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Thursday, Aug. 7, 2003 02:32 pm

FIRED

When the Illinois State Lottery was split from the Department of Revenue nearly 20 years ago, officials said the new agency had to be run more like a business. So why is Revenue now reclaiming Lotto?

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Reggie is a Democrat. He was working at the Illinois State Lottery when Governor Jim Thompson took it away from the Department of Revenue in 1986. He says it's always been a pleasant place to work, but especially for the politically connected. The 29-year-old enterprise has always provided cushy jobs for folks like Joan Fawell, wife of convicted George Ryan aide Scott Fawell. Joan Fawell was earning $83,904 a year at Lotto when Rod Blagojevich beat Jim Ryan last November.

Joan Fawell was one of the Republican state employees who quickly resigned after November's election, only to land a supposedly safe appointment from George Ryan. She lost her new job anyway when Blagojevich took office. Others at the Lottery must have sensed changes coming too. Nearly one out of every six employees--44 out of 274--took early retirement, a slightly higher turnover rate than at most state agencies.

Blagojevich became governor pledging to end "business as usual," and that promise gave Reggie hope--for years he had lived as a closet Democrat in a "Republican enclave." When he got an office e-mail making fun of Bill and Hillary Clinton, he had to laugh along with his office mates. He couldn't complain when agency outings came with expensive ticket charges, looking more than a little like a GOP fund-raiser.

No one wanted to intimidate him, Reggie says. "It was a status-quo attitude from the top, an assumption that everybody around was Republican," he says. When primary season rolled around, he sometimes voted Republican, just to play it safe.

But Reggie's attitude started to change last year, even before Blagojevich began beating up on Jim Ryan in the polls. With George Ryan plagued by scandal, Reggie could smell victory for the Democrats. Early on in the campaign he boldly backed Blagojevich, and he didn't care who knew about it.

"The problem is," he says, "sometimes you get what you wish for."

Reggie's optimism started to fizzle a few months after Blagojevich took office. In late March Blagojevich said he was reversing Thompson's decision and moving the Illinois State Lottery back into the Department of Revenue, which would also take over the Illinois Racing Board, the Liquor Control Commission, and several other financial programs from other agencies. Some people suspect that an enlarged Revenue--now run by Brian Hamer, the former deputy director of the Chicago Department of Revenue--will become one more way for big-city Democrats to grab power in Springfield.

The only reason Blagojevich gave for the move in his April 9 budget address was the $2.1 million (about .04 percent of the budget deficit) he claimed it would save taxpayers. Ironically, Thompson used similar language nearly 20 years ago when he claimed splitting Lottery from Revenue would "streamline" its operations.

More than 1,000 state workers lost their jobs during George Ryan's last year in office due to Illinois' $5 billion budget deficit, and many worried that this was just the tip of the iceberg. A few weeks ago, more than 50 layoffs happened at Revenue, and additional job cuts have been announced at the Secretary of State, the State Board of Education, the Department of Corrections, the Attorney General's Office, Veterans Affairs, Nuclear Safety, and other agencies, boards, and commissions. While some who lost their jobs are being offered a chance to apply for new positions, not everyone will get one. It's not an easy time to be a state worker.

A couple of weeks ago 14 people were laid off at Lottery. Reggie was spared; he felt safe enough to provide information for this story as long as we agreed not to use his real name--unlike many others, who fear more job cuts are on the way.

When Reggie and others asked their union--the American Federation of State, County, and Municipal Employees (AFSCME)--about future layoffs, they received a written response: "Layoffs are not something the administration wants to do, but some layoffs are possible." There hasn't been much contact between AFSCME and its members, fueling speculation that the union has cut its own deal with the new governor. AFSCME failed to respond to interview requests for this story.

There are many reasons why state workers feel left in the dark. Reggie and many others at the Lottery didn't even know about the merger until after the budget speech. Even Lottery's director at the time, Lori Montana, wasn't aware of Blagojevich's decision until after the executive order was made in late March, says Kurt Freedlund, a Lottery lawyer who was the interim director after Montana took early retirement in April and before Blagojevich's appointee Carolyn Adams took over in June.

"Why mess with one of the state's money makers?" Reggie thought to himself when he heard the news. "It makes no sense."

It wasn't the first time that's been said about the workings of Illinois government.

•••••

Illinois' lottery dates back to 1974. When Thompson made it a separate agency, he shut up some critics of state-subsidized gambling by mandating that Lottery profits fund public schools. But while new money came to the schools, it replaced old sources of revenue. "The end result was basically a wash for school funding," according to John Patterson, government editor for the Daily Herald newspaper. In 2002, Lottery sold $1.59 billion worth of tickets, earning about $350 million more than Texas Instruments did during roughly the same time period.

Illinois schools got $555 million of the pot; winners got $868 million. The rest--about $167 million--paid for retail commissions and operating expenses. Lottery profits usually make up about 3 percent of the state's education budget, counting federal funds. The agency says it has contributed $11 billion to the state since 1974. Across the country, schools are the most popular recipient of lottery money, which, in other states, also fund roads, parks, mass transit, police and fire pensions, prisons, sports stadiums, and programs for compulsive gamblers.

But the trend among state lotteries goes against what's happening in Illinois, according to Rebecca Paul, who was the first head of Illinois' new lottery department back in the Thompson days. Paul now directs Georgia's lottery, where she's been for ten years. Before Georgia, she ran Florida's lottery.

"The trend is that all of the new state lotteries, especially in the past five or six years, are structured like Georgia's, which is set up like a corporation and answers to a board of directors," Paul says. "The only thing is that it still follows open records and meeting laws."

No matter where it fits in state government, Paul says, a lottery has to operate like a business (Illinois Lottery's Web page is the only state agency with a .com ending). It not only sells a product, she says, but has to compete against other, non-lottery products.

"It must see Coca-Cola, Frito Lay, and Mars Candy as competitors because they're all competing for your dollar whenever you walk into a convenience store," she says.

Paul says there's nothing inherently wrong with a state lottery operating under a revenue department, "as long as Revenue understands that marketing a consumer product is different than collecting taxes. Tax collectors and sales reps don't have the same skills."

Blagojevich seems to understand this. He's picked Carolyn Adams to head Lottery. The 41-year-old Adams has worked for media conglomerate Clear Channel Communications, representing large advertising accounts, including the Omnicom Group, an ad agency used by the Illinois Lottery. She says that connection had nothing to do with her landing the Lottery's top job. "I approached the administration. I applied, filled out the paperwork, and went through the necessary interviews," she says.

"It's certainly an agency that I felt would give me the challenge I was looking for," says Adams, speaking from her office on the seventh floor of the Thompson Center in Chicago, where Lottery officials already share offices with the Department of Revenue. "I've been with Clear Channel for eight years and have a sales and marketing background. I wanted the job because of the sales. It's a sales-driven agency."

That's appears to be the way Revenue is looking at its new division too. While the two entities are both revenue producers, the similarities end there, Revenue officials say.

"Lottery is to remain separate" from tax collecting, says David Hunt, Revenue's chief financial officer. "The sales and marketing and all its unique functions will remain Lottery's responsibility."

"That's the very issue," says Revenue's spokesperson Klemens. "How do you maintain lottery receipts? As you bring these agencies together you don't want to upset the apple cart."

•••••

No one is quite sure how the Illinois State Lottery is going to merge into Revenue. According to Revenue and Lottery officials there is no schedule or time frame. Hunt says the move will take place "over the course of a whole year." AFSCME had told its members six months.

What's being consolidated are the agencies' support systems--their payroll divisions, security staffs, personnel departments, and computer support. Most of Lottery's workforce, which is now down to about 230, will move from its headquarters on Second and Madison to Revenue's Willard Ice Building on Jefferson.

"Just the physical logistics is a nightmare, really," says Lottery's Freedlund.

Many of the finer details have yet to be worked out. For instance, there's no room at Willard Ice for Lottery's 32,000-square-foot warehouse, which is currently located in Lottery's Madison Street building. Lottery employees are used to free parking, which vanishes when they move to Revenue, which is located in a much denser area. Revenue and Lottery both rely on mainframe computers, which are programmed differently and will most likely have to operate side-by-side.

Perhaps the most daunting task is finding a new home for Lottery's back-up waging system that tracks Lottery sales, numbers, and games statewide. Currently, G Tech, a Rhode Island-based firm, runs the system at a discreet location in Springfield. A back-up system runs at the current Lottery building. It's not the kind of thing you unplug, move across the street, and plug back in.

"Our waging system is our whole central nervous system," says Freedlund. "If it goes down, it adds up to millions of dollars in losses a day. G Tech needs to rebuild in on a sub-basement floor with flood alarms and fire extinguishers. Security for it is 24/7 and very tight. This system needs a room that's climate and dust controlled."

In other words, it's going to be an expensive move. There are no cost estimates yet for it, says Hunt. But he added that the new budget already has the $2 million in savings built in.

It's one thing to move a bunch of desks and computers from one building to another. It's another to mix two separate agencies, each with its own culture. Lottery employees are worried they'll lose an environment they consider rare in state government.

"There are two state agencies that are dreaded among all others to work at: Public Aid and Revenue," says Reggie. "A lot of people are dreading the move because they were here when the agencies were together and were glad to get out. People would say, 'Thank God I don't have to be at Revenue'--the Big Bad Revenue Boogey Monster. "

Lottery isn't immune from criticism. For instance, newspapers, including this one, have published stories raising concerns that the department markets its products to the poor. It's also had its fair share of scandal, such as when its chief accountant Michael Kamnick pleaded guilty to stealing $44,000 from the department in the late 1990s. The Illinois Auditor General has also uncovered some political shenanigans, including workers retiring and then being retained as consultants. Employees recall days when the office was full of reckless behavior and patronage recipients who did no work. There was a time when "the booze was full," said one Lottery veteran. "All upper level decisions were made after hours in bars."

Still, Lottery employees remain remarkably proud, even Reggie. "We're helping the schools as well as a few lucky people," he says.

Several employees describe Lottery as a "close-knit family" where everyone pitches in for company picnics and get-togethers. Not too long ago, employees paid for their own button-down, long-sleeve shirts with the Lottery's logo stitched on them. One employee who refused to go on record has his shirt regularly pressed at the dry cleaners. There's a Lottery Band that plays country and classic rock at various functions. "There's a real team spirit," says Lottery spokesperson Anne Plohr.

"Change is very difficult no matter what situation you're in. We're trying to have the best attitude as we can," Plohr says. "Especially at first, people were nervous." When Plohr was asked about the transition, she first referred to Revenue as "they."

"I mean 'we,' " she says, conceding "we're still part of our own little group here."

Reggie feels a little guilty about feeling this way. "We're not just a bunch of cry babies," he says. "I feel silly complaining about it."

"We knew going into it that this wouldn't be easy," says Revenue's Klemens. "The Lottery people sit in their own building and they're very comfortable there. Nobody likes change."

Klemens says Revenue has a few traditions of its own.

"We have potlucks," he says. "When Chicago Lottery people moved out of their space and into our facility on the seventh floor of the Thompson Center, we had a potluck. It was a surprise to the Lottery people. We do potlucks regularly here. People don't have to pay to go to lunch. I've heard positive things."

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