Sacramento Bee
May 19, 2008
http://www.sacbee.com/111/story/950466.html

The Legislature's budget analyst on Monday called Gov. Arnold Schwarzenegger's lottery proposal "flawed" and warned lawmakers that money for public schools could fall short of current levels under the plan.

Legislative Analyst Elizabeth Hill issued a critical reaction to the governor's proposal to obtain $15 billion from future lottery revenues over the next few years to help fill a widening budget gap, now at $15.2 billion.

Currently, lottery profits benefit public schools, from kindergarten to community colleges. Hill wrote that the Schwarzenegger administration made "overly optimistic" assumptions about the potential growth in lottery sales. She warned that public education funding "would fall well short of their current levels -- perhaps by $5 billion over the next 12 years combined."

Hill also was critical of Schwarzenegger's plans to prevent budget problems in future years.

The governor proposed putting lottery proceeds into a "rainy day" account and tapping the fund when revenues fell by a specified rate. Otherwise, the state would be required to make automatic cuts in spending if its income was insufficient.

The analyst said it's counterproductive to put money into a rainy-day account when the state faces a multibillion-dollar deficit.

"The administration's reforms could lock the state's operating shortfall in place and lead to automatic multibillion-dollar, across-the-board reductions," according to the analyst's report.

The governor's proposed budget system changes also undermine the Legislature's constitutional authority over spending, the report said.