Privatize the Lottery?

I told you we were going to get leaks about Arnold's budget revision, but I can't claim that I saw this coming. The governor wants to sell our lottery system to a company for the next 40 years. California's lottery system has underperformed for a long time and Arnold sees privatization as the solution to its ills. LAT:

Gov. Arnold Schwarzenegger is poised to call for privatizing the state lottery, a move that would bring California a cash infusion of as much as $37 billion to help solve pressing budget problems but also could sacrifice a major revenue source for decades to come.

The lottery would be leased to a private company for up to 40 years in exchange for a lump-sum payment or series of payments, according to documents from the governor's budget office that were provided to legislative staff and obtained by The Times. If lawmakers were to sign off on such a plan, California could become the first state to privatize its lottery.

Proponents of the lottery over-promised when it was first introduced, as the solution to all of our education spending problems. I am highly skeptical of any panacea like claims now. The 40 year length of this proposition brings up legitimate questions about the state taking quick cash now and giving up potentially better long term gains. A large scale private lottery system does not exist right now. There are no firms with a history of good returns. The state would be gambling with their gambling to pass this off to a private enterprise, compounding the questions about the long time period. Who knows how a company would perform four years down the road, let alone forty?

The state should not rush into this without carefully considering such a long term decision. Privatization of the lottery may have to go in front of voters. That would help tamper down any budgetary fever type decisions.

That, however, could take some complicated legal maneuvering. There are constitutional restrictions on how lottery money is divvied up.

Changing those rules could require a vote of the people, something that might not happen until November 2008 at the earliest.

Some say there is good reason not to move too fast.

"It's very tempting. But I'm not sure these states understand what they would be signing off on," said Edward Ugel, author of "Money for Nothing: One Man's Journey Through the Dark Side of Lottery Millions." The book is an account of his career talking lottery winners into turning over their prizes, which were paid out over many years, to private companies in exchange for lump sums.

"You are relying on politicians to make decisions for people who will be left holding the bag decades from now," he said. "There are no givebacks on this."