Playing the Lottery

The most contentious piece of Gov. Baldacci’s new state budget contains all the elements for ridicule: His lottery revenue capitalization strategy is complicated; its revenue source is frivolous; and its decade-long timeline means no one will remember by its final payment whether it was a success or failure. Predictably enough, his opponents derided it, newspapers panned it and members of his own party approached it timidly, as if it might snap at them.

There ought to be a maxim that says the more difficult the idea, the faster people will reject it rather than risk understanding it.

At the very least, the governor should be thanked for exposing the myth that states don’t run budget deficits. Like the capitalization of cigarette settlement money and the similar selling of revenue streams in other states, Gov. Baldacci would balance the state budget by borrowing $250 million in the next biennium and use lottery proceeds to pay whatever institution loans the money up to $40 million a year for 10 years. That is deficit spending just as surely as a federal budget that forecasts expenditures to exceed revenues, only Congress doesn’t bother to say how its debts will be paid off.

The public has good reason to be suspicious of a plan to borrow for ongoing expenses because those expenses, barring some reform, will exist after the loan is spent, while the asset that produced the loan will not. But there is a difference between finding an idea unattractive, as in this case, and rejecting it, which leaves lawmakers with the obvious problem of where to find the budget cuts or new money needed to fill a $250 million hole.

The lottery idea has been made considerably less unattractive through the novel idea of proposing that the Maine State Retirement System loan the money to the state and receive a rate of return that would allow for reduced payments to its unfunded liability. Another idea being considered would strike a deal in which the state pays only interest on the loan and invests the principal until the final year of the loan. Another option is to go to private lenders for the money, where a 5 percent discount rate would require annual payments of $33 million instead of $40 million.

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Maine’s budget is suffering from the shock of a changed attitude. A few years ago, a common solution to budget shortfalls was to raise taxes at the state level or cheat the municipalities of school funding so seriously that they were forced to raise local taxes. Voters, for now anyway, have demanded that this practice end and the governor has responded, but it’s not as if an alternative system of funding government was hanging around the State House waiting to be used. It is being created slowly and sometimes painfully now with materials at hand.

That forces difficult choices and also some welcome reforms. One portion of the proposed budget that has been largely ignored streamlines or consolidates departmental services in areas such as information technology, human resources and payroll. It also means that state government will need to look at its assets differently. If its lottery revenues can be put to use in a more efficient, more effective way than they are currently, they should be because the alternatives are worse.

The lottery capitalization plan can be made to work profitably for Maine even while the administration should recognize that it does not answer how the state will cover those costs in the next biennium. Acknowledging that flaw, however, is certainly preferable to dismissing the option before its details are known, which is as shortsighted as raising taxes every time the state budget has a shortfall.