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The voters in California recently (May, 2009) defeated "Proposition 1C: Lottery Modernization Act". According to the Legislative Analyst's Office, "This measure is one of the major components of the plan approved by the Legislature and the Governor in February 2009 to balance the state budget. The measure makes major changes to the 1984 voter initiative that created the California Lottery. These changes could increase lottery ticket sales and allow the state to borrow $5 billion in the 2009-10 fiscal year from future lottery profits. In addition to borrowing this $5 billion, the state also could borrow more from lottery profits in future years. Under the measure, lottery profits now dedicated to schools and colleges would be used to pay back the borrowing. The measure would increase state payments to education from the state General Fund to make up for the loss of these lottery payments."

This proposed financing scheme was based, perhaps, on the same "Wall Street" type of thinking that tried to turn thin air into big profits in the sub-prime mortgage scandal; as investors bought into shaky mortgage loans backed with housing values that didn't exist to begin with. Only in this care, the investors would be buying into the state's future lottery revenues. Of course, lottery revenues have been declining steadily all over the country.

Worse yet, a whopping $400,000,000 (estimated loan payment) a year for 30 years would have been taken out of California's future lottery revenues that were to be securitized and pledged as collateral for a "quick fix" loan.

As you may have suspected, the $5 billion wouldn't even begin to solve California's overall financial problems and, worse yet, the money for debt-service would no longer go to education. No doubt, however, that some hefty fees would have been made by the architects of this deal if it had come together.

It would have also meant that the person buying a lottery ticket thinking he or she would be providing money to help fund education would have been, in reality, just helping pay back a loan for the state.

Big government in action.

Sound familiar?

- Ed Smith, Publisher
The EHS Letter Manual