Eleven months ago, just as the state budget impasse was about to take hold, the Illinois Lottery violated state finance law by prepaying $20 million to take part in future multi-state lottery games, according to an Auditor General’s report.
Lottery officials made the prepayment because they were worried that a budget stalemate could prevent the state from participating in the Multi-State Lottery Association’s future Powerball and Mega Millions games, according to the audit.
The state’s Lottery Department disputes the audit’s findings and says no laws were broken.
The audit found that the Illinois Lottery made two $10 million payments on June 30, 2015 — the day before the budget fiasco began that has caused many state and not-for-profit agencies to lay off workers and deny services to thousands of families. Specifically, the payments failed to comply with a state finance law which says that appropriated money can be spent only in the year for which it was appropriated, according to the audit.
The audit found that the Lottery “inappropriately prepaid amounts from their fiscal year 2015 appropriation to the Multi-State Lottery Association to fund fiscal year 2016 Multi-State Lottery
Association payment obligations.”
“Failure to pay expenditures from the proper fiscal year’s appropriation violates the State Finance Act and diminishes the oversight and authority of the budgeting and appropriation process set forth by the legislature,” the auditor wrote.
“In discussing these conditions, Lottery management indicated the budget impasse at June 30 and certain unforeseen subsequent events resulted in the issues identified,” according to the audit. The Illinois Lottery prepaid prize money “to ensure the Department could continue to participate in the multi-state Lottery games,” the audit states.
Nellie Viner, the lottery agency’s attorney, disputed the auditor’s findings in an email to the News-Democrat on Friday.
“(T)hese June 2015 transfers were in compliance with the terms of our (multi-state clearinghouse) contract and fully in compliance with the provisions of the State Finance Act,” she wrote, adding that “any report” that the transfers “were ‘illegal’ would be both factually and legally wrong.”
State Rep. Jack Franks, D-Marengo, who is a vocal critic of the Lottery Department, said the audit’s finding are “a big problem” related to poor supervision of the Lottery.
“We need someone who can mind the store,” Franks said. “First of all, the lottery is being terribly run. It should be generating almost a billion dollars more than what it is. Which is a big, big problem.”
We need someone who can mind the store. First of all, the lottery is being terribly run. It should be generating almost a billion dollars more than what it is. Which is a big, big problem.
State Rep. Jack Franks
The need to improve the Illinois Lottery’s performance is long overdue in view of the deep cuts in services many schools and social service agenices are enduring, according to Franks.
Since Illinois has gone without a budget, the state’s bills have been piling up — to the tune of $7.1 billion, as of Friday — affecting the incomes and services of thousands of public workers and the people they serve.
The Illinois Lottery channels the bulk of its revenue to education funding.
If the lottery were run correctly “and generating the revenue other states are able to generate on a per capita basis, it would alleviate a lot of our ... school funding issues because we’d be able to use those funds for those measures,” Franks said.
The audit states that the $20 million was paid to the Multi-State Lottery Association, a collection of 37 state lotteries that operates the Powerball game, and, in a different section, the Virginia State Lottery, a collection of 10 state lotteries, including Illinois, that operates the Mega Millions game. The two groups license the games to each other.
The audit noted that “the (Illinois Lottery) agrees (with the Auditor General’s findings) and will continue to review procedures to ensure it is in compliance with the Lottery Law.”
The auditor’s report is the latest reminder of the troubled history of the Illinois Lottery, which is in the middle of tug-of-war between Gov. Bruce Rauner and Chicago-based Northstar Lottery Group, which manages the Illinois Lottery, over its future.
The Illinois State Lottery garnered unwanted national headlines last July 1, when it suspended payouts on jackpots of $25,000 or more because of the state budget impasse. In October, the moratorium on jackpot payouts was extended to winnings above $600. After an outcry, and the filing of a class-action lawsuit for nearly $300 million by winners impatient for their cash, Rauner and the legislature passed a law in December that allowed the lottery to resume jackpot payouts.
What’s more, for years the Illinois Lottery and Northstar have been criticized for disappointing financial performances. In 2013, Lottery officials even said Northstar owed the state a $20 million penalty for not hitting promised revenue targets.
Rauner’s administration is seeking to replace Northstar with a new manager on the grounds the Chicago-based company has failed to meet promised revenue targets.
In 2010, under then-Gov. Pat Quinn, the state signed a deal with Northstar to take over the Illinois lottery. Northstar had pledged to sell $851 million in tickets in 2012, but instead only sold $757 million, resulting in the $20 million penalty, according to news accounts.
Meanwhile, state lawmakers are working to pass a law to make Internet lottery ticket sales permanent. The lottery wants to guarantee online sales as a way to entice other bidders for the lottery management contract. The law allowing online sales had expired in March, though Illinois residents can still buy tickets online.