Governor takes state lottery to the pawn shop

Instead of rolling up his sleeves and making an effort to provide needed budget reform, Governor Arnold Schwarzenegger is heading to the pawn shop with the California lottery. SEIU Local 1000 is strongly opposed to this idea.

It’s no surprise that the strongest supporters of the governor’s proposed “lease” of the state lottery include some of the nation’s largest investment firms, including Lehman Brothers and Goldman Sachs. Wall Street has struck gold in the acquisition of public assets–toll roads, bridges, water systems and ports–infrastructure that was bought and paid for by the public that these firms are turning into private cash cows.

We see the same potential in the California lottery that private investors do.
Research shows that by making changes that private investors would demand, our lottery would out-perform every proposal submitted by Wall Street. These simple improvements–implemented without selling or leasing the lottery–could nearly double lottery revenue and the accompanying returns to our public schools.

For example, by reducing overly restrictive game regulations and focusing on best practices implemented in other states, the California lottery could bring $70.5 billion more to education than if it were privatized under the Lehman Brothers’ proposal. The $3.5 billion to $15.3 billion in up-front money that Wall Street is dangling in front of politicians is dwarfed by comparison.
A closer look at New York’s, Massachusetts and Georgia’s state-run lotteries shows why they have the three highest rates of revenue per capita.

New York’s success largely is due to the absence of restrictions on game types. According to Schwarzenegger’s own California Performance Review, California’s lottery “contains some of the most stringent restrictions on game themes in the nation.”

A key to Massachusetts’ success is keeping its administrative costs low–only 1.8 cents on the dollar–by eliminating outsourcing. In California, we are paying more than $200 million for a six-year, “integrated” contract for installing and maintaining ticket terminals, managing telecommunications networks, marketing support and training retailers to run lottery computers.

A key to Georgia’s success is the business model its state-run lottery embraces. Enabling legislation requires that their lottery be “a public body with comprehensive and extensive powers as generally exercised by corporations engaged in entrepreneurial pursuits.” Industry insiders say this is an important distinction that resonates throughout the Georgia lottery’s leadership and operations.

Unlike Georgia and other successful state lotteries, California’s lottery has been mismanaged for years.

There have been 13 directors in the lottery’s 22-year history–many with little or no gaming experience. There have been five directors under Schwarzenegger alone. And the current director, Joan Borucki, has no experience in gaming. Many top management positions are filled with inexperienced political appointees from the governor’s staff or his re-election campaign. Adding to the problem, the governor has refused to fill two of the five Lottery Commission posts.

Do these staffing decisions sound like Schwarzenegger wants the lottery to be successful, or do they sound like the decisions of someone who wants our state-run lottery to fail so it can be sold off to Wall Street?

Leasing a state lottery is unprecedented. No one is sure what this arrangement would look like, how to ensure oversight or how to guarantee voters’ intent to provide supplemental funding for public education. And handing over control of the state lottery without a two-thirds vote of the Legislature and majority approval by voters of an amendment to the state Constitution would raise serious legal questions.

Californians deserve a state lottery that is a well-run and entrepreneurially managed. We deserve a lottery that implements best practices among state lotteries and delivers higher returns for our schools.

What Californians don’t need is a governor running to the pawn shop with their public assets in the name of budget reform.