ShareThisBy DALE KASLER
Sacramento Bee
Friday, May 18, 2007
If California tries to lease its state lottery to private investors or unload a state-owned student-loan business, as Gov. Arnold Schwarzenegger proposes, there will likely be no shortage of interested parties.
Providing capital to a growing privatization movement, investors are offering billions for state lotteries, toll roads and other government-owned assets nationwide.
Indiana sold the operating rights to its main toll highway last year to an international consortium for $3.8 billion. Chicago has leased out its Chicago Skyway toll road for $1.8 billion and is thinking of auctioning off Midway Airport. Texas just passed a law authorizing privately financed construction of several highways.
Meanwhile, several states -- California, Colorado, Maryland, Michigan and Illinois, among them -- have mulled the privatization of their lotteries.
The idea is to remedy budget problems without raising taxes. "States often face budget crunches in any given year, and it's tempting to look at fixed assets that aren't generating as much revenue as they could," said Tracy Gordon, a research fellow at the Public Policy Institute of California.
Some analysts criticize the sale of public assets as shortsighted strategies that bring in lots of upfront cash but deprive governments of revenue down the road. "You might call it a budget gimmick," said Alan Auerbach, an expert on tax and budget policy at the University of California, Berkeley.
Investors are raring to go. Lehman Brothers and Goldman Sachs & Co. made pitches to Schwarzenegger about privatizing California's lottery. Carlyle Group, a well-known investment firm, is creating a $1 billion infrastructure fund. Citigroup just launched a management unit to oversee investments in public infrastructure.
"There's a lot of value trapped in these assets," Mark Florian, head of infrastructure investments at Goldman Sachs, told BusinessWeek magazine.
Despite his popularity with voters, there's no certainty Schwarzenegger will prevail with his proposal to lease the lottery, which generates about $1.2 billion annually for public schools, to private investors.
Democrats who control the California Legislature have reacted coolly to his lottery proposal, which the two investment banking firms have said could generate up to $37 billion in upfront cash.
Schwarzenegger said a privately run lottery could generate bigger returns for schools; he's called the lottery system "an underperformer" whose privatization would help pay billions in various unfunded liabilities.
Jim Hard, president of Service Employees International Union Local 1000, which represents 500 lottery employees, blasted the idea. The move could mean the employees would no longer be public employees, but Hard said he's concerned about taxpayers' interests.
"Selling off the public's assets, I think, is a very shortsighted tactic, and as far as I'm concerned, a roundabout recognition of the failure of political leadership," he said. "It's quite possible to make the lottery more effective. ... A piece of the action doesn't have to be sold to Wall Street to do it."
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
