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Indiana Lottery sell-off advances in state Senate

Feb 21, 2007, 8:11 am

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Indiana LotteryIndiana Lottery: Indiana Lottery sell-off advances in state Senate

Correction: This story originally identified Kentucky as the state selling off its lottery.  We apologize for the error. 

A Senate committee approved legislation yesterday to privatize the Hoosier Lottery after university officials said they needed the money it would generate to attract top researchers and boost life sciences.

"We believe this bill is a difference maker," said Purdue University President Martin Jischke.

Senate Bill 577 passed 7-5 largely along party lines, with Republicans providing the votes needed to move it to the full chamber. The proposal is part of Republican Gov. Mitch Daniels' agenda and authorizes the state to take bids from private companies to operate the state lottery for 30 years.

The state could accept a bid that met a $1 billion minimum as long as the company agreed to continue paying the state $200 million annually, the amount of lottery profits already dedicated to ongoing programs.

The proposal's legislative author, Sen. Jim Merritt, R-Indianapolis, said he's hopeful the lottery will bring an even higher bid. If so, the state would use the money to reduce unfunded pension liability for local police and firefighters.

But the main goal of the legislation is to attack the so-called "brain drain," the loss of the state's brightest students, and to bolster the universities' focus on the life sciences industry.

SB 577 allocates $400 million of the $1 billion minimum bid to scholarships, including at least one for a top student at every Indiana high school. It also includes "critical needs scholarships" for special needs, such as math and science students who agree to teach at urban schools.

Rebecca Seahorn, a 16-year-old junior at Greencastle High School, said she supports the bill because her family earns too much to qualify for need-based aid but not enough to send her to college without going into debt.

"It's exactly what my family needs," said Rebecca, who wants to be a veterinarian.

But gambling opponents said the state shouldn't be relying on proceeds from the lottery for such an important initiative.

Richard Hamilton, a retired United Methodist minister, said he disliked opposing a bill that would provide scholarships and aid the state's universities. But he said it relies on low-income Hoosiers to lose money through gambling.

Any progress that resulted, Hamilton said, would be "built on the backs of people who are not represented in this room."

"I urge you to do dig down deep and feel in your bones whether this is what you want to do," he said. "I don't think so."

Economic development officials said the state must do more to compete with other states who are putting an emphasis on life sciences, a sector Indiana officials have made a priority.

"So far, this effort has been privately and philanthropically funded," said David Johnson, president of BioCrossroads, a coalition of corporate, government and university leaders working in the life sciences area. "We cannot go it alone."

Tourism incentive

The House pass a bill 93-1 yesterday that creates a tourism development tax credit, similar to one Kentucky has used to develop 4th Street Live in Louisville, the Kentucky Speedway in Sparta and a number of other attractions.

The bill would allow developers of similar sites — including theme parks, convention centers, and significant entertainment venues — to recoup up to 25 percent of their investment by claiming a sales tax refund over 10 years.

Southern Indiana tourism officials sought the legislation, saying they need it to compete with Kentucky for development. The bill now goes to the Senate.

It requires an investment of at least $5 million and a development totaling at least 100,000 square feet.

Slots at tracks

The House Ways and Means Committee cleared a bill authorizing 5,000 slot machines at the state's two racetracks — but only after amending it to give some of the resulting revenue to almost every county. It advanced 14-8.

House Bill 1835 allows Indiana Downs in Shelby County and Hoosier Park in Anderson to install 2,500 machines each and requires them to use some of the proceeds to boost race purses.

Revenue estimates for the bill and the revenue generated for the state vary widely. An industry researcher said the machines could generate as much as $534 million annually, which would produce $185 million in state and local tax revenue.

But the nonpartisan Legislative Services Agency estimates the revenue from the machines could be as little as $225 million, or about $73 million in state and local tax revenue.

HB 1835 calls for the state to keep 80 percent of the tax revenue. Originally, the remaining 20 percent would be split by the communities where the tracks are located.

But the Ways and Means Committee voted yesterday to change the distribution. Now, the bill says 5 percent of the tax revenue would go to the track communities and 15 percent would be split among noncasino counties.

The revenue-sharing provision may be key to the bill's passage in the House. Rep. Win Moses, D-South Bend, said he plans to offer an amendment to increase the revenue-sharing amount by taking more from the tracks.

Privatization contracts

State contracts to privatize services exceeding two years and costing more than $100 million would require legislative approval under a bill the House passed yesterday.

The bill, which passed 52-45, largely stems from Democratic opposition to moves or proposals by Daniels to contract for services that have historically been run by the state.

The bill is likely to face a tough road in the Republican-controlled Senate, but Senate Tax Chairman Luke Kenley, R-Noblesville, said the issue is worth discussing.

"I know that there are people on both sides of the aisle who are probably evaluating that question on the basis of some kind of a partisan feeling about our current governor," Kenley said. "If you're thinking of it in that way, regardless of which side you fall on, you're missing the point."

Under the bill by Rep. Joe Micon, D-West Lafayette, any outsourcing contract worth more than $10 million would have to be reviewed by a panel of 12 lawmakers and three other members appointed by legislative leaders.

The committee would submit a recommendation to the governor on whether the plan should move forward, be rejected or changed, but the recommendation would not be binding.

Contracts of at least two years and costing more than $100 million, however, would have to be approved by the full General Assembly.


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5 comments. Last comment 15 years ago by Stack47.
Page 1 of 1
United States
Member #12322
March 11, 2005
36 Posts

looks like the best investment would be to invest in the company that is intent on buying up these state lotteries.  IMHO that would be the best bet!

    United States
    Member #379
    June 5, 2002
    11296 Posts

    I have yet to make up my mind whether state lotteries should be sold, probably because it hasn't happened yet in the US. Connecticut's AFAIK is partly run by the private sector.

    Maybe NY should sell its lottery except for its VLTs (Monticello, Yonkers, soon to be Aqueduct, etc). Perhaps there would be an increase in the Blotto payout percentage, and an end to annuity-only scratches.

      Northern California
      United States
      Member #19947
      August 9, 2005
      154 Posts

      Not to try and oversimplify what would be a very complicated transaction - but here goes...


      The States are looking for many years worth of revenue up front and lesser future returns. I'm not sure how smart that is from a policy perspective...to me its like pulling money out of your retirement fund because you want to buy a new car now. That said, very few States actually embrace the Lottery as an agency or have much interest in them performing well. Most Governors just want the Lottery to stay "off the radar" and not make waves. The exception is the states that tie Lottery $$$ to college scholarships.


      An operator (they already "bankroll" all of the systems, terminals, software and COMM infrastructure now in return for small %'s of sales)would have to pony up a ton more cash up front. That means they will take on even more risk...and with risk comes a higher need for return. That might inject some welcome urgency into what are, in many states, very conservative, no risk, "do $1 more than we did last year" type of bureaucracies. But it would probably also limit how much future $$$ the State would get.


      The rub will be how much control will the operators be given so as to minimize the risk? I for one believe they have every market incentive to make sure security is impeccable because if they slip up on that, there goes their chance to make a return on investment. We are talking billions of dollars up front. And how much efficiencies and upward potential is there in each market? Will the operator be prevented from offering monitor games, high payout instant tickets, etc?


      Not many firms have that kind of capital or credit lying around. I bet the big players (SGMS, Lottomatica/GTECH, Intralot) would have to find an underwriter like Goldman Sachs to broker the investment capital. You can bet those guys will also want a cut.


      It'll be fun to watch.

        LOTTOMIKE's avatar - Lottery-063.jpg
        United States
        Member #7853
        October 15, 2004
        11352 Posts

        losingjeff had better get his share!

          United States
          Member #32651
          February 14, 2006
          9572 Posts

          For the fisical year ending June 30, 2006, the Hoosier Lottery had record sales of $816 million and a record net income of $218 million.

          "The state could accept a bid that met a $1 billion minimum as long as the company agreed to continue paying the state $200 million annually, the amount of lottery profits already dedicated to ongoing programs."

          Who would pay $1 billion to get a return of only $18 million (based on record sales)?

          Isn't that the same as paying $1000 for the use of a lottery system for 30 years so you can make $18 a year?