SACRAMENTO -- — Gov. Arnold Schwarzenegger's plan to help close the state's budget shortfall by borrowing $15 billion against the future profits of a modernized, expanded lottery is overly optimistic and could exacerbate California's financial problems, according to the Legislature's chief budget analyst.
Nonpartisan Legislative Analyst Elizabeth G. Hill, whom both Republicans and Democrats look to for advice on spending issues, said the proposal assumes a boom in lottery earnings that is unlikely to materialize. The result, Hill said in a report released Monday, is a "strong likelihood" that the share of money that schools receive from the lottery "would fall well short of their current levels -- perhaps by $5 billion over the next 12 years combined."
She suggests the Legislature adopt a plan that would bring in just $5.6 billion over two years.
Administration officials defended the plan, saying that Wall Street consultants and other experts had assured them that a cash windfall could be generated by an updated lottery.
"Universally, they have told us, 'There is great potential in your lottery,' " said Fred Klas, chief operating officer of the Department of Finance. "They all come to the same conclusion: that this is an asset that, if modernized, is worth multiple billions of dollars."
H.D. Palmer, a deputy director at the department, noted that although the administration and the analyst disagree on the amount of cash that can be raised, Hill has "embraced the concept" of borrowing against the lottery.
The proposal, if approved by lawmakers, would come before voters in November. It calls for updating the lottery with new games, aggressive marketing campaigns and ticket sales in electronic machines at big-box stores such as Target. If Californians were to reject the proposal -- or if the plan were blocked in court -- a 1-cent-on-the-dollar sales tax increase would take effect for up to two years to keep the state in the black.
Hill supports the sales tax as a backup but suggested it be in place for one year only.
At a news conference Monday, however, she cautioned that even if the lottery expansion were to be approved by voters, the governor's plan would still "leave the state with multibillion-dollar shortfalls."
