October 2015 - It looks like New Jersey taxpayers will continue to be the losers following Governor Chris Christie's decision to privatize the New Jersey state lottery two years ago. A recent AP story indicated that revenue shortfall from the lottery is expected to reach $136 million dollars this year.

These results are so poor that Northstar New Jersey, the private company contracted by Governor Christie to manage the lottery, will be penalized ~$14 million and could even be fired for their poor performance. The $14 million penalty is the maximum dollar penalty set by the state contract, so the state's taxpayers will have to eat the rest of the $136 million shortfall.

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There appear to be two primary reasons for the poor performance. One is the declining ticket sales the lottery has experienced during the past few years. Northstar is responsible for the marketing and advertising of the lottery, but the Governor's office still is insisting that Northstar is doing a good job in this area.

More embarrassing for Christie, though, who signed the Northstar deal over the objections of the state legislature, is the second factor contributing to the revenue shortfall: Northstar's expenses for running the lottery system are higher than the expenses incurred when the lottery was run by the state! Under Northstar, the state has received only 30 cents for every $1 in ticket sales. When operated by state employees, the operation was one of the most efficient in the nation, with the state keeping 34 cents on every dollar sold. So much for the Governor's assertion that privatizing the lottery operations would cut costs and create new sales!

And it isn't only in New Jersey that privatizing the state lottery system has proven to be a questionable decision, if not an outright mistake. After hiring an affiliate of Northstar in 2011 to manage its lottery operations, the state of Illinois tried to cancel the deal last year following contract disputes and continued underperformance. In 2012, Indiana also hired an affiliate of Northstar to manage their lottery system. This past June, the state renegotiated their lottery contract and reduced the lottery's future targeted profits for the state.

Opponents of Governor Christie have pointed to the decision to privatize the New Jersey lottery's management as another example of "crony capitalism", where so-called free-market conservatives steer state business to their key political contributors and allies. In this instance, while pursuing the state contract to manage the lottery, Northstar hired the communications firm of Christie campaign strategist Mike DuHaime. In addition, between 2012 and the end of 2014, Northstar paid $460,000 to the law and lobbying firm of former Port Authority chairman David Samson, one of the key players in the Governor's "bridge-gate" scandal that threatens to send many of the Governor's closest associates to jail and appears to have effectively torpedoed the Governor's Presidential aspirations.

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