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N.J. lottery chief defends privatization

TRENTON - The Christie administration on Tuesday defended its decision to privatize parts of New Jersey's lottery system, even as officials said revenue collected for the fiscal year that ended June 30 fell short of contractual targets.

TRENTON - The Christie administration on Tuesday defended its decision to privatize parts of New Jersey's lottery system, even as officials said revenue collected for the fiscal year that ended June 30 fell short of contractual targets.

Some Democratic lawmakers, who have been skeptical of the 15-year privatization deal since Gov. Christie announced it in 2013, questioned whether the state was getting enough money for what it was paying the outside lottery operator.

The lottery generated a record $3 billion in sales in fiscal year 2015, Carole Hedinger, executive director of the lottery, told the Senate Legislative Oversight Committee.

Of that, $960 million was returned to the state, short of the $1.05 billion target set in the state's contract with a consortium known as Northstar New Jersey Lottery Group.

State law requires at least 30 percent of lottery revenues go toward schools, programs for the disabled, and other public institutions. The lottery is among the five top sources of revenue for the state.

Northstar took over the sales and marketing divisions of the lottery in October 2013. It was the only group that submitted a bid for the contract. The state continues to oversee and manage lottery operations.

The fiscal 2015 budget Christie signed included $1.04 billion in anticipated lottery revenues, though he later revised that estimate to $930 million.

The revenue brought in last fiscal year was about even with fiscal 2014's $965 million.

"I don't mean to suggest for a moment that either the lottery or its partner, Northstar, believe flat revenues are where we want to be," Hedinger told lawmakers. "But achieving flat revenues, in the face of incredibly challenging national trends that no one foresaw when our agreement with Northstar was executed, is an accomplishment nonetheless."

Those trends included a decline in consumers playing big multistate jackpot games such as Mega Millions and Powerball, she said.

Northstar's expertise and staffing helped protect against losses elsewhere, Hedinger said, in part by expanding and providing better service to retailers such as Wawa and Rite Aid.

The lottery has experienced record growth in instant ticket sales, which were up 10 percent through October over the same period last year, she said. In-state daily games are up 9 percent over the same period, Hedinger said.

Russell Knapp, general manager for Northstar, told lawmakers that his group's "actions in the face of the unprecedented sales declines of the national games . . . ultimately minimized the impact on the State of New Jersey."

The state budgeted $1 billion in lottery revenues for fiscal 2016, and Knapp said he was "confident we are on the right track."

Even with sales reaching record highs, lawmakers were frustrated that revenues returned to the state did not meet expectations. The $960 million included about $13 million in penalties assessed on Northstar for failing to meet its target, Hedinger said.

New Jersey reimburses Northstar $19 million annually for administrative costs, Knapp said, plus $24 million for its advertising and marketing budget.

Labor groups accused the state of outsourcing lottery work to politically connected firms for no good reason.

"This process is everything that people hate about politics in New Jersey," Seth Hahn, legislative and political director for the state chapter of the Communications Workers of America, told lawmakers. "By any measure, New Jersey had one of the most efficiently run lotteries in the country."

Northstar is a venture of Rhode Island-based GTECH Corp. and Scientific Games, two suppliers of lottery systems and services, and an Ontario pension fund.

Between 2011 and 2014, Scientific Games paid Public Strategies Impact L.L.C. more than $100,000 to lobby on its behalf. GTECH paid Wolff & Samson Public Affairs more than a half-million dollars over that same time on lobbying, according to records filed with state regulators.

Wolff & Samson was founded by David Samson, a former state attorney general, chairman of the Port Authority of New York and New Jersey, and adviser to Christie.

GTECH has donated tens of thousands of dollars to the state Democratic and Republican Parties.

Illinois, which contracted with Northstar in 2010, fired the group in September, citing repeated revenue shortfalls. New Jersey State Sen. Bob Gordon, chairman of the oversight committee, asked whether New Jersey considered those problems before signing a contract with Northstar.

Hedinger, of the Lottery Commission, said New Jersey reviewed the Illinois contract to improve its own request for proposals.

Northstar's Knapp said, "I don't have insight into the Illinois operation."

856-779-3846 @AndrewSeidman