Boosting lottery profits pushed at hearing

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HARRISBURG -- With a bid from a private manager expired, a Corbett administration official Wednesday proposed increasing Pennsylvania Lottery revenue by implementing keno and seeking relief from restrictions on profit margins.

The administration has sought to increase revenue to the lottery fund, which pay for programs for older Pennsylvanians, such as property tax rebates and discounts on prescription drugs. Its long-pursued private management agreement with Camelot Global Services, which operates the United Kingdom lottery, was abandoned last month, nearly a year after Attorney General Kathleen Kane announced her office found the deal violated state law. Camelot had pledged to deliver more than $34 billion in profits over the course of the 20-year agreement.

At a hearing before the Senate Finance Committee, Revenue Secretary Dan Meuser described how the administration believes it can increase profits by meeting consumer demand for instant games and by introducing keno, a game with frequent drawings.

Mr. Meuser explained that state law requires the lottery to operate with a 30 percent profit margin, but that lawmakers had enacted a temporary measure, good through the 2014-15 fiscal year, allowing a 27 percent profit. With consumer demand shifting from terminal-based games to instant games, he said, Pennsylvania has seen most of its sales growth from instant games with higher payout percentages. If the profit margin reduction is not extended, he said, the lottery could lose $830 million in profits in the first five years.

"We need margin relief to keep up with our current conservative projections," Mr. Meuser said after the hearing. "We received it twice already, to 27 percent. We know that by lowering it to 25 percent -- it's not really theory -- we can drive those profits more."

Camelot's bid to for the lottery contract relied in part on introducing keno, and Mr. Meuser said Wednesday the administration still sees the game as a path to revenue growth. The lottery believes keno could generate between $40 million and $180 million in additional annual profit when phased in over five years.

The administration believes state law and regulations allow the lottery to introduce keno, Mr. Meuser said. The attorney general's opinion last year found that "monitor-based or other electronic games" are not authorized by the state lottery act.

Committee Chairman Mike Brubaker, R-Lancaster, said policymakers have to determine how keno fits into the law and regulations.

"In my opinion, it's clear the Pennsylvania Lottery has the ability to manage terminal-based games as it sees fit," Mr. Brubaker said. "So the question our committee is wrestling with now: Is this a terminal-based game?"

Both he and the committee's ranking Democrat, Sen. John Blake of Lackawanna County, said they agree with allowing the lottery to lower its profit margins, though Mr. Blake gave one qualification.

"If we do margin relief, there needs to be an absolute reassurance that those dollars, any incremental dollars, do stay in the lottery fund and do in fact benefit older Pennsylvanians and that we don't do a shell game here with respect to the general fund or trying to shore up short-term budget decisions," he said.

Karen Langley:, 717-787-2141 or on Twitter @karen_langley.

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