The effort to privatize Pennsylvania lottery hits a roadblock

December 12, 2012

Nothing makes me happier than to see law as the weapon of choice in a fight between public officials. There is a big battle underway in the Commonwealth of Pennsylvania over the efforts of the governor to privatize the lottery, currently a big source of revenue for the state’s senior citizen programs. I wrote last week about Pennsylvania’s sweetheart lottery privatization deal:

There is a lot of darkness and a web of connections around the efforts to privatize the Pennsylvania state lottery. Tom Corbett, the governor of Pennsylvania, is attempting to force through the privatization before the legislature comes back into session in January and has a chance to review the terms of the 20-30 year deal. Democrats are howling.

One Democrat with a lot of legal authority is howling away, and he has essentially blocked the governor’s efforts to sell the highly profitable lottery to a British firm. The Patriot News writes:

State Treasurer Rob McCord notified the Pennsylvania Lottery that he will not make payments to a private manager that the Corbett Administration is considering hiring to run the lottery unless and until he is satisfied the contract expenditure is legal.

At this point, he remains skeptical about that, along many lawmakers and other officials who have questioned the wisdom of turning over to a private manager a lottery operation that produced $1 billion in profit last year.

Does Treasurer McCord have outright authority to ban the transaction? No, but he is using the law creatively to place high hurdles for the deal moving ahead. His specific grounds are that the proposed management contract is very vague and it would expand what types of gaming the state lottery performs. McCord says that this change would require legislation or approval from the Gaming Control Board. From the Patriot News again:

In a letter to state Revenue Secretary Dan Meuser, McCord says the private manager that the Gov. Tom Corbett is considering hiring to run the lottery intends to increase lottery revenue by introducing new market opportunities.

Because of the vagueness in the draft private management agreement, McCord said he is uncertain whether a private manager can do that without legislative authorization or approval of the Pennsylvania Gaming Control Board.

“Accordingly, please be advised that I will not authorize the expenditure of public funds for lottery expansion unless I am satisfied such an expenditure is legally permitted under existing law,” he stated in his letter.

McCord says if you don’t follow the law, then no money. That is a big stick and a very smart move. The Patriot News editorial writer, Heather Long, weighed in and pointed out that the expansion to new forms of gambling is what allowed the private bidder to hype such large projected revenue numbers:

Finally, there’s the issue of keno and online games. The only reason the Corbett administration can tout such big revenue forecasts from the private firm is because keno would be legalized. That’s a big expansion of gambling in this state, and we are handing it all over to one company without a public hearing.

It is very possible that the General Assembly, which is Republican controlled, would go along with the governor to give away this public asset without public discussion. However, the proposed contract with the private bidder expires on December 31, and the General Assembly is currently out of session.

Governor Corbett’s effort to privatize $1 billion a year in lottery profits looks dead on arrival if the state treasurer has his way. Giving public assets to private entities should never be done without oversight and transparency. Hopefully this lesson will resonate in other governor’s mansions across the nation.

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