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NJ Democrats Want Justice Department to Review Lottery Privatization Plan

Six congressmen sign letter asking U.S. attorney general to determine if administration's scheme complies with federal law.

Unhappy with the state's decision to push ahead with its plan to partially privatize the New Jersey Lottery, a group of Garden State lawmakers have decided to make a federal case of the conflict. On Wednesday, half of New Jersey's congressional delegation asked U.S. Attorney General Eric Holder to review the administration's scheme to see if it complies with federal law.

The six Democratic congressmen cosigned a letter to Holder, asking him to determine whether the $120 million payment the state is slated to receive from Northstar New Jersey Lottery Group as part of its contract to handle sales and marketing functions for the $2.8 billion lottery violates a 2008 opinion on lottery privatization from the federal justice department.

“This opinion explicitly stated that, in order to prevent corruption or the appearance of corruption, a state should not receive any upfront payment from a private lottery manager,” the representatives wrote in the letter. “Since it was issued, this guidance has been expressly followed by the only two states that have entered into private lottery management agreements, Illinois and Indiana.”

The letter further notes that critics are alleging that the $120 million payment New Jersey is requiring “appears to fall short of the test for compliance with the Department’s interpretation of the law. We ask you to provide guidance on the legality of this arrangement in order to avoid costly legal challenges should it be deemed unlawful in the future.”

Bill Quinn, a spokesman for the state Department of Treasury, said officials believe the contract is proper.

“The contract was fully vetted by the New Jersey Attorney General’s Office and its outside legal specialists, and we have every confidence that it meets all legal requirements, including those of the Department of Justice,” Quinn said.

The $120 million, which the state expects to get within 60 days after signing the contract, was termed an “accelerated guarantee payment” in the RFP. Critics have said the Christie administration wants to use the money to help balance the state budget.

"Not only is the Christie Administration's lottery privatization scheme bad for jobs and a bad deal for taxpayers, it is also illegal,” said Seth Hahn, legislative and political director for the Communications Workers of America in New Jersey, which opposes the privatization and has vowed a legal challenge if necessary. “Protecting New Jersey's public resources from corruption should have been Gov. Christie's first priority.”

Treasury officials say the privatization will ensure that the lottery grows and provides additional income to support education and state institutions, which got $950 million from lottery proceeds in the last fiscal year.

Treasury officials announced their intention to award the contract to Northstar, a joint venture of GTECH Corp., Scientific Games International, and a subsidiary of the Ontario Municipal Employees Retirement System, last Friday afternoon. Northstar was the sole bidder. Treasury officials have said the firm could make $1 billion over the 15-year life of the contract and have pledged to generate an additional $1.42 billion for the state during that time period.

In addition to the CWA, Democrats in the Legislature and gas and convenience store owners also oppose the privatization. The store owners say it could hurt their businesses and lead to store closures. About 60 state workers’ jobs would be affected by transferring the sales and marketing functions to Northstar.

The congressmen urged Holder to conduct an “expedited review” because the required 10-day protest period, after which the state plans to award the contract, expires next Thursday.

“It is very troubling that there are still so many questions surrounding this proposal,” said Rep. Donald M. Payne, Jr. (D-Ocean). “We are looking out for the people of New Jersey by asking for a simple review to ensure the state is doing its proper due diligence.”

Rep. Rush Holt (D-Burlington, Middlesex, Monmouth, and Ocean) agreed, calling the privatization plan “troubling on several levels.”

Holder’s office did not return a request for comment.

Assemblyman Patrick J. Diegnan, Jr. (D-Middlesex) sponsored a resolution urging Gov. Chris Christie to seek a legal opinion from the justice department prior to awarding a contract and backed the congressmen’s call for a review.

“It is troubling enough that we are giving away one of our largest sources of revenue, but to think that we could be breaking the law and further saddling the state financially is especially disconcerting,” said Diegnan. “The problems with the Illinois lottery contract continue to bedevil Illinois taxpayers and show the follies of privatization of a well-run state program. A bidding process that results in one bidder does not pass the smell test. There are too many similarities to AshBritt. It is pressing that the Justice Department look into this plan before it is too late.”

Last month, according to published reports, Illinois Lottery officials announced that Northstar Lottery Group LLC, the consortium of GTECH and Scientific Games that manages the state lottery there, owes a $20 million penalty for failing to meet its profit targets for the year that ended June 30. Northstar previously has disputed a penalty.

AshBritt Inc. is the Florida company to which the state of New Jersey awarded a contract without competitive bidding to clean up debris after Superstorm Sandy. The RFP for the lottery contract included a complex set of revenue goals and payments, with incentives for the contractor to increase sales and penalties if sales do not meet targets.

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