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Private lottery best bet: Daniels

Would put revenue into college aid; rival against

INDIANAPOLIS – Gov. Mitch Daniels on Wednesday revived his controversial plan to privatize the Hoosier Lottery, but this time the money would pay for at least two years of higher education for Indiana students whose families earn $60,000 or less a year.

Daniels detailed his initiative during a visit to Terre Haute. He first brought up the idea in April but with few specifics and no funding source.

Wednesday’s event was the third of four education-related promises he is campaigning on this week.

The Hoosier College Promise program would give thousands of Indiana students two years of free tuition at Ivy Tech Community College or an equivalent amount of $6,000 to use for their first two years at another college or university in the state that is approved by the State Student Assistance Commission of Indiana.

“Too many of our kids don’t believe they can go to college. We seek to assure each Indiana high school graduate, as far up the income scale as we can reach, the chance to go to college for at least two years,” Daniels said. “With the Hoosier College Promise, we can redeem the lost promise of the Hoosier Lottery.”

But Daniels’ fall challenger, Democrat Jill Long Thompson, immediately attacked the privatization proposal as shortsighted.

“What he is doing is comparable to selling your farmland to buy a combine,” she said.

The Hoosier College Promise program would supplement the more than $200 million in need-based financial aid already provided through the state student assistance commission.

Currently, about 40,000 families in those programs have an annual income of $60,000 or less and are receiving some aid through various grants and scholarship opportunities.

Daniels’ initiative would help about 24,000 of those students by closing the gap between what is already available versus tuition costs.

For instance, students from families with average incomes of $40,000 currently receive an average of $400 in need-based aid to attend Ivy Tech. Daniels’ program would make up the difference up to $3,000 annually for each of two years.

The plan would cost about $50 million a year when fully implemented.

And Daniels suggested two ways to fund the new scholarships.

First, Indiana could issue bonds against the growth in lottery revenues.

But annual profits have remained somewhat steady in recent years – ranging from a high of $218 million in 2006 to a low of $155 million in 2001. Profits have exceeded $200 million only three times since 1998.

That money supports pension obligations and reduces auto excise taxes.

Or Daniels wants to allow a private operator to run the lottery for 30 years in exchange for at least $1 billion upfront and $200 million annually.

This idea failed in 2007, but the program behind it was quite different. It would have sent much of the money directly to universities to bring top researchers and professors to the state but also included a smaller scholarship program for the state’s top students.

Neil Pickett, senior policy adviser to the governor, said after listening to feedback from Hoosiers and legislators the governor decided to focus the proposal even more on the urgent goal of increasing access to higher education.

House Speaker Pat Bauer, D-South Bend, said his caucus continues to have major concerns despite an improved objective.

“I proposed bonding for road projects, so I won’t reject that out of hand,” he said. “I will say the focus is better than it was before. But once again, the source is subject of a great deal of concerns. At least he’s throwing out a different variation.”

Rep. Win Moses, D-Fort Wayne, said the biggest obstacle to privatizing the lottery is that many lawmakers are afraid a new operator will expand gambling options to beef up profits.

“The only way to make more money is to run new games and expand it dramatically, make the odds more difficult for the user and generally do it more aggressively than we have done,” he said. “I’m willing to look at anything, but it’s not enticing. In an era where local governments are cutting back, … I think we have to be wary of starting any new programs.”

Other states, including Michigan and Illinois, have shown interest in the concept of leasing their state-run lotteries. But none has been able to push the idea through yet.

Leonard Gilroy, director of government reform at the Reason Foundation, a free-market think tank in California, said other countries have embraced the idea but that states are slow to come on board.

He thinks it will take one blockbuster deal – similar to when Daniels leased the Indiana Toll Road for $3.8 billion – to move the concept along.

“The structural model is out there, but it’s just a lot of legal, financial and budget details that haven’t been hammered out,” Gilroy said.

He noted that the primary argument boils down to states losing control. But he said the contracts governing a lease can be tighter than existing regulations.

“You can limit the types of games, minimum prize payouts, advertisement,” Gilroy said. “In the end, private-sector businesses are better at running businesses than government. Is a lottery system a core function of government? Many would argue no. It’s a business enterprise.”