Borrowing Against the Future: Are Lottery Bonds the Best Way To Close the Budget Gap?

Source: California Budget Project, Budget Brief, June 2008

As part of the May Revision to his 2008-09 Proposed Budget, the Governor proposes to sell $15 billion of bonds that would be repaid with future lottery revenues; $5.1 billion of this amount would be used to help balance the 2008-09 budget, and the remainder would be deposited in a new reserve. The Assembly’s budget also assumes the sale of $15 billion of bonds backed by lottery proceeds. The Assembly would use $3.6 billion to pay 2008-09 General Fund obligations and the remainder to pay and prepay outstanding debt. Both proposals assume that lottery revenues can be substantially increased over a relatively short period. This Budget Brief examines the assumptions regarding increased lottery sales, whether the California lottery is underperforming, and policy issues raised by lottery bond proposals.

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