Legislative Analyst Close to Schwarzenegger on Budget Revenue and Expenditure Projections But Rips Him on Lottery and Solutions to the Mess

On the lottery, we learn that California trails the national average in per capita sales:

“Over the past year, the Governor has repeatedly raised the issue of the California Lottery’s sales performance, relative to the other 41 U.S. states with lotteries. Figure 6 shows that in 2006–07 per capita lottery sales in California ($91) were about 50 percent of the national average ($189). (Western states have always had lower lottery sales, and California’s per capita sales lag the average of these states by a much smaller margin.) The Governor, as well as several industry experts, have attributed at least a part of this sales lag to the lack of flexibility granted the Lottery Commission in its initiative statute to adapt to changes in the state’s economy, demographics, and gambling marketplace.”

As to educational funding from the lottery plan of the Governor’s, this is what she says:

“ While the administration acknowledges that there is no way to know for sure how much the proposed changes would increase lottery profits, its forecast model assumes that such profits would grow from $1.2 billion in 2007–08 to over $2.4 billion at some point between 2013 and 2017. This means that total lottery sales would increase from $3.4 billion to over $7 billion during this five– to ten–year period. In so doing, per capita sales would approach the national average, according to the administration’s assumptions. This assumed increase in lottery sales allows the administration to forecast that debt service will be paid in full each year and public education will receive a distribution of $1.2 billion annually. If, on the other hand, lottery sales and profits did not grow as much as forecast by the administration, bondholders would continue to receive payments, but public education would experience a drop in lottery payments.”

The LAO assesses the May Revise as making “marginal progress in some areas.” She puts forth her assertion that the “dismal budget outlook requires additional LAO solutions” and fundamentally disagrees with the across the board reduction approach of the Schwarzenegger Administration.

The long term “budget reform" proposed by the Governor is skewered as locking in the shortfall. The LAO says: “Formulas, by their nature, cannot predict all future circumstances. As a result, they tend to limit, rather than increase, future policy makers’ options to craft budgets.” She says that midyear reductions would “damage legislative authority,” and evinces a limited effort to set priorities, and the the “existing process for midyear reductions is working.”

Curiously, there is this passage about undoing the “ballot box budgeting” or some of it that has been added onto year after year by the voters:

“Unlocking the Budget. If the Legislature chooses to use the November ballot as part of its 2008–09 budget solution, it should think broadly about budget changes. Over the past 20 years, there have been numerous propositions which have either dedicated tax revenues to specific purposes or locked in General Fund spending. The Legislature could systemically review formulas—both those passed by the voters and those enacted by the Legislature—to determine if they are still needed and continue to reflect today’s priorities. If it chose to “unlock” the state budget by repealing these types of formulas, it would gain greater flexibility in crafting the budget to meet current state priorities. In contrast, the administration’s proposal to eliminate the ability to suspend Proposition 98 would take away one of the Legislature’s tools to respond to a budget crisis.”

Democratic Senator Don Perata, President pro Tem of the Senate, said the following about the LAO’s report:

“The Legislative Analyst’s report underscores that the Governor has failed to solve the state’s long-term fiscal problem. His proposed budget is full of gimmicks and more borrowing that further jeopardizes California’s future. The lottery plan is not only overvalued, it puts education dollars at greater risk.”

“We need the kind of bold leadership the Governor showed in 2006, when he campaigned for investing in California. The LAO has no politics; it shows the budget for what it is – a fiscal disaster.”

Looks like it may be a long hot summer.