Privatizing Mich. lottery may fix budget

Saturday, January 27, 2007 posted 02:25 AM EST

One way to deal with Michigan's $800 million budget shortfall this year, and the possibly even larger hole in the year ahead, would be to lease or sell the state lottery to a private company.

The move was being discussed at the Capitol as lawmakers and administrators look for ways to deal with the state shortfalls. Democratic Gov. Jennifer Granholm is expected to announce plans for dealing with the state's structural deficit in her Feb. 6 State of the State address and Feb. 8 proposal for next year's budget.

Privatizing the lottery would net the state a large upfront payment and possibly smaller payments in later years. Critics say it would be a one-time fix and that schools, which got $688 million from lottery sales in the past fiscal year, would be left in the lurch down the road.

The governors of Illinois and Indiana are considering privatizing their state lotteries, despite the idea's lukewarm reception in those states.

Granholm may decide against such a move, in part because she'd rather find permanent solutions to the state's structural deficit. A constitutional amendment passed by voters in 2004 dealing with gambling could make it difficult to privatize the lottery because any changes would require a statewide referendum.

"We would never say never," Granholm spokeswoman Liz Boyd said Thursday of privatizing the lottery. "But while we're looking at everything, we're focused on the structural problem. It is a one-time fix. Generally you use one-time fixes for one-time problems."

Some Republicans also were leery of the move.

A spokesman for House Minority Leader Craig DeRoche, R-Novi, said DeRoche would consider such a plan only if it's part of more fundamental budget reform.

Illinois Gov. Rod Blagojevich, a Democrat, estimates that leasing that state's lottery could yield $10 billion or more. Last year, the Illinois lottery generated revenues of $1.99 billion and a profit of $670.5 million, which went to Illinois schools.

Under his plan, a private company would take over the lottery for decades to come, or perhaps even permanently. The company would pay Illinois billions of dollars over the next few years and, in exchange, get to keep any money the lottery generates over the long term. Critics argue the plan means Illinois schools would lose any benefit from the privatization plan after 2025.

In Indiana, Republican Gov. Mitch Daniels wants to outsource the Hoosier Lottery to a private company for an upfront payment of at least $1 billion to fund new college scholarships and professorships. The plan has drawn skepticism from many members of both parties.

Although privatization may not be in the cards, Michigan already contracts with a private company to handle lottery ticket distribution and online lottery games. GTECH Corp., based in Providence, R.I., was handling online lottery games for the state when it got a contract in 1995 to take over warehousing, distribution and validation of instant game Lottery tickets.

The state pays GTECH about 2 percent of its annual lottery sales, which came to about $40 million in the last fiscal year, according to Lottery director Gary Peters.

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