THERE IS AGREEMENT about the parameters of Rhode Island’s budget crisis. After updated revenue estimates, the projected deficit in fiscal 2009 is now $434 million. This is $50 million higher than the amount upon which Governor Carcieri based his original balanced budget proposal, which cut funding from many critical programs and areas of state government. The only good news that came out of this year’s revenue estimating process is that in a few years, our economy is expected to rebound.

All budgets ultimately reflect the values and priorities of those who create them. This proposal will allow the creation of a budget that is fairer to our children and working families, provides property tax relief and additional aid to local education, treats our state workers with respect, and allows us to plan for Rhode Island’s future while our economy recovers.

Rhode Island has an asset, hidden in plain sight, worth billions of dollars. Lottery revenues are projected to exceed $365 million in fiscal 2009. Many states are discussing selling their lotteries to generate funds. Indeed, Rhode Islanders have heard values as high as $6 billion when the concept of selling our lottery is discussed. Even using a conservative expected return of 8.25 percent, or just over 12 times earnings (a figure explained below), our lottery system would be worth over $4.4 billion.

I am not proposing that we sell Rhode Island’s lottery operations. I am proposing, however, that we consider the intrinsic value of the lottery system as an asset that can help us to address the current budget deficit and create a budget that better reflects the values of our state.

Since our lottery system is a state-owned asset worth $4.4 billion, we have significant additional flexibility to address our short-term budget problem. To understand how, some background about our state pension system is also necessary. In fiscal 2009, the state is expected to contribute $144.5 million to the pension system on behalf of state workers, and another $98.5 million to the pension system on behalf of teachers. Our cities and towns will contribute another $147.8 million toward teacher pensions, representing their portion of the current 40 percent-60 percent formula.

The total state contributions budgeted for these two pension systems is $243 million, which represents about 5.5 percent of the $4.4 billion value of the state lottery using the conservative valuation method above, which was based on the pension system’s expected rate of return of 8.25 percent — Wall Street may very well assign a higher value in an outright sale.

If the state irrevocably contributed 5.5 percent of the “equity” in the state lottery to our pension system in lieu of a cash contribution, it would free up approximately $223 million in cash to balance the budget and fund needed programs. The full $243 million would not be available, as we would need to anticipate $20 million less in lottery revenue — 5.5 percent of the expected $365 million in 2009 revenues — to the state which would accrue to our pension fund going forward. Using the governor’s original budget proposal as a starting point, the availability of an additional $223 million in revenue would cover the additional anticipated $50 million budget shortfall, and leave $173 million to restore health-care coverage, day care services and other programs to low income children, restore aid to cities and towns, provide a modest increase in education aid, eliminate the idea of asking employees to take unpaid days and other benefit cuts in the same year they are being offered no raise, and even continue the tax cuts extended to the wealthiest among us to see if they will generate promised jobs. Those tax cuts for the wealthy were not modified in the Governor’s budget and should otherwise be the first source of additional revenue if this proposal is not workable.

This concept could be used in other ways. To further increase state education aid to our cities and towns, we could increase the states share of the teacher pension contribution. If that state/local contribution was moved to 50 percent-50 percent, the state would essentially increase state aid to education by $24.6 million, requiring an additional equity contribution to that portion of the pension system of about 0.6 percent in fiscal 2009 to reduce the local contribution commensurately.

Another idea would be to use the value of our lottery to accomplish other goals. Rather than selling the Providence Water Supply system to an unknown outside entity to support Providence’s underfunded pension system, the state could “swap” some lottery equity for Water Supply system equity, and require both to be contributed as assets to the respective pension systems (even allowing a reasonable rate of return to the water system in the process). This idea could also establish the core holding for the inevitable statewide water system.

This proposal is based on sound financial principles. We certainly could not, and should not, plan to use this idea in perpetuity. However, given the current budget situation and the choices before us, expecting to use a set amount of the hidden value of our lottery system to prudently and humanely manage our budget shortfalls in the next three to four years until our economy improves is the wisest choice. This proposal would allow us to recognize the value of our assets while still controlling them, and create a budget that better reflects the values of a majority of Rhode Islanders while giving us time to prepare for our future.

Robert A. Walsh Jr. is executive director of the National Education Association Rhode Island, secretary-treasurer of Working Rhode Island, secretary-treasurer of Ocean State Action, a former chairman of the Providence Water Supply Board, and a former banker and financial consultant. This proposal does not necessarily represent any of those groups.