In this edition of “Did you know?” we take a look at Prop. 1C.  Sure, the ballot statement, the legislative analyst’s report, and every public utterance about Prop. 1C to date asserts that it would allow the state to borrow $5 billion dollars against future lottery revenues.  But did you know that, according to Darrell Steinberg, it would actually allow the state to borrow twice that?

Trailing badly in the polls, Proposition 1C would infuse the state budget with cash by borrowing against future California Lottery revenues. The February budget assumed that it would provide $5 billion for the 2009-10 budget. But Steinberg said he now believes the state could borrow $10 billion from the Lottery and use it all in 2009-10.

Consider it something of a “Hail Mary” argument for Proposition 1C.

“In my view we can triage our way through an $8 billion problem,” Steinberg said. “That doesn’t mean that there won’t be some difficult choices. But, you know, we have a $2 billion reserve. There may be other opportunities with federal economic stimulus … If 1C passes, you know, it’s actually a $10 billion one-time securitization. It was just contemplated as being spread across two fiscal years. You could bring the second $5 billion into the budget year.”

What fun things you learn when your proposition trails in the polls!

Let’s go to the summary of Prop. 1C, shall we?

Impact on 2009-10 State Budget: Allows $5 billion of borrowing from future lottery profits to help balance the 2009-10 state budget.

Hm, no mention of future state budgets there.  But yes, the Senate President Pro Tem is correct.  In the analysis by the Legislative Analyst, he mentions that “the state also could borrow more from lottery profits in future years.”  In fact, the $5 billion dollar figure appears nowhere in the text of Prop. 1C.  Here’s the relevant portion of the text:

(2) Notwithstanding any other provision of law or this Constitution to the contrary, the Legislature is hereby authorized to obtain moneys for the purposes of the California State Lottery through the sale of future revenues of the California State Lottery and rights to receive those revenues to an entity authorized by the Legislature to issue debt obligations for the purpose of funding that purchase.

Well, that would be interesting to know before voting, wouldn’t it?  That this proposition basically opens up a new state credit card for the potential purpose of endless borrowing?  Borrowing that would have to be paid back, with interest, for the next several decades?

California’s reliance on borrowing to cover the budget deficit has been part of the landscape for 30 years.  Debt service currently costs the state $5 billion a year.  If you think this is a good idea, I invite you to enable it by voting to allow basically limitless borrowing against the lottery.  Surely that won’t be abused.

…by the way, the depiction by Steinberg of $8 billion dollars as a niggling problem not to be trifled with, but $14 billion as simply insurmountable, is another new one.  Considering that Steinberg and the Senate passed a majority-vote fee increase of around $9 billion last year, more than the $6 billion allegedly at stake in the special election, and his description of how to fill the budget gap did not include this, forgive me for saying that his beliefs don’t hold up to scrutiny.

Yesterday’s news that Democrats were considering borrowing to balance the budget, specifically the plan to raid transportation and local government funds, brought a  vigorous response from Democratic leaders in the legislature. Don Perata, Karen Bass, and John Laird all issued statements claiming to not support budget borrowing, although the parsing of the words matters.

Perata’s statement:

Today’s Los Angeles Times story about state budget negotiations is inaccurate and misleading. Democrats have never entertained massive borrowing as a solution to this year’s budget problem. In particular, Democrats have never advocated nor believed in taking money from Propositions 1A, 42 and 10.”…

“Doing another get-out-of-town-alive budget would do nothing to help this state but rather would endanger Californians’ standard of living and economic future.”

Denise Ducheny chimed in with her own statement along these lines, and later in the day Bass and Laird added their stance. Karen Bass:

“Major borrowing is not part of the Democratic budget plan, and we don’t believe it should be part of the final solution. Our proposal balances the budget with a mix of billions of dollars in difficult spending cuts and new revenues, similar to those proposed by a previous Republican governor. It’s gimmick-free and honest. It closes our budget gap in a straight-forward manner, and eliminates out-year deficits.”

John Laird:

Any proposal to borrow from voter-approved propositions is not coming from those of us who want to balance the budget without borrowing or gimmicks.

Strong words – but nowhere in them did anyone explicitly rule out borrowing from the transportation and local government funds. It’s comforting to know that Democrats did not propose these plans and that they do not wish to use budget gimmicks – but a firm rejection of the plans is what we really needed to hear.

Sure, some might say we should not be negotiating in public. But if Republicans get to say “no new taxes” then surely Democrats are able to say “no new raids.” As I argued yesterday raiding these funds would not only cause the state serious economic harm, but it would severely weaken the Democrats’ political fortunes in the process.

Californians’ opinion of the Legislature is low, and many don’t trust their politicians. That gives the right wing a major opening to push through damaging things in the guise of populism. Democrats need to stand up to Republicans and protect working Californians. Refusing to even consider raiding the Prop 1A, 10, and 42 funds is a small but necessary place to start.

Given all the buildup that came before Arnold Schwarzenegger’s May Revise, it may seem surprising that we have heard relatively little about the budget from the state’s media and politicians over the last few weeks. The June primary is partly responsible for this, as Sacramento’s attention is on the various primary contests in legislative districts around the state.

But an even bigger factor is that there does not actually seem to be any budget solution being actively discussed, and certainly none that would realistically solve the budget deficit. Arnold’s May Revise used as its cornerstone a questionable lottery borrowing plan, but as Evan Halper explains in today’s LA Times it is becoming difficult to take the plan seriously:

Californians find the governor’s lottery strategy so distasteful, a recent state poll suggests, that they would rather have their taxes raised. Meanwhile, lawmakers are denouncing the plan as a gimmick, and analysts say it could prove far costlier to the state than Schwarzenegger is letting on.

Voters would have to approve the governor’s proposal. But Mark Baldassare, president of the Public Policy Institute of California, said they meant it when they approved the lottery by ballot measure two decades ago to raise funds solely for schools.

“They don’t see it as money to move around and use for other purposes,” he said.

Administration officials are adamant that schools, the beneficiary of the lottery, would not lose money. Still, the institute released a poll Wednesday showing that only 30% of likely voters support the lottery borrowing (with 8% undecided), while 57% back the 1-cent sales tax increase that Schwarzenegger is grudgingly proposing as a backup if the lottery plan falters.

Although it’s not clear to me whether the 1-cent sales tax increase requires a 2/3 vote, Democrats should take note of that poll result. 57% is a pretty clear majority of Californians, suggesting that concerns voters won’t support higher taxes are overblown at best.

Halper wants to argue this is a sign that voters love their lottery, but the stats suggest otherwise:

California’s lottery is one of the more outdated in the country. And last month lottery officials reported that sales were $275 million below projections for the fiscal year ending this month.

So I don’t think it’s that voters have a strong connection to the lottery. What this instead suggests to me is that voters can see right through gimmicky proposals to provide yet another short-term budget fix, and are instead demanding long-term, permanent solutions.

Combine the lottery bonds’ low poll numbers, the dim prospects that the lottery would ever attain the sales levels necessary for the bond plan to succeed (as the article notes, lotteries need video terminals to achieve high sales figured and the tribal casinos would surely never let that happen), and the lack of enthusiasm around Sacramento for the plan and it seems that Arnold’s budget is DOA.

Unfortunately nobody has yet stepped up in Sacramento to offer an alternative plan. Arnold Schwarzenegger’s administration is a clear failure, but that doesn’t absolve Democrats of their responsibility to provide a coherent alternative. Californians are seeking real solutions, permanent budget fixes that will solve the structural revenue shortfall, protect core services, and position California for success in the 21st century economy. If we don’t solve this now, this state is going to fall permanently behind the rest of the globe, and more and more Californians are beginning to grasp this.

Now would be a good time for Democrats to step up and offer a coherent, long-term budget solution. Propose it before July 1 and start mobilizing public support for it as soon as possible. We know that Republicans will maintain a ridiculous “no new taxes” stance, but that seems to be politically untenable in this climate and is setting them up for big losses in the 2008 elections. Californians deserve a clear choice, and they deserve a budget that is sound, stable, and structurally secure.