Democrats split on lottery plan

SACRAMENTO —  Gov. Arnold Schwarzenegger’s plan to turn the state lottery over to a private firm has put the Democrats who dominate the Legislature in a bind: Despite their long-standing distaste for privatization schemes, the proposal offers an influx of cash that could prove too tempting to turn down.

In the plan, laid out in documents obtained by The Times this week, the state would lease the lottery to a private operator for up to 40 years in return for as much as $37 billion.

Democrats routinely have declared privatization proposals dead on arrival. The California Performance Review, the administration’s top-to-bottom analysis in 2004 of how to make government more efficient, was full of such ideas. Few got off the ground; Democrats were skeptical of private companies’ promises that they could do a better job than the government of providing state services.

And the party’s close ties to organized labor, which opposes privatization, generally undercuts the political viability of contracting out on a large scale.

This time, some Democrats are leaving the door ajar.

“It’s worth at least taking a look,” said Assembly Speaker Fabian Nunez (D-Los Angeles). “Generally, we don’t like contracting out. We see it as a way to short-shrift state employees. This is a little bit different....The question for us is whether we are maximizing our ability to generate significant revenues from lottery. Everything we are looking at preliminarily says that, right now, we are not....

“I’m circumspect, but this deserves an opportunity to at least be fleshed out.”

Senate Leader Don Perata (D-Oakland) took a similar view, saying he believes it is lawmakers’ job to “turn everything upside down and shake it and see what comes out.”

Schwarzenegger made his first public pitch for the proposal, to be contained in the revised budget he unveils Monday, at a morning news conference. His comments summed up the potential appeal to Democrats.

“It will mean more revenues for us, it will mean that we have revenues for education, and it will mean that we can use this money in many other ways,” Schwarzenegger said.

Administration officials and investment bankers promoting the plan to lease the lottery say the state has done a poor job of marketing it, and that residents in many other big states buy, on average, two to three times as many lottery tickets as Californians. Putting the agency in private hands could lead to billions more cash, they say.

And the investment banks have agreed to work out a deal that allows the state to get most, if not all, of its proceeds upfront.

That could mean tens of billions of dollars to fund universal healthcare, pay down the state’s enormous debt or jump-start more public works projects.

“The notion of trying to find creative ways to retire state debt sooner rather than later I think is worth exploring,” said Sen. Darrell Steinberg (D-Sacramento).

Even so, the proposal will be an extraordinarily difficult sell for the administration. The reaction of several other Democrats was to immediately declare the proposal unworkable.

Sen. Dean Florez (D-Shafter) made public a legal opinion drafted by legislative staff at his request earlier this year that declared any lottery privatization proposal would have to be approved by the voters, a point with which administration officials disagree.

“I am very concerned that the governor is floating a proposal on which he clearly has not done his homework,” Florez said.

State Sen. Sheila Kuehl (D-Santa Monica) said the proposal would probably leave the state more reliant on gambling for revenue; provides no evidence that private firms could operate the lottery more efficiently; and was conceived by investment bankers who stand to make a bundle on such a deal. “I hope everyone is rational about this,” she said.

evan.halper@latimes.com