$10 Billion Lottery Proposal Stalls in Illinois

Published August 1, 2006

A proposal by Illinois Gov. Rod Blagojevich (D) to increase funding for public education by selling or leasing the state lottery for $10 billion may be headed nowhere.

Blagojevich announced the proposal with much fanfare on May 23, but no supporting legislation has been introduced, political leaders are peppering the governor with questions that have not been answered, and allegations of political payoffs and cronyism have surfaced.

A key inquisitor has been state House Speaker Michael Madigan (D). Though Madigan and Blagojevich are both Democrats, Madigan signaled his skepticism one week after the Blagojevich announcement by releasing a list of questions he said need to be answered for the proposal to move forward. The governor’s office so far has not responded.

“In a word: No. I’m not aware of any response to the questions,” said Madigan press spokesman Steve Brown. “But there is no time limit. We’re doing some of our own research. We’ll have to see what that gets us.”

Brown added, “I don’t think the governor contemplated action on this until November.”

Political Payoff Alleged

The November timetable would delay action on the proposal until after the gubernatorial election, in which Blagojevich is seeking reelection. This has raised allegations that the proposal is an election ploy and political payoff to a state senator, the Rev. James Meeks (D-Chicago). Meeks had been threatening a third-party challenge to Blagojevich in the November election, over the school funding issue.

Meeks leads Salem Baptist Church of Chicago, a largely black congregation of 20,000 members. His candidacy could have taken black voters from Blagojevich, giving a boost to Republican challenger Judy Baar Topinka, the current state treasurer. Meeks dropped his third-party candidacy shortly before Blagojevich announced the lottery proposal.

Challenger Slams Secrets

“This proposal has landed with a thud in both the legislature and among the public,” said Topinka spokesman John McGovern. “A big problem with this proposal is that it’s secretive and lacking in specifics. Speaker Madigan has requested answers to very pointed questions about this plan, because there is so much concern about whether this is a campaign gimmick or a policy that’s been thought through. So far the governor has released nothing.”

Among the requested missing items is documentation for the $10 billion estimate that was developed pro bono by Goldman Sachs Group, Inc. Many lawmakers and independent analysts have said the estimate is inflated. Blagojevich and Goldman Sachs have not allowed persons outside the administration to review it.

Several days after Blagojevich announced the estimate, his administration awarded Goldman Sachs a no-bid contract on a $300 million bond deal.

On June 12, Greg Hinz, a reporter for Crain’s Chicago Business, reported Goldman Sachs is expected to be hired as a financial advisor on the lottery scheme and could earn up to $20 million in fees. Goldman Sachs has declined comment, and administration officials have said an investment firm to help with the lottery plan has not been chosen.

Governor: ‘Fundamental Change’

Blagojevich announced his plan at a Chicago public school, surrounded by local and state elected officials, educators, and others, including Senate President Emil Jones (D-Chicago).

“This education plan is historic, it’s ambitious, and it fundamentally will change the way we educate our kids in Illinois and fundamentally change the way we fund our schools in Illinois,” Blagojevich announced. “It’s a plan that stresses accountability and doesn’t tolerate failure.”

State Sen. Miguel del Valle (D-Chicago), vice chairman of the state Senate Education Committee, told reporters he believes the lottery sale or lease “is probably the largest step” toward school reform he has seen in the General Assembly.

However, Blagojevich provided few details, presenting the plan in a PowerPoint demonstration.

Critics Scoff

The lack of details has not prevented critics from poking holes in what they have heard.

“He must think we’re all a bunch of jamokes. He thinks we’re simpletons,” said state Sen. Chris Lauzen (R-Aurora). “This is the pattern of a guy who borrows to the maximum, then hocks everything. This is what Illinois is doing.”

Since Blagojevich became governor in 2003, the state’s general obligation debt has nearly tripled, from $7.6 billion to $20.3 billion. Lauzen noted the annual $650 million payment would end 18 years from now, and there would be no more lottery money for schools after that. He also noted the funding estimates depend on the state receiving $10 billion for the lottery, which is not guaranteed.

“It’s a short-term fix at best,” state Sen. William Petersen (R-Buffalo Grove) said of the plan. “There’s a four-year infusion of money, then revenue drops off, and so does the governor’s term in office, if he’s reelected. This is something to grab press and is a blatant buy-off of Rev. Meeks. Like many of the governor’s grandiose plans, this will collapse.”

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.