Arnold Schwarzenegger

When I presented my revised budget Monday, I laid out a proposal that will bring our state tens of billions of dollars in new revenue by leasing the California Lottery, while still maintaining state ownership, to a private concessionaire.

 
The possible deal could also free up $1.5 billion a year now used to pay off debt. It is an innovative idea that was presented to my administration, and I felt this was worth sharing with the Legislature to debate whether it makes sense for our state and taxpayers.
 
I believe that it does.
 
My proposal to lease the California Lottery has sparked a wide-ranging discussion and reaction, which is great all by itself. But the idea is really based on a simple proposition: Government should always explore ways to partner with the private sector to make sure taxpayers get maximum value and return on investment for public assets.
 
Voters established the lottery in 1984 to supplement funding for education. But compared to other states, the California Lottery is an underachiever.
 
In 2005, for example, our lottery sales were just two-thirds of those in Massachusetts , even though we have six times the population.
 
Average per capita sales for lotteries around the nation is $158. California's per capita sales are little more than half that amount, at $81.
 
At the rate our lottery performs now and at the values being proposed, taxpayers would come out ahead if we simply converted the program to cash and let the money sit in an interest-bearing savings account.
 
On top of our dismal national ranking, California lottery sales have been flat. For the fiscal year that begins in July, gross revenues are projected to drop nearly 11 percent. Our net -- the amount that goes to education -- is expected to decline 12 percent.
 
If a private firm could boost California Lottery sales just to the national average, the $1.1 billion the state is expected to net from the lottery in 2007-08 would nearly double.
 
Leasing the lottery would stabilize and guarantee annual education funding, which has gone up and down from year to year depending on how the lottery performs. And we would structure the deal in such a way that our schools are held harmless. In other words, their funding level would be legally guaranteed. It won't go down, as it has in the past.
 
Running the lottery is essentially a retail and marketing job. The private sector, with its vast supply of capital and competitive know-how, is far more adept at such tasks. A private concessionaire can take better advantage of the tremendous room for growth in our lottery -- all to the benefit of California taxpayers.
 
California would maintain ownership of the lottery, but the private operator would be subject to our corporate income tax, which would generate tens of millions of dollars a year over the term of a 40-year lease.
 
And perhaps most appealing of all, leasing the lottery would allow us to pay off Economic Recovery Bonds we sold to correct the budget disaster I inherited when I took office.
 
My new budget allocates $3.1 billion to retire that debt this year, and we plan to pay another $3.1 billion in 2008-09. With the lottery deal, whose value was pegged by one firm at $37 billion, we could pay off those bonds all at once, strengthen our credit rating and have tens of billions left over for other investments.
 
State government cannot generate revenue like that on its own. What I am saying with this proposal is, "Let's get creative. Let's team up with the private sector to maximize our resources without putting a burden on taxpayers so we can pay our debts, refurbish our infrastructure and make smart investments that secure California's future." Exactly how to use the lottery lease proceeds is a decision to be made jointly by the executive and legislative branches of state government, but a carefully crafted deal would provide a boon to the state's resources that we would be irresponsible to ignore.
 
By teaming up with the private sector, we would continue to own and regulate the lottery to make sure it was operated responsibly and in the public interest. And by using the private sector's management and marketing skills to full advantage, we could make sure taxpayers' -- and our schools -- get the benefits that were envisioned when the lottery was approved in the first place.
 
Arnold Schwarzenegger: Lease the lottery? The case is clear