BILL ANALYSIS
AB 142
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 142 (Hayashi)
As Amended March 11, 2010
2/3 vote. Urgency
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|ASSEMBLY: |75-0 |(April 20, |SENATE: |32-0 |(March 22, 2010) |
| | |2009) | | | |
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(vote not relevant)
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|COMMITTEE VOTE: |18-0 |(March 23, 2010) |RECOMMENDATION: |concur |
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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,
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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 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,
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ii) 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)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
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those revenues be used to benefit public education.
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.
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COMMENTS : This bill was substantially amended in the Senate and
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 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,
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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 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
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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: 0003798