In a world where government revenue is shrinking and demands for services are increasing, state governments continue to look for ways to generate more income. One such method has been state lotteries, which have been around in their present form since the mid-’80s.
In spite of the fact that state lotteries are really a form of regressive taxation, they have become a popular and essential element of the state fiscal budgeting process. In New Jersey, they represent the fourth largest source of revenue. But that source has been decreasing over the past several years.
Exacerbating the problem is the fact that in the Garden State, the administration of the lottery is outsourced to a for-profit consortium, partially owned by foreign interests, that has been a solid donor to GOP political causes, including Chris Christie’s Republican Governor’s Association. And to add insult to injury, the firm that lobbied for this lucrative outsourcing scheme was Wolff & Samson – the same David Samson that’s embroiled in the Bridgegate scandal. Of course, back when this contract was being “competed”, as Seth Hahn – the political director of the CWA – points out, potential bidders knew about the Christie/Samson connection and probably figured it was not worth their effort to vie for this contract. Hahn said that “The M.O. of the Christie Administration is not to put good government first.” The consortium that eventually received the contract was the sole bidder.
Today, the Bloomberg News Service reported that instead of meeting its goal of a 7.4% increase in revenue, the privately-run New Jersey Lottery is facing a shortfall of 9.2%, or $24 million – money that is desperate needed by the state, whether it is for education, aid for the disabled, or one of Christie’s unnecessary senatorial elections.
The failure of New Jersey’s outsourcing of the lottery administration should come as no surprise. Hetty Rosenstein, Communications Director of CWA – the union that once represented state lottery workers – wrote about this on Blue Jersey back in 2012. An academic study of the New Jersey lottery outlines the shortfalls of privatization. Even as far back as 2010, on a post entitled “Privatization Done Right”, I cautioned about privatizing certain aspects of public service that are better left to government. I also wrote about how outsourced services should be run, which is a lot different than how they are run today. Some services like telephones or package delivery are commodities that may be more cost-effective to outsource, but areas that are unique to government like lotteries or schools are not good candidates for privatization and for-profit operation.
Outsourced services are generally performed by people receiving lower wages and benefits, that supposed cost saving is somewhat offset by the need for increased oversight and monitoring by the state agencies. Also, since those outsourced jobs often go to out-of-state residents, there’s an additional reduction in tax revenues that keep vital state functions running. Outsourced services are run to optimize profits, while state-run services are run to optimize public benefit. Under the current outsourced lottery, administrative costs have gone up 45% compared to those costs when it was run by the state.
So by contract, we’re stuck with this outsourcing scheme for fifteen years. But when the contract for the state lottery comes up for renewal, we need to carefully evaluate future options. Until then, we should strictly hold the present contractor to the established terms and conditions. If we are to outsource, companies (including holding companies and subsidiaries) that contribute to any political party or candidate should be prohibited from bidding. But a better solution might be to bring the lottery administration back to the state employees, creating desperately-needed in-state jobs and reigning in the administrative overhead. With the present governor and his enablers, I’m not holding my breath.