California’s special election is imminent, and Governor Schwarzenegger wants you to vote yes on Propositions 1A-F. The budget, we are told, must be balanced, and so we face a tough choice. Do we accept the necessity of increased taxes and reduced funding for education and other widely used government programs, or do we pass this bundle of propositions in the hopes of staving off financial ruin?

Proposition 1F—which would bar elected officials from receiving pay raises during deficit years—seems like a no-brainer. One wonders why this wasn’t put into effect years ago. The other five propositions, however, require a bit more consideration.
According to the California Voter Guide, Proposition 1A “increases [the] size of [the] state ‘rainy day’ fund from 5% to 12.5% of the General Fund,” with the expected result of “limiting spending.” One might assume, based on this wording, that the proposition would merely expand the percentage of the General Fund to be reserved for the Budget Stabilization (“rainy day”) Fund, thereby reducing the amount of money at the legislature’s immediate disposal. If this were indeed the case—if the aim of the proposition were to “limit spending,” no strings attached—perhaps there would be some reason to believe proponents’ claims that “1A forces budget stability and accountability.” This is not, however, the case. There are strings attached—our purse strings. In order to acquire revenue to meet the 12.5% goal, the proposition entails an extension of tax increases passed by Governor Schwarzenegger and the legislature in February 2009 (specifically, the Sales and Use Tax, the Vehicle License Fee, and the Personal Income Tax).

Some might argue that more taxes are a small price to pay for a stabilized budget. The goal of 1A, after all, is to prevent California from plunging into another deficit—an aim which, if accomplished, would surely make up for any short-term losses inflicted by a continued tax hike. But the projected results of Proposition 1A are anything but certain. Qualifying language abounds as the Voter Guide analysis attempts to assess the measure’s benefits: 1A will result in “potentially less ups and downs in state spending over time,” “could make it harder to approve spending increases in some years,” “would likely make that year’s [2011-12] budget easier to balance.”

“In other years, however,” the Guide continues, “the effect of the measure on the ability of the state to balance the budget is unknown.” Also unknown is “the precise effect of having more rainy day funds,” although opponents of the measure remain convinced that if 1A is passed the “rainy day” fund will be used instead as a slush fund.

But surely, you say, the proposition has some redeeming qualities. 1A would, in fact, increase the governor’s ability to reduce spending without the legislature’s go-ahead. Perhaps under another administration this might be advantageous for the state, but even setting aside the fact that this authority would apply only to strictly limited circumstances, it would only be beneficial under a governor who actually intends to cut spending.

In addition, the measure includes nothing that might hinder future tax increases, while the restrictions it places on spending are feeble at best and easily circumvented. This proposition is by no means a step towards creating a responsible government; if anything, it provides an excuse for continued reckless spending, without the consolation of the stable budget its proponents claim it will provide. In fact, it seems that the only thing guaranteed by Proposition 1A is the simple fact stated in bold italics on the front page of the Voter Guide analysis: “Measure results in tax increases.”

There appears to be no opposition to Proposition 1B, which involves funding education. This is likely because the measure is tied to 1A. If Proposition 1A does not pass, 1B will not go into effect.

Proposition 1C—the Lottery Modernization Act—would grant the state the ability to borrow from future lottery profits in the hopes of acquiring $5 billion in the 2009-10 fiscal year to help alleviate the current deficit. Currently, 50% of lottery revenue is spent on prizes, while no more than 16% funds lottery operation. The remainder has been designated to support state educational institutions since the California lottery’s creation in 1984. Under Proposition 1C, all lottery profits would be redirected from education to pay off lottery borrowing, hopefully resulting in something approaching a balanced budget. The measure will also allow legislators to up the percentage of lottery revenue assigned to prize money, with the intended result of increasing sales.

Theoretically, the legislature will increase prize money to maximize profits. None of these profits will go towards education. Instead, the state will borrow $5 billion dollars from imagined future profits and pay them off gradually (and with interest) using lottery profits. Any profits not used to repay lottery borrowing will be directed to a new “Debt Retirement Fund” that the legislature may use for a number of purposes. In other words, lottery profits will be used to pay back money borrowed from…lottery profits! Baffled? You’re not alone. But the point is the state will be $5 billion closer to paying off the deficit.
Maybe. There is, after all, no guarantee that California residents will take the bait of higher prize money and spend more on lottery tickets. The Legislative Analyst suggests that, if prize money is increased, lottery sales may increase anywhere from 30 to 80 percent from $3 billion worth of tickets sold in the 2007-08 fiscal year. That would amount to $3.9-5.4 billion of revenue. However, the Voter Guide offers no figure for how much of this revenue will actually consist of profits, although it is clear that even in the absolute best case scenario profits will remain under $2 billion. Considering that Californians who spend more money on lottery tickets will then have less to spend on other things, the Analyst remains skeptical. “Increases in lottery sales,” he writes, “would be partially offset by declines in other state and local revenues.”

And what about the measure’s effect on education funding? The California lottery was initially created to assist with education without raising taxes, and Proposition 1C alters this original intention drastically. However, to make up for the diversion of funds from schools, more money will be drawn from the General Fund for educational institutions. This seems to present no actual loss to schools, but, strangely, the Voter Guide suggests that the contribution of lottery profits to education is negligible anyway, as if there is any possibility of education not receiving the promised funds.

While it could be an improvement to allow the legislature to maximize lottery profits, as in other states with more successful lotteries, it may be too much of a gamble to allow borrowing from future profits. The Voter Guide states that legislators have planned the budget under the assumption that they will receive that $5 billion, and it threatens that “if voters reject Proposition 1C, the Legislature and the Governor probably will have to agree to billions of dollars of additional spending cuts, tax increases, and/or other solutions,” even while forecasting “future strain on the General Fund.” It seems that Proposition 1C is just another measure that assists state funds temporarily while promising future budget difficulties and greater legislative power.

Moreover, lottery profits currently supply $250,000 to the state’s Office of Problem Gambling (apparently an educational institution). Proposition 1C demands that this figure be increased to $1 million. Which, incidentally, we are likely to need in the event of the measure’s passage because, according to the Voter Guide, “The projected increase in lottery gambling activity also may contribute to more Californians having gambling problems.”

Popularity: 62%