BILL ANALYSIS
AB 142
Page 1
( Without Reference to File )
CONCURRENCE IN SENATE AMENDMENTS
AB 142 (Hayashi)
As Amended March 11, 2010
2/3 vote. Urgency
-----------------------------------------------------------------
|ASSEMBLY: |75-0 |(April 20, |SENATE: |32-0 |(March 22, |
| | |2009) | | |2010) |
-----------------------------------------------------------------
(vote not relevant)
Original Committee Reference: JUD.
SUMMARY : Modifies the allocation formula of the California
State Lottery Act (Lottery Act or Act) of 1984, also known as
Proposition 37. Repeals the modifications to the allocation
formula if it is determined by the California State Controller
(Controller) that the amount of revenues allocated to the
benefit of public education by the California State Lottery
(Lottery) is less than what would have been allocated if the law
were not changed, as specified.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)Amend Government Code Section 8880.4 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:
a) Not less than 87% (an increase of 3% from current law)
of the amount of the total revenues shall be returned to
the public as follows:
i) Not less than 50% 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% of the total annual revenues shall to be
returned to the public in prizes; and,
ii) 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
AB 142
Page 2
that at least 34% of the total annual revenues are to be
allocated to the benefit of public education.
b) No more than 13% (a decrease of 3% from current law) of
the total revenues shall be allocated for the payment of
expenses of the Lottery.
2)Add Government Code Section 8880.4.5. to require:
a) The Lottery, following the end of each full fiscal year
(FY), 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 FY;
b) The Controller, no later than September 1 of each of the
first five full FYs in which the changes by this bill are
in effect, to determine if either of the following have
occurred:
i) The total net revenues allocated to 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 FY prior to enactment of
this bill; or,
ii) 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 FY prior to enactment of
this bill, adjusted for an annual growth rate of 1.8% 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 FYs in which the changes by this bill are in
effect, then:
i) 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; and,
ii) The changes to the Lottery Act made by this bill
shall become inoperative and the language in the Act as
AB 142
Page 3
it existed immediately prior to enactment of the bill
shall become operative.
3)Require the Controller, at the end of the first five full FYs
following enactment of this measure, to convene a lottery
review group to report to the Legislature, no later than
December 31 following the final FY, on whether the amendments
made by this measure have furthered the purposes of the
Lottery Act, as intended.
4)State findings and declarations that this bill addresses the
fiscal emergency declared by the Governor by proclamation
issued on January 8, 2010, pursuant to the California
Constitution.
5)Make other technical and conforming changes.
6)Declare that this bill furthers the purpose of the Act.
7)Add an urgency clause, allowing this bill to take effect
immediately upon enactment.
EXISTING LAW :
1)Authorizes, through the California State Lottery Act of 1984,
enacted by initiative, a California State Lottery and provides
for its operation and administration by the California State
Lottery Commission and the Director of the Lottery, with
certain limitations.
2)Requires that not less than 84% 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% of those
revenues be used for expenses of the Lottery.
3)Requires that 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.
4)Requires that 50% of the total annual lottery revenues be
returned to the public in the form of prizes, and that 34% of
those revenues be used to benefit public education.
AB 142
Page 4
5)Provides, beginning in FY 1998-99, 50% of any increase above
the amount allocated to education for FY 1997-98 shall be
allocated to school districts and community college districts
for the purchase of instructional materials, as specified.
6)Requires that, to the extent that expenses of the lottery are
less than 16% of the total annual revenues, any surplus funds
be allocated to the benefit of public education.
7)Specifies, through the California State Lottery Act of 1984,
enacted by initiative, that 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.
8)Authorizes, through the California Constitution, the Governor
to declare a fiscal emergency and to call the Legislature into
special session for that purpose. The Governor issued a
proclamation declaring a fiscal emergency, and calling a
special session for this purpose, on January 8, 2010.
AS PASSED BY THE ASSEMBLY , this bill required a health studio
that is available for use by its members for 24 hours per day,
but is not staffed during that entire period, to meet specified
requirements, including, but not limited to, providing live
video surveillance, of a health studio during times when no
trained employees are on the premises, and requiring members,
during times when the health studio is not staffed with a
trained employee, to use a provided device that, when activated,
contacts emergency services.
FISCAL EFFECT : According to the Senate Appropriations Committee
analysis, the estimated costs associated with the reporting
requirements for the Controller to review the amount of revenue
that gets allocated to public education at the end of each year
for five years are estimated as minor and absorbable.
In addition, the Senate Appropriations Committee analysis cites
estimated costs for funding public education under this bill has
potential for an unknown, but, significant, increase in revenue.
However, there is potential for a one-time decrease in revenue
from the State Lottery Education Fund during the first year
implementation period of the modified formula.
COMMENTS : This bill was substantially amended in the Senate and
AB 142
Page 5
the Assembly-approved provisions of this bill were deleted.
This bill, as amended in the Senate, is inconsistent with
Assembly actions. According to the author, this bill seeks to
increase the amount of funding education receives from the
Lottery. The author also states, "By making minor changes to
the lottery act's funding formula, the lottery commission will
have the opportunity to increase the financial support to
California's schools."
Background . In 1984, California voters passed Proposition 37
and created the Lottery. The purpose of the Lottery is to
provide supplemental funding for the benefit of public
education.
The Lottery Act provides that the net revenues of the Lottery
shall not be used as substitute funds, but rather shall
supplement the total amount of money allocated for public
education in California. In the 25 years since sales began in
October 1985 through June 30, 2009, the California Lottery has
raised over $23 billion in supplemental funding for public
education. In addition, since 1984, the Lottery's retail
partners throughout the state have earned over $4 billion in
retail commissions and/or compensation for the sale of Lottery
products.
Modernization of the Lottery and securitization of bonds with
Lottery revenues . After a record breaking prolonged Budget
impasse in 2008, the Legislature enacted, among other things,
two measures and a constitutional amendment that would allow for
the modernization of the Lottery and the use of Lottery revenues
to securitize (debt-service) the sale of bonds, upon voter
approval. The Lottery package appeared on the May 2009 election
as Proposition 1C. If approved by the voters, Proposition 1C
would have provided an estimated $5 billion in revenues to the
state. The revenues would have been realized from increased
sales as a result of the Lottery modernization and the ultimate
sale and debt-servicing of bonds from proceeds realized from the
modernized Lottery. The modernization provisions would have
modified the distribution percentages of total revenues of the
Lottery, allowed the Lottery Commission to set prize payout
rates, modified the administrative expenses of the Lottery
(which are reduced to 13% from 16% of total revenues), allocated
$1 million to the Office of Pathological and Problem Gambling
within the Department of Alcohol and Drug Programs, and,
generally, make other conforming changes. Education funding
AB 142
Page 6
would have no longer been paid from Lottery revenues, rather
would have been paid from the General Fund. Education would
have been guaranteed at least $1.1 billion, adjusted annually
for cost-of-living and student growth adjustments. The ballot
measure was not approved by the voters.
According to an exit poll survey conducted by Voter Consumer
Research after the May 2009 election in which Proposition 1C was
considered, 61% of the voters support "modernizing the lottery
to improve its performance with increased payouts, improved
marketing and effective management." However, when the "$5
billion of borrowing from future lottery profits" and
"debt-service payments on this borrowing" elements of
Proposition 1C were mentioned, support dropped to just 35% in
the same survey.
Previous proposals by the Governor to sell or lease the Lottery .
In early May 2007, Governor Schwarzenegger publicly stated that
the Lottery is an underperforming asset and is not run in the
most efficient way. He also indicated that the Department of
Finance had received proposals from investment banking firms
identifying potential benefits associated with leasing the
Lottery to a private entity. Investment banking firm proposals
for leasing the Lottery have ranged from a conservative $8
billion upfront lump-sum payment to a very aggressive $37
billion upfront lump-sum payment.
Initially, the Schwarzenegger Administration believed that
leasing the Lottery could generate sufficient money to maintain
the amount of funding generated for the benefit of education,
pay off the Economic Recovery Bonds, fund new capital outlay
projects, and address many other options. Later in the year,
the Governor proposed privatizing the Lottery to help finance
his plan to overhaul the state's health care system. Under the
Governor's latter proposal, the Lottery would no longer provide
monies to education - the state would replace that funding with
money from the General Fund.
Prior and related legislation . SB 570 (Maldonado), 2009-2010
legislative session, would have instituted a number
of changes to reform the Lottery Act. Generally, the changes
would have: 1) modified the definition as to what constitutes
total revenues; 2) modified the distribution percentages of
total revenues; 3) enhanced the authority of the Lottery
Commission to establish the percentage of total revenues that
AB 142
Page 7
will be allocated for prizes and to education; 4) authorized the
allocation of $1 million a year to the Office of Problem
Gambling within the State Department of Alcohol and Drug
Programs for problem gambling awareness and treatment programs;
5) modified the percentage of total revenue allocated for the
expenses of the Lottery; 6) enhanced the authority of the
Director of the Lottery; 7) modified the Lottery's procurement
and contracting authority to allow for the award of contracts to
the best (not lowest and best) proposal, and, increases the
noncompetitive bid contract threshold from $100,000 to $500,000;
and, 8) provided that the provisions of the Lottery Act will
control in the event that there are any conflicts between the
provisions of the Lottery Act and any other provision of law.
(Set, but never heard by the Senate Governmental Organization.)
AB 1654 (Budget Committee), Chapter 764, Statutes of 2008, would
have implemented a number of changes to the Lottery Act to
"modernize" the Lottery if the voters would have approved
Proposition 1C (which was placed on the ballot by SCA 12
(Perata), Resolution Chapter 143, Statutes of 2008, in May 2009.
(The voters did not approve Proposition 1C.)
SB 1679 (Florez), 2007-2008 legislative session , would have made
a number of changes to enhance the performance of the Lottery.
(Never heard in the Senate.)
SB 1011 (Florez), 2005-2006 legislative session , would have
required, among other things, that at least 50% of multistate
lottery revenues to be allocated to the public in the form of
prizes, at least 42% must benefit public education, and no more
than 8% to be allocated for Lottery expenses. (Died on the
Assembly Floor).
Analysis Prepared by : Rod Brewer / G. O. / (916) 319-2531
FN: 0003767