGES] Miss Garland. [SPEAKER CHANGES] Our current statute requires that we put on everything that we do the overall estimated odds of winning in that game, and so that's what we do because that's what our legislation tells us to do. What this provision would ask us to do is to include the odds of winning the top prize and what's the dollar value of the lowest prize you can win. After House Bill 156 was introduced, we started looking at what we could go ahead and do, and that was a

Easy one. We were glad to do that, had we been asked we would have done it voluntarily. We were just doing what our statute told us to do, but we already now have on all of our tickets and our point of sale that's in stores and our how to plays the odds of winning that top prize. We have left the overall estimated odds because that's still in our statute. [SPEAKER CHANGES] Thank you Miss Garland. Follow up. [SPEAKER CHANGES] And this to staff, in this section about advertising in sports it says in connection with any sport or sporting event, are those different or something for some reason? I was just curious in terms of the drafting. [SPEAKER CHANGES] So Madam Chair, Senator Bryant, I'm not in a position to have an opinion on that. Looking across at my colleague, we'd have to talk to an attorney and get back to you on that. We'll do that. [SPEAKER CHANGES] Thank you. Thank you, Senator Bryant. Senator Apodaca. Senator Apodaca. [SPEAKER CHANGES] Thank you Madam Chairman. I was wondering about these mega million things. Hasn't that been a real boon to the lottery, all the large jackpots over the last couple of years? When Mrs. Apodaca really gets involved in the lottery. Is that not, what kind of money has that brought in? [SPEAKER CHANGES] Miss Garland. [SPEAKER CHANGES] Well, first I would like to say that Mrs. Apodaca is like a huge number of North Carolinians that waits for the jackpot to get to $200 million because a measly $40 million isn't enough. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] But, yes, and quite frankly Senator and one of the reasons that we have surpluses is we don't project for the year those large runs. We can't count on them, we can't predict them, we can have a year where we have 3 or 4 of those large runs, great year, we can have a year where we have 1 large run, but typically, I wish I had a sales chart to show you what happens when that jackpot gets really big. It's not unusual for us, I actually can't tell you minute for minute what we do on a normal day, but literally minute by minute when that jackpot is high, we are selling $20,000 of tickets a minute when that jackpot's high, and 38% of that, the draw games have a higher return than the instant tickets, 38% of that is going to education. [SPEAKER CHANGES] Thank you. [SPEAKER CHANGES] Those games have been great for us. [SPEAKER CHANGES] Thank you Miss Garland. [SPEAKER CHANGES] Madam Chairman. [SPEAKER CHANGES] Two more questions from committee, we're trying to move through. [SPEAKER CHANGES] I want to do a quick follow up to that. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Statement please. All right, I don't want us to spend a whole lot of time worrying about House Bill 156 no matter where it is or where it was put, that's just foolishness. And so I don't want Jamie going into labor and I don't want you having a heart attack. And in finishing up, I think lightning hitting Senator Tucker is probably greater than anything I can think of odds-wise happening. It ought to almost happen any moment, so thank you. [SPEAKER CHANGES] Thank you for your comment. Senator Brock. [SPEAKER CHANGES] Thank you Madam Chair. When you're looking at advertising, you're looking at when the jackpots do get that high you have your earn media where it's leading off with a new story every night so when you're looking at actually sales advertising is that the media's doing more of it for you than what you're putting in so your numbers are, I think you're misinterpreting your numbers wrong. But the question I have on this one and regardless of what Senator Apodaca said on the bill, looking at our information that we're to make the decision on on the lottery. We created you in the middle of the night. The information that we got on House Bill 156 that it would be no impact, did you talk to, I know they're coming up next, but did you, the Lottery Commission, talk to our research staff and give us this information that said it will be no impact. You said the numbers, now this is this year, but last year you said you didn't have the numbers. Now you do. Can you walk me through the dialogue you had with them? [SPEAKER CHANGES] Miss Garland. [SPEAKER CHANGES] We were not consulted when that fiscal note was put together in fiscal '13. When I spoke in the House Judiciary Committee I laid out what I thought the fiscal impact would be and my district liaison and I met Representative Stam and told him what we thought the fiscal impact would be, so it was not for a lack of our expressing what

Thought would happen. [SPEAKER CHANGES] And what were your numbers? [SPEAKER CHANGES] Similar to what you see now. I don't have them with me, but they haven't changed very much. [SPEAKER CHANGES] Can you provide me with that documentation that you gave to Representative Stam? [SPEAKER CHANGES] We talked to him verbally. I did not hand him a document. [SPEAKER CHANGES] Thank you Miss Carlin. We very much appreciate you sharing your time with the committee, and answering all of the questions. Thank you. Next up we have Brian Matheson from the fiscal research division. He's going to be discussing the differences in lottery appropriations between the House and Senate budgets. Welcome, thank you. [SPEAKER CHANGES] Thank you Madame Chair, members of the committee, guests. Good morning. There will be a table handed out ot you shortly so I'll get into that once you receive it. Just a few points to make before we get into those numbers. The first point again, I guess it bears reiterating Senator Harrington led us off with this but Barry and his counterparts over at OSBM are working with the lottery committee to come up with a revised consensus estimate that will take into account the baseline, that is if there's no policy change, and lottery continues operating as-is. And considering a few different policy shift scenarios, they hope to be able to produce a formal estimate by the end of the week that you will receive, so I don't anticipate my brief presentation here will get into any of the estimate side of things, but rather I've been asked to look at how funds were distributed and the respective House and Senate budgets, how they compared to the enacted budget and to one another. One other point to raise to you, I see some of you have the handout and the rest of you are getting it. For the first time this past year, 2 significant changes happened with respect to how you budget your lottery funds. The first is that you budget it on a 2 year basis, the lottery funds, whereas in the past the net revenues of the lottery for education programs had been budgeted annually. So even in the short session, you'd come back, take a fresh look and make specific allocations that could be significantly different than what had been done at the beginning during the long session. So this time you'll see that we have a 2 year budget put in place. That is new. Secondly and I believe Senator Tucker had raised the point earlier that last year had made a significant change and had removed the statutory required allocations for lottery funds for specific programs, so what you see here on a going forward basis reflects the General Assembly's best wisdom every year about where to allocate funds that you receive or the projected funds that you receive from the lottery. So seeing that all of you have the handout, let's get into the detail. FY2013 14, you see the enacted budget of $481.1 million. Because you're not operating on a 2 year budget, showing you here what was budgeted this year. The Senate did propose to make a modification, the baseline consensus re-estimate in April that Alice had discussed with you earlier, Miss Garland, excuse me, had anticipated approximately 37 million in overages from current year operations. That is that the lottery would produce net revenues $37-38 million higher than had been budgeted. The proposed Senate budget would take 19 million of those projected overages in the current fiscal year and put them into completing the UNC financial aid forward funding that had been authorized in the budget. If you see with that item 32.5 million was enacted in the current FYI 2014 15. What the Senate budget did with the additional available in the current year is to take about half of that availability and finish out the work on the moving UNC financial aid completely to a forward funding model. The House budget did not make any changes to the enacted budget in 2013 14, so really the only item of interest there is just the Senate shift to fully fund the forward funding item. FY 2014 15 as you know is a considerably different story. Both the Senate and the House had modifications there. What the Senate did was to put 56 million into 56 million additional into the classroom teachers. See actually there's an error on here in respect to forward funding and digital learning. Just a line moved up on me. So what you should see is that forward funding is a zero for the Senate in the 2014 15 budget whereas the digital learning money stayed flat. Essentially on a comparative basis, the only change

... here, or the only two changes are 56 million additional for classroom teachers and the elimination of 19 million for forward funding in the Senate budget, as that had already been taken care of in 13-14. The House budget in 2014-15 made several modifications, the most significant of which was an additional 160.9 million into classroom teachers. That amount, as you see, considerably higher than the Senate’s allocation, about 104 million. Also put 49 million into NC pre-k. In all cases here, these were not additions, so didn’t provide more teachers or pre-k slots, but changed the distribution of proceeds supporting those programs, the mix between general fund and state receipt, so you see between those two items an additional 219 million, or 220 really, from the House into teachers in the pre-k. Also provided nearly 11 million for an increase to textbooks, Textbooks program already receives about a 23 million dollar general fund appropriation through the DPI budget, so this would be about a 50 percent increase to textbooks. Then lastly, the House policy on the forward funding was not to complete it, so it also did not provide the 19 million, and then lastly did not fund digital earning. So just to summarize, you see the box at the bottom of the page, Additional Budgeted Net Lottery Revenues. So you see the additional budgeting over both years since the Senate had allocated some of the funds in 2013-14. Senate was counting on about another 56.3 million over the enacted level, whereas the House budget counts on approximately 190 million over the enacted level with the policy changes that you heard about earlier. That concludes the presentation, Madam Chair. I’ll take questions. [SPEAKER CHANGES] Thank you, Brian. Senator Apodaca. [SPEAKER CHANGES] Thank you, Madam Chair. Brian, go in a little deeper for us on the UNC financial aid forward funding, what that involved and why we were looking at that. [SPEAKER CHANGES] So I’ll take a start at this, then I’ll look over at my colleague who handles this, and if I get off track, I’ll defer to Denise. That’s right, sir. You know. So philosophically, there had been certain timing constraints that you all face each year with making financial aid awards, wherein you’ve been making appropriations decisions that in some ways impact existing policies. That is, if award letters had been sent out to students anticipating a scholarship award, receiving those letters in the spring of a year in which you’re considering the budget for the next year, any modifications you made to that budget, specifically in the case of making any reductions to aid, would result potentially in families and students expecting one level of funding through financial aid and receiving another. The General Assembly’s move here through lottery funds, some other general proceeds and whatnot – the whole array of funds that support financial aid – the General Assembly has moved over the last several years to get the program on a fully forward-funded basis so that you can make adjustments without impacting those award letters and have a better sense of timing that wouldn’t negatively impact students that have already been notified of awards. [SPEAKER CHANGES] Follow-up. [SPEAKER CHANGES] So in simple terms, we would be giving money that we had already appropriated. We would have the money and then send it out to the students, correct? [SPEAKER CHANGES] Madam Chair? Yes, that’s correct, Senator. You appropriate it up front, know it’s there, and then you can send out the awards. [SPEAKER CHANGES] Further questions or comments from committee? Thank you. Appreciate it. Next we have compensation differences. Lanier McRee and David Vanderweide are here to cover another major area of budgetary differences, salaries and benefits. [SPEAKER CHANGES] Hi, I’m Lanier McRee from the Fiscal Research Division. The Sergeant-At-Arms are passing out a handout that shows the various proposals and budgets passed for the compensation plans. The handout provides the Governor’s proposal, the Senate’s budget as enacted and the House’s budget that they passed. There’s also a handout, the second page provides the various a: teacher salary schedules, so this is the Bachelor’s lane of the teacher salary schedules in the various proposals. I’m going to quickly go through the various employer groups on this page, starting with educator raises. First, all three proposals increase starting pay for educators to 33 thousand dollars a year. I’m going to focus on the differences between the Senate and the House. In the Senate budget, if you recall, you create a professional status teacher salary schedule that only has 21…

steps. Starts at $33,000 and is flat at that rate for the first few years and then provides $1,000 salary increased up until step 20 when it caps out at $50,000. In order to move to that professional status teacher salary schedule you have relinquish longevity rights, career status rights, and also a technical issue related to the way that supplements for degrees and certifications are calculated. On average, the professional status salary schedule provides over an 11% raise for a teacher. It's not 11% for every teacher but it's on average across all steps of the schedule. Teachers at the top of the salary schedule who choose to move to the professional status schedule don't actually get a salary increase. If you look at the current schedule for teachers someone on step 36 makes $53,000. When they, if they choose to move to the professional status schedule they don't drop to $50,000. They're held harmless and they keep their current rate of pay and they actually get a 1% non-recurring bonus. The House did not choose to go with this professional status salary schedule. Instead, they increased starting pay to $33,000 a year and they increased all the steps on the schedule by varying amounts in an effort to move back towards the schedule as it was before the freeze. On average, the House provides a 5% increase to all teachers on the schedule and it provides a 2% bonus to anyone who's on step 36 that would go to year 37 or who is currently a 37 and would go to a 38 because we don't have steps for those but there would be a 2% non-recurring bonus for those individuals. I just want to look at this page of the raises for educators quickly and explain how you would figure out what a teacher would, salary increase would be. Because each educator gains a year of experience a zero, let's use a 10, a person on step 10 who currently makes $35,800 does not move to $40,000 under the Senate proposal. They would actually move to $41,000 because they also gain a year of experience. So they move from step 10 to step 11. So if you have a person who calls you and asks how this would affect them make sure that they understand you don't just move across but you also move down a step to gain that year of experience. The second group of employees on my list is the school based administrators. This are your assistant principals and principals. The Senate budget proposed doing the exact same thing as the Governor's budget did and this provides a step increase to these individuals as well as non-recurring bonuses for anyone who doesn't get a step. The House budget also provides a step and it changed the schedule to match the school based administrator's schedule is tied to the educator's schedule and it changed the schedule to match the proposed salary schedule for the teachers. You can see the cost difference there. These numbers are in millions so the Governor's proposal for school based administrators costs just under 6 million dollars while the House's cost over 10. I'm sorry I didn't state the cost for the educators raises. The Senate was just under 469 million dollars while the House's proposal costs about 278.3. Third are your non-certified and central office staff at the public schools. Non-certified personnel are your bus drivers, your cafeteria workers, people who are not certified in education fields and your central office staff are the superintendent, the school business officers, and those people who work in the public school central offices. The Senate proposal provides a $500 flat salary increase, it's $600 and some dollars when you include benefits, and the House provided a $1,000 salary increase, which is closer to $1,236 when you include benefits. You can see the cost difference for those here as well. Fourth are state employees and the North Carolina Community College system employees. The Senate provides an $809 salary increase and excludes the university EPA in their estimate of cost. The cost for the Senate proposal is 75.5 million dollars. In the House there's $1,000 salary increase for these employees and it specifies that state agency and science and math teachers would get compensated on the teacher salary schedule. This costs about 118 million. Turning over to the second page, these are the non-educator and school based administrator step employees. So these are your assistant and deputy clerks, your magistrates, and your state highway patrolmen. All the proposals pretty much provide a step for these individuals and anyone who's not eligible for a step would get

Either 809 in the Senate or $1000 in the House. However for the magistrates, the House budget provides a general increase in the rate of pay for the magistrates. You didn’t see in the box for magistrates there have been increase of over $2000 for the ?? for magistrates and this is to help address recruitment issues for magistrates. So everyone in these cases will get the same, the flat or step increase which is more than the flat increase provided same employees. Lastly the state highway patrol, the House provided more than a step for certain Highway patrolmen. For Highway patrol, one step is 5% and the House provided 6% for patrolmen sworn since 2012. 5.5% for patrolmen sworn between 2008 and 2011 and 5% for those sworn from 2005 to 2007. You can see the total cost for these plans here, the main difference is the market increase for magistrates makes that cost 1.2 more than the Senate and then the additional pay for the newer troopers makes the Highway patrol cost slightly higher than what’s in the senate. In total, the house budget cost proposal for compensation cost about 381 million dollars while the senate proposal cost about 591 million dollars. Line 9 shows the retiree column, the senate budget includes a 0.8% cost of living adjustment for retirees while the house provides a 1.44% increase for retirees. And then you can see total spending including the retiree component is 621 million dollars in the senate and 434 million dollars in the house. I’m happy to answer any questions related to these guidelines. [SPEAKER CHANGES] Thank You, Miss McCray. Questions or comments from committee? Alright, thank you very much. Senator Tucker. Senator Tucker, please turn your microphone on. Thank You. [SPEAKER CHANGES] Ma’am Chair, Thank You. On the step increase for principles in school administration on the Senate and House. Is that different and how much is it? [SPEAKER CHANGES] Madam Chair. Senator Tucker, the Senate keeps the governor’s proposal which has a plan and if it matched the governor’s teacher’s salary schedule. So the school base administrative salary schedule in the senate budget no longer is linked to the teacher’s salary schedule. It’s the same as was proposed in the governor’s proposal. And the House updates the school base administrative schedule to match their proposal for teachers and that cost 4 million dollars more than what was proposed in the senate. [SPEAKER CHANGES] Follow up, Senator Tucker? [SPEAKER CHANGES] No Ma’am. Thank you. [SPEAKER CHANGES] Thank You Miss McCray. Senator Bryant. [SPEAKER CHANGES] Miss McCray, can you review with us because I don’t think it’s on here, two things. One is what happened with the $500, $1000 kind that went to 4 year contracts. How was that handled differently and I’m trying to remember, in the senate budget that we budget assuming everybody would move to the career status and I don’t know what amount of flux will be in that depending on how that happened, if there’s a simple answer but if you could? [SPEAKER CHANGES] Senator Bryant, I’ll answer your second question and default to my colleague Chris ?? on the first. On your second question, the cost to the senate proposal, almost 469 million dollars that does assume all teachers who choose to move to new salary schedule. Teachers who do not choose to move to the professional salary schedule remain on what will be known as career status salary schedule and that is frozen so that the 14-15 salary matches exactly the 13-14 salary. [SPEAKER CHANGES] Senator Bryant, follow up? [SPEAKER CHANGES] Follow up. Do we know how much was the possible amount of money that could be involved in that for those folks? Do we have some estimate or what the amount we’re looking at one way or another? [SPEAKER CHANGES] No Ma’am Senator Bryant we do not have an estimate of the number that we have moved but for the first question then. [SPEAKER CHANGES] Alright. Thank You. [SPEAKER CHANGES] Chris ? from fiscal research, just a follow up Senator Bryant with your question regarding the performance based contracts, the House and the Senate did have different policies there. The House essentially got rid of the program. They said for those teachers who have signed contracts prior to June 30th.

...team. They can chose to keep that contract or waive it. The senate allows teachers who've signed contracts by June 30th to keep that contract or waive it. Slightly amends it a little bit for additional contracts to be offered due to, I think, due to some of the court cases surrounding this policy. Some additional time is added in that school districts would have until September 30th to offer contracts. Clarifies that these contracts offer following the passage of the budget until September 30th. Instead of pay raises of $500.00 increasing each of the four years, these would be bonuses of $500, $1,000, $1,500, and then $2,000. And then there are provisions in there, [CLEARS THROAT] excuse me, to allow for additional contracts that would start in the 15-16 school year such that the total number of performance based contracts offered by the school district could only total 35% of the eligible teacher population. The eligible teacher population, those that have been determined effective and have certain number of years of experience in that school district. [SPEAKER CHANGES] Thank you, did you have a further follow up? Further questions or comments from committee? Alright, thank you Ms. Mcrane(?) Next we're going to have Mark Bondo(?) present with capital differences. Although, the differences in the House and Senate capital budgets are not major. The capital budget does not have a sub-committee. So, Mark Bondo is going to quickly review for the appropriations committee the budget differences in the area of capital. [SPEAKER CHANGES] Hell, My name is Mark Bondo. I'm with fiscal research and I believe you're getting the handouts for what the differences are in the capital budget. While those are being passed out, in the interest of time, I will go ahead and start. The first item that the Senate funded which the House did not, was the Department of Agricultural Project. It was funding the McGough Arena roof repairs at the Western North Carolina Agriculture Center of $2,000,000. The House did not fund this project. The House and the Senate both chose to fund planning for the expansion and renovation of the Museum of History here in Raleigh, but they both chose to fund it in different ways. The House appropriated 1.8 million dollars directly to the Department of Cultural Resources and if you look on the next page, on page two, the Senate chose to do a $1,000,000 challenge grant that the Department of Cultural Resources would receive upon raising $1,000,000 in non-state funds. Both the House and the Senate funded a North Carolina battleship but in different ways. The North Carolina battleship needs its whole repaired. The Senate appropriated $3,000,000 directly to the Department of Cultural Resources and authorized them to raise an additional $10,000,000 in non-state funds to repair the battleship. The House, on page two on item six, chose to appropriate $3,000,000 to the Office of State Budget Management to hold in a reserve as a challenge grant for the Department of Cultural Resources in the friends group of the USS North Carolina raising an additional $10,000,000. Item four, House and the Senate are in agreement on water resources projects for $5.81 million. Skipping down on item seven, the Senate chose to fund a $3,000,000 outerbanks land management reserve in the interest of buying land near the Oregon inlet. The House did not follow this policy so the $3,000,000 was not appropriated. Item eight within the House budget for Capital there is $4,000,000 non-recurring to fully plan the Appalachians State University Health Sciences Building. With the authorization that Appalachians State can raise an additional $1.2 million to meet the full planning cost needs. This is actually funded in the Senate budget but in the education section there's a, [CLEARS THROAT] excuse me, $2,000,000 non-recurring appropriation to Appalachians State to further planning for this project. For two-thirds bonds there's no money here, just the authorization. Which then it also appears in a special provision. The House funded the renovation of the Aldemaro building, which is the building across the street. This would be a full renovation using two-thirds bonds and it was $42.23 million. Just a little bit of history, the Aldemaro building is about forty-four years old. It was finished in 1970 and about 135,000 square feet and this would be a full renovation of that building. Both House and Senate agreed to fund...

In the Department of Justice's Western Crime Lab in Ednyville and also to essentially refinance existing debt that the State has with 2/3 bonds at the amount of $206 million dollars. And those are the major capital items, there are no major special provisions to be discussed. [SPEAKER CHANGES] Thank you Mr. Bondo. Questions or comments from committee? All right, thank you. Next we have Kristin Walker from Fiscal Research. She's going to review the final budget differences in the areas of general fund availability and the reserve section of the budget. Thank you. Welcome, Kristin. [SPEAKER CHANGES] Thank you Mrs. Chairman. What we have is a handout for you which details the general fund availability differences, so this kind of wraps up a lot of the different pieces you've heard about today. I will go through this quickly. I know we're almost out of time. On line 2 you can see there's a difference in undercollections between the Senate and the House. The consensus forecast has not changed, but what has happened is that there was a return of about $16 million from the high risk insurance pool, so that is reflected in the House budget as an undercollection, changing that number. The projected reversions is different between the Senate and the House as well on line 3. The difference there is how Medicaid and HHS carry forward funds were handled. There will be a later meeting to talk more about Medicaid and those carry forward funds. In lines 5 and 6 the savings reserve and R&R received different amounts between the Senate and the House, and then if you look at lines 8 and 9, those are the same. Those are the revenues and the consensus forecast was used for both of those lines on lines 8 and 9. Lines 10-26 show you various differences. They're mostly minor in cash transfers and other availability adjustments. We can go into the details if there's questions or if time permits. Now as you look at line 27 we've broken out the subcommittee budget for you. For each subcommittee we start with the enacted budget and then from there we've pointed out a few major differences, just a few of them, and subtracted those out with compensation differences in each subcommittee being one of the biggest areas of difference. When you get to the shaded line for each subcommittee, so that's line 39 for Education, you can see the total spend difference for that subcommittee between the Senate and the House. As you look at line 40, you'll see Health and Human Services. The big differences there are on lines 43 and 44. Those are related to Medicaid and again the chairs have expressed an intent to have a meeting at a later date that covers in depth Medicaid differences. Turning the page, you can see Justice and Public Safety, NER, General Government, those totals for those subcommittees and the major differences there. Looking at, starting on line 69, these are the adjustments to the reserves. You can see many of these are the same. There are just a few minor differences as you look down at lines 81-84. You can also see on line 80, that's the Medicaid Risk Reserve, which is how the House chose to handle the Medicaid funding. And line 84, I should note, this is the, the Senate column has $20 million in there. This was actually not passed in the Senate budget. This is the film grant money that was passed in Senate Bill 743, which this committee heard a week or two ago. So there was $20 million spent and if you flip back, the page back over, lines 5 and 6, the savings reserve in repairs and renovation, $10 million came from each of those to fund the $20 million grant program, so those numbers on lines 5 and 6 will not match if you open up your Senate budget because that bill that passed subsequently has changed them, but that will be in play in conference, the difference there between the Senate and the House. And then the last section just details for you the capital differences and you just heard those from Mark Bondo and finally you can see the total spend on line 94. The Senate is at 21.18 and the House is at 21.1 and both chambers left no money on the bottom line. [SPEAKER CHANGES] Thank you Miss, Thank you Miss Walker. Questions or comments from committee, and I am told that this room is reserved for another meeting at 10:00. All right, seeing none. Thank you, meeting adjourned.