Averting the “Lottery Cliff” for Seniors and Taxpayers

From the greatest generation to the latest generation, Pennsylvania’s seniors have worked a lifetime to build this great commonwealth through hard work and sacrifice, but are now being told the only way to depend on well-earned and needed care is if the right numbers come up in the Pennsylvania Lottery. Sadly, that’s a gamble our grandparents and children can’t afford to make.

Ultimately, our booming senior population could result in a “Lottery Cliff”—dramatic cuts to programs that benefit senior citizens and/or significant tax increases on working Pennsylvanians. Our Pennsylvania seniors depend on Lottery revenues to fund critical programs, including prescription drug programs, property tax rebates and senior centers. Unfortunately for them, a recent Legislative Budget and Finance Committee report found that future demand for these programs will outpace Lottery revenues. Bringing in private experts to run the state Lottery offers an alternative solution to higher taxes or cutting seniors’ programs.

To Governor Corbett’s credit, the commonwealth recently completed a competitive bidding process for a private company—Camelot Global Services—to operate the state Lottery with future financial guarantees of a minimum of $34 billion in Lottery profits over the next 20 years. Compared to the Lottery’s historic performance, this bid would generate an additional $2.3 billion for senior services over the first decade.

Through a private management agreement (PMA) between the Department of Revenue and Camelot, the commonwealth would continue to own and oversee the Lottery, but would contract out day-to-day operations to an experienced private company with a record of increasing revenues. Camelot currently runs the lottery for the United Kingdom, and California and Massachusetts have engaged Camelot to consult on their lotteries.

Furthermore, this deal will be good for job seekers and taxpayers. Camelot will incorporate in Pennsylvania and pay the same state taxes as other businesses. The contract requires that 80 percent of Lottery workers and hours worked be located in Pennsylvania. And Camelot has already indicated plans to expand the current Lottery workforce.

Under the proposed contract, the commonwealth would retain 70 of the 230 current Lottery employees. The contract guarantees the remaining 160 state Lottery workers one year of employment. During the transition time, Camelot will offer new positions to state employees and the commonwealth will find replacement positions for anyone who does not receive an offer.

This means more private sector job opportunities for Pennsylvania workers, reduced strain on our public pension system and more tax revenue for the commonwealth.

In contrast to coordinated claims the process has been rushed, the Department of Revenue issued the invitation for bids nine months ago. Over that time, there was a legislative hearing, a series of news releases, an investigation into the qualifications of each of the prospective bidders, and posting of the full contract on the Department of Revenue’s Web site.

While Camelot was the only company to put money on the table ($200 million up front), the bidding process was competitive, with two other interested bidders. This represents more bidders than any state Lottery management procurement to date, pulling from the handful of companies worldwide qualified to operate Pennsylvania’s multi-billion dollar enterprise. In addition to Camelot’s proposal demonstrating the benefits of a competitive bidding process, the union representing Lottery employees (AFSCME) has the opportunity to put forward an even better deal.

Yet after a lengthy, open bidding process resulting in an agreement that guarantees more money for senior programs, critics—in particular, AFSCME union leaders—are attacking Gov. Corbett. What are they really concerned about?

The number government union bosses really care about is not $34 billion, it’s $100,000. That is how much union dues money AFSCME could lose if 160 Lottery employees transition to jobs with a private company.

Those dues, which the state government deducts from workers’ paychecks and sends directly to the union, cover about half of AFSCME Executive Director David Fillman’s $204,000 compensation package. Those dues also support AFSCME’s lobbying and political activity—nearly $1 million in 2011-12, not including Political Action Committee spending.

Certainly, the Corbett administration should be applauded for putting the needs of seniors and taxpayers ahead of the demands of special interests who get rich off big government. The guaranteed $34 billion in Lottery profits is no gamble, and will ensure we don’t push seniors and working Pennsylvanians over the impending “Lottery Cliff.”

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Elizabeth Stelle is a policy analyst with the Commonwealth Foundation (www.CommonwealthFoundation.org), Pennsylvania’s free-market think tank.