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Indiana Senate approves lottery sell-off

Feb 28, 2007, 9:06 am

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Indiana LotteryIndiana Lottery: Indiana Senate approves lottery sell-off

Administration officials worked the back of the Senate chamber Tuesday and managed to secure just enough support to pass Gov. Mitch Daniels' plan to privatize the Hoosier Lottery.

The 27-20 vote comes from a GOP-controlled chamber that is far friendlier to the governor's plans than the Democratic-held House, where Senate Bill 577 heads next.

The legislation authorizes the state to enter into a contract with a private operator to run the lottery for the next 30 years.

In exchange, the state would receive at least a $1 billion upfront payment that would go toward a life sciences initiative and scholarships for top Hoosier students to attend state schools and live and work in Indiana for three years after graduation.

The contract also would promise the state $200 million a year in annual revenue to cover existing obligations to pension relief and excise tax cuts.

"I just want to tackle the problems we have with the brain drain, and I want to widen our economy," said Sen. Jim Merritt, R-Indianapolis. "And I believe this is a quality plan to do so."

No one quibbled with how the money would be spent. Instead, the debate centered on two main issues: whether the lottery unfairly affects low- and moderate-income Hoosiers and how a private operator could possibly make money on the deal.

Supporters contend that a contractor can run the lottery more efficiently because contractors are professionals.

But Sen. David Ford, R-Hartford City, said that statistically the lottery spends $17 million a year on administrative costs. Over 30 years, that would be about $500 million.

"They can't squeeze a billion dollars in savings out of half a billion in administrative costs," Ford said. "It does have to come from somewhere else."

Ford also said the lottery is essentially a regressive tax.

A 2005 study by Marz & Co. on the lottery's customers found that 7 percent of players make up 57 percent of the amount spent on the lottery. Those Hoosiers are disproportionately black, make less than the median household income and have less education.

"We take more money from the low-income strata than from upper income frankly because people who have more money and have more hope don't regress to this sort of activity," Ford said.

Another interesting statistic in the study involves statements that were made to lottery players, who rated them based on agreement. The highest rating possible was a 10, and the statement coming closest to that — an 8.4 — was "it's important to me that proceeds from the lottery support Indiana."

Sen. Lindel Hume, D-Princeton, speculated that there has to be more to the transaction for the private sector to be interested, especially with restrictions on new gaming and revenue growth in the bill.

"The other shoe is going to have to drop somewhere along the line," he said. "If someone invests in this lottery with this history and with these restrictions, there's got to be something that we don't know about. Would you do that?"

Sen. Vi Simpson, D-Bloomington, said there is only one way left for a contractor to make money — squeeze it out of Hoosiers through more games and more advertising. She said that the administration has argued the state lottery is underperforming because it has lower per capita revenue — about $158 per Hoosier — than other states.

"The best lottery is in Connecticut, where their citizens spend $350 per person on the lottery. Is that where we're going with this proposal?" Simpson asked. "We want to be like Connecticut and encourage all of our citizens to spend more for that dream, that instant-get-rich-quick dream?"

Sen. Luke Kenley, R-Noblesville, said his fellow senators are thinking too much about how someone else will make money and not enough on how the plan is good for Indiana.

"We have the opportunity with very little risk. I say, 'Why not?' " Kenley said. "We're winning on every side of this deal if a legitimate bid is made. I see this as a wonderful opportunity to bring some things to Indiana that we cannot fit into the budget. We are taking very little chance in forwarding this proposal."

Lottery player household income Lottery player education

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