HARRISBURG – State Secretary of Revenue Dan Meuser said Tuesday the governor's goal in privatizing the Pennsylvania Lottery is to increase future profit levels.
Based upon the projections for the lone bid received to manage the lottery, a private management agreement would yield far more revenue than current lottery projections, Secretary Dan Meuser, of Shavertown, said.
Long-range demographics suggest growth of the senior population will outstrip lottery-paid programs. That drove Republican Gov. Tom Corbett to look for a way to boost lottery revenue, aides said.
Critics portray this as a lone-bid contract under secret, last-minute review.
The Associated Press reported Corbett is facing a lawsuit challenging his authority to award the contract to Camelot Global Services, which is promising to produce lottery profits of $34 billion over 20 years. Its bid expires Dec. 31.
Meuser said that in the first five years of the contract an additional estimated $400 million to $500 million would be realized – including the 0.75 percent overhead fee the business growth manager will receive.
If an agreement is signed, the state would retain ownership of and actual control over the lottery and all significant business decisions, Meuser said.
Some state lawmakers say their approval is needed, and state Treasurer Rob McCord says he may not authorize payments to the firm unless its plans to expand lottery gambling are clearly legal under state law.
Meuser said he and his staff have been working to dispute some misinformation about the agreement.
We have offered as much transparency as possible throughout this procurement, Meuser said.
Meuser said he has attended a public legislative hearing and most of the more than 100 meetings with individual legislators.
Meuser said the state has a high percentage of seniors and the number is growing rapidly.
The current projections for the lottery fall far below the anticipated need, Meuser said. The lottery may not be broken today, but may be in five to 10 years and then it will be too late to do anything.
Meuser said the controversy has been fueled by partisan politics and it shouldn't be.
The partisanship is disturbing, he said. There is no reason to be engaged in this big effort except for the goods it will deliver.
One major issue is the amount that Camelot would make. Meuser said it would depend entirely on how far it exceeds its annual profit commitment each year.
Meuser said that if an agreement is struck, Camelot will have demonstrated its ability to deliver significantly higher profit levels beyond what the lottery could achieve on its own. In that case, he said, the performance-based agreement pays only incentive compensation when the private manager exceeds the annual profit commitments used as a baseline to evaluate the deal.
He said compensation for all advisers is capped at $30 million collectively and would be paid from Camelot's $50 million bid security, not taxpayer or lottery dollars.
Meuser said critics have said the process has been secretive, but he said the more than 100 meetings refute those claims.
Regarding the use of the term privatization, Meuser said the current lottery system already is private to a certain extent.
He said the state has two contracts to help with the lottery. One is for $37 million annually to a marketing firm and the other is for $54 million with a company to develop games and handle distribution.
Privatization is a misnomer, he said. We have contracts with those companies because they can do it better than the state.
Meuser said the lottery had a good year in 2011 – revenues were up 10.44 percent. But for the period 2006 to 2010, he said, the net profit went from $967 million to $960 million.
We actually went backwards over that six-year period, Meuser said. And last year, we had 5 percent less in payouts.
Meuser said that luck factors into the lottery's profitability. He said that's why Corbett feels the state needs a more sound, reliable way to guarantee the lottery's growth.
The Associated Press contributed to this report.