Did you know that the only reason that the California Lottery exists, is to fund instructional materials for education.

Something has gone terribly wrong!

The spirit of the Lottery Act is no longer being honored.

Lottery revenues have gone from $1.8 Billion at the Lottery's inception in 1985, to a projected $7.1 billion in 2018-19.

During that same time, contributions to education as a percentage of revenues have declined by 14% (from 39% of Lottery revenues to 25%).

  1985 2016 2017 2018
Lottery Revenues $1,765,571,558.00  $6,275,579,288.00  Projected Revenues $6.8 Billion Projected Revenues $7.1 billion
Prize Expenses $886,333,761.00 50%  $3,955,791,373.00 63%
Administrative Expense $202,851,581.00 11%  $852,429,352 12%
Revenues to All Education $692,695,676.00 39%    $1,587,416,599.00 25%

 

A 2003 study found that 80% of the Lottery revenues distributed to school districts were going into the districts general fund and were being used to pay employee salaries, pensions and benefits. The study concluded that most Lottery revenue was spent on adult jobs, and not to support students.

In the Capistrano Unified School District it gets even worse.

86.9% of the CUSDs general fund budget goes to employee compensation (salaries, pensions and benefits). Since the Lottery's inception in 1985, CUSD has collected $193 million dollars. Of that, approximately $168 million has gone to employee compensation, while a meager $25 million has been appropriately used to purchase instructional materials for students. 

The truth is that the California Lottery has become another "bloated government bureaucracy" that has forgotten its purpose. 

Legislative amendments to the California Lottery Act have allowed more and more lottery revenue to be diverted away from education to support a growing government jobs program. The most destructive was AB 142 which was enacted in 2010. AB 142 amended the Lottery Act to allow greater flexibility to pay out more money in prizes. Once AB 142 passed, staff grew from 141 employees to 341 and the Lottery built a brand new office building at a cost of $58 million dollars. 

 

California State Lottery Headquarters

Source: Architect Magazine

Recently, the organization has been plagued with lawsuits, and now an investigation by the Attorney General after an anonymous whistleblower sent a letter and several photos to Governor Brown alleging that state Lottery employees got drunk and acted inappropriately while on the taxpayer dime. 

The Sacramento Bee: Drunken, bawdy behavior at California Lottery alleged in letter, photos to Jerry Brown by Adam Ashton and Taryn Luna

Yes that is a lottery official with his head up a lady's shirt in a public place!

 

In addition to investigations into the conduct of Lottery employees, the State Legislature should request an audit, and analyze the cost vs benefit of keeping this entity going. Taxpayers are on the hook for the 341 pensions of these employees. With the percentage of revenues going to education is such steep decline, it may be financially prudent to shut the California Lottery down.

To Honor the Spirit of the original Lottery Act, the percentage going to education should be a minimum 34%.

 

Background

On November 4, 1984, Proposition 37 entitled "The Lottery Act" amended the California Constitution to authorize the establishment of a statewide lottery. As an initiative statute, the California State Lottery Act of 1984 created the California State Lottery Commission and gave it broad powers to oversee the operations of a statewide lottery. The purpose of the Lottery Act was to provide supplemental monies to benefit public education (specifically to provide guaranteed funds for textbooks and supplies) without the imposition of additional or increased taxes. 

The Lottery Act initially required that 50% of total annual revenues be returned to the public in the form of prizes with at least 34% of total revenues being allocated to the benefit of public education. No more than 16% of total revenues were to be used for administrative costs.

50% to Prize Winners

34% to benefit Public Education

28% to K-12 Public Schools

6% to Colleges and Universities

16% to Administrative Costs

Lottery revenues paid to benefit education are placed in a special fund known as the California State Lottery Education Fund. This fund holds revenues until they are allocated on a per capita basis using prior year certified average daily attendance data.

In 1984 ADA was calculated based on attendance at:

  • County Offices of Education K-12
  • School Districts K-12
  • Charter Schools K-12
  • Adults in Correctional Facilities (AICF)
  • Regional Occupational Centers and Programs (ROC/Ps)
  • Adult Education

Once a quarter, the Lottery sends its educational supplemental dollars to the State Controller’s Office (SCO) who then audits those contributions. The SCO in turn distributes them to County Treasurers who then sends the money to County Offices of Education, School Districts and the administrators of higher education. Those entities determine how Lottery funds are distributed and spent within their systems. The Lottery is not involved in this decision-making process. 

Lottery Revenues and Expenses

Sources:

CALIFORNIA LOTTERY REPORTS TO THE PUBLIC 1999 - 2017

DATA FOR 1985- 1999 WAS RECEIVED VIA A PUBLIC RECORDS REQUEST

REVENUES TO EDUCATION PER CDE

Date

Revenues/Sales 

Prize Expense 

Administrative Expense 

Revenues to All Education 

Revenues to K- 12 Education Per CDE

 $/pupil per CDE

1985 $1,765,571,558.00  $886,333,761.00 $202,851,581.00  $692,695,676.00 $555,457,022.00  $125.67
1986 $1,392,226,457.00  $693,188,480.00 $208,951,156.00  $504,289,009.00 $410,880,929.00  $ 89.68
1987 $2,106,492,471.00  $1,047,890,943.00 $276,639,427.00  $804.794.652.00 $647,361,315.00  $138.78
1988 $2,628,873,495.00 $1,314,091,762.00 $323,327,375.00 $1,035,017,948.00  $843,557,516.00  $176.08
1989 $2,479,661,072.00 $1,240,410,295.00  $339,415,109.00 $980,508,248.00 $783,026,959.00  $154.47
1990 $2,131,921,349.00  $1,061,545,041.00 $323,141,161.00 $803,111,113.00 $645,693,335.00 $128.64
1991 $1,358,651,081.00 $669.199,202.00 $237,714,903.00  $493,743,911.00 $400,869,886.00  $76.55
1992 $1,759,494,635.00  $880,954,435.00  $281,154,761.00 $625,882,579.00  $495,625,449.00  $92.51
1993  $1,931,030,334.00  $964,306,501.00 $303,763,410.00 $692,113,518.00 $556,290,312.00  $101.63
1994  $2,166,121,379.00  $1,075,188,767.00  $336,123,280.00  $791,527,468.00  $642,689,584.00  $115.83
1995  $2,292,324,933.00  $1,128,453,142.00  $365,435,067.00  $841,880,611.00  $691,363,263.00  $120.71
1996  $2,063,134,691.00 $1,030,535,482.00  $320,697,872.00  $756,725,832.00  $610,907,801.00  $105.10
1997 $2,294,423,822.00 $1,030,535,482.00 $326,573,515.00  $834,748,454.00  $675,117,674.00  $113.67
1998  $2,498,298,487.00  $1,307,442,871.00  $341,075,721.00  $899,349,946.00  $727,633,935.00  $119.19
1999  $2,498,298,488.00  $1,307,422,871.00  $341,075,721.00  $899,349,947.00  $769,408,464.00  $122.98

On March 7, 2000, voters passed Prop 20 known as AB 453 "Cardenas Textbook Act of 2000" which changed the way Lottery funds were allocated. Under Prop 20, K-14 (K-12 + Community College) schools were getting a much larger slice of the pie.

Prop 20, required that 50% of the Statewide growth in the lottery fund will first be distributed to K-14 schools to be earmarked for instructional materials.

Then, remaining funds would be distributed equally based on ADA. That meant that higher education and other state operated schools would no longer receive a share of the first 50% of growth in Lottery Revenues. 

See: May 10, 2000 Letter from State Superintendent of Public Instruction, Delaine Eastin 

2000  $2,598,378,990.00  $1,369,435,482.00  $343,181,662.00  $948,036,660.00  $901,870,019.00  $141.48
2001 $2,894,841,523.00 $1,503,768,458.00  $385,473,932.00 $1,111,635,107.00 $853,747,149.00  $131.37
2002 $2,896,372,533.00 $1,502,966,618.00 $382,897,745.00 $1,064,064,146.00  $806,386,388.00  $123.36
A 2003 study entitled "California Contributions to Public Education" concluded that 80% of Lottery Funds for public education were in fact going to employee salaries, pensions and benefits and not to the voters intended, to funding  textbooks, materials and supplies.
2003 $2,781,569,856.00 $1,451,804,079.00 $362,342,273.00 $1,019,816,972.00  $872,987,663.00  $132.23
2004 $2,973,975,717.00 $1,566,027,494.00 $370,821,346.00 $1,094,256,988.00  $948,134,123.00  $142.33
2005  $3,333,620,669.00 $1,795,254,439.00 $400,439,862.00 $1,175,794,256.00  $1,039,970,015.00  $156.55
2006  $3,584,996,251.00  $1,932,721,443.00  $413,062,844.00  $1,287,998,079.00  $960,270,123.00  $145.32
2007 $3,318,346,505 .00  $1,765,643,368.00  $400,270,448.00  $1,206,147,082.00  $876,559,341.00  $130.26
2008  $3,049,620,915.00  $1,619,473,498.00  $380,245,309.00  $1,094,945,310.00  $817,777,318.00  $123.33
2009  $2,970,971,277.00 $1,556,120,634.00  $396,190,567.00 $1,048,693,816.00  $854,877,778.00  $128.71
2010  $3,086,210,845.00  $1,611,371,074.00  $405,357,465.00  $1,089,747,218.00  $884,164,608.00  $134.07

In 2010, AB 142 amended the Lottery Act to allow the Lottery flexibility to pay out more money in prizes and reduce the administrative cost limit to 13% of total revenues instead of 16%. Along with that flexibility, the new law required the Lottery to meet minimum levels of contribution to public education.

Limited Administration Expenses to 13% of revenues.

Required that 87% of sales must be returned to the Public in the form of prizes or contributions to education.

The law gave the lottery flexibility to pay out a higher percentage of its revenues in prizes, but only if it does so in a way that increases the total amount of money that goes to education.

87% to Prize Winners and to Benefit Public Education 

13% to Administrative Costs

2011 $3,438,577,998.00 $1,904,787,955.00  $432,982,150.00  $1,128,551,245.00  $1,051,322,696.00  $158.60
2012 $4,371,491,746.00  $2,560,306,589.00  $512,822,653.00  $1,320,726,555.00  $1,038,022,637.00  $154.73
2013 $4,445,870,040.00 $2,652,095,102.00 $532,961,588.00  $1,284,370,779.00 $1,088,290,145.00  $161.54
2014 $5,077,977,283.00 $3,082,376,405.00 $625,621,621.00 $1,326,663,398.00  $1,110,456,795.00  $166.04

Beginning in 2015-16, Adult Education and Regional Occupational Centers and Programs ADA were no longer be included for purposes of calculating lottery funding (Government Code 8880.5(a)(2)).

Effective 2015-16 ADA will be based on the number of pupils in:

  • County Offices of Education K-12
  • School Districts K-12
  • Charter Schools K-12
  • Adults in Correctional Facilities (AICF)
  • Regional Occupational Centers and Programs (ROC/Ps)
  • Adult Education

The estimated per ADA rate increase from $166.04 to $181 is largely due to the change in the ADA used to calculate lottery (less pupils means a higher $/per pupil) it does not mean that the Lottery is giving education a higher percentage of the Lottery revenues.

2015 $4,445,874,040.00 $2,652,095,102.00  $532,961,588.00  $1,284,370,779.00  $1,127,956,335.00  $181.00
2016 $6,275,597,288  $3,955,791,373.00  $852,429,352  $1,559,681,787.00   Not Available Yet  
2017  $6.8 billion Projected Revenues with $1.53 billion going towards education (23%) See: June 29, 2018 CDE Letter
2018  $7.1 billion Projected Revenues with $1.6 billion going towards education (23%) See June 29, 2018 CDE Letter

 

How Much Lottery Money has the Capistrano Unified School District Received Since the Lottery's Inception?

Source: California Lottery: See Where the Money Goes

CUSD has received $193 million in Lottery funds since its inception. Of that 86.9% ($168 million) has gone to employee compensation while a meager 13.1% ($25 million) has been appropriately used to purchase textbooks and supplies. 

Date ADA Prop 20  Total  All Time Total 
2018 Q3 48,474 $2,968,428 $7,895,130 $193,230,320
2018 Q2 48,474 $2,373,091 $4,926,702 $190,261,892
2018 Q1 48,474 $2,553,612 $2,553,612 $187,888,801
2017 Q4 49,297 $2,466,121 $9,575,669 $185,335,190
2017 Q3 49,297 $2,457,092 $7,109,548 $182,869,069
2017 Q2 49,297 $2,347,252 $4,652,456 $180,411,976
2017 Q1 49,297 $2,292,866 $2,292,866 $178,052,387
2016 Q4 49,897 $2,426,943 $9,942,248 $175,759,521
2016 Q3 49,897 $3,363,364 $7,515,305 $173,332,578
2016 Q2 49,897 $2,099,228 $4,151,941 $169,969,214
2016 Q1 49,897 $2,052,713 $2,052,713 $167,869,986
2015 Q4 52,181 $2,253,449 $8,585,902 $165,817,273
2015 Q3 52,181 $2,440,595 $6,332,453 $163,563,824
2015 Q2 52,181 $2,147,596 $3,891,858 $161,123,229
2015 Q1 52,181 $1,744,261 $1,744,261 $158,975,632
2014 Q4 52,489 $1,996,993 $8,534,769 $157,231,371
2014 Q3 52,489 $2,280,376 $6,537,776 $155,234,378
2014 Q2 52,489 $2,239,394 $4,257,400 $152,954,002
2014 Q1 52,489 $2,018,006 $2,018,006 $150,714,608
2013 Q4 52,701 $2,430,544 $8,068,303 $148,696,602
2013 Q3 52,701 $2,086,737 $5,637,759 $146,266,058
2013 Q2 52,701 $1,798,121 $3,551,022 $144,179,321
2013 Q1 52,701 $1,752,901 $1,752,901 $142,381,200
2012 Q4 53,435 $1,818,658 $8,491,771 $140,628,299
2012 Q3 53,435 $2,723,866 $6,673,113 $138,809,641
2012 Q2 53,435 $2,112,926 $3,949,247 $136,085,775
2012 Q1 53,435 $1,836,320 $1,836,320 $133,972,848
2011 Q4 53,140 $1,757,294 $7,025,907 $132,136,528
2011 Q3 53,140 $1,994,888 $5,268,613 $130,379,234
2011 Q2 53,140 $1,742,094 $3,273,725 $128,384,345
2011 Q1 53,140 $1,531,631 $1,531,631 $126,642,252
2010 Q4 53,653 $1,730,146 $6,950,213 $125,110,621
2010 Q3 53,653 $1,638,754 $5,220,067 $123,380,475
2010 Q2 53,653 $1,704,369 $3,581,313 $121,741,721
2010 Q1 53,653 $1,876,944 $1,876,944 $120,037,352
2009 Q4 53,172 $1,681,659 $6,556,664 $118,160,408
2009 Q3 53,172 $1,681,892 $4,875,005 $116,478,749
2009 Q2 53,172 $1,568,450 $3,193,113 $114,796,857
2009 Q1 53,172 $1,624,663 $1,624,663 $113,228,407
2008 Q4 52,784 $1,527,054 $7,020,572 $111,603,743
2008 Q3 52,784 $1,800,190 $5,493,518 $110,076,689
2008 Q2 52,784 $1,674,420 $3,693,327 $108,276,499
2008 Q1 52,784 $2,018,907 $2,018,907 $106,602,079
2007 Q4 52,365 $1,787,939 $7,685,033 $104,583,172
2007 Q3 52,365 $2,190,647 $5,897,094 $102,795,233
2007 Q2 52,365 $1,807,868 $3,706,447 $100,604,586
2007 Q1 52,365 $1,898,579 $1,898,579 $98,796,718
2006 Q4 51,959 $2,056,334 $8,210,706 $96,898,139
2006 Q3 51,959 $2,142,341 $6,154,372 $94,841,805
2006 Q2 51,959 $1,875,509 $4,012,032 $92,699,464
2006 Q1 51,959 $2,136,523 $2,136,523 $90,823,956
2005 Q4 51,215 $1,756,405 $7,428,364 $88,687,433
2005 Q3 51,215 $1,958,189 $5,671,960 $86,931,028
2005 Q2 51,215 $1,697,241 $3,713,771 $84,972,839
2005 Q1 51,215 $2,016,529 $2,016,529 $83,275,598
2004 Q4 50,063 $1,464,573 $6,754,598 $81,259,068
2004 Q3 50,063 $1,703,297 $5,290,025 $79,794,495
2004 Q2 0 $1,742,029 $3,586,728 $78,091,199
2004 Q1 0 $1,844,700 $1,844,700 $76,349,170

 

Capistrano Unified  2018-19 Adopted Budget

July 1, 2018 Budget Adoption June 20, 2018 CUSD BOT Meeting Agenda Item #48  

Board Agenda at page 1057 

California Lottery

Projected Revenues

Lottery Funds  2017-18 2018-19 2019-20 2020-21 2021-22
Unrestricted per ADA $146 $146 $146 $146 $146
Restricted per ADA $48 $48  $48  $48  $48 
Total $194 $194  $194 $194  $194 

 

Board Agenda at page 915

  2017-18 Estimated Actuals 2018-19 Budget

Fund

Unrestricted

General  Fund

Restricted

Instructional Materials 

 Total

Unrestricted

General Fund 

Restricted  

Instructional Materials

Total 

8560 $6,952,303.00 $2,229,893.00 $9,182,196.00 $7,002,598.00 $2,302,224.00 $9,304,882.00

 

Board Agenda at page 1019

CUSDs' Ratio of Unrestricted Salaries and Benefits to Total Unrestricted General Fund Expenditures is 86.9%. This means that 86.9%, the "Unrestricted" portion of the Lottery money is going to employee salaries pensions and benefits.

Salaries Pensions and Benefit: $6 million

Instructional Materials: $3.2 million

Lottery Funds

Total $9,304,882.00

Unrestricted

General Fund 

Restricted  

Instructional

Materials

Total 

Employee Compensation  $6,085,257.00    
Instructional Materials  $910,337.74  $2,302,224.00 $3,212,561.74

 

 

Data from California Lottery's Comprehensive Annual Reports

Source: CA Lottery Reports

These numbers are taken from the Comprehensive Annual Reports and show that Since 2010 the percentage of Revenues from the Lottery going towards education have declined 10%. 

 

Revenues

Prizes

Game Cost

Operating Expenses

Non Operating Expenses
Interest on Prize Liability Revenues To Education
2010 $3,145,259,027 $1,611,371,074 $268,683,202 $136,740,073 $89,324,510 $1,072,496,752
% of Lottery  Revenues   51% 9% 4% 3% 35%
2016 $6,367,902,512  $3,955,791,373  $547,747,915  $212,389,463  $36,879,285  1,563,149,876
 % of Lottery  Revenues    62%  9%  3%  <1%  24.9%

 

Prize Expenses 

Prizes 2010 2011 2012 2013 2014
Total $1,556,120,634 $1,904,787,955 $2,560,306,589 $2,652,095,102  $3,082,376,405

 

Prizes 2015 2016 2017
Total $3,082,376,405 $3,955,791,373  $3,963,453,360

 

Game Costs 

Game Costs 2010 2011 2012 2013 2014
Total $268,683,202 $289,704,738 $369,863,017 $380,097,433 $445,540,629 

 

Game Costs  2015 2016 2017
Total $479,216,726 $547,747,915 $550,041,954

 

Operating Expenses 

Operating Expenses  2010 2011 2012 2013 2014
Compensation $46,011,332 $52,084,571  $62,937,875 $56,781,125  $66,108,672 
Advertising $33,666,684  $52,982,897 $47,833,141   $56,044,193  $63,699,190
Marketing $8,025,477  $6,635,267  $6,264,927  $7,854,549  $14,507,326
Professional Services  $10,341,565  $10,677,764  $13,400,277  $12,651,314  $13,331,461
Dep/Amortization  NA  NA $7,750,918  $5,980,272  $6,075,176
Other/Administrative  $18,277,779   $15,012,830 $4,885,798  $13,580,602  $16,370,667
Total Expenses $136,740,073  $143,268,012  $143,072,936  $152,892,055  $180,092,492

 

Operating Expenses  2015 2016 2017
Compensation $70,480,064  $79,415,769  $91,254,303
Advertising $62,273,530  $74,280,130  $76,690,663
Marketing $10,664,151  $10,990,631  $8,657,038
Professional Services  $11,843,044  $14,367,836 $14,266,694
Dep/Amortization  $8,950,492  $13,528,573 $16,889,648
Other/Administrative   $16,435,133  $19,806,524  $18,036,889
Total Expenses  $180,646,414  $212,389,463  $225,795,235

 

Allocations to Education 

Revenues to Education 2010 2011 2012 2013 2014
Total $1,072,496,752 $1,102,860,768 $1,300,240,379 $1,262,058,020 $1,327,928,392 

 

Revenues to Education 2015 2016 2017
Total $1,364,542,013 $1,563,149,876 $1,499,004,486