BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 142|
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THIRD READING
Bill No: AB 142
Author: Hayashi (D), et al
Amended: 3/11/10 in Senate
Vote: 27 - Urgency
SENATE GOVERNMENTAL ORG. COMMITTEE : 9-0, 2/23/10
AYES: Wright, Harman, Calderon, Florez, Negrete McLeod,
Oropeza, Padilla, Price, Yee
NO VOTE RECORDED: Denham, Wyland
SENATE APPROPRIATIONS COMMITTEE : 9-0, 3/15/10
AYES: Kehoe, Cox, Alquist, Corbett, Denham, Leno, Liu,
Price, Wyland
NO VOTE RECORDED: Walters, Yee
ASSEMBLY FLOOR : Not relevant
SUBJECT : California State Lottery
SOURCE : Author
DIGEST : This bill modifies the allocation formula of
revenue generated from the California State Lottery, and
contains language to require the repeal of the modified
formula if the Controller determines that the revenue
allocated to benefit public education is less than a
specified amount.
ANALYSIS : The California State Lottery Act of 1984,
enacted by initiative, authorizes a California State
CONTINUED
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Lottery and provides for its operation and administration
by the California State Lottery Commission (Commission) and
the Director of the California State Lottery, with certain
limitations.
The Act requires that:
1. Not less than 84 percent of the total annual revenues
from the sale of state lottery tickets or shares be
returned to the public in the form of prizes and net
revenues to benefit public education, and that no more
than 16 percent of those revenues be used for expenses
of the lottery.
2. All unclaimed prize money revert to the benefit of
public education, and that all of the interest earned
upon funds held in the State Lottery Fund be allocated
to the benefit of public education.
3. Fifty percent of the total annual lottery revenues be
returned to the public in the form of prizes, and that
34 percent of those revenues be used to benefit public
education.
4. Beginning in the 1998-99 fiscal year, 50 percent of any
increase above the amount allocated to education for the
1997-98 fiscal year shall be allocated to school
districts and community college districts for the
purchase of instructional materials, as specified.
5. To the extent that expenses of the lottery are less than
16 percent of the total annual revenues, any surplus
funds be allocated to the benefit of public education.
6. None of its provisions may be changed except to further
its purpose by a bill passed by a 2/3 vote of each house
of the Legislature and signed by the Governor.
This bill:
1. Amends Section 8880.4 of the Government Code to require
the total revenues of the lottery to be allotted so as
to maximize the amount of funding allocated to public
education, as follows:
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A. Not less than 87 percent (an increase of three
percent from current law) of the amount of the total
revenues shall be returned to the public as follows:
(1) Not less than 50 percent of the
total revenues shall be returned to the public in
the form of prizes, as determined by the
Commission.
Repeals the requirement that a fixed 50 percent
of the total annual revenues shall to be returned
to the public in prizes.
(2) The percentage of the total
revenues to be allocated for public education
shall be established by the Commission at a level
designed to maximize the total net revenues for
public education.
Repeals the requirement that at least 34 percent
of the total annual revenues are to be allocated
to the benefit of public education.
B. No more than 13 percent (a decrease of three
percent from current law) of the total revenues
shall be allocated for the payment of expenses of
the Lottery.
2. Adds Section 8880.4.5. to require:
A. The Lottery, following the end of each full
fiscal year, to calculate and report to the
Controller and to the Legislature the amount of
total net revenues allocated to the benefit of
public education from the California State Lottery
Education Fund for that fiscal year.
B. The Controller, no later than September 1 of
each of the first five full fiscal years in which
the changes by this bill are in effect, to determine
if either of the following have occurred:
(1) The total net revenues allocated to
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the benefit of public education by the Lottery
are less than the total net revenues allocated to
the benefit of public education by the Lottery in
the last full fiscal year prior to enactment of
this bill.
(2) The annual average of total net
revenues allocated to the benefit of public
education from the Lottery after enactment of
this bill is less than the total net revenues
allocated to the benefit of public education by
the Lottery in the last full fiscal year prior to
enactment of this bill, adjusted for an annual
growth rate of 1.8 percent or the actual growth
rate of lottery revenues since enactment of the
bill, whichever is greater.
C. If both 2(b)(i) and 2(b)(ii) occur within
the first five full fiscal years in which the
changes by this bill are in effect, then:
(1) The Controller shall notify the
Legislature and Governor of his or her
determination and report his or her findings on
the Controller's Internet Web site.
(2) The changes to the Lottery Act
made by this bill shall become inoperative and
the language in the Act as it existed
immediately prior to enactment of the bill
shall become operative.
3. Requires the Controller, at the end of the first five
full fiscal years following enactment of this bill, to
convene a lottery review group consisting of the
Superintendent of Public Instruction and the Chairperson
of the Commission to report to the Legislature, no later
than December 31 following the final fiscal year, on
whether the amendments made by this bill have furthered
the purposes of the Lottery Act, as intended.
4. Makes other technical and conforming changes.
5. Declares that the bill furthers the purpose of the Act.
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Comments
This bill requires the State Controller to review the
amount of revenue that gets allocated to public education
at the end of each year for five years, and then repeals
the modified allocation formula in this bill if in any of
those five years the Controller determines that the revenue
to public education fell short of the amount allocated in
the last full fiscal year prior to the enactment of this
bill (presumably FY 2008-09). Consequently, this bill does
leave the allocation to public education vulnerable for one
year in the event that a determination is made that funding
provided to schools was less than the amount in FY 2008-09
- $1,048,694,000. However, if the modification of the
allocation formula does result in additional lottery sales
as the Lottery Commission believes, there could be a
significant increase in the amount of funding that is
allocated to the benefit of public education.
The Lottery currently generates total sales revenue of
approximately $2.96 billion annually, with over $1 billion
allocated to the benefit of public education. The intent
of this bill is to allocate more money to prizes which in
turn is expected to generate an increase in total sales
revenue, allowing for an increase in the current level of
funding allocated to public education. However, the exact
impact of these changes will be a result of allocation
strategies of the Lottery Commission, incentives to
retailers, and other marketing events, all of which may
ultimately influence the consumers' behavior on lottery
spending.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13
Fund
Controller: review/report minor, absorbable
General
Funding for public educationpotential for unknown increase
in revenue possibly multi-million
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Special*
potential for unknown one-time
decrease in revenue Special*
*State Lottery Education Fund
SUPPORT : (Verified 3/16/10)
Superintendent of Public Instruction Jack O'Connell
Association for California State Supervisors
California Independent Grocers Association
California PTA
California Retailers Association
GTECH
Service Employees International Union
ARGUMENTS IN SUPPORT : According to GTECH Corporation
which has served as the technology and services partner for
the California State Lottery for the past 25 years:
"This legislation would eliminate outdated rules that
prevent the California Lottery from maximizing payments to
schools. As a result of the outdated operating rules, the
California Lottery currently has the lowest per capita
sales, the lowest per capita net transfers to beneficiaries
(public schools), and the lowest prize percentage payout of
the 10 most populous lottery states.
"These proposed reforms would bring the California Lottery
in line with the best performing lotteries. Out of 44
lotteries in the United States, California is in the bottom
five in terms of Scratchers prize payouts at 58%. The best
performing lotteries have prize payouts between 65% and
70%. Massachusetts has the highest per capita return to
beneficiaries and the highest Scratchers prize payout at
76%. The formula is simple - higher prize payouts equal
more sales and more net revenue. Virtually every U.S.
lottery has implemented higher prize payouts in their
Scratchers-type games and, every time without exception,
raising the payout has increased sales and profits returned
to beneficiaries. If the prize payout restrictions were
amended for the California Lottery, when the changes are
fully implemented, a profit forecast predicts the Lottery
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would increase annual profit by $400 million, bringing
total lottery profits for public education to $1.5 billion
annually."
Other proponents contend that the changes to the California
State Lottery Act proposed by this bill has the potential
to increase revenue available for our schools, and also has
provisions that protect the current amount of funding for
education in the event revenues are less than anticipated.
TSM:nl 3/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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