Karen Heller: Lucrative lottery doesn't need a fix

Even one of the SEPTA workers who won the Powerball lottery in May held Pennsylvania Lottery tickets.
Even one of the SEPTA workers who won the Powerball lottery in May held Pennsylvania Lottery tickets. (AP)
Posted: December 17, 2012

Although it once employed the commonwealth's most irritating groundhog, the Pennsylvania Lottery is an economic engine, the envy of other states. The lottery boasted record sales of $3.4 billion last fiscal year - including $1 billion that went to programs for senior citizens - all with negligible administrative costs.

I'm no fan of the lottery; I see it as a regressive tax on the poor. But love it or loathe it, the lottery is a model of efficiency and transparency. "We're a pretty good barometer of complaints," Auditor General Jack Wagner said of his office. "We get virtually no complaints about the lottery."

Asked state Treasurer Rob McCord: "If it's not broke, why fix it?"

Yet that is precisely what the Corbett administration hopes to do, and very soon. The governor wants to privatize the lottery by awarding a lengthy, potentially lucrative contract to the only company that offered a bid: Camelot Global Services, a British multinational owned, strangely, by the Ontario Teachers' Pension Plan. The company's bid expires at the end of the year.

Why does the governor want to do that? Because Camelot promises to double lottery profits by 2033.

The proposal has several problems, beginning with that fairy-tale projection. If someone offers to double your money in a specific period, it's generally best to count the spoons. Last year, Illinois became the first state to privatize its lottery, and it missed revenue projections by almost $100 million. By contrast, Pennsylvania's grossed an additional $200 million.

"There's this sudden push for speed," said McCord, a likely Democratic candidate for governor. "The process happened with unusually little public discussion." Last week, the treasurer filed a draft letter stating he would not authorize public funding for the contract without further review of its legality.

Typically, there are two ways to generate more profit: Cut costs, or increase revenue. Given the efficiency of the lottery - which employs around 200 and spends only 2.4 percent of its revenue on administration - Camelot's strategy is extraordinary revenue growth, possibly through Internet gaming, video lottery terminals, and keno in bars and convenience stores.

But expanding gambling, critics argue, requires legislative oversight. And such lottery growth strategies could cut into casino revenues, cannibalizing state returns - and that's before the addition of Philadelphia's second casino.

Which raises economic and moral questions: How much gambling can Pennsylvanians possibly do? Should we just transform the turnpike into an extended keno emporium?

The specifics of the proposal are hard to come by. The Camelot agreement is troubling not only because of its extraordinary duration - 20 to 30 years - but also the "opacity of the language," McCord said. The 65-page contract "fails to describe or identify what new market opportunities a private manager will pursue," he noted. Additionally, "whenever you have a sole bidder, I worry about crony capitalism." There are also the ancillary costs of payouts to consultants or Camelot should the contract be terminated prematurely.

The state should privatize "things that don't work well in government, not things that do," argued Wagner, a Democrat. "Whenever you have a singular bidder, you're not really comparing the bid to anything else." Referring to the Liquor Control Board's failed experiment with wine vending machines, Wagner added, "Look at the kiosk program. ... That was a singular bidder, and it flopped." He is also concerned that Camelot is a "foreign entity. The profit margin doesn't stay in the commonwealth or the country."

Here's one projection Pennsylvania can count on: We have a lot of senior citizens, ranking fourth in the nation, and we're only making more. By 2030, one in four Pennsylvanians will be 65 or older. The Corbett administration is understandably concerned about how that booming population will be served.

We need an efficient, model lottery that returns maximum profits to the state. But the truth is, we already have one. Why gamble it away?

Karen Heller can be reached at kheller@phillynews.com and followed on Twitter at @kheller.

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