Plan To Award Contract to Shady Private Firm Violates NJ Constitution
"We already know that Christie’s lottery privatization is going to cost jobs, send profits overseas and be a horrible deal for taxpayers. The sad fact is that this scheme is also illegal,” said Seth Hahn, Legislative and Political Director for CWA NJ. “The Christie Administration wants to award an extremely profitable public asset to a politically-connected firm with a history of fraud and abuse. To make matters worse, this inside deal clearly violates the New Jersey State Constitution and betrays the public interest.”
Among other things, the contract violates the original intent and meaning of the New Jersey Constitution, as well as state law - which specifically called for establishing a lottery to be “operated by the state.” In other words, the constitution requires the lottery be operated publicly so private enterprises cannot damage the public’s trust through even the faintest whispers of corruption. Yet, this deal allows a private company to have the lion’s share of operational control over what was always intended to be a state-run lottery.
As part of the deal, the state will receive a one-shot, upfront $120 million payment from Northstar. CWA’s protest letter comes one day after 6 members of New Jersey’s Congressional delegation sent a letter to U.S. Attorney General Eric Holder asking the Department of Justice to review the contract. These House members are worried the contract runs counter to a 2008 DOJ opinion which advised that such payments have a corrupting nature and run contrary to the public interest, and therefore likely run afoul of longstanding Federal law.
The Northstar partnership consists of three groups. One is Italian-owned, one’s Canadian, and the other hails from Georgia. This partnership includes GTECH – which has a checkered history of fraud, bribery and corruption stretching from Texas to Rhode Island to New Jersey. In fact, Lieutenant Governor Kim Guadagno prosecuted GTECH’s national sales director for a kickback scheme in New Jersey in the 1990s when she was in the U.S. Attorney’s Office. In her prosecution, Guadagno argued the firm’s corruption was so rampant that the state needed to throw the book at the GTECH official. Guadagno felt so strongly that she released sealed grand jury testimony to the media, a highly unusual step for which she was reprimanded by the New Jersey District Court.
Last year, Christie conducted a study about how to make New Jersey’s lottery even better. It showed our award-winning system was one of America’s best-run public lotteries - ranking 5th in per capita sales. Growth in online, instant and total sales all far exceeded the national average. In 2010, it had the highest net income margin – making New Jersey our nation’s most efficient lottery. Looking at all this information, Christie made the shocking decision to turn sales and marketing functions over to a foreign private corporation. Even worse, despite a 42% growth in sales in the last decade, Northstar will get a cut of profits – up to 5% - if they increase sales just 9% over the next 15 years.
Northstar New Jersey Lottery Group is nearly identical to the firm running the show in Illinois. Following that takeover’s first year, they admitted being over $100 million short of revenue projections. The firm then entered into a legal process with the State of Illinois claiming taxpayers owed them $230 million. In just the first half-decade of the contract, they now estimate being $250 million short of revenue estimates.
Aside from being illegal, this scheme is simply bad policy. With one in ten New Jerseyans already out-of-work, lottery privatization is a bad deal which would make foreign corporations rich while making things worse for taxpayers and small businesses. The Asian American Retailers Association estimates Christie’s privatization deal could result in 7,000 jobs lost – and that’s their conservative estimate. Also, the Christie administration says Northstar New Jersey Lottery Group could earn $1 billion over the life of the contract - meaning a large chunk of lottery profits will be shipped out-of-state and overseas, instead of staying here at home.
It’s no surprise that the Christie Administration has consistently ducked questions and released precious little information on lottery privatization from the start. For the past seven months, Christie has taken the position that it would be inappropriate to answer questions about the monetization of the state’s fourth-most valuable asset. The Administration has refused to answer questions at hearings, press conferences and at every other turn. Then at 4 p.m. last Friday, April 12th, they announced the contract in a continued bid to keep things quiet and minimize public knowledge about the deal.
Unfortunately for New Jersey residents, the deck has been stacked from the beginning. This privatization scheme will undoubtedly harm New Jersey’s small business owners, taxpayers and fiscal health. Not only is it illegal, but it could also cost our state thousands of jobs and hundreds of millions of dollars.
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