Slow Down Lottery Privatization for Full and Transparent Review

A few weeks ago I wrote about a series of problems with a plan to privatize the operations of the Pennsylvania Lottery. The effort had elicited just one bid from United Kingdom-based Camelot Global Services.

On New Year's Eve, Governor Corbett announced that his administration had negotiated an extension of Camelot's bid (which was set to expire) through January 10. I put out a statement today reacting to that news.

The Corbett administration made the right decision in slowing down the lottery privatization train. The next step should be a longer extension that allows public hearings to take place, including one scheduled before the Senate Finance Committee on January 14. Only with a full and transparent review of this proposal will our elected officials be able to vet the impact of privatizing Pennsylvania’s highly profitable lottery operations.

The lottery currently generates $1 billion in annual profit for services such as senior centers, low-cost prescription drugs and senior transportation services. It operates with lower administrative costs than lotteries in most other states. Privatization could end up transferring more than $1 billion in lottery proceeds over 20 years from Pennsylvania seniors to a private operator.

Sometimes privatization benefits citizens, and sometimes it produces bad deals that are profitable for the contractor but harmful to the public. No privatization proposal should go forward without an open, public and thoughtful process that is informed by privatization research and experience in other states.

A full and transparent review is certainly needed with the proposed lottery deal. As I noted in a December 13 Keystone Research Center policy brief, there remain a number of questions that have not yet been answered by the Corbett administration about the plan:

  • With only one bidder to come forward, is the commonwealth getting the best deal it could?
  • Given that Camelot has promised profits no greater than the rate of inflation over the next 30 years, could Pennsylvania do just as well without incurring the cost of a private contractor?
  • What value does the contractor add?
  • Has the commonwealth adequately evaluated other states’ experiences with lottery privatization and what they have learned?
  • How strong are the protections in place if a contractor fails to meet guaranteed funding levels?

Our report also asks whether the manager of the state’s privatization efforts, Greenhill & Co., has a conflict of interest since it coordinated the sale of Camelot to its current owner and also stands to receive at least $3 million if a privatization deal is reached.

All important questions that should be answered before any lottery privatization proposal goes forward.

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