In the Bid to Privatize PA’s Lottery, One Is the Loneliest Number

By Stephen Herzenberg, Third and State

One is the loneliest number that you'll ever do …

Although I’m dating myself, some of you may recognize the Harry Nilsson song made famous by Three Dog Night. We recommend that Governor Tom Corbett download it to his iPod as he contemplates whether to accept a solitary bid from Camelot Global Services to take over the operation of the Pennsylvania Lottery. Whether privatizing state services or getting a new roof for your house, having a single lonely bidder is a red flag for a fleecing — for overpaying the contractor.

In its bid, Camelot promises 20 to 30 years of lottery profits that barely increase at the rate of inflation — even with the addition of new lottery games such as Keno and online gaming. The deal could produce big-time profits for Camelot with performance no better than the public system could produce. If the company maxes out its incentive-based compensation over the initial 20-year contract, it could receive $1.15 billion in today’s dollars; more when you count annual management fees.

A good deal for Camelot, but not for the Pennsylvania seniors who benefit from lottery proceeds, as the Keystone Research Center finds in a new report. The impact on seniors is critical since the lottery generates $1 billion a year for services that benefit area senior centers, low-cost prescription drugs, transportation for seniors, and property tax and rent rebates.

Experience from other states offers little to recommend this deal. Illinois is the only state to privatize its lottery, and it is now embroiled in litigation about how much the contractor owes the state because of poor performance. Indiana just privatized its lottery, so there’s no information yet on the results. Both states received more than one bid from private companies.

Pennsylvania’s move toward privatization is especially puzzling given the lottery’s good track record and record profits in the last two years. A recent Pennsylvania Treasury analysis found that administrative costs in the Pennsylvania Lottery were the second lowest, as a share of lottery system sales, of the 10 largest lotteries in the United States.

The Keystone report also raises questions about financial ties between Camelot and Greenhill & Co., the private consultant retained by the Corbett administration to manage the bidding process. Greenhill worked on the $576 million sale of Camelot to its current owner, and would receive millions if the privatization deal goes through. 

When you add up all the questions about this deal — starting but not ending with the lack of multiple bidders, the lack of transparency, the low revenue commitments, and an apparent conflict of interest that could motivate Greenhill to push for privatization — it seems like a game of tee-ball for seven-year olds: as in, "eight strikes and you’re out."

Based on all the questions raised by Keystone and others, at the very minimum the Corbett administration should slow down and undertake in partnership with the Legislature a transparent and comprehensive review of lottery privatization before locking the commonwealth into a bad deal for a generation.


Changing the Subject Doesn’t Make Payday Lending in PA a Better Idea

By Mark Price, Third and State

In legislative hearings last month, proponents of a bill to legalize high-interest payday loans tried to change the subject and questioned the motives of some of their constituents. But these attempts don’t alter the fact that allowing payday lending is a bad idea. 

As we’ve explained before – and as the U.S. military, U.S. Congress, and former President George W. Bush have all agreed – payday loans are a debt trap that further impoverishes low-income families, driving more of them into bankruptcy. Pennsylvania should leave in place the strong regulations that make use of payday loans much less common here than nationally.

Here is a bit more detail on what happened at the September 19 Senate Banking and Insurance Committee hearing on House Bill 2191. Chairman Don White raised the issue of credit cards and alleged that the AARP’s opposition to payday lending was motivated by the organization’s desire to protect a credit card product it offers. At another point, Representative Chris Ross, the sponsor of the bill, warned that payday lenders currently selling a limited number of online payday loans illegally may be stealing the identities of consumers. 

Even if this were true, why does it mean we should legalize storefront payday lenders to locate in local communities throughout Pennsylvania and charge 369% annual interest rates on short-term loans? It doesn’t. 

While the strategy of House Bill 2191’s supporters was to talk as little as possible about the dangers payday lending poses for consumers, more telling was who attended the hearings. The hearing room was full of people who had driven in from around the state – Pittsburgh, Allentown, Philadelphia. Pastors, credit counselors and affordable housing groups showed up in opposition to the bill, even though they weren’t testifying.  

Their presence didn’t stop some committee members from questioning the motives of an AARP volunteer and rushing the testimony of a pastor of a social service ministry and a military veteran. The only supporters of the bill were the out-of-state companies that stand to benefit financially from these 369% APR loans.

The will of the people – and the editorial boards – on payday lending is clear. Don’t legalize it. Let’s hope that the will of the people outweighs the dollars of the payday lenders in this year’s end game on this issue.

New Year, Same Old Economic Austerity

A blog post by Mark Price, originally published at Third and State.

From November 2009 to November 2010, Pennsylvania added 63,300 jobs. From November 2010 to November 2011, the state added just 51,000.

Wait, isn’t that backwards? Nope. A weak economy, the end of federal Recovery Act funds and state budget cuts slowed the pace of Pennsylvania job growth in the most recent year.

The big question mark going forward is whether the pace of job growth in the Commonwealth will continue to lag the rest of the country. Key will be whether school districts continue to face large budget deficits.

The news out of Stroudsburg this morning suggests this is going to be another challenging year for the Pennsylvania job market.

Larger class sizes, staff reductions, eliminating elective courses for students or a wage concession are possible remedies to close a projected $9.8 million deficit in the Stroudsburg Area School District budget, said Business Manager Don Jennings.

As school districts continue to add people to the unemployment lines, the Corbett administration is looking to make the situation that much worse by adding costly new regulations to address a problem that doesn’t exist. 

Pennsylvania plans to make the amount of food stamps that people receive contingent on the assets they possess – an unexpected move that bucks national trends and places the commonwealth among a minority of states…

The DPW plan caught many by surprise, but has been widely condemned by Philadelphia city officials, business leaders statewide, and advocates for the poor.

They point to federal statistics showing that Pennsylvania has one of the lowest food-stamp fraud rates in the nation: one-tenth of 1 percent.

In fact, the state recently won a federal award for running its program efficiently, federal officials say.

Moreover, about 30 percent of people who are eligible for food stamps in Pennsylvania and throughout the nation don’t access them, making the entitlement program under-subscribed.

Critics of the DPW plan say it would particularly punish elderly people saving for their burials, poor people trying to save enough money to get out of poverty, and working- and middle-class people who lost their jobs in the recession and may now have to liquidate assets to feed their families.

More Americans Drawing Income from Unemployment, Social Security

A blog post from Emma Lowenberg, originally published on Third and State.

The fact that the economy is still struggling is not news to anyone. The national unemployment rate has increased steadily since February. Now, at 9.2%, it is not too far from its peak of 9.9% in December 2009.

Nationally, the personal income of 20% of Americans comes from the government through programs like Social Security and unemployment benefits, according to a report in The New York Times. The percentage is even higher in the economically worst-off states – like Florida, Michigan, Ohio, and Arizona.

Those who depend on this assistance are running out of luck, though, and so is the economy at large. Extended jobless benefits are set to expire at the end of the year, leaving nearly 7.5 million unemployed Americans without an important lifeline and risking greater damage to an all too fragile recovery. The still tentative agreement in Washington, D.C. to raise the debt limit appears to rule out any additional extensions of unemployment insurance for workers in 2012.

The ratio of job growth to job seekers remains dismally low. In Arizona, for example, there are 10 job seekers for every job opening. According to economist Mark Zandi of Moody’s Analytics, the amount of transfer dollars being paid out has increased by 35% since 2007.

Some cash-strapped states are shortening the length of unemployment benefits by as much as 20 weeks. To counter the effects of benefit cutoffs, we would need to see massive job creation, but that’s just not on the horizon.

The data below show the change in percentage of income comprised of transfer payments by county in Pennsylvania from 2007 to 2009 (the data is sorted by the percent change in transfers). While some of this change can be attributed to naturally aging populations, much is undoubtedly the result of higher unemployment rates.

County 2007 2009 Change % Change
Fulton 20% 27% 7.6 38%
Cameron 28% 37% 9.9 36%
Adams 16% 22% 5.5 33%
Elk 23% 30% 7.2 31%
Huntingdon 24% 30% 6.1 25%
Bucks 11% 14% 2.7 25%
Lancaster 15% 19% 3.7 25%
Franklin 17% 21% 4.0 24%
Columbia 22% 27% 5.1 24%
York 15% 18% 3.5 23%
Juniata 20% 25% 4.7 23%
Montgomery 9% 11% 2.1 23%
Berks 17% 21% 3.8 23%
Monroe 17% 20% 3.6 22%
Cumberland 13% 16% 2.9 22%
Erie 22% 26% 4.6 21%
Bedford 24% 29% 5.1 21%
Wayne 23% 28% 4.9 21%
Perry 17% 21% 3.6 21%
Dauphin 16% 19% 3.2 21%
Lehigh 17% 20% 3.3 20%
Wyoming 21% 26% 4.3 20%
Mifflin 26% 32% 5.3 20%
Union 17% 21% 3.4 19%
Crawford 26% 30% 4.8 19%
Northampton 17% 20% 3.1 19%
Jefferson 26% 31% 4.9 19%
Centre 14% 16% 2.5 18%
Lebanon 17% 20% 3.2 18%
Carbon 23% 28% 4.2 18%
Snyder 26% 30% 4.6 18%
Potter 25% 29% 4.5 18%
Armstrong 24% 28% 4.3 18%
Mercer 26% 30% 4.6 18%
Butler 16% 19% 2.8 17%
Clearfield 27% 31% 4.6 17%
Clarion 26% 30% 4.4 17%
Lycoming 22% 25% 3.6 17%
McKean 25% 29% 4.1 16%
Lawrence 27% 31% 4.4 16%
Warren 24% 28% 3.9 16%
Tioga 26% 31% 4.2 16%
Schuylkill 25% 29% 4.0 16%
Luzerne 23% 26% 3.5 15%
Pike 17% 19% 2.6 15%
Indiana 22% 25% 3.3 15%
Northumberland 24% 28% 3.7 15%
Bradford 23% 26% 3.4 15%
Delaware 14% 16% 2.1 15%
Blair 25% 28% 3.7 15%
Allegheny 17% 19% 2.4 14%
Lackawanna 22% 25% 3.1 14%
Clinton 24% 28% 3.4 14%
Washington 20% 22% 2.7 14%
Westmoreland 20% 23% 2.8 14%
Fayette 30% 34% 3.9 13%
Somerset 26% 29% 3.2 12%
Beaver 24% 27% 2.9 12%
Sullivan 30% 34% 3.6 12%
Susquehanna 22% 24% 2.5 11%
Montour 19% 21% 2.0 11%
Cambria 28% 31% 3.0 10%
Venango 32% 35% 2.9 9%
Philadelphia 26% 28% 2.3 9%
Chester 8% 9% 0.5 6%
Greene 28% 30% 1.4 5%
Forest 38% 39% 1.6 4%

Source. Keystone Research Center analysis of Bureau of Economic Analysis Data