[Editor's note: Spitzer's resignation is effective Monday.]
Gov. Eliot Spitzer's proposed $4 billion SUNY endowment is an exciting and useful initiative. I agree with President Dahl that this much-needed investment in SUNY could pay enormous dividends for Geneseo, the state university system, and ultimately the state as a whole. At the risk of being the skunk at the garden party, however, the plan to finance this investment by privatizing the state lottery creates enormous risks for state taxpayers that outweigh any potential benefits.
Leaving aside the problems caused by increased gambling (something would almost certainly happen if the lottery were sold to private investors), there is the question of money. Selling the lottery could generate a one-time windfall of around $40 billion. Spitzer proposed to spend $4 billion of that on SUNY. What happens to the other $36 billion?
In a perfect world, wise and far-sighted legislators would use the proceeds to lower our state debt, pay for much-needed hospital realignment, and fund similar restructuring efforts that would leave New York in a much stronger financial position than it is today. Coupled with the returns on the SUNY endowment, the governor's plan could set the stage for renewed economic growth, particularly in upstate. Under such circumstances, privatization would be enormously beneficial to all New Yorkers.
Unfortunately, there is very little chance of this happy outcome occurring. Given the track record of New York's political class, it is far more likely that the one-time lottery payout will be used to finance current operating expenses and new entitlements. This will make our leaders very popular in the short run, but soon the money will run out and the costs will remain, leaving New York in even worse shape than it is now. Paraphrasing political writer P.J. O'Rourke, giving spendthrift New York politicians such a huge windfall would be like giving whiskey and car keys to teenage boys. They'll have fun for a short time, but things are unlikely to work out well in the long run.
Privatizing the lottery is analogous to taking out a home-equity loan to pay credit card bills. It can be a very good strategy provided one then cuts up the credit cards. Otherwise, using one-shot revenues to finance recurring expenses is both foolish and financially destructive. Given the proclivities of our political class, I believe that the only prudent course is to reject the governor's proposal (the benefits to our college notwithstanding) unless a less financially hazardous means of financing it can be found.
Mark Mitschow is an associate professor of accounting.