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Even though the governor's revised budget avoids deep school cuts, it was all but pronounced dead on arrival yesterday by legislators from both parties.
Republicans objected to the governor's plan because it would trigger a temporary 1 cent increase in the state sales tax if voters reject the lottery proposal.
 Gov. Arnold Schwarzenegger, who unveiled his revised state budget proposal yesterday in Sacramento, is hoping his lottery bond plan will help erase the state's massive shortfall. But lawmakers from both parties objected to the proposal. |
Regarding the sales-tax provision, Senate Minority Leader Dave Cogdill, R-Modesto, said, “I can't imagine that a Republican in either house would vote for this.”
The governor's proposal would require voters in November to approve a plan for increased lottery marketing and payoffs that would raise $15 billion, much of which would create a budget reserve.
“This is just flawed from the beginning to the end,” said Senate President Pro Tempore Don Perata, D-Oakland. “Getting it to the ballot would be hard enough. Passing it, I think, would be mission impossible.”
The governor earlier floated the idea of leasing or selling the lottery. When he unveiled his revised budget yesterday, he called the lottery financing a creative way to close a shortfall without raising taxes.
A budget gap estimated at $14.5 billion in January, cut in half by borrowing and other action in February, has ballooned to $15.2 billion – or $17.2 billion if a $2 billion reserve is included.
The main cause of the bigger shortfall is that a sagging economy has lowered tax revenue estimates by $6 billion.
The governor, arguing for a reserve fund, said revenue increased at an average of 5 percent a year during the past decade, but came in big spurts – a 24 percent increase one year, 14 percent in another.
He said a reserve would force the state to set aside some revenue in good years, and help avoid deep spending cuts when revenue drops in lean years.
“No other big state has seen such volatile ups and downs in revenues,” Schwarzenegger said.
The governor said he wanted to join Assembly Speaker Karen Bass, D-Los Angeles, who took office Tuesday, in appointing a commission to recommend ways to modernize the state's tax structure and stabilize revenue.
His budget for the fiscal year beginning July 1 assumes that voters in November will approve his lottery plan, providing $5 billion to help cover the budget shortfall and $10 billion to create a reserve.
The governor said the lottery underperforms lotteries in other states. Per capita lottery sales in 2006 averaged $189 in other states, $225 in the 10 largest states, but only $88 in California.
The governor said a financial consultant told him that improving the marketing of lottery games can produce enough revenue to pay off $15 billion in bonds, even if it takes 10 years to reach the national average.
Schools would continue to get their share of lottery revenue, now about $1.2 billion. Meanwhile, the lottery improvements would generate additional revenue to pay off the bonds.
The lender that gives the state $15 billion would have a strong guarantee, said Mike Genest, the governor's finance director.
If the new revenue falls short, the school lottery share would be used to make the bond payments. The loss for schools would be replaced by money from the general fund.
“There really is almost no risk,” he said.
Senate leader Perata has said that opposition from wealthy Indian gaming tribes could sink a lottery ballot measure. Schwarzenegger said he thinks the tribes are only concerned about “opening up the door” for electronic gambling devices.
“I think this is the concern that they have,” Schwarzenegger said. “But we have no intentions to really compete with them.”
A spokeswoman for a tribal gaming group said the lottery changes would have to be carefully planned to avoid breaching the “exclusivity” guarantees in compacts the tribes signed with the state.
“We are pleased that the state would continue to own the lottery,” said Alison Harvey, executive director of the California Tribal Business Alliance.
Assembly Minority Leader Mike Villines, R-Clovis, said he thinks lawmakers should look at leasing the lottery, which would not require a vote by legislators to approve the backup sales-tax increase.
“We don't need to borrow money,” Villines said. “This is an asset that we can lease out and have a cash flow come in. That's a much better way to do it.”
Genest said a long-term lease would be more costly for the state because a private operator would take over the operation of the lottery, assuming the risk if sales do not improve.
Other states have either leased their lottery or sold bonds backed by lottery sales, said Dave Hitchcock of Standard & Poor's, a Wall Street credit-rating firm.
“Either way, it will raise money for you,” he said.
The governor's January budget proposal caused school districts to give about 14,000 teachers “pink slip” notices of potential layoffs and required legislators to vote for a $4 billion reduction in Proposition 98 school-funding guarantee.
His plan would give schools a bit more money than they are receiving this year, enough to raise total funding from all sources to $12,000 per student, up from $11,997 this year. Proposition 98 would not have to be suspended.
“We are still looking at budget cuts and layoffs next year,” said Rick Pratt of the California School Boards Association. He said the governor's plan is about $2.8 billion short of fully covering growth and inflation.
The budget requires deep reductions in health and social services programs that the governor said are “going to be very painful.”
Anthony Wright of Health Access California said the biggest of the reductions would save $343 million by no longer allowing parents who have one child and an annual income of $11,000 or more to be eligible for Medi-Cal, the state-federal health care program for the needy.
“The governor's budget cuts will result in closing the doors to coverage and care for hundreds of thousands of Californians, and further unravel the broken health care system we all rely on,” Wright said in a statement.
Schwarzenegger's plan calls for a 5 percent cut in grants to people in the CalWORKS welfare program, lowering the monthly payment of $723 in high-cost counties such as San Diego to $687. In-home services also would be cut.
The plan would shift $1.4 billion from transportation funds to help balance the general fund, said the California Transit Association, pushing the total raid from transportation funds during this decade to more than $4 billion.
The proposal also drops controversial proposals to release 22,000 low-risk prison inmates early, close 48 state parks and reduce lifeguards at 16 state beaches. He proposes increasing fees $1 to $2 at some of the more popular state parks.
His proposal to increase emergency fire services with a fee on property insurance was adjusted for risk.
In high-risk areas, the fee would be 1.4 percent of the insurance cost, an average of $12.60 per household. The fee in low-risk areas would be 0.75 percent of the insurance cost, an average of $6.75 per household.
