Indiana Gov. Mitch Daniels' plan to privatize the state lottery took a major step forward Tuesday when a key Senate fiscal panel narrowly approved the proposal.
The 7-5 vote came after educators and business leaders lined up to support leasing the Hoosier Lottery to a private operator in exchange for $1 billion toward a life sciences initiative and scholarships meant to keep smart Hoosier kids in Indiana.
One Republican joined the four Democrats on the committee to vote against the measure, noting he believes the dollars for the positive programs should come from someplace other than gambling losses.
"I can't get over the irony of paying for college education at the expense of Hoosiers who really don't understand eighth-grade math," said Sen. David Ford, R-Hartford City.
State Budget Director Chuck Schalliol gave a presentation that included the history of the lottery and why an outside company can run it better than the state. He said Indiana's performance running the lottery is mediocre at best compared with states that are making far more profit as a percentage of revenue and on a per capita basis.
Schalliol said a private company will have more stable management — Indiana has had nine directors in 18 years — and will be able to invest in technology to improve efficiency, as well as react more quickly to a changing market than a state-run operation.
"Professionals doing what they do well will do a better job than we do as amateurs," he said.
Schalliol and the author of the bill — Sen. Jim Merritt, R-Indianapolis — also noted that Senate Bill 577 expressly prohibits the implementation of keno or video gaming machines by any new operator.
The money from a 30-year lease — required to be at least $1 billion — would be split, with $600 million going toward a life sciences initiative that would focus investment on biotechnology, biomedicine, medical devices, pharmaceuticals and agri-sciences.
It would be funneled through public and private colleges and universities.
The remaining $400 million would fund a merit-based scholarship program for top Hoosier students. One thousand new scholarships would be awarded every year with a minimum of one a high school.
Those who get the scholarships must agree to live and work in Indiana for three years or be forced to pay the money back.
The scholarships are an attempt to stem brain drain in Indiana. State census data show 45 percent of all post-secondary students leave the state after graduating.
The bill also requires the operator to pay the state $200 million annually to cover current excise tax cuts and pension relief obligations.
"We know we lose too much talent each year," said Nathan Feltman, Indiana's secretary of commerce and president of the Indiana Economic Development Corp. "If we do not act now we will pay for it dearly down the road."
Purdue University President Martin Jischke told the committee about the competition he faces trying to lure top scholars, researchers and professors to Indiana to propel the life sciences industry, and promised to match any state funds that come Purdue's way.
"I hope you think of this as an investment that will pay real dividends," he said.
But several gambling opponents spoke against the proposal.
"I do not believe this is the answer to the problem," said Daniel Gangler, a former United Methodist clergyman in central Indiana. "We view it as an expansion of gaming because they will expand promotion and the scope to make it as lucrative as possible.
"This is a business deal."
Another longtime member of the Coalition Against Legalized Gambling, Dick Hamilton, said it is painful to testify against education improvements. But he noted lottery tickets are marketed to the low-income and often to the uneducated — and stand as one of the most regressive forms of public income.
"Deep down you are not comfortable with this," Hamilton said to the senators. "It is not appropriate to be linked to a stream of income built on the backs of people not represented in this room."
Sen. Connie Sipes, D-New Albany, also expressed concern that "the people who play the lottery may not be the same people who have merit scholar students."
The legislation now moves to the full Senate for amendment and vote.