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August 22, 2014
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Gambling with the lottery; Pennsylvania on course to privatize


HARRISBURG, PA — The state lottery is a cash cow for Pennsylvania, bringing in some $3.48 billion in the year ending June 2012. That represents an 8.5% increase over the previous year, which was also a year in which profits grew 10.4% to about $1.06 billion.

All that money is used to pay for programs that benefit the state’s senior citizens. According to the Pennsylvania Lottery Commission, the money pays for Pennsylvania’s low-cost prescription drug programs for older adults, home-delivered meals as well as property tax and rent rebates among other things.

It may seem like a program that’s doing pretty well, but Governor Tom Corbett thinks it can do even better. He has arranged a deal with Camelot Global Services, the company that runs the lottery in the United Kingdom, to allow Camelot to take over the management of the lottery for 20 years. In return, Camelot has guaranteed that the keystone state would receive $34 billion in proceeds during the time, which is a significantly higher revenue stream than is now projected.

A statement on the Pennsylvania Department of Revenue website says, “A lottery private management agreement would protect and grow future funding for senior programs by maximizing a growing and more predictable stream of cash flow. Today, Pennsylvania is home to nearly 2.3 million people over the age of 60. By 2030, nearly a quarter of the state’s population will be over age 60. This means funding must be secure and grow to meet higher demand for services.”

But not everyone in Harrisburg is as enthusiastic about the plan as Corbett. Grumbling from some Democrats has been loud enough that the Corbett administration has backed off the date when the deal was supposed to take effect, from December 31, 2012 to January 10, and there is speculation that the deadline may be further extended. Two hearings on the matter have been scheduled in Harrisburg for January 14 and 23.

Democrats have complained that negotiations on the deal were done behind closed doors, and the House and Senate did not vote on the matter. Representative Tony DeLuca is one of seven Democrats who, along with the union that represents 250 lottery employees, filed a lawsuit to stop the deal.

On the labor issue, the deal requires that Camelot retain at least 70 of the current employees, although the language says that the company will try to keep as many as possible.

On the issue of whether Camelot can actually keep its commitment, DeLuca noted that Camelot was rejected by Illinois officials when that state decided to privatize its lottery. Also, the company that ultimately won the right to manage that lottery fell $50 million short in the first year of operation, which led to a legal fight.

Officials of the Corbett administration say they have learned from the mistakes of Illinois and have written protections into the agreement with Camelot, which can be viewed at www.revenue.state.pa.us/portal/server.pt/community/lottery_private_manag....

A statement under the question and answer section on the Pennsylvania Department of Revenue website says that if Camelot falls short of the guaranteed level of revenue to the state, the state could draw on collateral of $150,000 put up by the company. Critics, however, say that with $1 billion currently being provided, $150,000 is rather paltry.

One of the reasons Camelot is able to project such healthy growth is that it will be able to expand gaming to include online games and games such as Keno. Frank Dermody, the Democratic leader of the House, echoed others when he said “there’s no reason to pay a private corporation to run those games when the current state employees could just as easily run them.”