State gambles on lottery privatization – and loses
Illinois’ experiment with privatizing the state lottery has been such a failure that the state is moving to end its contract with a for-profit vendor seven years earlier than planned.
Last week, news reports indicated the state is working to end a contract with Northstar Lottery Group LLC, which took over management of the Illinois Lottery in 2012. As the State Journal-Register reported, when the General Assembly passed legislation to privatize the lottery, it hoped to “to significantly increase lottery sales and consequently profits that would go to education and infrastructure.”
Instead – as has been the case with so many privatization programs – the reality fell far short of expectations. Northstar failed to meet its profit goals three years in a row. According to a Chicago Tribune report, the company fell $242 million short of its fiscal 2014 goal, and has fallen $480 million short since it began managing the lottery.
Despite the state’s multiple disappointments with privatization, public officials appear to have not learned their lesson yet. Reports indicate that instead of bringing lottery services in house, the state will seek another private vendor to take over the program.
Northstar’s failure is only the latest in a long line of examples of privatization failing to live up to its promises of greater efficiency and improved financial performance. The 2009 deal to privatize Chicago parking meters – which has deprived the city of a vital revenue stream – remains deeply unpopular. The city also recently fired the vendor in charge of its red light camera program after bribery allegations emerged. After the firm was let go, a Chicago Tribune investigation found the firm’s cameras has wrongly ticketed hundreds of drivers who had done nothing wrong.
Earlier this year, the state ended its contract with Maximus, a firm that had been hired to take over Medicaid eligibility redetermination work that had been performed by public employees.
That contract was terminated thanks to a grievance filed by AFSCME that resulted in an independent arbitrator finding the state’s agreement with Maximus violated the union’s collective bargaining agreement. The arbitration process exposed Maximus’ high error rate and found the state would waste $18 million a year by using Maximus instead of hiring bargaining-unit employees.
Multiple studies have also found that privatization of government services hurts workers and local economies. Good jobs are replaced by low-paying ones with poor benefits, resulting in employees who sometimes have to rely on safety-net programs and can’t spend as much at local businesses.
“Contracting can involve substantially lower wages and benefits for local workers providing services, siphoning dollars away from local economies,” a recent study by the Colorado Center for Policy Studies notes. “Workers making less will spend less in their own communities.”