Lottery Bonds, Not Lease?
An analysis from the state treasurer's office suggests that rather than privatizing the California Lottery, it might be more profitable for the state to sell bonds paid back by future lottery revenues.
The issue was raised in a legislative hearing last month on the pros and cons of lottery privatization. Governor Schwarzenegger has suggested a long-term lease of the lottery to private investors, with an upfront payment of as much as $37 billion. Some of that money would be used to pay off the deficit bonds approved by voters in 2004; the remaining money would be invested, and used to pay for health care reform.
But an analysis conducted by the office of Treasurer Bill Lockyer suggests that a better plan might entail the state continuing to operate the lottery, and instead borrow money against future lottery profits.
A letter from deputy treasurer Paul Rosenstiel to Sen. Dean Florez (D-Shafter) says that three Wall Street investment banks were asked to analyze so-called "lottery revenues bonds." Each of those analyses found that selling bonds could mean more money for subsidizing health care reform than would be collected by a long-term lease. One analysis suggested the bonds could produce as much as $7.2 billion more than a lottery lease.
(The letter is here.)
Of course, the analysis also assumed that voters would approve a plan to operate the lottery in a more profitable way than the constraints imposed by the original 1984 initiative. And Rosenstiel cautions that there are many unknowns in the analysis -- including the interest rates that the bonds could attract on Wal Street.
But the letter may encourage a dialogue at the state Capitol that moves beyond the concept of lottery privatization. And while many legislators have been lukewarm to Schwarzenegger's leasing proposal, they may be more receptive to a long-term borrowing plan that brings in more cash.
