Posted on 05/14/2008 7:12:08 PM PDT by NormsRevenge
Gov. Arnold Schwarzenegger is hoping to raise $15 billion to jump-start a rainy day budget reserve by borrowing against future state lottery revenue, although administration officials bristle at the notion that the plan amounts to borrowing.
"The governor's proposal is not to borrow from the lottery," Schwarzenegger press secretary Aaron McLear said Wednesday. "The proposal is to sell, outright, a portion of future lottery profits. This is a big difference."
Schwarzenegger's lottery proposal is a key piece of his plan to erase California's $15.2 billion budget deficit and balance spending and revenue for the fiscal year that begins in July.
But the semantic dustup over whether it amounts to borrowing or something else (the administration prefers "securitization") is one indication of the proposal's complexity.
Several lawmakers questioned whether it is smart for the state to rely so heavily on an untested proposal that carries a number of potentially fatal risks: It must be approved by the Legislature and voters, then must attract Wall Street investment firms willing to believe the state's estimate of the lottery's worth.
To make it payoff, California residents will have to spend a lot more on the lottery - attracted by larger prize payouts - than they do now. If they don't, the state could hike the sales tax.
Schwarzenegger's plan calls for the state to sell $15 billion in bonds that would be paid off with the increase in state lottery revenue. Unlike general obligation bonds, which carry the full backing of the state, California would not be required to pay off the lottery bonds.
The bond money would go into a so-called rainy day fund that Schwarzenegger hopes to persuade lawmakers and voters to create to ease the state's boom-and-bust revenue cycles. The state would use $5.1 billion of the money to help balance the budget for the fiscal year that starts July 1.
If voters rejected the bond plan or if it failed to generate enough money to fill the rainy day fund, officials would be able to trigger a one cent sales tax increase that would remain in effect until the state filled the rainy day fund or until June 30, 2011, whichever happened first. A sales tax of 7.5 percent would jump to 8.5 percent, for example.
Mike Genest, Schwarzengger's finance director, said the state could begin imposing the sales tax increase at the end of this year - in time for the holiday shopping season - if voters rejected the lottery proposal.
The additional sales tax revenue would be returned to taxpayers through an unspecified rebate system. Rebates would begin whenever there was excess money in the rainy day account, which could total no more than 15 percent of the state's general fund.
If revenue in any one fiscal year exceeded a 10-year average, the excess would go into the rainy day fund, which could be tapped only in years with below-average revenue.
The governor's plan anticipates passage of legislation by Sen. Dean Florez, D-Shafter, that would raise the amount the lottery could pay out in prizes.
Currently, 34 percent of lottery revenue is earmarked for schools, 50 percent must be used for prizes and no more than 16 percent can go to cover the cost of running the games.
Florez's bill would reduce the amount used for lottery administration to a maximum of 13 percent and eliminate the requirement that 34 percent of lottery revenue go to schools. Schools would receive a base amount of nearly $1.3 billion a year, but the state lottery commission would decide if schools received more than that.
The bill also would allow the commission to authorize new types of games that were not widely available or commercially feasible when California voters authorized the lottery in 1984.
Florez said he would oppose an administration plan to use the $1.3 billion in minimum school funding as potential collateral to pay off the bonds.
"Our approach guarantees schools $1.28 billion," he said. "The governor says he wants to lock in schools, but if something goes wrong we give up school money to pay back bond holders. We have to work out how schools get made whole."
Schwarzenegger called the lottery bond proposal "a great idea" that would improve an underperforming state asset. California's lottery is ranked 28th in the nation in terms of per-capita sales.
He also said it would strike a middle ground between Democrats who want to raise taxes to help erase the state's deficit and Republicans who oppose any tax increases or closing any tax loopholes. He said he doubted the sales tax trigger would ever be pulled.
The proposal quickly ran into criticism from both Republicans and Democrats.
"Tax increases - or the threat thereof - are not the answer," said Senate Minority Leader Dave Cogdill, R-Modesto. "While we support looking at ways to make the lottery more profitable to taxpayers, we have concerns about linking those reforms to a tax hike."
Senate President Pro Tem Don Perata, D-Oakland, called the lottery plan "the worst kind of market speculation, worse even than the speculation that caused the housing collapse in the subprime debacle that caused millions of Americans to lose their homes."
Genest predicted investors would find the lottery bonds appealing even though the state wouldn't be required to pay them off.
"We can go to the market and say we're absolutely certain we're are going to raise lottery revenue" to pay off the bonds, he said during a budget briefing. "There is no risk."
He said the state would be paying interest on the bonds that would be "very comparable to market interest rates, which is going to be a pretty good deal."
Florida and Oregon have borrowed against their future lottery revenue but not to the extent Schwarzenegger is proposing, said Arturo Perez, an analyst with the National Conference of State Legislatures.
Ben Watkins, director of Florida's Division of Bond Finance, said that state has sold $2.1 billion in school construction bonds backed by lottery revenue since 1998.
"It's a very durable revenue stream, very stable, and it hasn't fluctuated even during economic cycles," he said."
To make it payoff, California residents will have to spend a lot more on the lottery - attracted by larger prize payouts - than they do now. If they don’t, the state could hike the sales tax.
Schwarzenegger’s plan calls for the state to sell $15 billion in bonds that would be paid off with the increase in state lottery revenue. Unlike general obligation bonds, which carry the full backing of the state, California would not be required to pay off the lottery bonds.
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The Indians aren’t the only ones running gambling ops. in this state these days.
I’ll bet this is something to separate me from my money.
The mob would get involved and help out I’m sure, if asked. They are cetainly more qualified than the gub’s motley crew of advisors.
Instead we have the gang of criminals in the state legislature raping the state and the gUb comes up with this..
Sounds like a good reason to throw him out of the California GOP.
I knew it! haha! Called this weeks ago. No freaking way was Schwartzeneger cutting spending.
Almost jokingly and dead seriously we declared that so what if California is 30-billion dollars in debt. They’ll just borrow it again! Just like the cloning money!
Perhaps California is really betting on that global warming research and said cloning to just spill money all over the state coffers?
This is ridiculous. How does the most beautiful state in the union get over-run with such freaking lugheads?
(And for those who think I was “bragging” about calling this, don’t. I’m rather much a fan of the absurd—sadly, it seems to predict what happens in California all too well. :(
The most disturbing of which is: How the hell is it that in a state of 30 million people we always have to choose between 2 or 3 dunderheads for Governor?
Of course that goes for the Assembly and Senate also.
Governor Shriver is a wuss and a marxist, I have not been able to find 5 people yet who actually have any respect for him as a Man, and I work for all his friends, and yes I have done work for him too in the past. Most of the People in his own neighborhood thinks he is a girly man that takes his orders from his wife.
If he were truly a man of the people he would file for bankruptcy protection for the state. The very Idea that we cannot cut 5% of the budget is ludicrous. but hey why cut spending when we can just pass hundreds of billions of dollars of debt TO OUR CHILDREN, which seems to be his only idea.
Eyeamok
What I wanna know is when Arnie and the rest of his socialist helpers bankrupt Cali will Bernake and the current Pres come to their aid and bail them out?
Eyeamok,
You are spot-on! I’ve always felt that no government job should ever pay more than a similar job in the private sector. I mean, where do these government hacks think their pay/funding comes from?
CA should cut all state spending by 5% immediately!
So far I’ve noticed a rise in Automobile Registrations, and costly fines for lack of estimating ones income tax to send to the Board of Equalization per quarter. Although the estimation law has been in place for years, it is now being enforced with more regularity.
I’m certain California has even more creative means to try to make up for the irresponsible deficits racked up by our Leftist Legislature.
CUT SPENDING!
But to expect this from the bozos running California is nothing but a dream.
I think the state could start cleaning this mess by some simple measures:
1. No state money for the university system...let the students pay the bloated salaries of the professors and the football coaches. When they tire of that...they can go to real colleges out of state.
2. Examine the salary structure of every state employee who makes more than $80k per year. The bulk of them should be offered a 10 percent pay-cut. If they don’t like it...go to Texas where they would be paid half of what they make in CA.
3. Make a simple law that says you can only spend what you make via revenue. Every CEO knows day by day...if he is making a profit or a loss. The state is very capable of this but doesn’t want to admit that revenues aren’t covering the requirements.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
If they raise the price of the Lotto tickets to $10 each, that will solve our budget woes. If not, maybe $15 each? After all, millions of people throw their bucks at the Lotto without getting anything back. Now they can smile knowing they rescued state gooberment.
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