Taxpayers Appeal Lottery Case to Supremes: Betting It's a Tax

For those of you who've been awake long enough to remember, the lottery was debated in the North Carolina General Assembly every year from 1983 until 1995, when some curious and questionable procedural maneuvering led to its squeaker approval in both chambers of the legislature.  Now it's gone to the State Supreme Court, where on May 19, the North Carolina Institute for Constitutional Law (NCICL) filed a brief in an appeal of a lawsuit which challenged the 2005 passage of the Lottery Act.

The convoluted manner by which the lottery legislation was enacted made headlines in 2005.  After years of refusing to debate its passage, the leadership of both chambers of the North Carolina General Assembly hastened to vote on the measure using last-minute maneuvers and by-passing a constitutional provision requiring that all bills that impact revenue be considered over three separate days.

There's a reason for the prolonged voting process.  Lawmakers are encouraged to give thorough and thoughtful consideration to every proposal that's brought before them, but just to be extra cautious in avoiding rushed judgments, when it comes to revenue bills (those involving taxpayer dollars) they are constitutionally mandated to be heard three times, over three separate days, in each chamber.  Further, those votes are required to be recorded.

As the North Carolina legislative session wound down in the summer of 2005, legislative leaders were certain that the lottery legislation would incur the same fate as it had in all previous sessions.  They believed that it would fail.  While Gov. Mike Easley and both House and Senate chamber leaders had finally agreed on the policy in concept, they remained miles apart on the process by which a lottery would be administered. 

Earlier in the session, the House had taken a vote on a stand-alone lottery bill, barely passing it - but the Senate had not even debated it.  The Republican caucus and five Democratic senators remained opposed to the lottery, so Senate President Pro-Tem Marc Basnight didn't think he could get the votes to pass it, even if he managed to get a bill to the Senate floor.    

In the legislature, there's a way to get around problems like that.  Get the timing right. Twist a few arms behind the scenes and make sure the needed voters are in attendance (and the uncooperative legislators are absent) - then slip the bill in when no one's expecting it and pass it fast.  And pass it fast they did.  On August 31, 2005, Governor Mike Easley proudly stated, "In the House it passed by one vote. In the Senate it passed by one vote. And I just signed it.  North Carolina has an education lottery."

Should the governor have been so proud of legislation which was enacted only by virtue of a tie-breaking vote by Lieutenant Governor Beverly Perdue?

The twisted tale of the Lottery Act's tortured enactment is a separate story in and of itself, but there is no question that despite loud objections in both chambers which went unrecognized, House and Senate leaders bullied the second and third reading votes through on a single day, with the third reading being taken as a voice vote, rather than a recorded one.  Why?  Both Basnight and Black said that the lottery bill did not qualify as a "revenue bill," despite its fiscal note and the foregone dependence of state government on future income from the lottery.

What happened during those final hours left an important question on the minds of both lawmakers and legislative watchers.  Given the constitutional requirements of recorded votes on separate days on revenue bills, has the lottery even been legally enacted?

Many didn't think so, and a court challenge seemed a foregone conclusion.  What makes it even more interesting is the notion that a successful challenge would return the lottery back to its former illegal status. 

NCICL stepped up to the plate, filing a lawsuit on December 15, 2005 in the Wake County Superior Court on behalf of four individuals and two organization:  Charles Heatherly; Thomas Spampinato; Edward Goodall, Jr.; Paul Stam; the Wake County Taxpayers Association; and the North Carolina Family Policy Council. The NC Justice Center represented additional parties who joined the lawsuit including North Carolina Fair Share, the North Carolina Common Sense Foundation and an individual, Willis Williams.  

In its brief, NCICL argued that the Lottery Act was, in fact, a revenue bill, and that the General Assembly did not follow the procedural safeguards required by the State Constitution when it passed the Lottery Act in 2005. The filing also challenged the constitutionality of the lottery because it directs the expenditure of public money without an accompanying appropriation. 

As anticipated, the lawsuit was dismissed in March of 2006, and NCICL appealed the decision to the NC Court of Appeals.

On May 22, 2007, NCICL made oral arguments before the Court of Appeals.  On behalf of the plaintiffs, NCICL executive director (and former NC Supreme Court Justice) Bob Orr argued that the lottery constitutes an attempt to raise revenue on behalf of the state via an implicit tax, and that it does so on the full faith & credit of the state, since it pledges the state's resources for any debt incurred (after all, taxpayers would have the responsibility of ponying up the cash winnings if the money wasn't already in the hopper to pay them).  Further, the legislation appropriated $10 million in taxpayer funds for start-up costs.  NCICL concluded that the process by which the lottery legislation was approved violated Article II, Section 23 of the North Carolina Constitution, which requires that all revenue bills must be passed by separate votes on separate days, each of which must be recorded in the legislative journal. 

But in March of 2008 by a two-to-one vote, the North Carolina Court of Appeals affirmed the Wake County Superior Court's decision to dismiss the case, rejecting the assertion that the lottery legislation constituted a revenue bill.  While Judges James Wynn and Bob Hunter disagreed, Judge Ann Marie Calabria offered the dissenting opinion.  "Constitutionally mandated procedures are a concern of the highest order, and they may not be stopped by a hurry to sell lottery tickets," she wrote.

Jeanette Doran, Senior Staff Attorney at NCICL, was disappointed.  Granting legislative leaders every benefit of the doubt, she said, "Good intentions do not trump the Constitution. The General Assembly does not get a free pass to ignore inconvenient constitutional mandates just because legislators might mean well."  On May 19, 2008, NCICL appealed the decision to the NC State Supreme Court, where NCICL executive director Bob Orr presented oral arguments on September 8.

It will likely be many months before the case reaches its conclusion, but the litigation is of critical importance to taxpayers.  After all, they're footing the bill for the state's legal bills in an action where once again, our state government has found itself on the defense in the courts.  It could have been avoided if, regardless of the status of the Lottery Act as a revenue bill, the General Assembly had erred on the side of caution, honesty and transparency rather to resorting to slick, behind-the-scenes maneuvering to pass a bill that they knew was unpopular.  The taxpayers deserve nothing less.

Besides, if the only way an issue can be won is by parliamentary trickery, perhaps that particular piece of legislation is simply not right for North Carolina's citizens.