State looks at lottery to boost revenues

Posted Aug. 22, 2010, at 7:22 p.m.

AUGUSTA, Maine — With many states facing serious revenue shortfalls, several are looking at privatizing their state lotteries to increase revenue. Lawmakers on the Legislature’s committee that oversees the Maine State Lottery say Maine should also consider privatization, and the director of the lottery agrees.

“We are mindful of Governor Baldacci’s charge to all state agencies — not just the lottery — that we need to continue to explore the most effective and efficient way to provide services,” lottery director Dan Gwadosky said last week. The state has explored privatization in the past, he said, but it has been rejected. While selling the revenue stream could bring a “considerable” one-time payment, it would have meant a loss over the term of a deal.

But several members of the Legislature’s Legal and Veterans Affairs Committee say it is worth another look because some states are looking at privatizing the operation of their state lotteries, not selling the revenue stream.

“Absolutely we should look at it,” Sen. Debra Plowman, R-Hampden, the GOP senator on the panel, said last week. “We are doing way too much with the lottery staff that drives up the operational costs.”

With the state facing serious revenue problems in the next budget cycle when federal aid ends, she said every way to maximize revenues should be explored. The operational budget for the lottery has seemed “high” to her for several years, and she would like to see what sort of interest the state would get if it put lottery operations out to bid.

While saying the issue should be explored, Sen. Nancy Sullivan, D-Biddeford, the co-chairwoman of the panel, is concerned about how an agreement could be structured to assure adequate state oversight and the ability of a private operator to make money on the deal.

“Can we tell them they have to stay in Megabucks? Can we make sure they continue the agreements we have now?” she asked. “There are a lot of questions to answer to make this work.”

Sullivan also is concerned about a private operator deciding to change agreements with stores that have the online lottery machines. The lottery pays more than $16 million a year in fees to the stores.

“The lottery is huge for helping small businesses stay in business,” said Rep. Linda Valentino, D-Saco, a member of the committee. “I would rather be spreading this money out to small businesses than giving it all to some company that is running the lottery.”

Valentino stressed that all aspects of lottery operations should be reviewed to see if they could be done more efficiently, but she does not support selling the revenue stream as the state did when it sold the state-controlled liquor business.

“We really need to carefully look at any proposal and really think it through,” said Rep. Stacey Fitts, R-Pittsfield, a member of the committee. “We don’t want to do something like that in a panic to find some revenue.”

He agreed with the concerns that the state did not get a good deal when it sold the revenue stream from the state liquor distribution monopoly to a private company for a $125 million one-time payment with smaller annual payment s.

“I don’t think we want to do that again, “he said.

Gwadosky said many concerns have been raised as lottery officials have discussed options to improve efficiency, including privatization. However, other states are looking at contracting for services that Maine already contracts for.

“In some of the states, they do just about everything in-house, and it takes a lot of employees to do that,” he said. “We only have 26 employees in the bureau, which is among the fewest of any lottery operations.”

Many lottery activities are already privatized, such as the operation and maintenance of the online ticket machines that support games such as PowerBall and Megabucks, he said. The printing of the popular scratch tickets is also contracted.

Complicating efforts to privatize state lotteries are federal Justice Department rulings that state lotteries, to operate under federal laws that govern gambling, must have government employees in control of “day-to-day” operations, he said.

“Many states have looked to find ways to further privatize their operations, but they all have run up against the Justice Department rulings,” he said. “But they are still looking, and we are still looking.”

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