Lottery Securitization

Gov. Schwarzenegger, in a bid to pressure the legislature to adopt a budget, has refused to sign any and all legislation that doesn't have to do with the budget. Yesterday, however, he backed off, telling lawmakers in a letter -- here courtesy of the Sacramento Bee --  that he would make an exception for four bills that have to do with ballot measures. One would make changes to a high-speed rail bond that is already on the November ballot. Another is a water bond that he has long sought. In the letter, he also asked legislators to send him measures related to the budget -- on borrowing against future lottery revenues, and on establishing a rainy day fund -- so they could be placed on the November ballot. The ballot deadline passed more than a week ago, but lawmakers and the governor seem to believe they can  suspend some legal requirements and sneak a few things in. I'm not at all sure they're right. At this point, they are banking on the full cooperation of county officials who administer elections, and the state's habit of failing to reimburse them for the full costs of extra elections and last-minute changes means that some county officials will only be as cooperative as the law requires.

Yvonne Walker, president of Service Employees International Union Local 1000, which represents state workers, writes in the Sacramento Bee that her union has changed its mind about Gov. Schwarzenegger's plans to modernize the lottery and borrow against future revenues. Once opponents, she says the union now supports the plan. And she's right. Borrowing against the lottery revenue is not a good thing. But, in the absence of the kind of top-to-bottom tax and budget reform California needs, such borrowing may be the least bad option, as I argued recently in the Los Angeles Times. The lottery, by the way, was established in California by ballot initiative.

Updated: There was strong push back yesterday from the administration on the report, which mirrors some of the commentariat's complaints about Schwarzenegger's budget. David Crane, the gubernatorial aide who is handling the lottery and budget reform plans, insists that the lottery plan is not a loan, but a sale, and that every penny will go to the rainy-day fund at the heart of the budget reform. 

Here's original post:  

Gov. Schwarzenegger's plan to securitize the state lottery in order to fund a rainy day fund and balance the budget in the coming fiscal year is flawed, according to a report released today by the Legislative Analyst's Office, which advises the state legislature. Specifically, the bond would create the "strong likelihood that distributions to public education from the lottery would fall well short of their current levels—perhaps by $5 billion over the next 12 years combined." Schwarzenegger needs legislators to put his proposal on the ballot -- and needs voters to sign off on it. With the LAO saying education could be hurt, this proposal is likely going nowhere.