Pennsylvania Lottery Privatization Could Cut Funds for Senior Programs by a Billion Dollars or More

The Corbett administration seems bound and determined to privatize the management of Pennsylvania's lottery despite public and legislative skepticism. In the latest plot twist, the administration announced late Friday that it had already awarded the contract to Camelot Global Services PRIOR TO a Senate Finance Committee hearing held today.

The lottery privatization process has raised numerous red flags starting with the fact that the commonwealth only identified a single qualified bidder. For homeowners who need a roofing contractor as well as for government seeking private contractors, having only one bid is a recipe for getting fleeced.

In written testimony delivered to the Senate Finance Committee today, I detailed how Camelot stands to earn $1 billion to $2 billion over 20 years (at the expense of lottery-funded programs for seniors) simply by increasing profits by 5% to 10% more than the rate of inflation. From 2000-01 to 2010-11, the profits of the Pennsylvania lottery increased by 21% more than the rate of inflation.

The high cost and uncertain benefits of lottery privatization are not only the concern. The commonwealth's privatization advisor, Greenhill & Co., stands to make a multi-million-dollar fee if the lottery deal goes through. Could that cloud Greenhill’s ability to give the commonwealth sound advice on whether privatization is a good idea?

The end of my testimony outlines four reforms needed to improve future commonwealth deliberation about whether to deliver government services internally or through contracting out:

  • Eliminate the bias towards privatization. Sometimes insourcing is more efficient, sometimes privatization is.
  • Ensure that consultants on sourcing decisions are balanced and don't have a bias or financial self-interest in privatization.
  • Convene a more balanced Governor's Advisory Commission on privatization issues.
  • Provide greater transparency and more opportunity for legislative input.

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