Gambling on Lottery Privatization

Today's big topic in privatization is infrastructure: toll roads, parking garages and airports. Tomorrow's, though, seems to be lottery privatization, something Indiana Governor Mitch Daniels ...
by | February 2, 2007

Today's big topic in privatization is infrastructure: toll roads, parking garages and airports. Tomorrow's, though, seems to be lottery privatization, something Indiana Governor Mitch Daniels and Illinois Governor Rod Blagojevich have proposed and Michigan's Jennifer Granholm is considering.

Infrastructure privatization has been controversial and lottery privatization will be too, but there are differences between the two. Consider how two arguments for and two arguments against the former apply (or don't) to the latter:

Pro #1: Private companies can provide more cost-effective management than government.

This is perhaps the fundamental argument for any privatization endeavor, but it was uniquely suited to some infrastructure debates. With regard to the Indiana Toll Road, Daniels could point out that the state was actually losing money on it. In other words, supporters of privatization had the advantage because there wasn't any question whether the infrastructure was being managed poorly. The debate instead boiled down to whether this was due to the inherent superiority of private control or whether the government could have been doing a better job.

That won't be true in the lottery debate. The whole reason states have pursued lotteries is that it's so easy to manage them well enough to bring in hundreds of millions of dollars, so the case for privatization is tougher.

Another pro -- and a couple cons --  after the jump. 

Pro #2: Privatization allows necessary, but politically difficult, decisions to be made.

This isn't something privatization advocates are always willing to say openly, but it's an important subtext. In Indiana, the toll road could never turn a profit unless tolls went up. Since that was politically toxic, the solution was to export the responsibility for raising tolls to a private company.

The same argument applies to the lottery, where privatization efforts seem likely to lead to expanded gambling, something that lawmakers might not be willing to overtly support out of fear for their political hides. But in both types of privatization the big question is whether privatization is any less politically dangerous than raising tolls or expanding gambling.

Con #1: Foreign companies shouldn't oversee essential services.

Whether it's ports, roads or water supplies, there's no quicker way to create a political firestorm than turning over something everyone needs to a foreign company. Here's where lottery privatization will be easier. If you can't get through a day without a scratcher, you have a serious problem.

Con #2: Long-term lease arrangements tie the hands of policymakers and create inherent risk.

Toll road lease agreements in Chicago, Virginia and Indiana ranged from 75 to 99 years in length.  A lot can change in 75 years. For example, the big news events in 1932 included a ban on slavery in Abyssinia, Siam becoming a constitutional monarchy and Manzhouguo gained independence. Today, Abyssinia, Siam and Manzhouguo don't exist. Due to the length of time involved, no one can say for sure whether these governments got a good deal.

With regard to lotteries, this is an even bigger concern because there's a lot more chance that policymakers will decide they want to get rid of gambling in a decade than that they will want to ban parking garages or toll roads. That may be one reason lawmakers are looking at shorter leases for lotteries, in the range of 30 to 35 years.

Josh Goodman
Josh Goodman  |  Former Staff Writer
mailbox@governing.com

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