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8A Page 5 Details on Governor's Lottery and Budget Stabilization Proposals The Governor is proposing to securitize the California State Lottery to finance the "rainy day" fund that would be created through his Budget Stabilization Act. Essentially, this process would borrow money against future earnings from the lottery. The Governor says that "modernizing" the lottery would improve its performance and increase pay-out in prizes to spur an elevation of ticket purchases and thus revenue. Generated funds would be used to make the initial down-payment to the Revenue Stabilization Fund. The Administration estimates that this would provide about $15 billion. For FY 2008-09, $5.1 billion would be used to help reduce the deficit and the other $10 billion would remain in the reserve account for future budget shortfalls. The Budget Stabilization Act and lottery proposal would go before the voters for approval in November. In presenting the revised budget, Gov. Schwarzenegger also put forth an insurance policy to protect the revenue streams that will help close the deficit for FY 2008-09 and into the future. He says, however, that he is confident this mechanism won't need to be used. If revenues fall short, or if the lottery doesn't get approved, a temporary 1 percent sales tax increase would be triggered until the Revenue Stabilization Fund has a sufficient balance. Californians will receive a tax rebate equivalent to the revenues collected through the mechanism. This mechanism is similar to what Gov. George Duekmejian created in 1983. Next Step In the Budget Process The fiscal year officially ends June 30; however, since FY 1977-78, the Governor has only signed the next year's budget by that deadline eight times. The LAO and the legislative budget subcommittees will review the May revise in-depth in the coming weeks. Given that some of the initial legislative reactions to the Governor's lottery and other proposals were both critical and skeptical, it is not clear how much traction this proposal will have as part of the budget solution. The Governor has proposed a budget that cuts some state subventions to cities (COPS, booking fees, etc. by 10 percent) but does not propose using local tax funds to shore up the state budget. If the Legislature doesn't support the Governor's direction, the result will be a fresh effort to identify other ways to close the budget. This could involve additional proposals for cuts to state programs, raising tax revenues through various means, transferring or borrowing local government revenue, or other solutions. In short, expect the political climate to be volatile. City officials should remain on alert and ready to respond quickly to budget-related action alerts. The League's Budget Action Day is May 21. Please see "City Officials Are Urged to Attend Budget Action Day: on page 1. Budget Resources A copy of the Governor's budget can be found online at www.ebudqet.ca.qov. The Governor's revised budget remarks can be found on his Web site at http://qov.ca.qov/may- revise/webcast. 'Budget Action Day' Continued from Page 1... With California's fiscal crisis, the FY 2008-09 budget negotiations are expected to be extremely difficult. The final signed budget will likely include a combination of significant cuts and revenue- generating solutions, and the May revise (released May 14) has set the tone for the coming 5