Sunday Budget Preview

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BUDGET DAY PLUS 47 -- Expect some heated policy talk, sprinkled with shrewd politics and a dash of theatrics as the Assembly convenes this afternoon to debate, and vote, on a new state budget -- the first Sunday session of the lower house in more than five years.

On Saturday afternoon, some of the first specifics were released about the budget to be considered. As has been reported several times in recent days, the budget presented by Democrats... one they say was crafted with an eye toward the budget priorities of Governor Schwarzenegger... is almost certain to fail passage, with Assembly Republicans in no mood to approve the increase in high-earner personal income taxes that the bill contains.

But until some of the budget's specifics were released yesterday (with a news embargo until this morning), we didn't have a clear sense of two key issues -- the "rainy day" reserve fund which appears crucial to ultimately striking a deal, and the Democratic plan for using the California Lottery as a source of future revenue.

First, the reserve fund. Assembly Democrats appear to have adopted most of the suggestions laid out back in February by Legislative Analyst Elizabeth Hill. Those recommendations focus on strengthening the existing reserve fund that was created by 2004's Proposition 58. And they include enlarging the reserve to 10% of general fund revenues, making it ostensibly harder to pull money out of the reserve fund, additional transfers into reserves in better-than-expected years, and specific rules about where any reserve funds above the 10% mark go -- including one-time expenses or even one-time tax cuts.

What's probably most worth noting is how Democrats want those "better than expected" years to play out. Specifically, they want to use revenue estimates contained in the budget bill passed the summer before... also known as revenue forecasts controlled, in part, by the Legislature. That differs from the governor's budget reform plan, which relies on revenue forecasts controlled by his own Department of Finance.

The other significant element of the Assembly Democratic plan is borrowing against future California Lottery revenues, known as securitization. The proposal appears to call for borrowing $10 billion from Wall Street, compared to the governor's $15 billion lottery borrowing plan. It also guarantees public schools would keep getting what they get now from lottery sales.

But perhaps more intriguing: the Democratic plan, like Schwarzenegger's, allows larger jackpots (thus eliminating the 24-year old mandate that 34% of profits go to education)... while rejecting the governor's call for allowing the lottery to offer new games.

While that's likely a concession to those who worry about the social and/or moral implications of a major gambling expansion, it may very well jeopardize the amount of extra profit the lottery can generate -- and therefore, the amount of money Wall Street is willing to lend.

Also worth noting: Assembly Democrats have dropped two of their tax increase plans from a few weeks ago -- the cancellation of expected "indexing" of tax rates for upper and upper-middle income earners (it would have given the state an extra $815 million) and a lowering of the taxpayer credit for having a kid (which would have brought in an extra $215 million).

Expect to hear more about all of this later today, and check back in for some live blogging from the Assembly floor.

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About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk.  He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.

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