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Judge weighs challenge to lottery contract

TALLAHASSEE, Fla. – On the eve of a legislative session expected to be marked by conflict between top Republicans, a Leon County judge heard arguments Monday in a dispute between House Speaker Richard Corcoran and one of Gov. Rick Scott's agencies.

At issue is a long-term contract between the Florida Lottery and IGT Global Solutions Corp. Lawyers for Corcoran, R-Land O' Lakes, argue that the contract is illegal because it would spend more money on ticket sales than the Legislature has previously approved for that purpose. The lottery counters that the contract specifically says IGT will only get its full payments if the Legislature approves the spending.

Circuit Judge Karen Gievers told both sides after the hearing that she would try to rule as quickly as possible; the 60-day legislative session begins Tuesday.

The conflict centers in part on a change in how IGT would be paid as opposed to the way a predecessor company was paid under an earlier contract. The company that held that contract was folded into IGT.

In the past, the lottery paid a fixed amount to essentially lease each machine. Under the new deal, IGT will get a slice of the sales of tickets, machines and other services. Based on projected sales, that would boost the amount the lottery needs to pay for the contract by $12.9 million in the budget year that begins July 1, according to the House.

"The budget laws that we've been talking about here today are designed to prevent precisely what the Florida Lottery did here," said Adam Tanenbaum, the general counsel for the House.

The hearing provided some new insights into how the contract came to be.

Michael Manley, the agency's deputy chief of staff, said the new payments were done to try to maximize the profits of the lottery, which helps fund education in the state.

"First and foremost, (Florida law) says we should behave like a business, and that was a business decision move," Manley said under questioning by Barry Richard, an outside lawyer representing the agency. "But probably more importantly, it was in response to the concerns that we perceived that the Legislature had on the cost on the actual price per unit rental fees."

But legislative staff members testified that the contract circumvented the usual way that agencies get contracts approved. And they dismissed the agency's defense that its clause saying the contract was contingent on funding from the Legislature shielded it from legal challenge.

JoAnne Leznoff, who leads the House's budget staff, said the law requires contracts to have language about funding from the Legislature in case something like a recession forces lawmakers to cut back in future years. She said it was not a way to allow agencies to give out contracts larger than the funding an agency has been provided by the Legislature.

"In my experience, that provision has been about issues that arise after the Legislature has authorized the contract, an agency has entered into a contract and then other circumstances arise after the fact which would result in the non-appropriations," Leznoff said.

Bruce Topp, who oversees staff members dealing with the lottery's budget, also raised concerns about using the contract clause in that manner.

"That would be a substantial change in the way the Legislature likes to operate," he said. "Under most circumstances, breaking a contract is really quite a big deal and very disruptive."

But Richard said exercising that clause wouldn't be breaking the contract, because IGT signed onto a contract allowing the state to pull out if the Legislature didn't provide the funding.

In his closing argument to Gievers, he said the House had presented no evidence that the lottery broke the law.

"There are things to suggest that it has violated a process that staff witnesses think should be followed," Richard said. "But that's not the law."