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Tennessee lottery debate looms

Jan 2, 2004, 8:50 am

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Tennessee Lottery

Plenty of gaming topics on Legislature's early agenda

With a state lottery poised to launch next month, Tennessee state legislators face an early decision on whether to unseat those who are directing it and later debate on other gambling issues.

Related topics in the upcoming legislative session, which begins Jan. 13, range from charity gaming to the size of the lottery prize money pool and the standards for granting scholarships to home school students.

But the first subject on the agenda is whether to approve the seven directors of the Tennessee Education Lottery Corp. who were appointed by Gov. Phil Bredesen. The board has faced some criticism over the high salaries being paid to lottery CEO Rebecca Paul and other executives.

"The question is whether quasi-government workers should be paid that much for running what is basically a monopoly with no competition," said state Rep. Bill Dunn, R-Knoxville, who has been trying to arrange a meeting between board members and legislators to discuss the situation.

"The thing that has spurred this on is that we just got finished with the John Shumaker fiasco," he said, referring to the former University of Tennessee president who resigned amid questions over UT finances.

"He was paid like a king and started acting like a king. We don't want somebody now acting like a queen," Dunn said

Paul will receive a base salary of $350,000 with the chance of earning bonuses that could push that figure to $752,500 - close to the salary and benefits package established by Shumaker until his departure.

Under the law enacted last year to authorize a lottery, the House and Senate are required to confirm the governor's appointees to the board. The statute specifies that the Legislature must act within 30 days after the 2004 session begins, meaning a decision is due about the same time that the first lottery tickets are scheduled to go on sale Feb. 10.

Dunn declined to say whether he opposes confirmation. For now, he said, he and like-minded lawmakers merely want a chance for dialogue so they can cast an informed vote.

The board has staunch defenders in the Legislature, including Sen. Steve Cohen, D-Memphis, and Rep. Chris Newton, R-Cleveland, who were chief sponsors of the lottery legislation passed last session. Both say they believe the board members all deserve to be confirmed and will be.

Still, said Cohen, "the General Assembly never ceases to amaze me in things that can be done to try and take political advantage out of a situation."

The senator said that after the Georgia lottery was launched a decade ago, "some of the more conservative Republicans who opposed a lottery in line with their fundamentalist, religious conservative, right-wing base" came to be strong proponents of the lottery after seeing the benefits of using profits to fund college scholarships.

"They became some of the stronger proponents of a lottery as it went along," Cohen said. "Man did not walk erect on the first day. Some of these legislators will one day walk erect. They will when all the board is confirmed."

Newton said lottery board members are "very competent, capable people who have taken a businesslike approach" to running the lottery, serving without salary.

"One of the things I hope we don't go through is making the lottery and the board of directors a political partisan issue," Newton said.

The Cleveland lawmaker said that, as he understands the law, the board could be in something of a limbo if the Legislature simply fails to act within the 30-day deadline. Apparently, he said, the board members would technically be rejected but still continue to serve until the governor appointed a new board - and there's nothing in the law to prohibit him from appointing the same people to the new board.

The board is chaired by Denny Bottorff, a veteran Nashville banking executive who said he intends to answer Dunn's questions though he is uncertain whether other board members will be involved.

"This is a volunteer board, and it's doing a good job," Bottorff said. "We're just trying to get this thing up and running with integrity and get those scholarship dollars flowing."

Other board members are Morris Fair, a public finance consultant in Memphis; Jim Hill, retired CEO of the Lupton Co. in Chattanooga; Marvell Mitchell, managing partner of a Memphis computer firm; Jim Ripley, a Sevierville lawyer; Deborah Story, president of a Nashville human-relations consulting firm; and Claire Tucker, president of FirstBank Corp.'s Nashville operations.

Related issues that legislators are expected to face during the upcoming session:

nn Gaming dvents to benefit nonprofit organizations were authorized by the state constitutional amendment adopted by voters in 2002, but lawmakers failed to adopt legislation to implement the provision during its last session.

A number of charities, including the Boys and Girls Clubs that want to hold a "rubber duck race" in Knoxville, are pushing the idea. Under the constitutional amendment, each charitable gaming dvent must be individually approved by the Legislature.

Some legislators have misgivings. Dunn, for example, voices concerns over lawmakers becoming "referees" over which charity gets to hold an dvent and which does not - with the possibility of lawsuits filed by organizations that are unsuccessful. The situation, Dunn said, is similar to that where a pending lawsuit challenges granting of a special state license plate to an organization while denying a similar plate to abortion-rights advocates.

"I haven't been able to figure out how you do it fairly and do it without bogging down the Legislature," Dunn said.

Cohen and Newton, on the other hand, both support charity gaming as a reasonable means of helping good causes - though Newton says legislators need to be cautious and avoid approving "bad actor" charities that "could wind up giving us all a bad name."

nn Paul has urged that present lottery law be changed to allow a larger percentage of gross revenue to go toward prize money. The current law specifies that 50 percent of proceeds go into prizes.

For the first two years of operation, 30 percent goes to the lottery scholarship fund and 20 percent into operating expenses. After the first two years, that changes under current law to 35 percent for scholarships and 15 percent for operations.

Cohen and Newton say they agree with Paul that putting more into prize money will generate more ticket sales and ultimatelymore money for scholarships. In other states, as much as 80 percent of proceeds goes into prize money.

Newton said he would like to change the law so that at least 55 percent of proceeds can go to prizes.

"It's Economics 101 that you would rather have 30 percent of a large pool of money going into scholarships than 35 percent of a small pool of money," he said.

nn Current scholarship rules require youngsters who graduate from home school courses to have an ACT score of 23 to qualify for the standard scholarship at a four-year institution rather than the 19 score for those graduating from a traditional high school.

Newton says he will sponsor a bill to eliminate that "inequity" and, having so far heard no objections from colleagues, expects it to pass. He says the current provision grew out of confusion and misunderstanding during passage of the bill last session.

n Newton said Sen. Jim Bryson, R-Franklin, is drafting legislation that would "clarify" when the lottery board can meet in secret, and he is ready to co-sponsor the bill. Current law basically allows the board to close meetings at its discretion.

Newton said that it is reasonable for discussion of some topics, such as "security and integrity" of lottery operations, to be kept out of the public eye, but most subjects should be aired in open meetings. The lawmaker said he expects considerable debate over specifics of the measure.

Paul said she would have no comment on the legislative proposals until having a chance to review specific language in the bills.

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