Will devoting a larger share of lottery proceeds to prizes and a smaller share to education boost sales and thereby increase the number of dollars that go to schools? This question is central to a bill moving through the Legislature. Currently, the California State Lottery Act, passed by voters in 1984, divides proceeds among prizes (50 percent), administration (no more than 16 percent), and public education (at least 34 percent). AB 142 (Hayashi) would change the rules and establish a commission to determine the share of lottery sales allocated to schools and to prizes. Proponents argue that if a larger share of sales goes to prizes, lottery revenue will increase sufficiently to provide more money to schools than under current law. These claims may have merit, however previous CBP briefs on the lottery raise several important policy issues that still remain. For example, research shows increased lottery sales reduce state sales tax revenues. To the extent lottery ticket buyers spend less on taxable goods, the lottery would reduce sales tax revenues and thus the funds available for public education and other services.
Historically, lottery revenues have provided a very small share of public school funding. To change that fact would require the state to increase lottery revenues dramatically. By definition, however, increasing lottery revenues requires boosting the amount Californians spend on lottery tickets. Research also shows that individuals with lower incomes spend more on lottery tickets per capita than those with higher incomes. While some argue that individuals can choose whether to buy lottery tickets, others argue that it would be inappropriate for the state to transfer a larger share of the cost of public education to those who are least able to afford to pay.
Overall, while California clearly faces budget challenges this year, changing the rules to increase lottery sales continues to be an unwise bet.
— Jonathan Kaplan