Taking a chance on Calif. lottery
Schwarzenegger proposes borrowing against future earnings in budget plan.
By E.J. Schultz / Bee Capitol Bureau
SACRAMENTO -- Gov. Schwarzenegger on Wednesday proposed to close the state's $15.2 billion budget gap by borrowing against the state lottery and making major cuts to health and social service programs.
But the governor's revised $144.3 billion budget plan for 2008-09 faced immediate criticism from state lawmakers, setting up a potentially lengthy budget battle this summer.
The proposal aims to generate $5.1 billion for the fiscal year that begins July 1 by selling bonds backed by future lottery earnings. If voters don't approve the idea, they would face a sales tax increase.
The cuts to health and social programs could cause some Valley residents to lose state-backed medical coverage, officials said. But schools were relieved that Schwarzenegger rolled back some of the hefty education cuts he had proposed when he first issued the budget plan in January. The governor looked to the lottery proposal as a way to avoid even more devastating cuts in the face of declining state revenues brought on by the sagging economy and weak housing market.
"As everyone knows, we are facing an extremely tough budget year," Schwarzenegger said at a news conference. "Our crisis is real, and it is very serious."
He called the lottery an "underperforming asset," adding, "I think it is my responsibility to look at that and to use that asset."
To make the plan work, the lottery would be expanded to generate more sales.
The state would sell bonds backed by the revenue, generating $15 billion for the state over the next three years. Administration officials distinguished the plan from outright borrowing, saying it would "raise cash upfront by selling future lottery revenues with no risk to the state."
In other words, if lottery revenues underperform, bondholders might not get fully paid.
Voters would have to approve the lottery plan in November. If they didn't, the revenue would be raised with a temporary one-cent state sales tax hike.
Democrats blasted the plan as a gimmick that stands little chance of success in the face of likely opposition from casino-owning Indian tribes, who compete for the gambling dollar.
"This is just flawed from the beginning to the end," said Senate leader Don Perata, D-Oakland. "Getting it to the ballot would be hard enough. Passing it, I think, would be mission impossible."
Republicans, meanwhile, said they would oppose the governor's lottery plan because it is linked to a possible tax increase.
The lottery "will be part of the solution ultimately," said Senate GOP leader Dave Cogdill of Modesto. But "we don't believe the threat of a 1% sales tax on an already struggling economy is helpful in any way, so we won't be supporting that."
The governor backed off his earlier proposal to suspend the state's school funding law. The revised budget includes a $1.8 billion general fund increase to schools.
But schools still would not get cost-of-living increases, said Bill McGuire, associate superintendent of the Clovis Unified School District.
"We're happy that we're not being reduced, but unhappy we're not being funded to the level we should be," McGuire said.
The governor's health and human services cuts would leave programs more than $2 billion short of what they were scheduled to receive under existing formulas.
Cuts include $31.2 million from a Medi-Cal program geared to the working poor. The cut could force some Valley residents to lose coverage, said Julie Hornback, director of employment and temporary assistance for Fresno County.
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Gov. Schwarzenegger’s proposed state budget
