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DOJ says privatizing state lotteries illegal

Insider BuzzInsider Buzz: DOJ says privatizing state lotteries illegal

Indiana drops privatization plans after DOJ issues opinion

Indiana Governor Mitch Daniels said Friday that he is dropping the idea of privatizing the Hoosier Lottery as an option of funding a college scholarship program after the U.S. Department of Justice said such a move would not comply with federal law.

The Oct. 16 opinion, which Daniels' office said was requested by Indiana and New Jersey, says states would not comply with federal law if they enter into long-term private management agreements to operate their lotteries.

The opinion was issued because several states, including California, New Jersey, Illinois, Colorado, Florida, Michigan, Texas, New York and Indiana, have proposed the long-term lease of their state lotteries in order to fund investments ranging from infrastructure to education.

Daniels has said he wants to give high school graduates from families earning less than $60,000 two years of free tuition at Ivy Tech Community college, or up to $6,000 over two years at another Indiana public or private school. He had said leasing the state lottery could be one way to pay for the annual $50 million program.

His Democratic opponent in this year's governor's race, Jill Long Thompson, has opposed leasing the lottery, saying it likely would lead to more gambling.

Daniels said in a statement that he was surprised by the opinion from the Justice Department's Office of Legal Counsel.

"The best legal advice available to us had suggested that the OLC would not interpret federal lottery statutes as preventing the long-term lease of state lotteries," he said.

He said although the opinion is not binding, it seemed wiser to look at other options his administration has been exploring to fund his Hoosier College Promise Proposal.

"The goal of the plan is to guarantee a college scholarship to every low- and middle-income Hoosier high school graduate," he said. "A lottery lease would have been one means to that end, but there can be other financing options available and we will shift our attention to them."

Daniels has said that one alternative would be to issue bonds backed by future growth in lottery profits. He also has suggested shifting funds from programs that were not working to the proposed scholarship program.

The ruling said federal law requires that a state exercise actual control over all significant business decisions made by a lottery enterprise and retain all but a minimal share of the equity interest in the profits and losses of the business.

It also said a state had to retain the rights to the trademarks and unique intellectual property or essential assets of the state's lottery.

"It is permissible under the exemption for a State to contract with private firms to provide goods and services necessary to enable the State to conduct its lottery, including management services," the opinion stated.

Daniels has proposed leasing the lottery in the past but met resistance from lawmakers.

The Republican-ruled state Senate in February 2007 approved a plan allowing Daniels to lease the lottery for 30 years, with the proceeds going to programs encouraging life sciences research and providing college scholarships for students who agree to stay in Indiana after graduation. But the Democrat-controlled House opposed the measure and killed it immediately.

In April, Daniels said that at least two companies were willing to pay the state more than $2 billion upfront and then $200 million a year to operate the Hoosier Lottery and collect profits above $200 million annually.

That figure was more than twice the estimate Daniels gave in December when he proposed leasing the lottery to a private company, with the upfront payment being used to fund higher education initiatives.

Jeff Harris, Long Thompson's campaign spokesman, said Friday he had not read the opinion. But, he said, "This is another time when the federal government has had to step in and stop the governor from privatizing another aspect of state government. It's alarming that we have to rely on the federal government to come in and make these decisions."

The Food and Nutrition Service of the U.S. Department of Agriculture in July advised the Indiana Family and Social Services Administration to delay any further rollout of a welfare privatization until it improved its timeliness in processing food stamp applications.

AP

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11 comments. Last comment 8 years ago by myzeus.
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Northern California
United States
Member #19948
August 9, 2005
151 Posts
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Posted: October 28, 2008, 11:32 am - IP Logged

I'm not an attorney BUT...

 

The Feds have limited ability to manage the operations of state government (the principle at work here is Federalism).

 

Federal dollars go into welfare programs (as per example at the end of the article) and are disbursed by the States. No federal dollars go into state lotteries and it is unclear to me that they have significant say in this area.

 

Looks to me like opponents of privatization (which has more than enough of its own issues on the merits) found a Fed to write them an (non-binding, BTW) opinion that went their way to use in the press.

    BaristaExpress's avatar - BaristaExpressMX zpsfb0d8b5d.png
    Magnolia, Delaware
    United States
    Member #18795
    July 20, 2005
    789 Posts
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    Posted: October 28, 2008, 3:19 pm - IP Logged

    I'm not an attorney BUT...

     

    The Feds have limited ability to manage the operations of state government (the principle at work here is Federalism).

     

    Federal dollars go into welfare programs (as per example at the end of the article) and are disbursed by the States. No federal dollars go into state lotteries and it is unclear to me that they have significant say in this area.

     

    Looks to me like opponents of privatization (which has more than enough of its own issues on the merits) found a Fed to write them an (non-binding, BTW) opinion that went their way to use in the press.

    Maybe you are not an attorney But, you do need to learn how to read a little better though.

    "The best legal advice available to us had suggested that the OLC would not interpret federal lottery statutes as preventing the long-term lease of state lotteries," he said.

    Now the key words in all of that above is Interpret Federal Lottery Statutes! Yes, it seems the Feds have that covered too with regulations.

    Keep dreaming the impossible dream, it just may come true! Thumbs Up

      MADDOG10's avatar - smoke
      Beautiful Florida
      United States
      Member #5709
      July 18, 2004
      20106 Posts
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      Posted: October 28, 2008, 4:16 pm - IP Logged

      Daniels said in a statement that he was surprised by the opinion from the Justice Department's Office of Legal Counsel."

      Actually, the Feds have NO say so in the matter, because NO federal funds were used to start , or maintain the Lottery in any State. They may have an opinion, but thats as far as it goes. You know, like everyone else has got an (***hole)....! .

      If they interperet that they have a regulation as to what a State can do with it's own Lottery, then maybe they should be putting up half the Jackpot prizes, then they would have a say so, instead of just having another _ _ _ _ _ _ _....!  Geez, If I bought a Lotto ticket, would I have to confer with the Feds before I went an Leased my ticket to someone else??   How pathetic.....>>>>>>!

                                                   

                                                     "  When Injustice Becomes Law, Resistance Becomes Duty "

        Avatar
        NY
        United States
        Member #23835
        October 16, 2005
        3474 Posts
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        Posted: October 28, 2008, 5:25 pm - IP Logged

        Whether or not any federal monies are involved has absolutely nothing to do with it.  While some might think they only have an opinion, the Federal government very definitely has laws regulating lotteries and that very definitely gives them a say until such time as any such laws are ruled invalid, or the scope of the laws is limited,by a federal court.

          konane's avatar - wallace
          Atlanta, GA
          United States
          Member #1265
          March 13, 2003
          3333 Posts
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          Posted: October 29, 2008, 11:00 am - IP Logged

          Whether or not any federal monies are involved has absolutely nothing to do with it.  While some might think they only have an opinion, the Federal government very definitely has laws regulating lotteries and that very definitely gives them a say until such time as any such laws are ruled invalid, or the scope of the laws is limited,by a federal court.

          KY Floyd, you have a keen legal mind ..... aren't lotteries, their operation plus the operation of legalized gambling in the US covered under RICO Laws?

          Good luck to everyone!

            Avatar
            Kentucky
            United States
            Member #32652
            February 14, 2006
            7295 Posts
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            Posted: October 29, 2008, 2:17 pm - IP Logged

            Daniels said in a statement that he was surprised by the opinion from the Justice Department's Office of Legal Counsel."

            Actually, the Feds have NO say so in the matter, because NO federal funds were used to start , or maintain the Lottery in any State. They may have an opinion, but thats as far as it goes. You know, like everyone else has got an (***hole)....! .

            If they interperet that they have a regulation as to what a State can do with it's own Lottery, then maybe they should be putting up half the Jackpot prizes, then they would have a say so, instead of just having another _ _ _ _ _ _ _....!  Geez, If I bought a Lotto ticket, would I have to confer with the Feds before I went an Leased my ticket to someone else??   How pathetic.....>>>>>>!

            "Geez, If I bought a Lotto ticket, would I have to confer with the Feds before I went an Leased my ticket to someone else??"

            When we sign the back of a ticket we establish ownership and the worth of the ticket is determined by the state's lottery rules and regulations. We've heard about many court cases where the ownership of tickets was in dispute but I don't think any of them disputed the state's lottery rules and regulations. A legal contract to lease your ticket should conform to federal and state laws to avoid and future legal problems.

            State lotteries were created through individual state legislation processes just like the other laws. There are many examples of when state laws didn't confirm the U.S. Constitution and/or federal rules and regulations and were declared unconstitutional by the U.S. Supreme Court. Lotteries are state assists and leasing it or how it's leased could conflict with other state laws or the state's constitution. The legal opinion by U.S. Justice Department for leasing the Indiana State Lottery could be based on ownership or how the lease is structured.

            The Justice Department lawyers gave their opinion that privatizing the lottery is illegal but the Indiana can still enact the legislation and have the legalities tested in the U.S. Supreme Court if it goes that far.

              Littleoldlady's avatar - basket
              Clarksville
              United States
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              July 15, 2002
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              Posted: October 29, 2008, 5:49 pm - IP Logged

              I personally think that if they shouldn't be able to lease their state's lottery.  The people voted for a state run lottery NOT a state leased run lottery.

              If you know your number is going to hit, have patience and then KILL IT!

              You never know when you will get another hit.

                Avatar
                NY
                United States
                Member #23835
                October 16, 2005
                3474 Posts
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                Posted: October 30, 2008, 1:56 am - IP Logged

                KY Floyd, you have a keen legal mind ..... aren't lotteries, their operation plus the operation of legalized gambling in the US covered under RICO Laws?

                Thanks. Nowadays RICO statutes apply  are often applied to anything that is criminal and shows a pattern of repetition. RICO is an acronym for "Rackateer Infuenced and Corrupt Organizations" and was originally intended to help fight organized crime. Since its inception it has been used against  people who certainly weren't part of organized crime in the typical sense, so long as their crimes are among those covered by the statutes. Gambling, of course, is one of them. The Key West police department has already been declared a criminal enterprise under the RICO statutes, and it would certainly be possible to bring RICO charges against a state lottery, if they were accused of multiple crimes. I don't know if that fits your idea of "covered under RICO laws" since they weren't intended to address state lotteries or legal gambling.

                  Avatar
                  Columbia City, Indiana
                  United States
                  Member #2978
                  December 9, 2003
                  381 Posts
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                  Posted: October 30, 2008, 2:40 am - IP Logged

                  Whether or not any federal monies are involved has absolutely nothing to do with it.  While some might think they only have an opinion, the Federal government very definitely has laws regulating lotteries and that very definitely gives them a say until such time as any such laws are ruled invalid, or the scope of the laws is limited,by a federal court.

                     Excellent point, KY Floyd; the laws you reference can be found under Title 18 of the United States Code which, ironically, also contains the RICO statutes.

                     During our four-year investigation into the Hoosier Lottery and their crooked practices, LosingJeff and I were told by three different Indiana law firms, "What you have is probably sufficient to convict on at least three RICO predicates (Wire Fraud, Conspiracy to Commit Wire Fraud and Misappropriation/ Conversion of Public Funds)." 

                     None would actually file these charges, though, and all cited the same reason:

                     They declined to take our case because, "the State House can make it very difficult for us to make a living."

                     Funny thing is, 72% of us opposed the lease of the lottery, but that means very little to Mitch. 64% of us opposed the 75-year lease of our toll road for an up-front payment of $3.85 billion. Mitch decided that we didn't know what was best for us, so he pushed the deal through, anyway. Before the ink on the check was dry, $.05 billion (50 million bucks), mysteriously vanished into the void, and no one knows where it went. Further, they don't want anyone else to know where it went, and open-records requests on the issue are routinely and summarily denied.

                     I say, Good for the feds, and good for us; if any state can't run its own lottery openly and profitably, they should just shut it down, admit their incompetence and open a Cherry Master Emporium or begin selling raffle tickets to fairly dispose of our state assets.

                  Come, Pinky; we must prepare for tomorrow night...

                  Jim

                    time*treat's avatar - radar

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                    Posted: October 31, 2008, 11:46 pm - IP Logged

                    Doesn't look like Daniels is trying to fill out a change-of-address form anytime soon.

                    In neo-conned Amerika, bank robs you.
                    Alcohol, Tobacco, and Firearms should be the name of a convenience store, not a govnoment agency.

                      myzeus's avatar - Apollo
                      Ohio
                      United States
                      Member #59677
                      March 24, 2008
                      78 Posts
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                      Posted: November 25, 2008, 12:01 am - IP Logged

                      I know Gov Rick Perry of Texas was trying to privatize the Texas Lottery awhile back. I don't hear anymore about it so maybe DOJ told Gov Rick Perry the same thing.

                      Sandy