Advancing the Debate: Should Pennsylvania’s Lottery Go Private?

Pennsylvania's attorney rejected a contract to privatize the state lottery. The governor is scrambling to find a solution. Local newspapers give their take on the controversy.
by | February 20, 2013

Pennsylvania’s attorney general, Kathleen Kane, made headlines last week by rejecting a contract to privatize the state lottery. Kane said the contract violated state law and her decision wasn’t a judgment on privatization as a policy. So far, Gov. Tom Corbett has managed to persuade the private company, Camelot Global Services, to keep alive its bid until Friday.

The Pennsylvania lottery is already a success with more than $3.5 billion in sales last year and more than $1 billion in profits that went to programs helping seniors. Still, free-market champions argue that the private sector could run the lottery more efficiently and revenues would be even higher. For the proposed 20-year contract, Camelot has guaranteed $34 billion in profit.

The notion that private industry could increase profits from state lotteries isn’t new; Illinois turned over its state lottery to Northstar Lottery Group, a private manager, in 2011. New Jersey is mulling over a plan similar to Pennsylvania’s. In the past six years, more than a dozen states have considered privatization proposals in their state legislatures. Part of what varies by state is the target beneficiary. In 2008, Indiana wanted to use extra profits for a scholarship program, Texas wanted to dedicate the money to cancer research and Vermont intended to offset property tax increases that pay for schools and school construction. Illinois directs profits to education funding and new capital projects. In Pennsylvania, almost all the money would go to senior services.

Kane’s decision to reject the contract caught the eye of some political observers in the press because it seemed so theatrical. She held a press conference in which she didn’t take questions from reporters and didn’t warn the governor in advance about rejecting the contract. John Micek, opinion editor of The Patriot-News in Harrisburg, Pa., observed that Kane’s a Democrat, Corbett’s a Republican and the last two governors in Pennsylvania were state attorney generals first. He speculates that maybe the privatization controversy also signals that another ambitious attorney general is seeking higher office.

Of course, Corbett expressed his deep disappointment because he only wants to find a way to pay for services for an increasingly large senior population in his state. The local union that represents lottery employees cheered Kane because she “made the right call.” The Pennsylvania Alliance for Retired Americans, another union group, gave Kane “kudos” and demanded that state leaders abandon the privatization idea altogether. (If privatization occurs, some 160 public employees at the state lottery could be laid off, transferred within state government or rehired by Camelot.) A newspaper editorial board in Hazleton, Pa. breathed a sigh of relief because now the State General Assembly can vet the issue properly.

So why does Pennsylvania even need bigger profits from the lottery? Pete Tartline, executive deputy secretary of the budget in Pennsylvania, outlined the governor’s rationale for privatization in an extended interview with the Reason Foundation, a libertarian think tank, last December:

“We rank fourth nationally in terms of our percentage of older residents, with 2.7 million residents over the age of 60. And by 2030, nearly a quarter of our population is going to be 60 and older. The population of those 80 and older is growing even more rapidly than that,” Tartline said. “The question for us becomes how do we grow lottery revenues to keep up with the demand for senior programs, things like property tax and rent rebates, low cost prescription drugs, transportation services and long-term living services?”

Privatization of state lotteries tends to draw tough scrutiny for a wide range of economic, political and moral reasons. Only one company, Camelot, bid on Pennsylvania’s contract, which makes the left-leaning Keystone Research Center, a Pennsylvania think tank, question whether the commonwealth is getting the best value for the contract. State Rep. Tony DeLuca fears “for every dollar of profit Camelot makes running the lottery it is taking a dollar from programs for Pennsylvania's seniors.” Maybe the most compelling arguments against privatization are that it would disproportionately impact low-income people and get more residents addicted to gambling. What troubles the Pittsburgh Post-Gazette’s editorial board, however, is the expanded legal definition of gambling under the proposal, which allows Camelot to develop online sales and electronic games such as Keno under the purview of the lottery; in other words, Pennsylvanians would be able to gamble anywhere with an Internet connection and play new electronic games in both bars and restaurants. That’s a lot more lottery.

In defense of his company, Alex Kovach, Camelot’s managing director, promised that Pennsylvania’s private lottery wouldn’t be like traditional lotteries in the United States, which he said tend to be regressive and examples of poor public policy. Instead, Kovach referred readers to the United Kingdom, where Camelot operates the country’s lottery system and most citizens participate, but only in a modest way (a few bucks per week, on average).

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