OK so if the revenue to the state will be rather minimal, what other reasons could the Governor POSSIBLY have to be pushing this scheme that will benefit someone other than the taxpayers?
Just thinking out loud here.
Posted on 02/19/2008 1:07:57 PM PST by calcowgirl
Gov. Arnold Schwarzenegger is dramatically overestimating the jackpot the state could collect if it sold the rights to operate the lottery to an outside company, according to confidential Wall Street analyses.
Moreover, to make the venture more attractive and command a higher price from an outside company, California might have to relax its gambling laws and allow a major expansion of the lottery. Critics say that means Schwarzenegger would be balancing the budget on the backs of the working class and the many poor people who avidly buy tickets.
With California facing a $14.5 billion shortfall, Assembly Speaker Fabian Nunez has said he will consider Schwarzenegger's proposal to lease the lottery to the highest bidder. The governor has pegged the state's potential jackpot at an eye-popping $37 billion half up front, the rest presumably in fixed annual installments.
Schwarzenegger introduced the idea last year, and at times he has pitched it as a financial godsend, capable of reducing state debts, boosting education funding or helping to bankroll universal health care. If the deal comes to pass, it will be the first time a state has privatized its lottery.
But several Wall Street investment banks that have analyzed the idea for Schwarzenegger's administration say the estimate he touts is wildly optimistic. The documents were obtained by The Associated Press through a California Public Records Act request.
The governor is employing the rosiest of projections from Lehman Brothers, which pegged the value of California's lottery between $16.1 billion and $37 billion over 40 years.
Other Wall Street investment banks Bear Stearns, Citibank, Goldman Sachs, JP Morgan Chase, Merrill Lynch and Morgan Stanley were more conservative. Most estimated the value of a long-term lease at between $7 billion and $29 billion with smaller upfront payments, usually less than $9 billion.
"Large figures catch headlines," wrote Merrill Lynch in a slide presentation about the $37 billion figure, "but may be unachievable within policy goals."
California's upfront payment for the lottery could be even less than $2 billion if it continued operating as it does today, according to the documents.
State Sen. Leland Yee, a member of a legislative committee that oversees the lottery, said Schwarzenegger has oversold its value and that lawmakers must carefully consider whether privatization is worth the social cost.
"You have to be honest about the number and have to be careful about how you get that money," said Yee, D-Daly City. "The increased revenue is predicated on maximizing the lottery. Unfortunately that maximization is on the backs of poor people and working poor people who need to save their money for their children, rather than toss it away on buying lottery tickets."
Asked Tuesday about his regular use of the most optimistic revenue estimate, Schwarzenegger sought to downplay the $37 billion figure.
"That number was thrown around, and other numbers like this were thrown around about the lottery last summer," he said during a budget-related news conference at the Capitol.
Schwarzenegger has used the largest figure repeatedly since then. Late last year, he included it in his proposal to provide universal health care.
Despite questions about the lottery's worth, the governor said the Legislature is likely to consider a lottery lease to deal with California's budget deficit.
"I don't know what the current value is, but one thing I know for sure is we should be making much more money on the lottery than we are making right now," he said. "We would be foolish not to take advantage of that and not use some of this money for education and for health care and other things where we need the money. I think, 'Why are we waiting?'"
According to the financial estimates, the most lucrative projections of the lottery's worth in California are based on a series of untested assumptions and may require creative financing schemes.
California's lottery last year generated $3.3 billion in total revenue, paying out $1.8 billion in prizes and contributing $1.2 billion to education.
To command the highest price, laws would have to be rewritten to allow a significant expansion of gambling in California. Voters also would have to endorse a fundamental shift in the role of the state's lottery revenue, traditionally used only to supplement classroom spending.
The Wall Street analysts say the state would have to give a private lottery operator freedom to sell tickets over cell phones and PDAs, in malls, on college campuses, at bus stations and through ATM machines. Ticket sales would have to more than double, to $234 per person.
What's more, several of the investment firms that presented plans to California last year say deteriorated market conditions have likely shrunk some of the estimated lottery values quoted to the governor's advisers.
The disparity in revenue estimates between the firms' proposals in California also shows no one really knows just how much state lotteries are worth, said Chee Mee Hu, senior vice president of Moody's Global Infrastructure Finance Group.
"The wide variances indicate there's considerable uncertainty as to how the asset would work," she said.
Some of the banks also detailed numerous risks that could limit the lottery's value.
Under a section in its presentation titled "Increased Challenges Ahead," Merrill Lynch said California potentially faces a roadblock in expanding into the lucrative video lottery market because it could infringe on exclusive gambling rights granted to the state's Indian tribes.
Adding video lottery terminals "would invalidate revenue-sharing provisions of existing compacts" Schwarzenegger signed with casino-operating tribes, according to the firm's report. California already depends on hundreds of millions of dollars annually from those deals.
Under most of the proposals, the state's share would be a fixed amount, negotiated in advance, and would not depend on how well the lottery does while in private hands.
In its Public Records Act request, the AP asked for all e-mails, letters and reports received or sent by Schwarzenegger or his staff in the last year regarding the projected market price, sales or bidding procedures for privatizing the state's lottery.
The governor's office refused to release many of the documents, but Schwarzenegger's lawyers determined they had to release presentations to his finance team. Most were dated May and June of last year.
The lottery expansion necessary for the state to reap the largest reward worries some in California. Many already see lotteries as a tax on the poor and gullible.
"We're deeply concerned that the state is looking to gambling to lower-income Californians to make up a disproportionate contribution toward balancing the state budget," said Jean Ross, executive director of the California Budget Project, which lobbies for lower- and middle-income families.
Leasing the lottery would require approval from the Legislature and a majority of the voters. Similar proposals are circulating in more than a dozen other states, including New York, Florida and Texas.
"There's a reason no state has yet gone through with this," said state Sen. Dean Florez, chairman of the committee that oversees the lottery. "Putting lottery terminals in malls in every floor, where pay phones used to be, that raises serious questions."
Ping!
More lies exposed.
I support the lottery; it is the only non-progressive tax.
What happened to the billions the state got from the tobacco settlement?
Just thinking out loud here.
Thanks. I grazed over this a few minutes ago. Wow, our state officials lied to us? What a shock. To say I am disgusted with all levels of governance today, is a vast understatement.
OK so if the revenue to the state will be rather minimal, what other reasons could the Governor POSSIBLY have to be pushing this scheme that will benefit someone other than the taxpayers?
Just thinking out loud here.
Up in Smoke?
“What happened to the billions the state got from the tobacco settlement?”
They already “smoked” it.
State Sen. Leland Yee, a member of a legislative committee that oversees the lottery, said Schwarzenegger has oversold its value and that lawmakers must carefully consider whether privatization is worth the social cost.
“You have to be honest about the number and have to be careful about how you get that money,” said Yee, D-Daly City. “The increased revenue is predicated on maximizing the lottery. Unfortunately that maximization is on the backs of poor people and working poor people who need to save their money for their children, rather than toss it away on buying lottery tickets.”
—
Leland should have been a comic,, he cracks me up.. He is one weird duck and he is from San Fran to boot..
Tom predicts Schwarzenegger will go forward with his attempt to sell (30-40 year lease) the state lottery to a consortium headed by Goldman Sachs. He estimates it would generate a front-end payment of $14 billion, a portion of which would be put in trust to go to schools (to generate the same amount it earns for schools now--$1 billion), with the remainder going to "paper over" the deficit and "allow him [Schwarzenegger] to get out of town." Goldman Sachs would then keep all revenue for the length of the lease. He described Schwarzenegger's logic as follows:In the same interview, he predicted the deficit through the end of next fiscal year 2008-09 to be $18-$20 Billion. He's got a good crystal ball.The lottery is underperforming ("never mind that the entire lottery commission are his [Schwarzenegger's] handpicked appointees"); they are incompetent to run the lottery; it is under-producing by about $1 billion per year. If we give it to GS for the next 40 years, they they will pay $14 billion and the state can cover the deficit.Tom said the point is: The schools are being shortchanged because it isn't making enough. We should be making $2 billion. Instead of managing it competently and giving $2 billion to the schools, Schwarzenegger's solution is that we're going to lock them into being shortchanged for the next 40 years, and Goldman Sachs gets to keep the difference.
*estimated annuitized payout to a single winner - odds of winning 1 in 136 gazillion cubed.
Just raising the value of that endorsement of McVain amongst liberals and independents, huh?
They used the future tobacco settlement income as collateral for a loan--and spent it.
See #11. It's PAYOFF time!
It went the same place this money will go - To Libs pet projects in support of their constituencies and connected buddies.
A real sign of the times that Gov't exploits Smokers and Gamblers to keep up the pace of their waste.
You and me both, D1. With Schwarzenegger, the writing has been on the wall since he entered politics with Prop 49. The sooner he is out of office, and any position of "public service," the better.
more lottery terminals coming to a liquor store near you. Oh, wait!! They are ALREADY in every liquor store in CA. Maybe they will let WalMart sell them to increase revenues. Oh, Wait!! The unions won’t let WalMart make even a nickel from the lottery so we’ll have to put them....hmmmm.....where else can we put lottery ticket machines.....hey, how about the welfare offices and public school lunchrooms????? Yeah, that ought to increase lottery ticket sales enough to help pay for that socialized health care scheme!
Imagine the political mischief you could create if you had hat kind of money to throw around.
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