Keno Critics Don't Offer Alternative Solutions



Long on criticism, short on solutions -- that characterize recent coverage and comments on the new lottery game that will help close a $450 million budget shortfall.

For weeks I have read The Sun's unsubstantiated allegations suggesting the state skirted procurement laws in expanding the lottery contract to introduce the keno game. It's also been enlightening to hear criticism of Maryland's reliance on the lottery as a revenue source -- especially from officials who constantly appeal to the state for more money.

A few things to keep in mind:

For 10 years the Control Data Corp. ran Maryland's lottery games. In 1990, the Maryland Lottery Agency, with input from a legislative oversight committee, re-bid the lottery contract to update Maryland's system, recognizing increasing competition from lotteries in other states and the need for more modern games.

An independent consultant and two evaluation panels reviewed competing bids to ensure that our procurement process

remained above reproach. The panel recommended the GTECH Corp., both because of its proven ability to deliver the games and its competitive price, as the best vendor for the job.

It took more than a year to bid and award the lottery contract, but the process guaranteed Maryland the best price and performance. That's important, because the lottery is among the state's largest contracts, and the games are an important source of revenue: some $300 million a year to help pay for education, health, public safety -- all the programs Maryland funds.

Faced with a $450 million shortfall this fiscal year, I offered two solutions. One would eliminate $450 million in "people" programs. The other would cut state programs by $240 million and local governments by $150 million, raise $10 million in fees and use a keno game to generate $50 million. Legislators and the Board of Public Works agreed the fairest solution was the shared cuts, plus the new lottery game that would start in January 1993.

Much has been made of the fact that keno was added as a "modification" to GTECH's original contract, raising again the suggestion of wrongdoing. The truth? When the original lottery contract was awarded, the state asked bidding companies to include options for other games and promotions. Both GTECH and the losing bidder proposed additional games in their bids, but only GTECH offered the electronic game known as "Club Keno" as an option.

The attorney general's office reviewed the lottery agency's reasons for not re-bidding the addition to the original contract and determined the reasons to be legally sufficient. The agency contended that a new company would have to duplicate GTECH's existing equipment and support staff to add a new game, at a higher cost to the state. Re-bidding the contract, taking as much as another year, also would have prevented us from starting the new game in time to balance the budget.

What exactly did the state get with the change in the contract approved recently? The $49 million figure includes $25.5 million for new computer terminals, software and maintenance. The balance, $23.6 million, is the company's share in percentage of sales, the same percentage that was negotiated in the original contract. Additional sales commission would be paid anyway for any game that generates additional revenue for the state.

Some have suggested the state caught the public and General Assembly by surprise in moving ahead with keno. Yet keno was proposed and widely reported in September. Further, the legislature endorsed the game in signing off on the $450 million budget plan including keno. The General Assembly met in special session in November, providing ample opportunity for a formal, or informal, protest of the game. The silence was deafening.

As to criticism of the state's reliance on gambling to balance the budget, I have yet to see the critics' proposal for a better solution. I'm not happy about expanding Maryland's gambling opportunities; in fact, the decision was a difficult one for me and the Board of Public Works to make.

I have seen the alternative, though, and it is far worse. In the past two years, the state has cut spending by $1.6 billion, hurting every area of Maryland. When faced with another $450 million budget shortfall for this fiscal year, the Board of Public Works cut deep into state programs -- for the eighth time in two years -- and cut a proportionate share from local government aid.

Don't forget the furor caused by the last round of budget cuts. Advocates were so upset they sued the state over health and welfare cuts. The General Assembly's bitter debate over local aid cuts left a scar that threatens to pit Maryland's political regions against each other in future months.

It's a funny thing: Not one of the officials critical of keno or the lottery has volunteered to give up an extra cent of state aid to balance the budget. Not one has suggested the state increase taxes to generate more revenue, and not one has identified $50 million worth of programs to cut instead.

In fact, many officials criticizing keno are the first to take state money for roads, schools, police aid, beach replenishment or any of the hundreds of services the state finances.

Unfortunately for the critics, you can't have it both ways.

William Donald Schaefer is governor of Maryland. Barry Rascovar, whose column usually appears here, is on vacation.

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