After a widely criticized first attempt at privatization, the Illinois Lottery has formally begun the process to try it again.
Gov. Bruce Rauner announced Thursday that the state was opening the bidding process for a private firm to take over management of the state’s largest business venture — one that’s counted on to provide a slice of the state share of school funding and help pay for new roads and bridges.
“Our Illinois Lottery has been very poorly run and has failed to meet expectations for years,” Rauner said.
And if the administration can’t find a firm to its liking, the governor floated the idea of forming a quasi-government agency to run the lottery — something that would have to be approved by the legislature.
The move is the latest chapter in what was a first-in-the-nation experiment to privatize lottery management. The venture is now seen as a disappointment by both Republicans and Democrats.
After federal officials refused in the late 2000s to let the cash-hungry state sell the lottery, the state hired a private firm to manage the day-to-day operations of the lottery in exchange for a small cut of the profit.
In 2010, in a process later heavily criticized by state auditors, the state picked a firm called Northstar Lottery Services. It was formed by two longtime lottery vendors that, in essence, got to keep their lucrative vendor deals while having the chance to cash in more.
Northstar got the 10-year deal because it made the biggest promises of profits for the state. The firm then never met those original profit targets. It blamed the state for supposedly doing things that hurt its ability to make its profit numbers, while the state fought to penalize Northstar for failing to meet the targets.
In an effort to oust Northstar, the Quinn administration cut a deal with Northstar for it to leave, and Rauner’s administration renegotiated the deal.
That deal was cut in September, promising Northstar it could keep running the lottery until at least Jan. 1, 2017, by which time the state had hoped it would have picked a new private firm to take over management.
By the time the deal was struck, the lottery was in the midst of a national embarrassment because it lacked the statutory authority to pay big winners — a side effect of the Illinois budget stalemate. It led to lawsuits until special legislation was passed to allow winners to be paid again.
In the meantime, the Rauner administration said it was studying what metrics mattered for state lotteries to better structure the deal the second time. It unveiled those basics Thursday, which include allowing smaller firms to compete for the management job while prohibiting vendors who do the grunt work from also bidding on the management job.
Rauner said he also wants the new manager to better push internet sales. Illinois was a U.S. pioneer in introducing online lottery ticket sales, but it has struggled to capitalize on it. He said he hopes a deal can be reached with a firm in the next six months.
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