Massively expanded lottery revenues are key to Schwarzenegger's budget plan
Called the lottery an "underperforming asset"
Anxious to avoid deep cuts in education spending, Gov. Arnold Schwarzenegger on Wednesday proposed dramatically expanding the state lottery and slashing entitlement programs, to help close a budget gap now pegged at $17.2 billion.
Schwarzenegger hopes to win voter support in November for a deal to obtain $15 billion from Wall Street firms, to be repaid from what the governor expects will be greater lottery profits over as long as 32 years. The governor proposes increasing both the number of gambling games, and the amount they will pay out, to increase the lottery profits as a way of enticing the firms to provide the $15 billion.
If voters rejected were to reject the plan, a 1-cent sales-tax increase would automatically kick in.
The possibility of a tax increase is a marked shift for Schwarzenegger, who in the past has proclaimed his opposition to tax increases.
The governor said his plan is designed to limit cuts to education and get the state back on sound financial footing. But it was met immediately by bipartisan resistance in the Legislature, which would have to approve both the social-service cuts and the lottery referendum idea with a two-thirds vote.
Schwarzenegger said he had little choice.
"I know this is going to be very difficult and very painful," the governor said, referring to the health and social-service cuts. "But the bottom line is we can't afford to spend money we don't have." He called the lottery an "underperforming asset" that needed to be "modernized," with a goal of doubling its current annual profit of $1.2 billion. The proposal calls for schools to continue to receive the first $1.2 billion in profit from the lottery, with the Wall Street firms collecting from profits beyond that amount.
The proposal allowed the governor to avoid calling explicitly for a tax increase, although Republicans said they oppose even the possibility of raising taxes. And while Schwarzenegger promised voters four years ago that he wouldn't ask to borrow money again to balance the state budget, the lottery deal would be tantamount to a loan, even though Schwarzenegger insisted on not calling it that — his staff is using the term "securitization."
The governor intends for one-third of the $15 billion to go toward the deficit in the fiscal year starting in July. The rest would be used to create a "rainy day" fund to shield the state against future downturns — a top priority of his. The money would be paid back, with interest, over a period up to 32 years.
If voters reject the proposal, a temporary, 1-percentage-point increase in the state sales tax would go into effect, lasting until state finances improved and the budget was balanced. The sales-tax increase would be reversed if tax revenues rebound and the state turned a surplus, and it would sunset by the end of fiscal 2010-11 at the latest.
The governor also dropped two other unpopular proposals from his January budget proposal: closing 48 state parks, and releasing about 22,000 inmates from prison before their terms expire. Instead, he suggested raising fees by $1 or $2 at several popular parks.
Other services did not fare nearly as well. Health care advocates said the governor's cuts would deny coverage to hundreds of thousands more people and reduce access to care for many more.
His plan would cut hundreds of millions of dollars used to supplement the salary of in-home support-services workers who care for the elderly; eliminate a welfare program and reduce health care services for immigrants; deny federal cost-of-living increases to a welfare program that helps the elderly, blind and disabled; and make a parent in a family of three earning $11,000 ineligible for Medi-Cal, the health care program for the poor and disabled.
Those reductions would be over and above more than $4 billion in cuts to health and human services that Schwarzenegger proposed in his January budget. "Governor Declares War on the Poor," read the headline of a news release by the Western Center on Law and Poverty.
Santa Clara County officials said a hasty review of the budget proposal Wednesday indicated it could raise by $70 million the county deficit, which already was projected at more than $170 million.
"There's only so much you can keep cutting from the poor," said Patricia Gardner, executive director of the Silicon Valley Council of Nonprofits.
And consumer advocate Anthony Wright of the group Health Access called the governor's plan "a massive step backward" for the state's already tattered health care system.
Education advocates, on the other hand, were cautiously heartened that the governor sought to reverse some of the cuts to schools he had called for earlier this year. His revised budget would provide a small funding boost and avoid suspending Proposition 98, which guarantees a minimum level of funding for schools each year.
"This is definitely a step in the right direction," said Terry Anderson of School Services, a Sacramento consulting firm that lobbies on behalf of school districts.
While the California Teachers Association continued boisterous rallies Wednesday to warn that 18,000 teachers could lose their jobs, only a handful of tenured teachers in Santa Clara County had received notice by today's deadline under state law.
The fate of the governor's plan rest in the hands of the state Legislature, where the proposal faces a tough audience. Democrats blasted the cuts to health and human services and called the lottery plan a "gimmick," while Republicans criticized the sales-tax increase, even as a last resort.
"Democrats are not going to accept this budget," predicted Sen. Denise Moreno Ducheny, D-Chula Vista, who chairs the budget committee. She called the spending plan "dishonest and irresponsible" and said, "It does use gimmicks, it does overborrow, it is much more of the same."
Republicans said they would consider the lottery proposal, but not if it was it's linked to a sales-tax trigger.
"The lottery is underperforming, and it could be part of the solution," said Senate Republican Leader Dave Cogdill, R-Fresno. "But we're not interested in raising taxes."
The current state sales tax is 7.25 percent. But counties can levy an additional tax, so the overall rate ranges from 7.25 percent to 8.75 percent depending on the county. In Santa Clara County, residents currently pay 8.25 percent; a 1-cent increase would raise that rate to 9.25 percent. Finance officials now peg the deficit for fiscal 2008-09 at $15.2 billion. But Schwarzenegger wants to create a reserve of about $2 billion, bringing the total gap to $17.2 billion. The total general fund for fiscal 2008-09 is estimated at $101.8 billion.
Sooner or later, they had to find out the truth behind the Govenator. Nothing tops the ego, except taxes. When in doubt, raise taxes. Ten cents on the dollar, for the county & state, is only the beginning. Wait until the Federal elections are over. By 2012, every American will be taxed to the max.
I suppose the new Daily 4 game that starts Monday will have some impact on the bottom line.
Those who want to learn more about the new Daily 4 game, click the Event Calendar link on the left, and then click on May 19th. There is an official publication (Adobe Acrobat document) linked there for details.
Todd:
FoxReader also worked for PDF files; without the call home and montioring feature requirement of Adobe. It is free and can be found by google search. No more slowing down of your computer while Adobe takes over your internet link.
I am not sure how having more games is going to increase revenue. They seem to have all the bases covered with a large jackpot lottery (SuperLotto Plus), smaller jackpot game (fantasy 5), daily games (daily 3 and 4), and scratchers. I don't think decreasing the odds of SupperLotto Plus in order to get larger jackpots is a good idea. We already have one low odds to win jackpot game with Mega Millions.
I agree JW,
California seems to find more ways for us to play without increasing the payouts odds. When I saw the pick 4, it didnt even phase me; There is no way I will play any more games. I even stopped scratchers. I noticed that other states have the option of megaplier (for MM) but CA does not. Is it because we can win more money with the same odds? not sure. I look at the odds of some of the other states and CA seems to not even compare. I wish we coudl play powerball. I was even thinking of having a friend in AZ play with me then thought against it. If its my destiny to win CA SLP, I will win.
Adding a Pick 4 game will absolutely increase revenues. Just look at every other state that's done it and you will see that's how it works. It becomes a question of exactly how much revenue will be raised, but it is undeniable that it will raise revenue.
An Example of using Lottery procedes as standard tax revenue.
More states are doing this, and have been. Since lottery revenues are fairly predictible, states have been using those funds as a substitute for taxes. Instead of raising taxes to pay for something, they use lottery money. For example, say a state spend $1 billion on education last year. This year, it needs 1.1 billion. Normally, they would raise taxes to cover the gap. Now, they'll take $100 million out of the lottery fund.
It may seem that this is a great deal, but it's totally stop gap funding. Taxes aren't raised, which makes politicians popular. But the funding problem will continue. Stop gap funding is not able to fund needed improvements, be it education, roads, law enforcement social programs. It's just like us taking money out of our emergency funds to pay for that trip to Vegas, so we can gamble, etc.
Privatizing the lottery, or any other government function such as tollroads, tax collections, etc, only makes the problems worse. Instead of controlling the lottery, the people instead turn it over to private business, business who are intent on making profits. In the case of the lottery, this means more media, more exposure and more pressure to get people to play. Let's face it, lottery is a nice way of gambling. Not everyone likes gambling, but is willing to tolerate it if its something benign like playing Powerball once and awhile. The people, however, may not understand that by turning over its lottery to private business, it will be increasing the demands to play. Children will grow up seeing the ads, think that its normal to gamble. Adults, seeing ads improperly saying the lottery helps education (as is done with total abandon here in Virginia), may actually feel empowered to gamble more.
Lotteries were never intended to be a long term source of tax revenues. They were, at best, seen as a way to increase general fund levels so states could take on projects beyond the scope of normal tax levels. Now, those funds are being used up to fund regular programs under the guise of tax savings. That's wrong, of course, because eventually states will expend all lottery funds.
Americans bitch and moan about taxes, truth is, we're actually not taxed that high compared to other places. Recently, taxes have been made even more unpopular by certain political party's claiming taxes are just used to pay off ethnic minority freeloaders. In truth, at the federal level, over half of all tax dollars go for defense, and defense related funding. And to pay off politically connected federal contractors, who are taking ever more gross amounts of our taxes in lieu of having fed workers do jobs.
The people of California should reject this call and keep control of their lottery. Giving it away to private contractors will be the end of the people's control of their lottery. Those folks out there who complain the loudest about such things are fools for supporting this proposal.
Here is a question...
Is there a law or something which prevents a state from participating in both Mega Millions and PowerBall?
Maybe, the plan is to do both jackpot games within the same state?
Texas has been trying, without success, to have MegaMillions and Powerball games, along with Texas Lotto, a nearly defunct Cash 5, Texas Two-Step and Pick 3 and Pick 4.
The problem is that the Mega group doesn't want the competition. Same with the Powerball folks.
Things may change in future, but no Governor can make it happen just to provide additional spending money.
IMHO, adding more games, or making the existing games harder to win, isn't going to attract more players. Just the opposite.
One day, someone with the power to change things is going to wake up and realize that the best way to attract more players is to make the games easier to win. But, unfortunately, the folks running the games got where they are because they have a minimal amount of common sense and know how to use greed to the best advantage.
At one time, my city had an effective street repair crew. It took a lot of driving to find a pot hole to drive over.
Then one day, the folks in control decided to go private. As a result, the city is spending more money and the streets and roads are poorly maintained. A lot of folks are laughing all the way to the bank.
Sell, give, loan the lottery to private business is worst possible choice, which is why it's likely to happen.
One thing that California is lacking is a good scratch-off game scheme. CA has some of the lowest payout percentages, if not the lowest, in the country. No scratcher pays out more than 64% of sales, compare that with it's northern neighbor Oregon, where no scratch-off pays out less than 65%. CA needs across the board increases in scratch-off prize returns, the more the better. They also need to remove the $5 price cap, as it is hurting revenue potential.
Plus, they need televised ball drawings for all games, not just SuperLotto Plus.
Looking at the state by state sales for Mega Millions, California with it's population is over 35 million only sold about six million dollars in tickets, the number of people who play Mega Millions there is fairly low in comparison, it's similar with Texas. Maybe it's because there are more or maybe more attractive options with the state lotteries? New Jersey and New York seem to be the most popular though I'd imagine that there are a lot of people who go into either state to play which is why sales there are roughly half (or better) each states population. Washington, California and Texas are the lowest.
Where can Mega Millions sales by state be found?
I found it at Lotto Report.
I guess the Texas number is probably not accurate, but I doubt it's significantly different.
I agree the payouts in California are usually worse than other states, and it makes people not want to play as much. But it's not like they're ever gunna increase payouts