A Closer Look at Proposition 1C

At California Lottery outlets players will find a pad of three by five sheets of paper which in large letters says: Yeson1C with a checkmark through the “o” in “on.”

 In smaller letters beneath: “Improve the Lottery Now!”

Proposition 1C is one of six measures on the May 19 special election ballot.  It would amend the state constitution to allow the state to borrow against future lottery revenues to help balance the state budget now.

 This process, known as securitization, is expected to yield at least $5 billion, which lawmakers and Governor Arnold Schwarzenegger banked on to balance the budget signed in February and close a $42 billion gap between revenue and spending commitments.

Voter rejection of Proposition 1C and two other budget-related measures, Propositions 1D and 1E, would throw the budget $5.8 billion out of whack.

Within two weeks after the budget was signed, the Legislative Analyst said it was already $8 million out of balance because of the state’s tanked economy and falling lower-than-expected tax  collections.

State Senate President Pro Tempore Darrell Steinberg, a Sacramento Democrat, told reporters May 6 that “we can triage our way through an $8 billion problem” but that if the cash shortfall mounted beyond that a solution would be far more complicated — and painful.

The shortfall already has grown beyond $8 billion. April income and business tax collections were $1.8 billion lower than what the budget predicted, deepening the hole. Since February, revenue has come in $3 billion below expectations.

Not that any of this would be found on the three-by-five sheets next to the Super Lotto Plus dispensers in convenience stores throughout the state.

The cards urge a “yes” vote on Proposition 1C because it “improves the California Lottery by updating its games and prize payouts. Proposition 1C creates more winners and increases prizes while protecting money for our schools!”

Then, lotto players are exhorted: “Tell Sacramento politicians you want to improve our lottery now by visiting:  www.yeson1C.com

 (The emphasis is that of the card makers not California’s Capitol.)

A visit to the Secretary of State’s homepage reveals that Proposition 1C is indeed called the Lottery Modernization Act. The purpose in modernizing — and allowing the lottery greater flexibility in the size of its prizes — is to increase future profits, which, in turn, the state will borrow against.

 Not so obvious is a section of the proposition relating to the awarding of contracts to lottery vendors – the people who sell the state the equipment to modernize. These provisions were contained in AB 12 3x.

If voters approve Proposition 1C, Government Code Section 8880.56 would be changed so that the lottery’s director would no longer be required to award contracts to the “responsible supplier submitting the lowest and best proposal that maximizes the benefits to the state in relation to the areas of security, competence, experience, and timely performance.”

 There are various considerations the director must take into account when awarding a contract but, if Proposition 1C passes, the winning bid would no longer need to be the lowest one — a curious policy change by a state trying to erase a yawning $42 billion deficit.

(See Paragraphs five and six of AB 12 3x’s Legislative Counsel Digest.)

Joan Borucki, the state lottery director, says elimination of the word lowest won’t change how the lottery evaluates contracts.

“We already base our contract awards on best value,” said Bill Ainsworth, a lottery spokesman. “We look at the  qualifications of a vendor as well as price to get the best value for the lottery and the state. That isn’t going to change.”

Ainsworth said the lottery did not seek the change in law nor did he know who did.

It’s unclear who would benefit from the change although its a curious policy move by a state trying to erase a yawning $42 billion deficit.

Asked where the cards came from, the owner of the convenience store California’s Capitol visited said they came from the State Lottery. They didn’t. 

The small print on the three-by-five sheet shows that its creation was paid or by Californians for Modernization, Yes on 1C, “major funding by technology supplier GTECH and supported by educators, parents, labor, business, law enforcement and firefighters.”

Currently, GTECH is a supplier of technology to the state lottery. It was one of the architects of the winning campaign to create the lottery in November 1984. The company has been doing business with the state since that time.

On March 18, the company contributed $250,000 to the Yes on 1C campaign. It contributed another $750,000 on April 1.

Current lottery vendors, like GTECH, would appear to benefit from the keeping the lowest cost contract requirement since unlike potential competitors, they would require no start-up or re-tooling costs.

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