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Will Vermont cash in by selling lottery?

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KAI RYSSDAL: Wall Street's been getting all the attention as the mortgage mess tightens its grip, but you don't have to look too far afield to find other problems. State budgets are sliding into the red as property values tumble and tax revenues dry up.

Governors and legislatures are looking for quick fixes. Some of them have decided to roll the dice -- they're considering selling or leasing their lotteries. The risks are low -- no small thing these days -- and the payout's quick. The governor of Vermont wants his state to be the first to take that bet. From Vermont Public Radio, John Dillon reports.


John Dillon: Johanne Gray is a regular at this convenience store in the capital city of Montpelier. She likes to play the lottery and usually takes a chance on Powerball. This time, her winnings were just $1. Gray says she buys tickets for fun, and for the chance to make millions.

Johanne Gray: Why not? My chances are as good as anybody else's. I'd like to pay off a few bills if I could. I have a grandson I'd like to see go to college -- Powerball would do it!

Like the lottery itself, the privatization proposals being shopped around to state governments promise fast cash. Vermont's Republican Gov. Jim Douglas supports the idea. Right now, Vermont makes $23 million a year from the lottery. Douglas is on record as saying the state could get an additional $50 million up front by leasing the games to a private operator.

Jeff Heyman is with JP Morgan Securities. The investment bank is one several hoping to get a piece of the lottery action as state governments consider privatization. Heyman testified recently in Vermont:

Jeff Heyman: There is extra value in this asset, and it is extractable. Dialogs like this are going on at numerous state capitals around the country.

Heyman says California, New York, Ohio, Florida, Texas, Illinois and Indiana are all looking at selling or leasing their lotteries. States that sell or lease their lottery will give up control of a money-making asset. But in return, depending on the deal, they get an up-front payment and a guaranteed revenue stream.

But the worry is, a hyped-up lottery could get more people hooked on gambling. Philip Cooke is a public policy professor at Duke University. He spells out the dilemma facing lawmakers:

Philip Cooke: My concern has been whether the increased sales in lottery tickets would come through more aggressive marketing, and in terms of using messages and marketing schemes that would have the effect of getting people to spend more money on the lottery than they should be.

Right now, Vermont closes its lottery ads with a cautionary message:

Vermont lottery ad: Put a little play in your day. Profits go to the Vermont Education Fund. Please play responsibly.

Losing control of the lottery could mean those warning messages would disappear. Democrats who control the Legislature say they won't let that happen. Speaker of the House Gaye Symington addressed the issue at a recent news conference.

Gaye Symington: I do not believe Vermonters are comfortable with either increasing the reliance on gambling to fund state government, or selling Vermont to Wall Street.

But the state could be leaving money on the table. Jeff Heyman of JP Morgan said more aggressive sales could net the state a quick 10 percent gain in lottery revenues. Whatever Vermont or any other state decides to do, Heyman says they shouldn't do it just yet.

The capital markets are soft and volatile right now. And problems in the municipal bond market have made investors nervous of anything to do with cities and states. Heyman says by summer things should have settled, and state lotteries will look like a much better bet.

In Montpelier, Vermont, I'm John Dillon for Marketplace.

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