SACRAMENTO, Calif. -- Gov. Arnold Schwarzenegger will propose borrowing against future state lottery revenue to help close a budget shortfall estimated as high as $20 billion, administration officials told The Associated Press. In a revised budget to be released Wednesday, Schwarzenegger will propose raising $15 billion over three years by selling bonds based on anticipated lottery revenue, then use about $5.1 billion of that for the coming fiscal year to help erase the deficit, the officials said Tuesday. The other $10 billion would be left in a reserve fund the Republican governor wants to create as part of a budget reform proposal. It would be intended to ease the effect of year-to-year revenue fluctuations. Both the lottery and budget reform proposals would require approval from voters on the November ballot. If the lottery plan fails, Schwarzenegger will ask the Legislature to approve a temporary 1 cent increase in the state sales tax to pay for the reserve fund. The increase would last no more than three years. The governor's revised spending plan backs away from some of the less popular proposals in the $141 billion budget plan he released in January, including a proposal to suspend provisions of a voter-approved initiative that guarantees a minimum funding level for schools. Instead, the budget proposal will include a $1.8 billion increase in funding to schools over 2007-08 levels. Schools still will lose about $4 billion in anticipated revenue because Schwarzenegger's plan would not include cost-of-living increases. Adding the anticipated $5.1 billion in lottery bond revenue and saving the $4 billion in education spending leaves the administration with some $6 billion in cuts needed to balance the budget. "This sounds amazing. How does all this work? It sounds risky, almost like a Rubik's cube budget, not a long-term, structurally balanced budget," newly installed Assembly Speaker Karen Bass, a Democrat, said in a statement. In remarks prepared for delivery at a budget briefing Wednesday afternoon, Schwarzenegger said the lottery has been an underperforming asset. His plan would let the lottery pay out more in prizes in hopes of attracting additional revenue. Last year, California's lottery generated $3.3 billion in total revenue. Democrats and Republicans remain far apart on how to close the budget deficit. A deal requires support from two-thirds of members in both houses of the Legislature. Lawmakers are supposed to approve a new budget each year by June 15, a little more than two weeks before the start of a new fiscal year. They rarely meet that deadline. ___ Associated Press Writers Steve Lawrence and Samantha Young in Sacramento contributed to this report.
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