SUBSCRIBE to Capitol Fax      Advertise Here      Mobile Version     Exclusive Subscriber Content     Updated Posts    Contact
CapitolFax.com
To subscribe to Capitol Fax, click here.
Capital bill roundup

Saturday, May 31, 2008

* Funding

To pay for the construction plan, lawmakers were considering Gov. Rod Blagojevich’s multibillion-dollar proposal to expand gambling and lease of the state lottery.

Included in the mix was the possibility of adding three new casinos, including one in Chicago, one in its suburbs and one in a downstate city.

* Opposition from casinos

The Illinois Casino Gaming Association opposed both the House and Senate bills, saying they add too much gambling to an already-shrinking market.

* House Speaker Madigan ain’t happy, either

Madigan reiterated the reason behind lawmakers’ hesitation: “It’s all about trust. It’s all about trust and whether people are prepared to trust Gov. Blagojevich and trust his record of broken promises.”

* Another Lottery shell game?

The state would lease out its rights to upward of 80 percent of the state lottery proceeds for nearly 65 years in exchange for at least $10 billion upfront, with $3 billion set aside for education and $7 billion for construction projects.

So, how much does the lottery bring in annually?

The answer: $600 million. […]

But whoever ends up with the lottery, will likely make at least three times that much over the course of this deal.

80 percent of $600 million is $480 million. Multiply that by the possible length of the lease (65 years) and you get $31.2 billion.

So the state’s giving up $31.2 billion for $10 billion now.

- Posted by Rich Miller        


35 Comments
  1. - Capital Bill - Saturday, May 31, 08 @ 8:31 am:

    Blagoof dropped in a unrequested $150 hospital construction program last night that sent heads spinning. Admin announced program was supported by the Hospital Assoc.
    Surprise
    So What
    None of those who need to vote for this mess seemed too excited. Insiders say The President blasted Blagoof for the bungle.


  2. - Champaign Mike - Saturday, May 31, 08 @ 8:57 am:

    Lottery lease sounds like a great deal for the buyer. The State, lottery players and the people of Illinois get screwed. Sounds to me like Blago, Emil and GTECH will be laughing all the way to the bank. But, then again, what else is new??


  3. - jj - Saturday, May 31, 08 @ 9:02 am:

    “Capital Bill” is funny - you guys are working overtime trying to kill this thing through the media.

    Must be a sign of weakness…


  4. - Six Degrees of Separation - Saturday, May 31, 08 @ 9:05 am:

    To be fair, the $600 million increments of that $31.2 billion that would be traded for upfront cash probably won’t be worth much in today’s dollars in the year 2070 or thereabouts…assuming state lottery revenues are stagnant for the next 65 years in actual dollars.

    However, if the state could keep the lottery and grow its revenues to keep up or ahead of inflation, the trade doesn’t look as good.


  5. - Six Degrees of Separation - Saturday, May 31, 08 @ 9:07 am:

    the $600 million increments

    …which are actually $480 million increments minus the share retained by the state.


  6. - jj - Saturday, May 31, 08 @ 9:15 am:

    “So the state’s giving up $31.2 billion for $10 billion now.”

    Rich - $10 billion, at 5% interest, over 65 years, is $238 billion.

    Just inflation alone (3% a year), would make that $10 billion worth $68 billion in 2073 dollars.


  7. - Bill - Saturday, May 31, 08 @ 9:24 am:

    In order for the state to grow lottery revenue it would have to expand the distribution system, have more games with smaller payouts, and greatly increase marketing to increase sales. These are things that the state has been unable or unwilling to do but which a private operator could accomplish fairly easily. Sales have been flat for a few years now and, I predict, will continue to be flat or drop unless the above are done. The state should not be in this business in the first place. Add in the cost savings from its somewhat bloated and unefficient operation and the lease is a good deal for the state.


  8. - Champaign Mike - Saturday, May 31, 08 @ 9:50 am:

    jj, I must say, I love your reasoning:

    Rich - $10 billion, at 5% interest, over 65 years, is $238 billion.

    You are so right jj, we all know that money will sit in the bank and earn interest. Gosh, what were we thinking.

    I have to get to the bank before noon. I am going to write a check for $10 billion and let Blago invest it for me.

    jj you have to be kidding.


  9. - Disgusted - Saturday, May 31, 08 @ 9:54 am:

    I wish I could understand why the elected inhabitants of the Statehouse can’t understand that not only do we need money to pay bills, we need to stop wasting money. I never hear or read that anyone of these people have come up with any cost-saving ideas for this state. I guarantee if you asked the rank and file state employees, they could come up with dozens. But no one asks them and if they take it to a supervisor, it either is pooh-poohed or they slap their name on it and take credit. Then it all falls into the dark hole of committees. Selling state assets and borrowing to fulfill commitments is fool-hardy. It’s the payday loan concept in state government. Just stop the unnecessary spending and use some creative and workable ideas to reduce costs. The taxpayers do this at home every day. Surely these so-called leaders, all of whom are supposedly educated people, can do the same and save this state from bankruptcy.


  10. - jj - Saturday, May 31, 08 @ 10:05 am:

    Champaign Mike -

    I was pointing out the foolishness in John Patterson’s math and reasoning.

    He was using 2073 dollars vs. 2008 dollars. That’s just ridiculous to do and shows a complete lack of understanding of finances and money in general.

    You can’t possibly be defending him…


  11. - Six Degrees of Separation - Saturday, May 31, 08 @ 10:42 am:

    Champaign Mike,

    You are correct that the state is not going to “invest” $10 bn. and let it mature over 65 years in a financial instrument. However, capital projects like buildings, if bought, do have a capital value and may appreciate considerably in value over that course of time. Some items, like roads, bridges and transit facilities, have a tendency to deteriorate over time but could provide serviceability throughout the investment period if built stoutly enough, and promote the general economy and welfare of the state.


  12. - Michelle Flaherty - Saturday, May 31, 08 @ 10:45 am:

    It’s not like the state’s using the lottery lease to pay down debt or balance the budget. It’s using it to buy MORE stuff.


  13. - Six Degrees of Separation - Saturday, May 31, 08 @ 10:57 am:

    Michelle-

    Also to be fair, a lot of the capital program is to buy new stuff to replace worn out or obsolete stuff that doesn’t function well anymore.

    Not defending capital projects of questionable value, or questionable methods of financing here.


  14. - Louis G. Atsaves - Saturday, May 31, 08 @ 11:31 am:

    The bottom line is that none of our elected Senators and Representatives will have a clue on what they are ultimately voting on, other than their leadership and budget negotiators.

    What a system.


  15. - Little Egypt - Saturday, May 31, 08 @ 11:35 am:

    How about the “downstate” casino go to Benton and leave IDOT’s Traffic Safety in Springfield. Now that would surely get Gary Forby re-elected.


  16. - wordslinger - Saturday, May 31, 08 @ 11:41 am:

    The lottery is a cash cow. Suckers willingly give you money every day. Why would you give that up for a one-time bump? Rather than leasing, why not just pledge a portion to a Revenue Bond issue for capital projects?


  17. - Gregor - Saturday, May 31, 08 @ 11:44 am:

    Rod and his finance team have been watching too many J.G. Wentworth commercials.


  18. - Arthur Andersen - Saturday, May 31, 08 @ 12:30 pm:

    Don’t pick on Patterson. He’s a journalist, not a financial analyst.

    The way real numbers crunchers crunch a deal like this is to figure out what the value of the stream of payments is worth today compared to the value of the asset. According to AA’s handy financial calculator: 65 annual payments of $480 million at the State’s borrowing rate of 6% reveals 80% of the Lottery is worth: (drum roll)

    ~$7,818,780,000.00~

    Oops.

    On one hand, this back of the envelope calculation assumes no change in revenue. Also, there are numerous qualitative factors that could affect the actual value of the Lottery to a private operator.

    On the other hand, as the Speaker said, it’s all about trust. Is there anyone left who trusts Filan’s fiscal follies?


  19. - zatoichi - Saturday, May 31, 08 @ 12:42 pm:

    The assumption in the gambling and lottery issues is that they will keep growing and bringing in more money from people facing other rising expenses in their life. The potential dollars sound great and easy to talk about. Where are the customer projections of the number of butts in the seats needed to actually generate those dollars? There are enough people to consistently fill 3 additional casinos and drop lots more money? They talking 3 Trump/Wynn style LV mega casinos or more boats at the dock? And that guy with the $5 lottery pop at the store…he’ll still be buying 3 of those in 3 years when the price goes to $10 while gas is $7 a gallon and cigs are $15 a pack, right?. Please. Must be orange koolaid in the glass next to that Excel spreadsheet. Got Blue Moon in mine.


  20. - Professor of Finance - Saturday, May 31, 08 @ 12:49 pm:

    You ALL FAIL!

    Apparently you missed the class, or were sound asleep, during the lecture on PRESENT VALUE.

    Whomever would be submitting a bid would be paying in 2008 dollars, not in 2073 dollars. So the investor would value the stream of future receipts in those (2008) dollars.

    Using the numbers cited, an 80% interest in a $600M per year stream of future earnings for 65 years at 5% interest yields a Present Value of $9.197 billion (rounded). That is what an investor would be willing to pay in 2008 dollars.

    The discount rate (5% in this example) would typically take into account alternate investment opportunities, risk and inflation, among other factors. As such, one could obviously argue for a higher discount rate. So let’s assume a 9% rate, rather than 5%. At a 9% discount rate, a rational investor would be willing to pay up to about $5,314 billion (again rounded). So if Blago can net $10 billion, that’s a great deal for the State.

    Homework Question for bonus points (since you all failed the first exam): What is the discount rate that would give you a $10 billion net present value?


  21. - Professor of Finance - Saturday, May 31, 08 @ 12:53 pm:

    Amendment;

    Just saw Arthur Andersen’s post. At least someone was awake during that class. A+ to AA!


  22. - Arthur Andersen - Saturday, May 31, 08 @ 2:00 pm:

    Professor: 4.53%.


  23. - jj - Saturday, May 31, 08 @ 2:15 pm:

    Lottery just passed 43-8-3.

    That landslide just made that ledge Madigan is standing on even smaller…


  24. - Bill - Saturday, May 31, 08 @ 2:56 pm:

    They must have read AA’s and the Professor’s comments.


  25. - plutocrat03 - Saturday, May 31, 08 @ 3:26 pm:

    My question is far simpler than future time value of money.

    What revenue will plug the $480 million ANNUAL hole when we divert 80% of the lottery revenue?


  26. - Rich Miller - Saturday, May 31, 08 @ 3:31 pm:

    plutocrat03, the state will retain partial ownership, and put some of the sales proceeds in a trust fund.


  27. - SIUPROF - Saturday, May 31, 08 @ 3:33 pm:

    The way to make this work is to invest enough of the 10 Billion to produce the 480 million per year they are giving up-Then no harm done.


  28. - some former legislative intern - Saturday, May 31, 08 @ 3:34 pm:

    Pluto hits it right on the head…what will replace the lottery money that is currenty used in the annual budget?


  29. - Rich Miller - Saturday, May 31, 08 @ 3:35 pm:

    I just did.


  30. - Just Me - Saturday, May 31, 08 @ 7:10 pm:

    “The way to make this work is to invest enough of the 10 Billion to produce the 480 million per year they are giving up-Then no harm done.

    Can’t be done. If you could make $480 million per year for investing $10 billion in the stock and bond market, for doing essentially nothing, why would you pay Illinois $10 billion for the chance to get the same stream from the lottery, where you will actually have to run the lottery, possibly with the interference of the State? If you wouldn’t do that, how could the state get $480 million per year from investing only PART of the $10 billion?

    The only way this can work is the way Bill described it — the new lottery owners would have to expand games and marketing. He claims the State can’t do that, which may be true, but it begs the question of whether some of the expansion would be in areas we don’t want to go. Which raises two questions — why should we let them expand into areas we don’t want to go ourselves, and why should they pay us $10 billion when there is a possibility that the state won’t let them expand the way they would want to?


  31. - A real financial analyst - Saturday, May 31, 08 @ 8:06 pm:

    SIUPROF–But then the money invested can’t be used to service the bonds for the capital program, or for paygo capital. You have to invest about $8B at current rates to generate the $480M annually, and as a previous post said, at a 6% discount rate the deal is only worth about $7.8B. Why bother?

    Rich–You can’t turn 20% into 100% that easily, the $480M is lost to the GRF. If you put part of the sales proceeds into a fund and use the interest to make up the rest, you won’t have much left for capital.

    The whole thing is a bet that the State is not competent to get full value from the Lottery and someone else can do a lot better. Has anyone seen the basis for the $10B estimate–not just the level of Lottery winnings a private operator might achieve, but that those expectations are reasonable (like, some comparables?)

    And we’re gonna issue 30-year debt on this basis?

    This whole thing just seems like rectal extraction.


  32. - A real financial analyst - Saturday, May 31, 08 @ 8:08 pm:

    And don’t even get me started on the goofy math in the gaming bill.


  33. - NoGiftsPlease - Saturday, May 31, 08 @ 8:43 pm:

    The problem with the “trust fund” idea is that it is too similar to the “pension fund” idea. The state promises to deposit funds for a specific purpose but when the time comes for that to happen, many sleights of hand can and will take place and it the funds will be diverted. You can’t fool us too many times.


  34. - Arthur Andersen - Saturday, May 31, 08 @ 8:51 pm:

    Thank you very much, real financial analyst.

    Fortunately, this eleven-figure shell game has met its just fate.


  35. - plutocrat03 - Saturday, May 31, 08 @ 9:33 pm:

    I’m glad others pointed out the circular reasoning about using the 10B to generate what is lost.

    Another aspect to consider is that we are living in an age of budget sweeps and redirections. How long would it be before some governor or legislator would want to tap into that reserve fund?


Sorry, comments for this post are now closed.


* Question of the day
* Reproductive Health Care for all in Illinois
* *** UPDATED x4 *** Service tax, "opportunity tax" introduced
* The Senate's higher ed funding numbers are not all they appear to be
* *** UPDATED x1 *** "Subject matter only" in Senate committees today
* Today's number: Up to 95,000 lost jobs
* Rauner announces changes to pharmacy oversight
* This didn't have to happen
* *** LIVE *** Session Coverage
* Senate leaders promise their budget will balance in FY 18
* New House rules proposed by Leader Durkin
* SUBSCRIBERS ONLY - Today's edition of Capitol Fax (use all CAPS in password)
* It's just a (gun) bill
* Yesterday's blog posts

Support CapitolFax.com
Visit our advertisers...

...............

...............

...............

...............
<


Search This Blog...

Search the 98th General Assembly By Bill Number
(example: HB0001)

Search the 98th General Assembly By Keyword

  
* Latest Vertu Constellation ‘luxury performance’ smartphone actually has pretty solid specs
* A new Huawei Watch with LTE connectivity could launch in February
* Best recipe apps
* Apple will finally let developers respond to App Store reviews
* Developers Able to Respond to Customer Reviews in iOS 10.3 and macOS Sierra 10.12.4
* Huawei Watch 2 release is finally drawing near, Android Wear 2.0 and cellular support in tow
* Airbnb is in talks to acquire social payments startup Tilt

* HOFer Fisk surely White Sox best FA signing
* Renteria: Sox instilling team-first mentality
* Kopech, Soto among 19 invited to Sox camp
* Moncada No. 1 on MLB Pipeline's Top 10 2B Prospects list
* MLB mourns death of Royals pitcher Ventura
* Report: Yordano Ventura killed in car accident
* MLB mourns death of Royals pitcher Ventura

...............


Main Menu
Home
Illinois
YouTube
Pundit rankings
Obama
Subscriber Content
Durbin
Burris
Blagojevich Trial
Advertising
Updated Posts
Polls

Archives
January 2017
December 2016
November 2016
October 2016
September 2016
August 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010
August 2010
July 2010
June 2010
May 2010
April 2010
March 2010
February 2010
January 2010
December 2009
November 2009
October 2009
September 2009
August 2009
July 2009
June 2009
May 2009
April 2009
March 2009
February 2009
January 2009
December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006
December 2005
April 2005
March 2005
February 2005
January 2005
December 2004
November 2004
October 2004

Blog*Spot Archives
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005

Syndication

RSS Feed 2.0
Comments RSS 2.0
WordPress

Loading


* New Illinois proposal aims to protect pharmacy .....
* Excerpts from recent editorials in newspapers i.....
* Excerpts from recent editorials in newspapers i.....
* Senate 'grand bargain' hits speed bump - Chicag.....
* New Illinois proposal aims to protect pharmacy .....
* New Illinois proposal aims to protect pharmacy .....
* Governor Bruce Rauner Proposes Changes to Bette.....
* New Illinois proposal aims to protect pharmacy .....
* New Illinois proposal aims to protect pharmacy .....


* Excerpts from recent editorials in newspapers in Illinois
* The Latest: Officers prepare for possible pipeline rallies
* Chicago Blues Festival moving to Millennium Park this year
* New Illinois proposal aims to protect pharmacy customers
* Chicago Trump signs that were taken down have gone missing
* Chicago man gets 9 months in celebrity nude photo hack
* Trump acts to advance Keystone XL, Dakota Access pipelines
* A timeline of the Keystone XL oil pipeline
* A timeline of the Keystone XL oil pipeline
* Some Illinois Senate members not ready to vote on budget

* Vote on Senate grand bargain may not happen this week
* Cullerton, Radogno say budget will be balanced
* Illinois concealed carry rules survive lawsuits by gun owners
* Chicago State University's spending raises questions
* Rauner administration asks Congress to avoid hasty 'Obamacare' action
* Illinois treasurer asks Trump to assure banks on medical marijuana
* Justices reject appeal over Illinois concealed-carry rules
* Illinois treasurer seeks payout of unclaimed life insurance
* Illinois Senate to try again on pension reform
* Illinois Senate 'bargain' includes hike in minimum wage

* The demise of the department store experience
* GCM Grosvenor takes stake in startup ​
* Are you on a path to promotion?
* Here's how to make sure participants make it to clinical trials: pick them up


* Man dies in custody at Kane County Adult Correctional Center
* Tab for Burge-era torture up $4M and still rising
* 2 ‘Empire’ actors join lineup of Lyric’s ‘Chicago Voices concert
* White Sox announce spring broadcast schedule
* American Blues Theater announces plans for 2017-18 season
* Giant anteater pup born at Brookfield Zoo
* Steinberg: Donald Trump, ‘pray for the grace of accuracy’
* Senate ‘grand bargain’ hits speed bump
* Two charged with Lisle home invasion
* Erin Andrews had cervical cancer surgery during NFL season


* Shedd Aquarium to close to public for 2 days
* Bartlett police investigating armed, barricaded suspect
* Erin Andrews had cervical cancer surgery during NFL season
* New Trier grad lands job at The Score
* Oscar nominations: 12 biggest snubs and surprises
* Oscars go gaga for 'La La Land' with record-tying 14 nods
* Man who died in Naperville car crash identified
* Trump admin orders EPA contract freeze, media blackout
* Wheaton police: Ex-loan processor charged with scores of financial crimes
* Proposed hog confinement killed after rural neighbors speak out


The widget AQL4JYGHIY powered by Feed Informer does not exist.


* Vote on Senate grand bargain may not happen this week
* Cullerton, Radogno say budget will be balanced
* Illinois concealed carry rules survive lawsuits by gun owners
* Their View: Adam Kinzinger bill a good step toward helping survivors of human trafficking
* Kathleen Parker: Donald Trump is our president. Let us pray
* Chicago State University's spending raises questions
* Rauner administration asks Congress to avoid hasty 'Obamacare' action
* Illinois treasurer asks Trump to assure banks on medical marijuana
* Justices reject appeal over Illinois concealed-carry rules
* State Rep. Steve Andersson: Return power of Illinois House to all 118 members


* Marion approves trial with device that gives preference to first responders at traffic lights
* Video gambling leads to growth in revenue
* 2-month search nets suspected shooter
* PODCAST: Central Illinois Business 1-21-17
* Danville men nabbed in Texas drug bust
* 01-24-17 On The Money
* PODCAST: On The Money 1-24-17
* 01-24-17 Penny for Your Thoughts
* Ag community watching Trump's ag, trade policies
* Noon update: Showers, gaga for 'La La,' forgetful burglar and 10-year-old driver


* Comerica Bank appointed to run Prince's estate
* Chicago Cubs to sign lefty pitcher Brett Anderson
* Miami University student from Gurnee dies in Ohio
* Bartlett woman shot before escaping barricade situation
* Scorsese shunned, Gibson embraced as diverse Oscar noms announced

* House lawmakers overcome hurdle on key tra...
* Rodney Davis talks funding with Bloomingto...
* The agency that fought Illiana gets a new ...
* Rep. Dold takes educational cruise down Ch...
* Lawmakers decry high turnover rate of VA h...
* CBD Oil, and politics
* Simon considering state Senate bid
* Killer Congressman Tom MacArthur trying to...
* Shutdown? State may not notice
* Rep. Bob Dold

* Stepping away from ideology to find soluti......
* Sen. Dick Durbin Comments on President Tru......

* Defense attorney questions witness' motive......
* Defense attorney questions witness' motive......

* Housing Opportunity Working Group to feature global fair housing advocate
* Frustrated by ‘toxic’ environment in Springfield, Unes proud to work with REALTORS®
* Can you guess the top 10 categories of 2016 Legal Hotline questions?
* Video: State of Illinois Housing Market Outlook 2016-17
* Former IL GOP Senate candidate visits D.C. for Trump Inauguration
* Cook County chocolate milk will cost $2.56 a gallon more with proposed soda pop tax
* Di Leo: The Job Creation Machine of the Free World
* Disunion: The Final Q & A
* What Do You Know? A Civil War Pop Quiz.
* Did the American Civil War Ever End?


* Rauner Proposes Changes to Address Potentially Dangerous Drug Interactions
* Honoring Illinois' Fallen - United States and Illinois flags at half-staff immediately until Sunset, Wednesday, January 25, 2017.
* It’s Not Too Late To Get A Flu Shot - Influenza cases increasing in Illinois
* New Authority Allows DCFS to Strengthen and Preserve Families - Federal waiver grants DCFS flexibility to better care for fostered youth
* Illinois Film Industry Generates $499 Million in 2016 - Chicago named #5 Best Place to Live and Work as a Moviemaker




      Hosted by MCS SUBSCRIBE to Capitol Fax Advertise Here Mobile Version Contact Rich Miller