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Top Democrat: Private Management Agreement Unnecessary for PA Lottery

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The Pennsylvania Lottery’s 2011-12 Annual Report shows a 10.4% increase in net revenues, which means a record $1.06-billion will be used for programs that benefit the state’s senior citizens.

The positive financial news comes as the state Department of Revenue continues to investigate a potential private management agreement for the lottery, and House Minority Leader Frank Dermody (D-Allegheny) believes that it’s proof no such deal is needed.

“The lottery’s doing quite well and there’s nothing that the current folks can’t do that these new people could do, other than skim profits off the top,” Dermody tells Radio PA.  “This is just another solution in search of a problem.”

But the welcome lottery growth has not turned officials off to the idea of entering into a private management agreement.  “The need for the programs is going to grow over the next ten to 20 years, and we need to be looking at every possible way to increase the funding for our seniors,” Pennsylvania Lottery Executive Director Todd Rucci said in a telephone interview.

If officials decide to take the next step toward a private management agreement, Revenue Secretary Dan Mueser says invitations for bid could go out in the fall.

Pennsylvania Lottery

PA Explores Private Lottery Management

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The Corbett administration is investigating whether privatizing lottery management will improve its ability to support programs for older Pennsylvanians.  The state’s senior citizen population is projected to grow by 20% over the next decade, and Revenue Secretary Dan Meuser says they want lottery revenues to do the same.

“Keep in mind, the state of Pennsylvania maintains all full control of this lottery,” Meuser tells Radio PA.  “We are not talking about at all selling the lottery.  We are bringing on a private consultant to help us meet the growth demands of the lottery.”

Revenue Secretary Dan Meuser

Revenue Secretary Dan Meuser

There’s no rush.  Requests for Qualifications went out in the spring, and Meuser says they are now in their “due diligence” phase of exploration.  “We’re not there yet,” Meuser explains.  “We’re not sure if a firm out there believes they can in fact do that, or if that firm can be acceptable to us.”

Private firms have expressed interest.  Meuser, however, cannot say which ones or even how many.  He tells us that could affect the competitiveness of the procurement process.  If they decide to proceed, invitations for bid could go out in the fall.

The trail for such private management agreements has already been blazed by the state of Illinois.  The Prairie State has just wrapped up its first fiscal year under private lottery management, and Illinois Lottery Superintendent Michael Jones believes it can work.  “I absolutely believe that the amount of money they promised the state is realizable,” Jones explains.  “With good marketing and good games and good prizes this will be a big success.”

Northstar Lottery Group promised Illinois $851-million dollars in profits during year one, and $951-million dollars in profits in year two.  Under the contract, Jones says, Northstar will receive significant bonuses if they hit those targets, and will have to pay the state penalties if they fall short.  Preliminary revenue numbers for Illinois’ first fiscal year under private lottery management are expected to be released in the near future.

Supporters call it a great way to generate new revenue without raising taxes.  “[Illinois] wouldn’t have done it if they weren’t going to get a billion dollars in extra revenue over the next five years,” says Reason Foundation director of government reform Leonard Gilroy.  “It wouldn’t have happened.”  Like Pennsylvania, Gilroy says states like Indiana and New Jersey are also seriously considering privatizing their lottery management.

Some members of the state House Democratic caucus are already speaking out against the issue in Pennsylvania, however.  “Why would we pay a company millions of dollars to do the same thing we could do ourselves – especially when those millions of dollars are badly needed for programs that help older Pennsylvanians?” asks Minority Leader Frank Dermody (D-Allegheny).

Secretary Meuser says the private entities’ proposals will help them make that call.  It’s something he says they’re taking very seriously. “The lottery funds will continue and only to go to benefit older Pennsylvanians and we are working now to secure that is the case, without question, today and ten years from now.”

Pennsylvania Liquor Store

House Won’t Revisit Liquor Store Debate until the Fall

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With the June 30th budget deadline fast approaching, House Majority Leader Mike Turzai (R-Allegheny) has decided to hold off on further liquor store privatization debate until the fall.  That gives Turzai the summer to build consensus around a privatization plan with the help of Governor Tom Corbett.

“Nobody in Pennsylvania has a better bully pulpit than the governor,” says Turzai spokesman Steve Miskin.  “We expect he’s going to use that and we’re going to get people to the table and get this thing done.  We’re closer now than we ever have been.”

House Democrats have been critical of Turzai’s privatization plans, and Rep. Dante Santoni (D-Berks) is pleased with today’s developments.  “It just didn’t make sense… I think the Majority Leader saw the error of his ways and pulled the bill,” says Santoni, the ranking Democrat on the House Liquor Control Committee.

Santoni supports modernization of the Pennsylvania Liquor Control Board (PLCB) over privatization.  That could include everything from expanded Sunday hours, to flexible pricing and the use of coupons & rewards programs.

But Miskin stresses that the privatization plan is still very much alive.  “We’re going to work on it and we’re going to continue working on it until it’s done; until the liquor stores are in private hands.”

Liquor Store Privatization Update

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Debate began Monday evening on the latest version of a plan to get state government out of the booze business.  Majority Leader Mike Turzai asked, “Why is Pennsylvania so anachronistic? Why is Pennsylvania not willing to focus on its citizens and consumers?” Turzai has been the leading voice on liquor store privatization.

His latest plan would replace the 620 state-run liquor stores with 1,600 private sector wine & spirits licenses.  Pennsylvania’s beer distributors would be given the right of first refusal at a fair market value.  The remaining licenses would be auctioned off to the highest bidder.

But Monday’s House debate was cut off after nearly three hours, and has not resumed since.  Democratic Leader Frank Dermody doesn’t think supporters have the votes.  “I don’t believe they’re there, and we’re working hard to make sure it stays that way,” Dermody explained to Radio PA by phone.  “Even if you’re for privatization, this is a terrible bill.”

While beer distributors would be given first crack at the new licenses under Turzai’s plan, the Malt Beverage Distributors Association of Pennsylvania opposes the language.  “Ultimately when you look at this bill, it’s just forcing your local beer distributor out of business to sell-out to a major corporation,” explains Mark Tanczos, president of the MBDA of PA.  Tanczos outlined his position in a letter to the General Assembly.

Governor Tom Corbett can be counted among the high-profile proponents of liquor store privatization.  Corbett recognizes this won’t be the final legislative product, but wants to get the ball rolling nonetheless.  “Let’s get this first step done,” Corbett emphasized to reporters this week.

House debate could resume as early as Monday.

Think Tanks at Odds over Liquor Store Privatization Research

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Leaders of the Keystone Research Center say their latest policy brief is meant to ‘set the record straight.’  They claim the Commonwealth Foundation has muddied the waters of the public policy debate with earlier research that claims to find no relationship between alcohol control and DUI fatality rates.

“Previous research had often included two variables that were absent from the [Commonwealth Foundation] model,” says Keystone Research Center Labor Economist Mark Price.  “Those variables were per capita incomes and per capital miles traveled.”

When he re-ran the numbers to account for those two variables, Price found that Pennsylvania has an estimated 58 fewer DUI fatalities a year because it controls alcohol at the retail and wholesale levels. 

The Keystone Research Center believes policymakers must carefully consider the impact privatization could have on alcohol-related fatalities.  But, the Commonwealth Foundation contends the KRC is trying to add more variables to explain away the facts. 

“There really is no difference between states that have government control of liquor sales and states that have private stores,” says Nathan Benefield, director of policy research at the Commonwealth Foundation. 

In testimony presented to the House Democratic Policy Committee, last year, Benefield also cited Mothers Against Drunk Driving data that ranks Pennsylvania 30th among states for its per capita DUI-related accidents.  He argued that if liquor control were such a driving factor, Pennsylvania should have ranked much higher on that list (with 1 being the state with the fewest DUI accidents).    

While there seem to be conflicting studies on the social impacts of privatization, supporters’ maintain that Pennsylvania should not be in the booze business.

Administration Takes First Step Toward Privatizing PA Lottery

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The state has issued a “Request for Qualifications” to pursue a private management agreement for the Pennsylvania Lottery.  It’s the first step toward privatizing one of the nation’s oldest and biggest state lotteries.  The next step would be to accept bids from qualified companies. 

“This initiative is simply part of my administrations’ efforts to tap private sector innovation to make state government work more efficiently and effective, which is precisely what taxpayers expect,” Governor Tom Corbett said in a written statement. 

The Pennsylvania Lottery would not be sold; rather it would be run by a private management firm in hopes of maximizing the revenues that are used to fund programs and services for older adults in the state. 

The Pennsylvania Lottery just celebrated its 40th anniversary last month, and has generated $21.5-billion dollars for older Pennsylvanians since its inception.  However the Lottery’s profits have only grown by an average of 0.3% a year of late, and a recent study indicates that seniors will compose 22.5% of the state’s total population by 2030. 

The state Department of Revenue oversees the lottery, and Revenue Secretary Dan Meuser says the Lottery’s ability to grow cash flow for senior programs has become uncertain.

However House Democrats have their reservations.  Democratic Leader Frank Dermody (D-Allegheny) says the current system isn’t broken, and fears that any changes could hurt the thousands of seniors who rely on Lottery-funded health and safety programs.

Modernization Plans Dominate PLCB Appropriations Hearing

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Talk of liquor store privatization was brushed aside at Thursday’s Senate Appropriations Committee with the Liquor Control Board.  Instead, the focus was on modernization. 

The governor’s proposed budget calls for an $80-million dollar transfer from the Liquor Control Board to the General Fund next year.  LCB CEO Joe Conti tells lawmakers that number is right on target, but they could generate even more revenues if only they were allowed to modernize.  “It’s clear that we think we could add $70-million dollars to our bottom line,” Conti explained during an extended Q&A with the committee. 

One of the high-profile reforms he seeks is flexible pricing.  “We would just like to price the way that all other retailers price their product, with a mix of pricing,” Conti explained.  “And we are not able to do that now.”  He later stressed that prices would still be the same across the commonwealth, but the LCB would have greater discretion in how they are set. 

The retail price we pay on every bottle at state-run liquor stores includes: the wholesale price, the 18% state liquor tax, a 30% markup, a handling fee and federal alcohol taxes.  The flexible pricing allowed in SB 1287 would allow the LCB to vary its 30% across-the-board markup, based on the product, and likely nix the handling fee. 

That legislation currently awaits action in the Senate Law & Justice Committee.  Meanwhile, legislation to privatize PA’s liquor stores is awaiting action in the House.  The Liquor Control Board is scheduled to appear for its House Appropriations Hearing on February 27th.

PA’s Fiscal Watchdog Opposes Liquor Privatization Bill

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Auditor Genral Jack Wagner

Auditor General Jack Wagner addressed the media on Wednesday.

The proposal to privatize Pennsylvania’s wine & spirits stores is a bad deal for taxpayers and customers alike, according to Auditor General Jack Wagner.   “Would you sell a reliable asset that brings in a profit of at least $100-million dollars a year… losing 5,000 jobs during tough economic times?”  Wagner asked.  “I don’t think so.”  Wagner shared his concerns with reporters in Harrisburg before traveling to Philly to testify before the state House Liquor Control Committee. 

Wagner calls the Pennsylvania Liquor Control Board one of the few profit-making ventures in state government, and balked at estimates that Pennsylvania could generate an up-front windfall of $1 – $2-billion dollars by divesting its liquor stores.  “Wouldn’t it be an embarrassment if this legislation passed and we got virtually nothing for the LCB?”

While he’s not opposed to the concept of privatizing certain state operations, Wagner doesn’t think it makes sense in the case of the state-run liquor stores.  Wagner suggests modernizing the system as the preferred option, noting that state lawmakers need to take the handcuffs off of the PLCB. 

While the Auditor General doesn’t see the logic behind this privatization movement, Governor Tom Corbett says it starts with philosophy.  He says the LCB’s dual role of selling and regulating alcohol is a conflict of interest.  “We are enforcing the liquor laws, we are enforcing the drunk driving laws, we are enforcing the drinking laws, yet we have the main agency when it comes to liquor saying drink more,” Corbett told a recent Pennsylvania Press Club luncheon.  “Get out of the business.” 

The state House Liquor Control Committee is in the midst of two days of hearings on the privatization bill in Philadelphia.  HB 11 is scheduled for a committee vote in mid-December.