Modernizing the State Lottery and allowing the state to “securitize” (get an advance on) future revenues are well-known elements of the budget deal hammered out in September. A constitutional amendment and related changes to the lottery initiative will be proposed to voters at the next statewide election. The Governor estimates that these changes will result in a $5 billion bump in revenues in 2009-10, which will be used “to pay down debt and fill the rainy-day fund in the out-years.”
But one of the lesser-known features of this deal will be to disconnect the Lottery from its original purpose to supplement public school and college budgets. Instead, any surplus revenues beyond prizes, administration, and loan repayment will be deposited in the state General Fund. In return, the amount of lottery spending for public education this year will be added to the Proposition 98 guarantee, and increased as the constitutional minimum floor is raised. This is not a trivial change: for the eight years through 2006-07 (most recent data), lottery revenues increased by 34 percent while the Prop 98 guarantee increased by 54 percent.
This change will also affect the state’s General Fund in the years to come. If voters approve the changes and some portion of future lottery revenues are advanced to the state treasury, then it is likely that any leftover profits will be far less than the new General Fund obligations for education spending. Therefore, while the state would see a short-term boost of revenues to carry it through the current crisis, and the schools would see a long-term enhancement of their revenues, the state’s General Fund will likely be worse off than before.