HARRISBURG, Pa. (AP) — Republican Gov. Tom Corbett is making the state lottery the next frontier in his quest to privatize services, saying Monday that hiring a private manager for the nation's sixth-largest lottery would bolster its ability to meet the rising demand for services from the state's growing elderly population.
The move, which was immediately opposed by Democrats and the state's largest employee union, also may herald an expansion of lottery gambling, such as the addition of online ticket sales, keno terminals in bars or restaurants and an aggressive new search to add more lottery retailers.
The Corbett administration on Monday issued a request for qualifications from companies and gave them 30 days to respond.
"This initiative is simply part of my administration's efforts to tap private sector innovation to make state government work more efficiently and effectively, which is precisely what taxpayers expect," the governor said in a statement.
The 15-page request said that "the highest responsible commitments for maximizing cash flow" submitted by bidders may play into a decision on which company wins the contract.
The Corbett administration has two firms helping it in the venture, investment banking firm Greenhill & Co. LLC of Chicago — which lists Corbett's Democratic predecessor, former Gov. Ed Rendell, as a senior adviser — and law firm DLA Piper LLP.
Currently, the 40-year-old Pennsylvania Lottery is run by the Department of Revenue, and profits benefit programs for the elderly, including transit, rent and property tax rebates, prescription drug assistance, senior centers and long-term care services.
The key to raising more revenue may lie in expanding lottery gambling.
The Pennsylvania Lottery does not include keno in its lineup of games, as do some states — Georgia, Massachusetts and New York — with higher per-capita lottery sales, according to the administration's request for qualifications. Michigan, for instance, counted $490 million in Club Keno revenue in 2010 — about 20 percent of its total — after introducing it in 2003.
In addition, the Corbett administration said Pennsylvania's saturation of lottery retailers — one per 1,483 people in 2010 — is thinner than several other top 10 state lotteries, including Massachusetts, New York, Ohio, Georgia and Michigan.
Under Rendell, who pressed to expand the lottery, total sales went from $2.1 billion in the 2002-03 fiscal year to $3.2 billion in the 2010-11 fiscal year, an expansion of more than 50 percent. After paying prizes and expenses, about 30 percent is left over as profits that go to state programs for the elderly.
However, the Corbett administration pointed out lottery profits have been practically flat the last five years, and the projected average growth of about 1 percent per year through fiscal year 2014-15 isn't likely to keep pace with rising cost or demand.
A private company may be better able to quickly adapt new technologies, develop new games and improve optimize retail outlet performance, the Corbett administration said. It added that the state would retain full rights to conduct, control, inspect and audit the lottery, while the manager would earn an incentive fee.
Last year, a private group that includes GTECH and Scientific Games took over management of Illinois' lottery with promises to boost sales and revenue. The group gets a $15-million-a-year management fee and a percentage of profits it produces above a certain level.
Pennsylvania state House Democrats said they have "serious reservations" about changing an operation that they said is a consistent national leader in sales and low operating costs.
David Fillman, executive director of Council 13 AFSCME, which represents 233 lottery employees, said the labor union would fight the move, and that hiring a private manager would only ensure that lottery proceeds are diverted from programs for the elderly to a company.
The Pennsylvania state director of AARP, Ivonne Bucher, said the organization is supportive of any strategy that stabilizes lottery funds and ensures that the money is used to help keep the elderly in their homes or communities.
"We need to see how this process plays out," Bucher said. "We will be very vigilant during the whole process."