Prop 1C – SCLC Summary

Published: March 17, 2009

You may be aware that the Southwest Riverside County Association of Realtors has been a supporting Partner of the Southwest California Legislative Council since its inception. The SCLC, a coalition of Southwest California Chambers of Commerce, Legislative Representatives and business representatives – advocate on behalf of Southwest County Businesses. Each of you, as working Realtors, is the owner of your own business. The SCLC has proven to be an effective lobbyist for local concerns and we have a great dialogue with our local Legislators.
Today the SCLC posted recommendations on the Proposition votes upcoming in May. CAR has not yet taken positions on the ballot propositions and, since they are not primarily real estate related, they may not.

This is the summary of Prop 1C. The committee took a position to ‘oppose’ Prop 1C.

Proposition 1C – Lottery Modernization Act

Summary

  1. Proposition 1C will allow the State to immediately borrow $5 billion from future protected State Lottery revenue in order to balance the current State Budget deficit.

Background

  1. The California State Lottery has not been changed since it was first put into place by voters in 1984.

  1. Proposition 1C will modernize the Lottery, allowing it to update games and operations to reflect the best practices of other U.S. state lotteries.

  1. Proposition 1C will allow the Lottery to take steps including:

    1. Removing arcane rules that lower ticket sales.
    2. Increasing the number of prizes to players.
    3. Allowing the lottery to make long-term investments in new equipment.

  1. Proposition 1C protects current levels of lottery funding for public education and enacts new accountability standards including independent audits and public reports.

  1. Proposition 1C also maintains ownership of the Lottery with the State of California, and poses no risk to taxpayers.

  1. Proposition 1C makes major changes to the 1984 voter initiative that created the California Lottery.

  1. These changes could increase lottery ticket sales and allow the state to borrow $5 billion in the 2009 – 2010 fiscal year from future lottery profits.

    1. The type of state borrowing allowed under Proposition 1C involves selling an asset to investors through a bond transaction.
    2. The asset—in this case, future lottery profits—then pays back the investors, with interest, over time.
    3. Through this borrowing, the state can receive benefit from future lottery profits “upfront”—by converting a stream of future annual payments into a large, “lump sum” amount realized now.
    4. This type of borrowing—referred to as securitization—is somewhat different from most other types of state borrowing in that it involves no legal commitment to use General Fund tax revenues to pay investors.

  1. In addition to borrowing this $5 billion, the state also could borrow more from lottery profits in future years.

  1. Under Proposition 1C, lottery profits now dedicated to schools and colleges would be used to pay back the borrowing.

  1. Proposition 1C would increase state payments to education from the state General Fund to make up for the loss of these lottery payments.

  1. According to the Legislative Analyst’s Office (LAO), each Californian currently spends an average of $83 each year on lottery tickets—considerably less than the average resident of other states with a lottery.

    1. There are probably many reasons why this is so, including the other entertainment and gambling options available for residents here.
    2. California’s relatively low lottery prize payouts (about 50 cents in prizes for every dollar spent on lottery tickets) likely also contributes to the lottery’s relatively weak sales.
    3. Higher prize payouts appear to attract more players and greater spending for lottery tickets.
    4. For example, the Massachusetts State Lottery—one of the leading lotteries in sales per resident—returns over 70 percent of its funds to players as prizes.
    5. Based on the evidence from other states, the LAO concludes that if voters approve this measure, sales and profits of the California Lottery could grow significantly compared to how much they would grow under existing law.
    6. This growth could result in future lottery sales being somewhere between 30 percent and 80 percent higher.
    7. The amount of sales and profit growth would depend on how California consumers react to the products offered by the lottery in the future.
    8. In addition, the lottery’s financial performance would depend on many decisions made by the commission and lottery staff.
    9. They would decide, among other things, the level of lottery prize payouts, how lottery games will be marketed to the public, and how lottery retailers throughout California will be encouraged to sell lottery tickets.

  1. The Legislature also would be able to pass additional changes to the lottery law to further increase lottery profits.

Arguments in Support

  1. This must needed Proposition will secure $5 billion towards paying down the budget deficit. Other alternatives if not passed would include the legislature seeking to raise more taxes and/or cutting more programs that have already been reduced.

Arguments in Opposition

  1. Proposition 1C is just one of the crucial reforms needed in order to meet the funding requirements for balancing the state budget. Borrowing from future lottery revenue may start a dangerous precedent in other years of decline if other Propositions are not passed.

Supporting

California Chamber of Commerce

California Fire Chiefs Association

California Police Chiefs Association

Central California Hispanic Chamber of Commerce

Former Assembly Speaker Pro Tempore Fred Keeley

Former Secretary of State Bill Jones

National Tax Limitation Committee


Opposing

Southwest California Legislative Council


Last modified: March 17, 2009 at 11:04 am | Originally published: March 17, 2009 at 11:04 am
Printed: September 29, 2020