Thursday, July 05, 2007

Many questions, few answers

Even with no testimony from Gov. Rod Blagojevich and with few details provided on privatizing the state lottery, Illinois lawmakers could vote Friday on whether to give the governor authorization to do two things: 1) lease the lottery to a private firm for at least $10 billion and 2) issue $16 billion in bonds. Both are tactics to reduce state debt in the public employee pension systems.

Hours of testimony in a special House committee and in a separate Senate committee provided few answers for some of the biggest questions. For instance, many asked how much revenue the state would share with a private operator, as well as how the state would compensate for revenue lost by leasing the state asset. Lawmakers also expressed skepticism because only a handful of states are considering privatizing their lotteries, but none have actually done it.

“Do we want to be first, or maybe we’d be better off second or third?” said Sen. Terry Link, a Waukegan Democrat, during the Senate committee.

Mark Florian, marketing director for Goldman, Sachs & Co., which is advising the governor’s office on the deal and stands to profit if the deal goes through, said the size of Illinois’ lottery makes this state a potential frontrunner. “People are going to stretch and stretch very, very hard [so] that there will be a premium, a trophy premium, to have access to this lottery system,” he told the committee. The Blagojevich Administration often cites estimated revenue at about $10 billion.

That’s exactly why some lawmakers questioned why the state would want to lease the lottery if it has so much potential for revenue growth, which would put more money into the state’s education system.

Some of the same questions came up during about 6 hours of questioning by a special committee of the entire House, in which the governor was invited to participate but declined. “I must confess that I believe you are more interested in playing games and taking solutions off the table than trying to find solutions to solve real problems,” he wrote in a letter to House Speaker Michael Madigan that was shared with legislators and the media. A series of rather snippy letters have been exchanged between the speaker and the governor this week, continuing the gridlock that led Blagojevich to convene a special session seven days a week until a full state budget comes to fruition.

“If the governor believes this is a waste of time, I think that’s pathetic,” said Rep. Jack Franks after the House committee. The Woodstock Democrat came up with the idea to invite the governor to the committee of the entire chamber and led Thursday’s hearing. “I think it’s cowardly for him not to have been here after calling the [special] session.”

At the end of the business day, the House moved three pieces of legislation, one proposing the lease of the Illinois Lottery, one proposing the issuance of pension bonds and one nonbinding resolution urging the General Assembly to resolve pension reform and debt before the legislative session adjourns for good in 2007.

Tom Johnson, president of the Taxpayers’ Federation of Illinois, said the administration was putting the cart before the horse because the lottery proposal comes up with a funding mechanism for state pension obligations before it addresses mounting pension liabilities. He said a better plan would evaluate the expense of the benefits offered as a way to cut costs. “The lottery is the taxpayers’ asset,” Johnson said. “The [pension obligation bond] debt will be the taxpayers’ debt.”

John Filan, chief operating officer, said with $41 billion in debt, “all solutions will be expensive, very expensive, and require major revenues.” When asked whether the governor’s initial gross receipts tax proposal was still on the table, Filan didn’t answer yes or no. He simply said the administration would consider other forms of business taxes, such as ending some corporate tax breaks.

The governor is not expected to appear before the House Friday, either.

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