Critics say gaming corp. drafted language
The Ohio Senate's latest version of the state budget bill includes language to privatize the Ohio Lottery that is nearly identical to legislation drafted by a gaming company hoping to manage the $2.5 billion agency's day-to-day operations.
The language, drafted by GTECH, an industry giant that once ran the Ohio Lottery's back-office operations, was added to the massive budget bill virtually unchanged and without any public hearing. The inclusion of the ready-made language, submitted to Senate Republicans by GOP operative and GTECH lobbyist Mike Dawson, raises questions about the relationships between lawmakers and lobbyists and illustrates the power that special interests can have over the budget-writing process, critics say.
"This is not how a transparent government should work," said Democratic State Sen. Mike Skindell of Cleveland. "This is of great importance to the state and worth a lot of money and is not getting a proper vetting."
Ohio Lottery Commission Chairman Pat McDonald, a Republican, said the commission was not asked for any input on the proposed legislation.
"One can question how a vendor with a history at the lottery and self-interest can get that legislation infused in the budget bill," said McDonald, who was unaware of it until The Plain Dealer wrote about it on Sunday.
The newspaper last week obtained the legislation drafted by GTECH and compared it to the Senate's latest changes to the budget, which were unveiled Tuesday.
Dawson sent the legislation last week to Republican Sen. Chris Widener of Springfield, chairman of the Senate finance committee, who has a say in what gets added to the giant budget bill. Republicans hold majorities in both the Senate and House and control the budget process.
"As I said to you, my client wishes to have a level playing field and a transparent process," Dawson wrote in a cover letter attached to the legislation. "We believe that this is in Ohio's best interest and all potential bidders' best interest."
Days later, Widener — who also met with Dawson and GTECH company officials — added the language to the budget bill.
Like GTECH's legislation, the Senate budget bill spells out what qualifications a company must have to win the contract and gives the winning company broad powers to run the lottery, including the authority to design and conduct games that are not "subject to the state lottery commission's rule-making authority."
The company winning the contract would receive a 10-year deal and a yearly management fee of up to 5 percent of the lottery's total revenue. GTECH's draft called for a 15-year deal.
And like GTECH's proposal, the Senate budget bill would exempt the company that wins the lottery contract from paying taxes on its fees.
"The management fee, including any performance-based incentive or other compensation paid to the private lottery manager, shall not be subject to any type of taxation by this state or any political subdivision of this state," the bill reads.
Dawson said the exemption allows the winning company to reduce expenses and therefore make more money for the state. But he said GTECH would not object if the legislature drops the exemption.
Gov. John Kasich has talked for months about privatizing the day-to-day operations of the lottery. But Kasich wants to develop a larger plan for managing gambling in the state, which now includes casinos. He is also considering adding video slot machines at horse race tracks, which would be run by the lottery and affect the revenue projections for the lottery and the casinos.
Kasich hired Spectrum Gaming Group of Linwood, N.J., to advise the state on such issues. It will not have its analysis completed for months, so it appears the Senate, which did not seek the administration's input on the lottery legislation, is ignoring the governor's timeframe.
Kasich has decried as bad deal for taxpayers Issue 3 – the amendment to the state constitution passed by voters in 2008 that was written by the casino operators. But Kasich did not offer a similar condemnation of the budget language written by GTECH.
"We are taking a look at the Senate language now, but at first blush, we are encouraged by the fact that they have embraced the idea of trying to increase the Lottery's benefit to education by exploring private sector options," Kasich spokesman Rob Nichols said Wednesday in a statement.
McDonald, the lottery commission chairman, said he supports Kasich's approach of first having a gaming expert examine the lottery operations before making any move.
"I think a comprehensive and through review of privatization and other options for the lottery is imperative before any legislation is proposed, especially when it is attached to the budget bill without any public discussion," he said.
Widener's office did not return a call seeking comment about the language and how it ended up in the budget bill. Senate Majority Whip Shannon Jones of Springboro, said she was aware of the proposal, but does not support gambling.
"It's not my cup of tea," she said.
Jones, however, defended the Senate's budget bill process, arguing that public and state officials will have the opportunity this week to weigh in on the lottery proposal.
"This is an ongoing process," she said.
The day-to-day operations – such as the marketing of the lottery, management of employees and interaction with ticket sellers – would remain separate from the back-room operations, which support the on-line games such as Mega Millions and Pick 3. Another gaming giant, Intralot, has a multi-million contract to run these games. It beat out GTECH for this contract in 2008. GTECH then sued the commission, contending that the bidding process was flawed and the commission failed to investigate misrepresentations by Intralot. GTECH lost its case.
As Ohio auditor last year, Lt. Gov. Mary Taylor released a performance audit of the lottery that concluded it was well managed but could be improved if it became a quasi-corporate agency free of legislative oversight. She said that if the lottery could obtain a "modicum of exemption from the Ohio Administration Procedures Act," it could better react to the market and implement its games, ultimately generating more revenue.
The lottery continues to generate record sales, though it has lacked legislative and gubernatorial support to expand some of its gaming options. The Senate bill would give the private manager freedom to do so.