State officials move forward on lottery plan Administration seeks advice on pricing; Republicans wary

AUGUSTA – As Republican lawmakers pressed for more details Monday, the Baldacci administration was fast-tracking its plan to sell off Maine’s lottery revenue stream in order to help balance the state’s two-year, $5.7 billion budget.

Part of the state’s efforts involve officials looking for outside help in pricing and structuring the lottery deal.

Rebecca Wyke, the governor’s chief finance officer, and Dan A. Gwadosky, executive director of the Maine State Lottery, told members of the Appropriations Committee on Monday that state lottery revenues have exceeded expectations. Revenue forecast experts project lottery sales will generate nearly $50 million in revenues this year and are expected to increase annually at a rate of at least 1 percent.

The healthy forecast for lottery sales further reinforced Gov. John E. Baldacci’s argument for selling off as much as $400 million in lottery revenues over the next 10 years for an advance payment of $250 million. In response to questions by GOP lawmakers on the appropriations panel, Wyke confirmed the lottery proposal was devised in response to last June’s referendum requiring the state to pay 55 percent of the cost of local education.

The governor is phasing in the additional money over four years, in part by raising the state’s share by $250 million in the next two-year budget cycle. Determined to meet the goal without making severe cuts to state services or implementing new broad-based tax increases, the governor saw the lottery plan as the best option, according to Wyke.

“Obviously we feel a commitment to protect Maine’s most vulnerable citizens and make sure that the safety net [in state health and human services] programs is present,” she told the panel Monday. “In just doing the math, it became very obvious that if we were going to make a major investment in education and property tax relief, that that revenue source would have to come from outside, at least at this point in time.”

While the administration’s plan to borrow the $250 million from the Maine State Retirement System in exchange for a payment of up to $40 million a year for the next 10 years was apparently still viable Monday, Wyke made it clear the governor was anxious to seek out other investors.

She shared with members of the appropriations panel a copy of a memo sent out last Friday to prospective financial investors soliciting them to signal their interest in the proposal by this Friday, March 4. Specifically, the state wants the respondents to provide structuring and pricing advice on the lottery borrowing plan, along with underwriting services and placement agreements. A formal request-for-proposals deadline for the financial firms has been set for March 11.

“The governor has waived the state’s bidding procedures and has permitted the commissioner of Administration and Finance to enter into a contract with a financial adviser,” Wyke wrote in her memo. “Notwithstanding the waiver, the commissioner will conduct a summary solicitation process to ensure a competitive price for the services the state seeks.”

Opposition to the lottery sell-off showed no signs of abating Monday after several significant developments last week. Two Democratic state senators announced they would not support the proposal and two legislative policy committees rejected the plan, which Republicans have viewed skeptically since the governor announced it in January.

Although the administration has cited examples of other states borrowing against anticipated lottery revenues for state programs, an Appropriations Committee member, Rep. Darlene J. Curley, R-Scarborough, insisted she was not aware that any of the states had used almost all of their lottery revenue streams to secure the deal.

“The comfort level I’m trying to understand is how sure are we that we’re going to have

that much money coming in from the lottery?” Curley asked.

Rep. Stephen Bowen, R-Rockport, also a member of the appropriations panel, told Wyke that revenue forecasters were predicting a budget deficit of $308 million three years from now and $356 million in four years if state spending and revenue streams remain the same.

“Then we won’t have the lottery to sell and we won’t have the liquor business to sell – I don’t know what else you’re planning on selling,” Bowen said. “You’re going to have to convince the folks on our side that this is leading us to some kind of sustainability.”

Wyke said she and the governor were confident the “revenue picture will recover over time” and that new spending caps passed this year by the Legislature will hold down government spending.

“The strategy is to give ourselves time in order for those two lines to grow together, and this opportunity does that,” she said.