Gov. fires private manager of Illinois Lottery amid mismanagement

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Gov. fires private manager of Illinois Lottery amid mismanagement

Illinois Lottery Privatization Timeline

Illinois Lottery Privatization Timeline

Erik Rodriguez

Illinois Lottery Privatization Timeline

Erik Rodriguez

Erik Rodriguez

Illinois Lottery Privatization Timeline

By Managing Editor

In the wake of Gov. Pat Quinn’s firing of Northstar, the private firm operating the Illinois lottery, further evidence has come to light that the Lottery Control Board was out of compliance with Illinois law by not holding the required meetings during the process of privatizing the lottery. 

An investigation over the past several months by The Chronicle has shown that since the privatization of the Illinois Lottery in 2011, Northstar has failed to produce projected profits.

The lottery became privatized when Quinn signed the Private Management Agreement with Northstar on Jan. 18, 2011. Northstar’s contract began in July 2011. 

In April 2008, the Illinois Lottery Control Board met to discuss privatizing the state’s lottery. After hearing Jodie Winnett, the acting Superintendent for the Illinois Lottery, present a report outlining the process of hiring a company to operate the lottery, Philip Siegel, vice chairman of the Lottery Control Board, asked Winnett if privatization was common. Winnett said there was a precedent in countries such as England, Greece and Australia, but not in the U.S.

Lottery Control Board member Jonathan Stein then said the lottery privatization would provide a short-term solution for the state’s financial woes but would hurt the state’s profit return in 10 years. Because of this, Stein opposed the state’s moving to privatize daily lottery operations. The topic was discontinued as the meeting proceeded, and was not was it revisited by the board that year or in 2009, according to an analysis by The Chronicle of Lottery Control Board minutes. The board did not meet from March 2010 through October 2012 as well. Quinn selected Northstar Lottery Group, led by a partnership between gaming tech companies GTECH and Scientific Games, as the private manager on Sept. 15, 2010, according to a September 2012 State of Illinois Notice of Award, meaning that the board failed to meet prior to or the first 15 months of lottery privatization. 

As a result, citizens did not have a critical form of legally required input on one of the most consequential decisions in lottery history—a choice that since has proven to be highly controversial. Michael Jones, director of the Illinois Lottery, said Northstar has failed repeatedly to meet promised revenue targets.

Illinois’ road to becoming the first U.S. state to privatize daily lottery operations began with the passage of the $31 billion capital bill in 2009, which was touted as having the ability to create jobs and rebuild the state’s infrastructure. Winnett told the Lottery Control Board that the profits from privatization would fund the capital bill, according to April 2008 board minutes.

The legislation directed the Illinois Department of Revenue—the administrators of the Lottery—to hire a private manager to operate the lottery for a 10-year term, according to the Illinois Lottery Request for Expressions of Interest.  

Northstar won the bid after it promised the Illinois legislature sustainable growth for the Lottery, according to the company contract proposal. However, Jones said Northstar has failed to produce more than $400 million in promised profit during its three years of management. 

“The numbers speak for themselves,” Jones said. “This is the first time this has been done in the U.S., so it obviously has things that can be improved and should be improved.” 

The Lottery Control Board is an independent advisory board composed of five members which advises the Lottery superintendent and the Director of the Department of Revenue on the operations of the lottery. The board is responsible for advertising and promoting the Lottery, and is required to meet four times per year, according to the Illinois Lottery Law.

The board also appropriates complaints of violations regarding the lottery law or administrative rules. Quinn is responsible for appointing members to the board with the consent of the Illinois State Senate. Board members must be Illinois residents and U.S. citizens, according to the Illinois Lottery Law. 

The Illinois Lottery Law states that the Lottery Control Board will hold at least one meeting each quarter of the fiscal year, during which three members of the board must be present and three votes are required for any final determination by the board.

However, it failed to do so from 2009–2012.

The number of board meetings decreased in 2009, the year the legislature approved the law to privatize the lottery. The board only met three times in that year. During two of those meetings the board violated state law by not having a quorum, which requires that at least three people attend in order for the meeting to be considered valid.

“It violates the lottery law,” said Kathy Gilroy a citizen activist for the Illinois Church Action on Alcohol and Addiction Problems. “They told me they didn’t have a quorum and that they couldn’t vote on anything. I made the argument that they don’t vote on anything anyway. If they would at least meet, it would allow me or the public to view the advertising.”

During the early years of privatization, a Lottery Control Board chair member died and another became sick, which contributed to the lack of board meetings, Gilroy said.

Quinn is responsible for reappointing members to the board in this situation, but he did not do so, Gilroy said.

Quinn’s office did not return several requests for comment from The Chronicle.

John Kindt, professor emeritus of business administration at the University of Illinois College of Business, said the board’s failure to meet raises questions about its ability to fulfill its required operations.

“The situation doesn’t pass the smell test,” Kindt said. “I’m not saying there is anything incorrect going on, but the proper officials need to address this situation. The Lottery Control Board should be governed by state law and state regulations.”

But Jones said the privatization of the lottery has nothing to do with the board’s failure to meet, and that the shortage of meetings occurred before his time as director of the lottery.

“I don’t know why [Quinn] didn’t appoint all the members or why they didn’t meet,” Jones said. “It had nothing to do with the privatization, the legislation, the contract or anything. I started in October 2011. We started having meetings in regular scheduled times and I put together a full board almost immediately.”

However, the Lottery Control Board still failed to meet for a year after Jones took on his new position.

The Lottery has had a series of problems since Northstar began its contract. This year, Northstar experienced a shortcoming of more than $200 million in their projected revenue goals that were promised to the state as a part of Northstar’s contract, Rep. Jack Franks (D–Marengo) said. Franks said it is Quinn’s duty to fire Northstar for failing to meet its contract. 

“[The governor] talks about having to raise taxes to fund our government, but he can plug a huge hole by just doing the right thing and fixing the problem he created,” Franks said.

Franks said the contract with Northstar is a disaster for the state. Quinn is responsible for appointing board members, but Franks said the governor seems unengaged in the Lottery and the contract.

“I have met with him personally and I have met with his staff,” Franks said. “They are aware of the problems—inexplicably—they refuse to do anything about it. [The legislators] were shut out of it.”

Jones said he recognizes the problems Northstar is encountering and that the issues need to be fixed.

Gilroy said she asked one of the Illinois Attorney General’s offices about the consequences of the Lottery Control Board’s lack of meetings, but the office defended the board because it is considered a fellow state agency.

The Attorney General’s office declined to comment regarding the penalties for the Lottery Control Board having not met their required number of meetings from 2009–2012.

“Who is representing the public in the case of state agencies that break the law? Nobody,” Gilroy said.

 

Recently, the Chronicle published an investigative article in its web edition detailing irregularities in how the Illinois Lottery came to privatize its operations and give the contract to Northstar, which was fired by Gov. Pat Quinn in August. The article centered on how the January 2011 decision to hire North Star was out of compliance with Illinois law as it coincided with the 32-month period from March 2010 through October 2012 when the Lottery Control Board (LCB), a state-mandated, independent citizen’s advisory board empowered to advise Lottery officers on operations, did not meet, as required by statute. Lottery spokesman Mike Lang, replies: “The fact that the board didn’t meet from March 2010 through September 2012 is immaterial to the [private manager’s] selection process, which was mandated by statute and bid through a public procurement process. . .There were numerous public legislative hearings where proponents and opponents could appear and testify, as well as a mandated public hearing held about privatization and the selection of a private manager.

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