Goodbye Gus, Hello Private Partnerships

Say goodbye to the second-most famous groundhog in Pennsylvania. Not having Gus in Pennsylvania lottery commercials will save $140,000.

But changes in the state lottery may not end with dropping a mascot. In a budget hearing this week (subscription) Revenue Secretary Dan Meuser explained the lottery is looking to bring in private companies to assist in modernizing the agency to boost revenues.

We’re saying that by law, our Lottery is an entity of the Commonwealth, so it’s not like it could be sold or it could be completely privatized as one might think. What we’re talking about here is bringing in some private management firms, but have the lottery still intact but under the stewardship of the Department of Revenue.

Pennsylvania isn’t the only state that has considered partnerships with private firms to increase lottery revenue. Illinois awarded Northstar a lottery management and advertising contract in the fall of 2010. In return, the company guaranteed revenues of $4.8 billion by 2016, more than a $1 billion increase over projected revenues if the state were to retain management. In August, total sales were 13.7 percent ahead of the prior year.

Any contracting undertaken by Pennsylvania should tie compensation to performance, or as Secretary Meuser put it, benefits-based procurement. Contracts with very precise goals ensure services are not compromised to achieve savings.

Private partnerships can be valuable not just for lotteries, but any state function where an expertise already exists in the private sector. We’ve pointed to many of these opportunities including partnerships in road finance and construction, state parks and higher education financing just to name a few.