Politics

SACRAMENTO (AP) ― Gov. Arnold Schwarzenegger on Wednesday said he is convinced California voters will support his plan to borrow $15 billion against future lottery proceeds once they understand the details.

Schwarzenegger's proposed spending plan for the fiscal year that begins in July relies on using $5 billion in lottery-backed bonds to balance the budget. The other $10 billion would go into a fund that could help balance the budget in the future when revenue plunges.

"They don't know yet that we don't take risks," he told reporters after a speech to the California Chamber of Commerce. "It is not borrowing, and it will help us with our budget because we are short of revenues because we don't have a rainy day fund set aside."

He has work to do, according to a survey released Wednesday.

Most Californians dislike the lottery proposal, according to the poll by the Public Policy Institute of California.

The survey found that 58 percent of residents and 62 percent of likely California voters oppose the plan to borrow money from future lottery earnings. That opposition held true for majorities of Democrats, Republicans and independents.

Majorities of Democrats and independents, and half of Republicans, did favor Schwarzenegger's fallback plan to increase the state sales tax 1 cent if voters reject his lottery plan in November.

Administration officials have characterized their budget plan, released last week, as a double solution: closing the $15.2 billion deficit for the coming year and providing long-term reform by socking away money in the rainy day fund.

Schwarzenegger emphasized his contention that the state faces no risk in pursuing his lottery proposal.

Under his plan, the state would expand the types of games the lottery could offer and market them more aggressively. Californians spend about $91 per capita on their state lottery, about half the national average, leading Schwarzenegger to call it an underperforming asset.

The state would take steps designed to boost the lottery's revenue and sell bonds to investors based on the value of those future sales. This is the best way for California to close its budget deficit without raising taxes, Schwarzenegger told about 1,500 business leaders in a speech hosted by the California Chamber of Commerce.

"This would tide us over," Schwarzenegger said. "There is nothing gimmickry or exotic about it. ... It is important to recognize that the ones that are taking the risks on the whole thing are the investors. Investors take the risks, they buy the bonds based on future lottery projections.

"That is the bottom line, and I think this is the direction to go, because we don't want to raise taxes."

While investors will take that risk, they also will want to be repaid. If the lottery revenue fails to increase as the administration anticipates, investors could tap the roughly $1.2 billion the lottery distributes to schools each year.

To make up for that money, the state most likely would have to dip into its general fund and reduce spending for other programs, according to a report this week from the Legislative Analyst's Office.

An announcement this week by the California Lottery Commission casts doubt on whether the lottery can grow as Schwarzenegger envisions and thus sustain his budget proposal.

The commission said it had voted for a midyear budget revision because revenue was running behind expectations.

Updated sales projections show revised 2007-08 lottery sales of just more than $3 billion, a $275 million decrease from projected revenue. Schools would receive $94 million less than projected.

In a statement, lottery officials blamed the shortfall on "poor brand image and low prize payouts, as well as arcane restrictions." Schwarzenegger wants to change those operations and encourage Californians to gamble more of their money.

If his plan survives the Legislature, it would go to voters for approval on the November ballot. Rejection by voters would trigger a temporary 1 cent sales tax increase, under Schwarzenegger's plan.

He compared his lottery proposal to the state's issuing of bonds to take immediate advantage money from a 1998 tobacco company settlement with states nationwide. That money otherwise would have trickled in over a period decades.

The governor noted that voters initially were skeptical of proposals to borrow $37 billion for highway, school, flood protection and affordable housing projects in 2006, yet all passed.

Schwarzenegger did not respond to criticism of his budget plan from the state's nonpartisan legislative analyst.

In a report this week, analyst Elizabeth Hill said the governor's lottery revenue projections were overly optimistic and could harm education funding. She agreed, however, that selling lottery bonds should be part of a solution to the budget crisis.

Hill also encouraged lawmakers to raise $3.3 billion by closing a variety of tax loopholes.

Schwarzenegger said his $144.3 billion budget is a moderate plan that could be supported by legislators of both political parties.

Legislative leaders drew different conclusions from the Public Policy Institute survey, just as Californians were split over how to solve the state's budget mess. While 43 percent said the deficit should be closed through a combination of cuts and tax increases, just 8 percent preferred only tax increases.

Strong majorities favored raising taxes on the wealthy and corporations.
Assembly Speaker Karen Bass, D-Los Angeles, said in a statement that the poll shows voters are "skeptical about the governor's risky lottery plan" and want to protect education and health care from budget cuts.

Her Republican counterpart, Assembly Minority Leader Mike Villines of Clovis, said the poll shows that "the last thing we should do is raise taxes, temporary or permanent." He said doing so would hurt economic growth.

The telephone survey of 2,003 residents was conducted May 12-18; 1,503 adults answered questions about the budget after it was released on May 14. The survey's margin of sampling error ranges up to plus or minus 3 percentage points.

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