Includes video report

LITTLE ROCK, Ark. — The Arkansas Lottery Commission Monday accepted the resignation of embattled state Lottery Director Ernie Passailaigue, who ends his controversial tenure on his own after surviving two past attempts by commission members to fire him.

Passailaigue submitted a letter of resignation to the commission's chairman, Dianne Lamberth of Batesville, on Friday. His resignation will be effective Oct. 7.

Passailaigue was not hired on a contract and will receive no buyout.

The commission accepted his resignation today in a unanimous vote after meeting in executive session for more than 90 minutes. Lottery spokeswoman Julie Baldridge will serve as interim director until a new director is chosen, Lamberth announced.

Baldridge told reporters she plans to retire next year and will not seek to be the permanent director. As interim director she will continue to receive her current annual salary, which she said is about $107,000.

Passailaigue said in his letter to Lamberth, "It has been both a pleasure and a privilege to serve the commission as the director since the startup of the United States' newest lottery. Thank you and the commission for all the courtesies that have been extended to me over the last two and a quarter years."

He did not offer an explanation for his decision.

Passailaigue attended the beginning of today's commission meeting but left when the executive session began and did not return. A message left at his office was not immediately returned.

Passailaigue said in his letter that he wanted to give the commission time to select a new director and launch a new game, Arkansas 50/50 Raffle, which is scheduled to debut Oct. 1.

"We as a commission really want to thank Ernie for the leadership he provided the last 2 1/2 years. It's been the most successful lottery startup in history," Lamberth said.

"It's surpassed even the most optimistic revenue predictions so thousands of Arkansans could have the opportunity to receive a college education."

She told reporters the commission did not ask Passailaigue to resign.

Gov. Mike Beebe said Passailaigue's departure was "probably a good way to address everyone's concerns" given recent problems with the lottery program.

"The Lottery Commission should hire the best person for the job as the new director, whether that person is from Arkansas or elsewhere," Beebe said, adding that he hopes the next director's salary "is more modest now that the lottery is fully up and running."

The commission hired Passailaigue in the summer of 2009 at an annual salary of $324,000, making him one of the highest paid lottery directors in the nation. He led the lottery to a Sept. 28, 2009, launch several months ahead of initial projections.

He went on to become a lightning rod for controversy, however, over issues such as six-figure salaries that he awarded to top lottery officials; compensatory time that he awarded to himself and other salaried officials who were ineligible for comp time; a financial report that was not prepared in accordance with generally accepted accounting principles; and, most recently, an IRS penalty of nearly $100,000 for late tax payments.

The lottery is appealing the tax penalty.

A 2010 audit found numerous problems with the lottery's management and accounting practices, all of which lottery officials say have been corrected except for the inadequate financial report. The commission has hired an accounting firm to prepare the next annual report and train lottery employees in standard accounting practices.

In June 2010, Commissioner Ben Pickard of Searcy and then-Commissioner Joe White of Conway voted to fire Passailaigue but were outvoted by the rest of the nine-member panel. In December 2010, a motion by White to fire Passailaigue was replaced by a substitute motion and the director again kept his job.

"I have had my differences in philosophy with Ernie, there's no disguising that," Pickard said today. "I think he did a good job in helping us get the thing started, and I appreciate what he did there, but I'm looking forward to moving on and continuing to stabilize the lottery and hopefully get back on track."

Pickard said that, in the future, he would like to see an effort made to provide at least 25 percent of lottery revenue to scholarships. The 25 percent level often was mentioned in the lottery's early days, but profits have hovered at around 20 percent.

Pickard also said he hopes the next director will have Arkansas ties, though that should not be a requirement.

Lamberth told reporters that "it's a matter of fact that we've had a few missteps."

"Are the missteps Ernie's? He's always taken responsibility for those, so maybe some of these will go away, maybe we won't have any more stumbles, (but) I don't think so," she said. "I think we'll always have some missteps along the way no matter who the director is."

Commissioner Bruce Engstrom of North Little Rock acknowledged that Passailaigue got the lottery up and running in record time.

"As the public record will reflect, I've had some issues with some of the actions that were taken in order to get us up and running that quick. But we still owe him thanks and gratitude for the effort that he did put in," he said.

Engstrom said he hopes the next director will be "more of a manager as opposed to what I would describe as an entrepreneur or startup person," and can be hired at a salary lower than Passailaigue's.

Commissioner Steve Faris of Malvern, who was involved in establishing rules for the lottery as a state senator, told reporters that Passailaigue had "some stumbles" but also some successes.

"There's no question that Ernie Passailaigue did a great job of setting up the lottery," he said.

The lottery netted $107 million for college scholarships in its first fiscal year. It netted $94 million for scholarships in its second year, $11 million less than Passailaigue had projected.

Scholarships for the 2010-11 school year were $5,000 for a four-year school and $2,500 for a two-year school and were awarded to more than 30,000 students. For the current school year, the scholarship amounts have been reduced to $4,500 for a four-year school and $2,250 for a two-year school.

Jerry Cox, president of the conservative group Family Council which opposed creation of the lottery, called Passailaigue's departure an opportunity for the lottery "to move in a more responsible direction."

Cox said the next director should be paid about $125,000 to bring the salary in line with the national average for lottery directors. He also said the lottery should reduce its administrative costs and increase the percentage of revenue going to scholarships.

Lamberth said the commission's personnel committee will draft a job description for the position within the next week. She said she did not yet know whether the search would be nationwide.

The director's job cannot go to Faris or any other former legislator who was in office in 2009 when the lottery was set up following its approval by voters in 2008. A 1999 law prohibits a former legislator from accepting a job created within the last two years of his or her legislative service.

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