Governor Arnold Schwarzenegger has proposed borrowing against future state lottery revenue to help close a $15.2 billion budget deficit in the next fiscal year. The governor will propose raising $15 billion over the next three years by selling bonds based on anticipated lottery revenue. He will use about $5.1 billion of that for the 2008-09 fiscal year to help erase the deficit. The other $10 billion would be left in a reserve fund the 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. The revenue proposal - which administration officials refer to as "securitizing" the lottery - would require voter approval because the lottery was established through the initiative process. If it fails, the governor will ask the Legislature to approve a temporary 1 cent increase in the state sales tax to pay for the reserve fund. It would last no more than three years.

Schwarzenegger also proposed a surcharge on homeowners insurance policies that would raise $69 million a year for the state's emergency services. The governor, however, dropped a plan to close 48 state parks and cut back lifeguards at 16 state beaches. Instead, he will propose boosting fees $1 to $2 at some of the most popular state park destinations. Earlier Tuesday, administration officials said Schwarzenegger's revised budget will abandon a plan to release 22,000 low-risk prison inmates early. Projections showed that a declining inmate population will save the Department of Corrections and Rehabilitation about $300 million, roughly $100 million less than originally estimated. In addition to closing the $15.2 billion deficit, the governor also wants lawmakers to set aside a $2 billion reserve fund for 2008-09. The Assembly speaker's office said it would not comment until it had been briefed on the governor's proposal. 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.