-- of which the private entity would take a significant portion.

Schwarzenegger has called the plan a "win-win" because if a private entity made the lottery more profitable, the entity would pay more corporate income tax to the state. Furthermore, a profit-sharing clause would be included in the handover of lottery operations.

According to an analysis provided to the state by Lehman Brothers, a worldwide investment firm based in New York City and a potential partner in the proposed private consortium, "If a private operator were to eventually improve performance beyond average national levels, profit sharing would then begin, though we think this is unlikely to occur for the early part of the lease.

Because private operators would earn profits in California, they would have to pay state corporate income taxes, which would generate $175 million immediately, $410 million by the end of the lease, and average $315 million in annual tax revenue during the 40-year concession.

A fact sheet prepared by the governor's office cites the California Lottery's long-term problems meeting expectations. The report noted that annual per capita spending on lottery products is $158 in states that have lotteries, and in the 10 most populous states, per capita spending is $190. In California, it's $81. Clearly, officials said, there is a lot of room to improve.

Not everyone is keen on handing over the reins of a multibillion dollar government program to some wealthy, unnamed group.

Jean Ross, executive director of the California Budget Project, a nonprofit fiscal and policy analysis organization, said the lottery tends to exploit the poor, and other means should be pursued to guide California out of its dire economic straits.

"I think it's appropriate to ask whether the state should be encouraging more Californians to gamble more of their money," Ross said. "In particular, we know that lower-income households are disproportionately likely to engage in gaming activities. Those are the Californians who have the toughest time making ends meet.

"California has what's called a structural budget deficit," Ross continued, "which means our expenditures exceed our revenues, and selling the lottery would be a one-time fix to an ongoing problem."

However, in a response to the governor's proposal, California Senate President pro tem Don Perata, D-Oakland, said he has no problem with the idea -- noting his objection to government being in the lottery business in the first place.

"Let's face it: The lottery is like an expanded bake sale. That's all it is: It's extra money ... I don't think we should be in that business to begin with."

Chad Vander Veen  | 

Chad Vander Veen is the former editor of FutureStructure.