Massachusetts Treasurer: Lottery Sale, Slots Could Net $4B

Massachusetts could gain roughly $4 billion in up-front payments by privatizing its lottery system and licensing three slot machine parlors, according to state Treasurer Timothy Cahill.

Cahill yesterday announced his proposal before the Greater Boston Chamber of Commerce. Cahill also said the state and local governments would receive up to $1.1 billion in annual revenue from allowing private corporations to operate the entities.

Cahill said the lottery system could bring in an estimated $1 billion one-time payment in a 50-year lease agreement while cities and towns would have a guaranteed revenue stream of $900 million per year. That plan could help the lottery system compete against the proposed video lottery terminals, or slot machines.

The treasurer estimates the impact of bringing VLTs into Massachusetts would lower lottery revenues anywhere from 3% to 8% in the first five years, with the lottery eventually regaining previous levels.

"However, placing that competition here in the state and creating a different operating structure for VLTs means that we must consider this [lottery] option as both viable and maybe necessary," Cahill told the Chamber of Commerce.

In looking at introducing VLTs into the state, the treasurer proposed allowing three slot machine parlors in Massachusetts, which could generate total up-front payments of $1.95 billion to $3.35 billion, Cahill said. In addition, the state would receive yearly revenue payments of $203 million to $243 million.

Michael Widmer, president of the Massachusetts Taxpayers Foundation, doubts whether implementing VLT facilities in the Bay State would garner such high up-front payments during a recession. Widmer declined to comment on the lottery proposal, as he was not familiar with the details of the plan.

"I think his estimate of the license fees seems very high given this terrible economic climate," he said. "In good economic times undoubtably it's reasonable, but these are anything but good economic times. So I think it's questionable whether the commonwealth could achieve anything close to the $2 billion to $3 billion that he's laid out there."

In addition, Widmer proposed using the approximately $4 billion of one-time payments from the VLT licenses and the lottery concession to help address long-term fiscal issues.

"We own and issue a great deal of debt and need to have a strong balance sheet - especially in these turbulent times - if we are to guarantee to our citizens that we are not going to mortgage our future to solve today's problems," he said.

Cahill would like to see the state use one-third of up-front revenues to help replenish Massachusetts' rainy-day fund. In addition, he proposed investing a portion of the revenue into a fund similar to the state retirement fund, which would then help pay down other post-employment benefits. The state's OPEB liability stands at roughly $13 billion.

In addition, Cahill said officials could use a portion of the one-time revenues to help boost the state's higher education system in the form of an endowment.

"Overnight, the [University of Massachusetts] endowment would climb from the bottom of the pack among public institutions into the top 15 nationally," he said. "It would also provide a steady stream of revenue that would allow UMass to invest in its campuses and students regardless of state revenues."

Additional revenue could help the state's coffers. In late January, Gov. Deval Patrick filed a $27.9 billion fiscal 2010 budget that aims to close a $3.5 billion deficit. The governor plans to use federal stimulus dollars, rainy-day funds, and new tax increases to help bridge the gap.

"We have not yet seen the treasurers' proposal, but the governor remains focused on job creation and retention. All proposals in that regard remain on the table and are worth consideration." said Kofi Jones, spokeswoman for the executive office of housing and economic development.

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