Then, on Thursday, Gronstal told a group of reporters the idea was probably a non-starter.

“I’ve not seen much interest inside our caucus in proceeding with the sale of the lottery,” Gronstal said. “I’ve always thought that was kind of a long shot. It continues to be a long shot.”

The entire saga over privatizing the lottery started when Civic Skinny, the gossip column in Des Moines alt-weekly Cityview, reported that Gov. Chet Culver met with a group of investors who were interested in leasing the lottery. Critics immediately pounced on the idea, saying it is a sweetheart deal to casino executives and political activists who have contributed heavily to Democratic politicians.

Culver has since backed away from the idea, saying no formal talks ever took place and there was never a plan to sell or lease the lottery. Now, it appears Democratic legislative leaders are souring on the plan just one day after saying it was still possible.

Although some have argued that state lotteries are generally recession-proof, this recent economic downturn seems to prove otherwise.

Testifying today before the state legislature’s joint Oversight Committee, Iowa Lottery official Mary Neubauer told lawmakers that Iowa’s lottery was not immune to the downward trend:

Last year, the lottery pumped $56.5 million into the state’s budget. In the current fiscal year that ends June 30, it is projected to give the state $53.6 million. Earlier this year, the lottery had projected the state budget would direct $61.3 million into the state budget.

[...]

The projections get worse for the 2010 fiscal year that begins July 1. The lottery will allocate an estimated $52.1 million in profits to the state that fiscal year, according to information presented to lawmakers.

“We do not anticipate the economy is going to improve in the near future,” Neubauer said. “If anything, it’s going to get worse.”

Most state lotteries were already experiencing a dropoff in sales months ago.  As Chuck Baumann of the Oregon Lottery told Reuters in November, “It’s been kind of an industry notion that lotteries are recession-proof, but I think what we’re experiencing right now is a little bit harsher than slow economies in the past.”

For that Nov. 28 article, Reuters got data from 27 state lotteries.  Of the 27, 14 reported a slowdown in sales, nine reported “steady” sales, and four reported an increase.  This is particularly troubling, because as tax revenue shrinks, state governments rely more heavily on the lottery to keep important programs afloat.

Des Moines Register Political columnist David Yepsen staked his credibility on the claim that “The fix is in” — that the state’s sale of the lottery was “a done deal” — last Thursday.  That’s because “Powerful people such as Gov. Chet Culver, Iowa House Speaker Pat Murphy and Senate Majority Leader Mike Gronstal are saying nice things about the idea.”  (Or maybe it’s because Civic Skinny said so.)

Never mind the fact that, at least as of last Thursday, there were too many unanswered questions in the capitol to assess whether the idea has legs at all.  Never mind the fact that “saying nice things” entailed speaking noncommittally, in generalities, after being pressed by Des Moines Register reporters on the subject.  Never mind that Jason Clayworth, the paper’s own captiol reporter, said “I don’t believe it has serious consideration this session” in a web video debate with Yepsen on Friday (below).

Even the announcement from the governor’s office Saturday that its proposed budget would not include selling the lottery failed to convince Yepsen to change the subject.  He wrote not one, but two columns about selling the lottery over the weekend.  The Register newsroom also pushed out two breaking news text message alerts to its list of mobile phone subscribers regarding Culver’s announcement that he was not going to sell the lottery, as if it was shocking, front page news.  (And then, in the Sunday Register, it was.)

The Register may see this as a victory for themselves.  They lambasted a proposal to sell the lottery that no elected official was willing to put his or her name behind, and Culver ultimately rejected it.  But not before GOP legislators were able to use Yepsen’s work as a springboard to launch their own media offensive.

This was a manufactured controversy from beginning to end.

(Of course, if the proposal becomes more serious even after Culver’s decision to exclude it from his budget, we’ll be watching it as closely as anyone.  We just prefer to wait for more hard information than our ink-stained colleagues before we unleash a series of critical articles and columns about a particular subject.)

In part, the proposal is meant to give the GOP a foothold in 2010, when they will claim that any possible plan to lease the lottery to private interests was a result of massive campaign contributions from the prospective buyers.  But perhaps Republican leaders should remember a lesson of the 2006 campaign, in which they accused Culver of putting retirees at risk for thinking creatively about how to use IPERS funds.

That year, Culver was running for governor, and he suggested a plan to use IPERS’s venture capital funds, which amount to a small fraction of IPERS’s total holdings, to support businesses in the state of Iowa.

Then-Congressman Jim Nussle, Culver’s opponent, used that relatively inconsequential proposal to foment a storm of confusion among former and current public employees, who are typically a reliable Democratic constituency.  It got so bad, Culver had to post a special letter and factsheet on his campaign’s web site in an attempt to reassure voters that his plan would not jeopardize anybody’s retirement, and he did his best to stop talking about the idea on the campaign trail altogether.

Nussle, of course, wanted to keep talking about it.  He ran a damning 30-second television ad that seemed to work, if only for a short time before bigger issues again became the focus of the campaign.  The ad closed with these words:

Politicians should keep their hands off of your retirement money. On Culver’s plan, newspapers say it best: ‘…pension funds are not the chips to gamble.’

GOP legislators might want to think back to those days and remember how easy it was to stoke the fears of older Iowans at the prospect of IPERS becoming a political football.  Even if the scare tactics rely on factually incorrect arguments, they can work.

And even if this proposal to sell the lottery to IPERS never comes up again after this week, it could go into the Democrats’ files as a good issue for a surprise direct mail attack in the days before Election Day in 2010.

“We’re honored to have the opportunity to support those who have given so much for our country,” Ken Brickman, Iowa Lottery Acting CEO, said in a statement. “We thank our players for recognizing the importance of this cause and helping us provide a stable, ongoing source of revenue for the Iowa Veterans Trust Fund.”

The alliance between the Iowa Lottery and the VTF was spearheaded by Rep. McKinley Bailey, D-Webster City, a U.S. Army veteran who served in Afghanistan and Iraq. He sponsored legislation, House File 2359 earlier this year that authorized the lottery games and appropriated the funds to the VTF.

“Iowa’s veterans have served with dignity, and with excellence, and all veterans have the gratitude of every citizen,” Gov. Chet Culver said in a statement. “I was proud to sign this legislation earlier this year authorizing new lottery games to help support the Veterans Trust Fund. And now, the proceeds from those games will play a vital role in helping veterans and their loved ones around the state.”

Lawmakers created the VTF in 2003 with the intent of giving the state flexibility with regard to Iowa’s returning veterans and their families, in particular when it comes to issues that aren’t covered by federal funding, such as job training, unemployment assistance, travel expenses for wounded veterans related to follow-up medical care, nursing home care, counseling programs and honor guard services.

The trust fund was supposed to eventually contain $50 million in 10 years, but only $5 million has been appropriated to the fund thus far, and Gov. Chet Culver’s 2008 budget did not contain any additional revenue for the fund, thus prompting Bailey to find an alternative source of funding.

The new lottery games are estimated to generate up to $3 million a year for the trust fund at a minimal impact on the general fund. The lottery’s second set of games to benefit veterans are scheduled to begin sales in January.

A new lottery ticket is being sold to pay for the Iowa Veterans Trust Fund

For many Iowa veterans, the war-front follows them home, where they have to battle for benefits already promised to them by the government through the Iowa Veterans Trust Fund (VTF). The annual battle came to an end last week when the Iowa Lottery introduced the first of four games, Stars & Stripes, that will directly benefit the fund.

“We’re very excited about having a sustainable, annual funding source for the Iowa Veterans Trust Fund,” Kent Hartwig, legislative liaison for the Iowa Department of Veterans Affairs, told the Iowa Independent in a telephone interview. “The response from the veterans who have received assistance from this fund has been tremendous, and this will go a long way furthering our ability to help veterans who are in need.”To help bridge monetary gaps in federal benefits, lawmakers created the VTF in 2003 with the intent of giving the state flexibility with regard to Iowa’s returning veterans and their families, in particular issues that aren’t covered by federal funding such as job training, unemployment assistance, travel expenses for wounded veterans related to follow-up medical care, nursing home care, counseling programs and honor guard services.

Moreover, lawmakers intended for the VTF to eventually contain $50 million in 10 years, but only $5 million has been appropriated to the fund thus far, and Gov. Chet Culver’s 2008 budget did not contain any additional revenue for the fund.

To fill the gap left in Culver’s budget, Rep. McKinley Bailey, D-Webster City, a U.S. Army veteran who served in Afghanistan and Iraq, sponsored legislation, House File 2359, earlier this year that authorized the lottery games and appropriated the funds to the VTF. The new lottery games are estimated to generate up to $3 million a year for the trust fund at a minimal impact on the general fund.

“The trust fund was created to assist veterans and their dependents who slip through the cracks of the federal system,” Bailey said on the House floor in March. “As the wars in Afghanistan and Iraq continue, those cracks become more and more apparent. As a state we have an obligation, a sacred obligation, to ensure that our veterans are taken care of when they come home. That means picking up the slack for the federal government when it lets our veterans down.”

Even though Culver did not budget money for the VTF this year, he did sign the bill into law March 11, thus guaranteeing funding by removing appropriations from lawmakers and placing it in the hands of the Iowa Lottery.

“We have developed a good partnership with the Iowa Lottery,” Hartwig said. “This funding stream is a good way of doing it because it is outside the General Assembly. Before the VTF was appropriated on an annual basis, and now the lottery funds will go directly into the trust fund.”

“With the lottery, we are guaranteed to receive some amount of money every year; granted, this will vary depending on sales,” Hartwig said. “But now this is something we can count on annually to help grow the principal balance. Since we can only spend the interest, when the fund stays at $5 million, we are not able to expand our program.”

Hartwig said the VTF has given out over $100,000 since December, the biggest draw assisting unemployed veterans with service-related disabilities, who have seen gaps in their federal funding.

Moreover, Hartwig sees the IDVA’s new relationship with the Iowa Lottery as a plus, because it helps get the organization’s name out, marketing it through the tickets, which include the IDVA’s contact number at the top of every ticket. “For us, the lottery puts a spotlight on our organization. It creates a win-win situation (see below), especially since we don’t quite have the marketing resources as the Iowa Lottery.”

Benefits for veterans outweigh gambling concerns

The government’s growing dependency on using gambling revenues as a source of funding programs such as the VTF have sparked some concerns among those who deal with the negative effects of gambling.

“The new game is in line with the mission of the Iowa Lottery in terms of help and funding that is available,” Mark Vander Linden, head of the Iowa Department of Health’s Gambling Treatment and Prevention program, told the Iowa Independent during a telephone interview. “All states, except Alaska and Hawaii, have some sort of gambling. I think how Iowa chooses to addresses people who get into trouble because of gambling is probably one of the more progressive, especially in terms of using the revenues coming in from gambling to help those who are negatively affected by gambling.”

One-half of one percent of the gross revenues generated from the Iowa Lottery are earmarked for gambling treatment programs, including the 1-800-BETSOFF hotline run through Vander Linden’s office.

“The number of clients that we serve on the help line related to lottery gambling are relatively small,” Vander Linden said. “I don’t anticipate that this new scratch-off ticket is different enough to cause an increase in calls.”

However, Amy Kluver, a gambling treatment counselor at Problem Gambling Services, argues that lottery and scratch tickets may be part of a larger problem. “People think that taking care of the casino is the big issue, but there are definitely people who struggle with scratch tickets and pull tabs on a daily basis,” Kluver told the Iowa Independent in a telephone interview.

“Merging support for veterans with lottery tickets is an unfortunate aspect from our perspective,” Kluver said. “Our clients, who already have gambling problems, don’t need another reason or excuse to go out and buy another scratch ticket. They can certainly find enough reasons or excuses on their own, and this will merely supply them another reason.”

“Thankfully, not everyone has a gambling problem; it is just unfortunate that we have to turn to the lottery, especially from a gambling treatment counselor’s perspective, who sees people fueled by these types of addictions,” Kluver said. “It is unfortunate that veterans are not getting the care and service they deserve and should be getting, without having to depend on the lottery.”

Kluver, however, said that the state of Iowa is lucky that does have a program it can turn to increase funding for veterans they need. “I realize it’s not possible to find a program that makes everyone happy,” Kluver said. “But if people really want to help veterans, then they should donate money directly to them, which would be better than going out to buy a bunch of scratch tickets.”