Budget lotto Baldacci’s number may not come up BY LANCE TAPLEY

Governor John Baldacci’s scheme to sell $400 million of the state lottery’s revenues to an investor for $250 million now — paying out $40 million a year to the investor for 10 years — looks increasingly threatened. In fact, it is more and more the subject of ridicule in Augusta.

"Why not sell the State House the second year, the Cross Office Building the third year, and the Blaine House in the fourth?" asks Charles Harlow, a Portland state representative in the governor’s own Democratic Party.

Since the Republicans are by and large opposed to the deal, and since the Legislature is almost evenly divided between the parties, it would take only a few of the majority Democrats like Harlow to desert Baldacci in order to deprive him of this controversial option to help fill the $700-million-plus two-year state budget gap.

To be precise, to gum up Baldacci’s budget plans, says veteran Democratic Senator John Nutting of Androscoggin County, "It would take only three Democrats in the House and two in the Senate."

"I’ve got three absolutely solid opposed" to the lottery deal, says Representative Harlow, a freshman, of his fellow House Democrats. "I’m getting a feeling it’s not going to go through." (There are 76 Democrats, 73 Republicans, one Green Independent, and one "unenrolled" in the House and 19 Democrats and 16 Republicans in the Senate.)

Harlow, a retired teacher and former Portland mayor, feels the lottery deal would constitute "stealing from the teachers," if the Maine State Retirement System agrees to buy the lottery proceeds, as Baldacci wishes. The retirement system, to which public-school teachers belong, could do better, he believes, than the eight-percent-and-change annual return on the $250 million it would give the state that the $400 million represents (with one percent a year "growth" of the $40 million added into the payments).

Harlow wouldn’t name fellow dissident Democrats, but Representative George Hogan (D-Old Orchard Beach), says, "On the surface it doesn’t look like a good business deal to me" — though, like almost all other Democratic critics, he says he remains open to Baldacci’s arguments.

In the Senate, Ethan Strimling of Portland has already made headlines with his opposition. "Where is the [$250 million] going to come from two years from now?" he asks. And, if Baldacci sells this revenue stream, he points out, the state every year will be short $40 million.

Strimling says many Democratic legislators have doubts but are not yet willing to speak out: "I hear a lot of consternation about this proposal." He adds: "Only two of 50 citizens that I’ve spoken with about this oppose my position."

Hancock County’s Democratic Senator Dennis Damon, who heads up both the Transportation and Marine Resources Committees, says, "My opposition is not quite as deep as Strimling’s," but "I have reservations." He says that a number of his legislative colleagues are "looking at it carefully."

Senator Nutting, chair of the Agriculture, Conservation, and Forestry Committee, says that, as a business owner — he is a farmer — he "wouldn’t be in business very long" if he started mortgaging his income-producing assets just to have one-time cash. "My concern is that we’re really strapping people with both payments [and] lost revenue."

Sometime within a 10-year period, "We may have an economic downturn. What are we going to sell next?"

Joining the sarcasm, Senator Paul Davis, the Republican minority leader, jokes, "Why not the Turnpike? Maybe sell a penny of the sales tax?"

More soberly, he says: "I don’t like the idea of selling off our assets." How do other Senate Republicans feel? "I haven’t polled the [GOP] caucus, but I’m sure that others are opposed to it. It’s another patch job."

Not that he, a rural Republican, is opposed to cuts in department budgets as the alternative to raising that $250 million. But selling the lottery revenue is in the long run not good for the people who rely on state services, he asserts. The "structural" problem in the state’s finances would not be fixed — just postponed, he says.

Senator Peter Mills of Somerset County, the Republicans’ chief budget and tax expert, expresses the same thought, but with a nod to the politics involved: The sale of the lottery proceeds "puts Baldacci beyond the next election and puts us into the soup."

Baldacci has turned to the lottery "capitalization" or "securitization" plan because of his 2002 campaign pledge not to raise taxes. Another consequence of his pledge is the big cut to state services, especially social services, that he has proposed in his budget [see "Across-the-board Baldacci," this page].

As a substitute for Baldacci’s lottery plan, Strimling, Damon, Nutting, Harlow, Hogan, and even Republican Mills would support such legislative actions as — depending on the individual legislator — ending sales tax exemptions, reducing corporate welfare, hiking the sales tax, or broadening the sales tax to cover services.

In addition to legislators who have problems with the lottery deal, a protester "more powerful than any single member of the legislature," Mills says, is the international credit-rating firm Moody’s Investors Service. Moody’s has recently put Maine state government on its "watch list" for a "possible downgrade" of its bonds’ credit rating because of the state’s continuing inability to resolve the gap between what it takes in with taxes and what it spends, because of its drawing down of its financial reserves, and because of the lottery proposal.

In an improving economy, says Nicole Johnson, the New York analyst who authored the Moody’s study, a state government should be trying to balance its books without "one shots," as she describes a one-time asset sale such as the lottery proposal. Such a sale might be expected in a recession, she says, but in continuing to sell off its revenue stream — in the last two-year budget period the state sold the lucrative wholesale liquor monopoly for $125 million — "Maine is going in the other direction" from other states.