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N.Y. Gov. wants to privatize lottery

Jan 11, 2008, 6:43 am

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New York Lottery

New York may try to cash in on the future its lucrative lottery as a way to create a permanent education fund, and Wall Street is interested in taking the bet.

The stakes are high for everyone, from students who could get better education to poor communities that might see more grocery money scratched away.

For state government, a long-term leasing for part of the lottery and part of its profits to a private investor for 30 or 40 years could attract a massive upfront payment, perhaps in the tens of billions of dollars. Spitzer wants $4 billion of that upfront payment to create a permanent endowment for higher education. That would yield $200 million a year from investments for the State University of New York and its 64 state-run campuses. The endowment would also guarantee the current $2.1 billion in lottery revenues devoted to public school aid, from pre-kindergarten through high school.

All of education funding would be indexed to grow annually, said Paul Francis, Spitzer's director of state operations. But that index could be the rate of long-term growth in personal income, about 5.3. percent, which is more than the 2 percent growth the lottery is now producing.

Francis said the plan Gov. Eliot Spitzer laid out in his State of the State speech Wednesday would also guarantee the state its revenue over an uncertain future for lotteries. Lotteries are facing increasing competition from other forms of gambling including casinos and Internet wagering.

The lottery currently provides $6.7 billion a year in revenue.

"The lottery is a business," Francis said Thursday. "It's a business that's marketed ... I still think there's an opportunity to run it even better when you have a profit incentive."

Critics say it will create a "huge expansion" in problem gambling.

"This third party is not going to lease that unless they know they can make a bundle of money," said the Rev. Dwayne Motley of New Yorkers for Constitutional Freedoms. He notes the state constitution allows only the state to run lotteries, but Francis said an arrangement can be made that won't violate the constitution.

"People get addicted and they will spend all of their income, all of their resources, their assets, and it destroys families," Motley said. "There is an extremely large number of negatives that cost money, but also there is the personal destruction of lives ... gambling and drug additions are the same — they control you."

Francis said the administration considers the lottery a "form of entertainment," and that responsible people play the lottery without becoming problem gamblers.

If Spitzer and the Legislature proceed and find a private investor who will commit this year, New York would likely be the first state in the nation to cash in on the value of its lottery. California, Illinois, Indiana, Texas and Florida have considered or are considering cashing in on their lottery or, more to the point, the anticipated future revenue of the lottery.

That's what a private investor would be betting on — that it could increase lottery revenues through more or different games, more or differently allocated sites to bet, and through efficiencies.

For New Yorkers, that could mean far more lottery outlets that already are already in thousands of convenience stores and gas stations. Community activists and antigambling groups has long criticized lotteries, saying the lottery saps the lower income players they most attract.

The next steps include hiring a finance expert — who won't be allowed to be part of any lease. The expert will determine the lottery's value and the best arrangements for the state. The Legislature will decide with Spitzer whether to proceed and what the state will need from a deal.

Francis said the possibilities are infinite. For example, the state could take a big upfront payment, take its guaranteed education revenue, then allow the operator to keep the additional revenue it generates. Or the state could continue to retain part of any additional revenue.

Francis downplayed the option of simply borrowing against the value of the lottery. That, he noted, increases debt and won't guarantee growth in the education revenue. In addition, after suitors show how they would increase lottery sales, the state might decide simply to revise the program and increase profit on its own.

New York is widely seen as having one of the biggest and best run state lotteries. Other states have so far not sought to cash in on their lotteries because of political disagreement, or opposition to short-term funding goals.

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