ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
California's unconventional governor is taking another swing at conventional state governance. This time, Arnold Schwarzenegger has his sights on privatizing the California Lottery. The Republican governor made his initial pitch on the subject a couple of weeks ago. But as John Myers of member station KQED reports, some worry that the idea has more sizzle than substance.
JOHN MYERS: Since being elected governor in 2003, Arnold Schwarzenegger's political fortunes have largely been tied to California's state budget. When he proposed a major spending cut, his job approval ratings hit rock bottom. Last year, when a one-time surplus helped to pay for dozens of programs, the ensuing bipartisan spirit helped assure his reelection.
Now, facing a downturn in the economy and stagnant state revenues, Schwarzenegger is promoting a new idea for an infusion of cash - leasing the California Lottery to private investors.
Governor ARNOLD SCHWARZENEGGER (Republican, California): Our lottery is a very valuable public asset but it does not nearly perform as well as in other states. We can double or triple the revenues from the lottery if we maintain ownership but lease it to the private sector to manage the sales.
MYERS: The discussion began when several investment banking firms pitched the idea to Schwarzenegger and his budget advisors. And he's not alone; six other states are also now considering plans to privatize their lotteries. California voters approved the creation of a lottery in 1984 based on a political campaign that promised major money for public schools. But today, the state's lottery only accounts for 2 percent of the money spent on K through 12 education. Early projections suggest that state could command an upfront payment to privatize the lottery of as much as $37 billion, or the state could demand annual payments of a few billion dollars a year. Either option could help ease California's financial problems. So far, Democrats have reacted skeptically to the idea. Don Perata, the president pro tem of the California State Senate says the governor seems to prefer budget gimmicks to actual budget balancing.
State Senator DON PERATA (Democrat, California): These little mix and matches and we'll going to sell this off, we'll going to sell that off -we're about done with that now. And the question is when are we going to start rationalizing our system of capturing revenues and spending revenues in some kind of a rational way.
MYERS: And if a private company takes over the California lottery and successfully expands lottery revenues, that money is coming out of the economy somewhere else. Jean Ross of the non-profit California Budget Project says that could mean less sales tax revenues for the state.
Ms. JEAN ROSS (Executive Director, California Budget Project): A dollar that somebody spends on a lottery ticket is a dollar that they're not spending on shoes for their child to wear to schools, gas to put in their car or local restaurant.
MYERS: If that wasn't enough, the labor union that represents lottery workers may fight the plan. At this point, there is no formal proposal to privatize the lottery but the idea does seem to ducktail with Schwarzenegger's philosophical preference for the private sector, a philosophy the governor discussed at length in a recent one-on-one interview.
Gov. SCHWARZENEGGER: I am personally and so against government running things because we don't have the experts here. The private sector has the experts. The private sector also has the money.
MYERS: Privatizing California's lottery would also allow Schwarzenegger to pull off another feat - increasing state revenues without raising taxes. It would the ultimate fiscal jackpot, which may explain why the eternally optimistic governor is considering placing a bet.
For NPR News, I'm John Myers in Sacramento.