Letters to the Editor (June 1)

Beware of Goldman Sachs Bearing Gifts

Editor,

The old admonition, “When something seems too good to be true, it probably is,” virtually screams from accounts of Gov. Schwarzenegger’s proposal to “privatize” the California Lottery. (To give credit where due, it’s a Goldman Sachs and Lehman Brothers proposal; the governor is the pitch-man.)

The details are subject to negotiation, but the deal works something like this: The state turns over the California Lottery and monopoly control over lottery gambling in California to a private consortium (led by Goldman Sachs and Lehman Brothers, could it be?) for the next 40 years. In exchange, the consortium pays the state a lump sum of up to $37 billion. With that money, the government sets up a $22 billion endowment fund that will guarantee the schools what they’re getting from the lottery now – about $1.1 billion a year. That leaves an extra $15 billion to paper over the governor’s deficit-spending and borrowing spree for the next couple of years.

The governor’s spokesman calls it “a win-win for California on every front.” California lottery revenues are declining and well below per capita sales in other states. By handing the operation over to a creative, innovative and dynamic corporation, the schools will be guaranteed a stable annual payment, the state gets an extra $15 billion and the investors pocket the rest. What’s not to like?

But wait a second. This is not privatization. Privatizing the lottery means contracting out services to competing firms that offer the state the best value at the lowest price. The governor is proposing something fundamentally different: handing an entire governmental agency along with its monopoly franchise and all of its revenues to a private interest until today’s high school students are grandparents.

The premise of the proposal is correct: The governor’s appointees have done an atrocious job managing the lottery, and its bureaucracy has become grossly inefficient. That’s an argument for competitively contracting out management, promotion and advertising to private companies that specialize in these services, with the schools receiving the full benefit of the increased revenues and efficiencies that result. 

Senator Tom McClintock

R-Thousand Oaks