Audit recommends converting Ohio Lottery into quasi-public entity

COLUMBUS — The Ohio Lottery should convert to a quasi-public corporation and the power to hire and fire its executive director should be taken from the governor and given to its commission, a much-anticipated state audit proposed Tuesday.

If the Cleveland-based lottery does not shift toward a more corporate-like entity, its governing commission would be redundant and should be eliminated, the report said.

This is the performance audit that the commission has been bracing for in the wake of State Auditor Mary Taylor's decision to take a closer look given the state's expansion of the traditional lottery into Keno, multi-state lotteries, and potentially racetrack slot machines.

Ms. Taylor's presence on the Republican gubernatorial ticket as John Kasich's running mate has also lent a politically charged atmosphere to a performance audit that goes beyond routine accounting functions.

"Unlike virtually ever other state agency and commission, the purpose of the Ohio Lottery is not to provide a service, but to generate a profit," the audit reads. "This mission, to generate revenues which support education, is achieved through promoting a product in the marketplace and is more similar to a business enterprise than a government agency. However, OLC's status as a cabinet-level state agency hampers its ability to operate most effectively."

Last year, after record sales, the Ohio lottery transferred $728.6 million in profits to the state general fund for spending on K-12 education. That was $26.3 million more than in the prior year and the second-highest profit in the commission's 36-year history.

Ms. Taylor said the audit identifies potential savings of more than $2 million a year.

It also suggests that most policy decisions are made outside the confines of the lottery commission, limiting its functions largely to rule-making authority for the operation of new games. Most recently, the commission proposed new rules for the operation of slot machines at Toledo's Raceway Park and six other horse-racing tracks in anticipation of the state moving in that direction.

Rules that apply to the normal business practices of other state agencies impede the lottery's flexibility to respond to market trends for instant and on-line games and incorporate new social media and other technology to promote itself. The auditor, however, said such a change in governance would not authorize new games not been approved by the Ohio General Assembly.

Connecticut and Iowa are examples of states that recently converted their traditional government-run lotteries into quasi-public corporations.

"If the Ohio Lottery does not convert to a quasi-public corporation, the commission should be eliminated," the audit reads. "The limited role of the commission is duplicative in nature and does not help maximize the efficiency of the lottery or its mission of generating revenue for public education. Instead, it adds a layer of bureaucratic oversight and is an additional expense to the state."

Lottery Executive Director Kathleen B. Burke, who was brought in by Gov. Ted Strickland as Ohio began to move in the direction of racetrack slot machines, noted that a number of efficiencies recommended by the audit had been tackled by the commission. But her letter of response was silent on the idea of incorporating the commission and the changes that would come with such a move.

"We will carefully review your office's findings and recommendations with a view towards taking appropriate responsive measures," she wrote.

The commission has previously expressed concern that the audit seemed to be taking overly long to complete, raising suspicions that it might be used as a political club during the current election battle between Mr. Strickland and Mr. Kasich.

The idea of converting a government-run agency into a corporate-like entity is consistent with the message that has come from Mr. Kasich's campaign. Recently, he proposed eliminating the Department of Development and giving its economic development functions to a non-profit organization headed by business types appointed by the governor.