LAO: Governor’s budget proposal ‘seriously flawed’
Echoing concerns voiced by CSBA analysts and other state education policy experts, Legislative Analyst Elizabeth Hill warns that “securitizing” the state lottery—a key component of Gov. Arnold Schwarzenegger’s May budget revision, one promoted to stabilize that funding stream for public education—could instead cost schools billions of dollars.
“Overview of the 2008-09 May Revision,” released by the Legislative Analyst’s Office May 19, cautions that revenue estimates included in the governor’s proposal to borrow against future lottery earnings are overly optimistic. In fact, Hill concluded, there’s a good chance that schools would get less revenue from the lottery under the governor’s plan than the $1.2 billion a year they receive now.
“Based on our assumptions of the governor’s plan, education would receive $9.4 billion of lottery funding over the first 12 years of the plan—instead of the $14.4 billion assumed by the administration,” Hill’s analysis says. “The administration makes overly optimistic estimates of potential growth in lottery sales and profits. Consequently, its securitization proposal would create the serious likelihood that distributions to public education from the lottery would fall well short of their current level by $5 billion over the next 12 years combined.”
The LAO’s analysis and budget recommendations also take issue with other aspects of the governor’s budget restructuring plan, calling proposals to reform the budget “overly complicated” and “seriously flawed.” The governor proposes a constitutional amendment that would set caps on general fund growth, make it more difficult to transfer money out of reserve funds, and give the administration authority to make midyear budget cuts if the state gets into financial trouble. Hill said the state can limit spending and growth and increase reserves without implementing any of these potentially onerous measures.
“The administration’s budget reforms would lock the state’s budget shortfall in place and could lead to automatic across-the-board reductions” that threaten essential programs and services by failing “to prioritize which programs are most essential while undermining the Legislature’s constitutional authority over appropriations,” the report says. Hill also continues to oppose the governor’s plans to reduce spending by making indiscriminate across-the-board cuts.
She acknowledges that lawmakers face “a monumental challenge” as they work to close the state’s estimated $15 billion budget gap. “All available solutions involve consequences and tradeoffs,” she writes. She urges the governor and Legislature to “level with the public” about the scope of the problem, rather than trying to find ways to postpone necessary cuts by borrowing more money.
In his May revision, the governor proposed asking voters to approve a dramatic expansion of lottery sales and to authorize selling a portion of future lottery profits to bond investors to raise $15 billion. The governor also recommends that the Legislature authorize the Department of Finance to trigger a temporary one-cent sales tax to build state reserves in the event the lottery measure fails or is stalled by legal challenges.
Hill calls relying on a voter-approved ballot measure to balance the budget an inherently risky strategy, although she supports the need for a “fail-safe mechanism” to raise money if the lottery plan doesn’t pan out. But she recommended keeping the sales tax in place only through 2009.
Related link:
Find the Legislative Analyst’s 36-page report on the governor’s May budget revision @ www.lao.ca.gov/laoapp/main.aspx.