Iowa is exploring the possibility of privatizing the state lottery to raise funds to help cover a budget deficit that some have estimated may be as high as $600 million.

Under one proposal, the state would consider leasing the lottery for an up-front cash payment. It would then receive additional cash annually through a 22% tax on lottery sales, according to published reports.

The lottery has generated $1 billion in profits for the state since 1985. Some lawmakers have said the idea is a good one given the budget crunch, but others are concerned about handing the lottery over to private operators and worry that it will provide just a temporary salve to the state’s fiscal problems.

Officials quoted in local press reports said they believe legal obstacles raised in a recent U.S. Department of Justice opinion can be overcome by seeking changes in the law after President-elect Barack Obama takes office.

Indiana Gov. Mitch Daniels, who had proposed a lottery lease for his state, sought the Justice Department opinion. He dropped his proposal after Justice lawyers said states must retain a majority interest in their lotteries in order for them to remain legal operations.

Illinois Gov. Rod Blagojevich has also proposed privatizing his state’s lottery to raise cash to fund a capital program. State finance officials have also said they believe their best bet at pursing such a deal is by seeking a change in the law under the new administration.

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