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Thursday, December 13, 2012

New Report: Rush to Privatize PA. Lottery
Could End Up Costing Seniors

HARRISBURG - A plan to privatize the operation of the Pennsylvania Lottery would be a good deal for the private bidder but carries significant risk for the Pennsylvania seniors who benefit from lottery proceeds, according to a new report from the Keystone Research Center.

“Only one bidder has come forward, promising 30-year profits that barely match inflation despite plans to introduce new games like Keno,” said Stephen Herzenberg, author of the report and executive director of the Keystone Research Center. “The Corbett administration should slow down and thoroughly examine whether this is a good deal for Pennsylvania.

“The lottery generates $1 billion a year for services that benefit seniors, including popular prescription drug and senior transportation programs,” Herzenberg added. “With the Baby Boom population aging, Pennsylvania should not rush into a 30-year multi-million dollar privatization plan.”

Camelot Global Services is the sole company to bid on the privatization contract, which should be a major concern for the commonwealth, the report states. Illinois and Indiana are the only other states to privatize lottery operations, and in both cases the states got more than one bid.

“How does Pennsylvania know it is getting a good deal with only one bidder?” Herzenberg asked. “And is it wise, with such limited experience in other states, to lock the commonwealth into a privatized lottery for a generation?

“Just as for a home-owner seeking a roofing contractor, getting a single bid should be a red flag, a warning sign of a possible fleecing,” he added.

The report notes the lottery is run efficiently under public management, with record profits in the last two years. A recent Pennsylvania Treasury analysis found that administrative costs in the Pennsylvania Lottery were the second lowest, as a share of lottery system sales, of the 10 largest lotteries in the U.S.

The report also raises questions about financial ties between Camelot and Greenhill & Co., the private consultant retained by the Corbett administration to manage the bidding process. Greenhill worked on the $576 million sale of Camelot to its current owner, the Ontario teachers’ pension fund, and would receive $3 million if the privatization deal goes through.

“There appears to be a clear conflict-of-interest that interferes with Greenhill’s ability to advise the commonwealth on whether lottery privatization makes sense,” Herzenberg said.

The Camelot bid was announced in November and is valid through December 31, 2012. There have been no public or legislative hearings on the contract. T

he Keystone report poses questions that have not been answered by the Corbett administration:

What value does the contractor add?
Could the state achieve the profit goals itself without incurring the cost of a private contractor?
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?

“On its face, this plan offers the commonwealth little in cost savings or income growth, while putting critical services for seniors at risk,” Herzenberg said. “It would be in the public’s best interest to have a more transparent and comprehensive review.”

Read the full policy brief here

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