The California State Lottery is earning more money than ever, but it’s also coming under new scrutiny as it heads toward a ninth consecutive year of revenue growth.
It’s in court defending a third lawsuit from a group of former lottery police who believed they were pushed out of their jobs over a 2015 investigation after already paying more than $500,000 for the first two cases. A group of sales employees, meanwhile, is demanding resignations from top executives because of their alleged misconduct.
Beyond those dramatic conflicts, the 34-year-old lottery expects to generate $7.1 billion in sales in the financial year that began on July 1 — more than double what it earned in the recession, when revenue bottomed out at $2.95 billion in the 2009 budget year.
Its sales accelerated since a 2010 law relaxed the proportion of lottery money that’s required to go to schools, allowing more to go to jackpots and other prizes.
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Before the law changed that year, about $1 billion of the lottery’s money went to schools, or more than 30 percent of lottery revenue. Last year, with its revenue soaring, it delivered close to $1.7 billion to education. That’s about 24 percent of the lottery’s revenue.
The lottery money that goes to schools represents less than 2 percent of total state education spending. The $201 billion state budget that Brown signed in July included $78.4 billion for K-12 schools and $16.6 billion for higher education.
K-12 schools were expected to receive $1.2 billion last year from the lottery with higher education programs gaining about $400 million, according to the budget.
Lottery prizes, meanwhile, have skyrocketed since 2010. The lottery paid out $4.5 billion last year, up from $1.5 billion a decade ago.
The 2010 law that freed up lottery revenue for prizes also capped its spending on administrative expenses.
The department must keep its administrative costs below 13 percent of its earnings, which is expected to be $881 million this budget year. The lottery has a $35.8 million reserve for “uncertainties.”
The Governor’s Office in August reported that it had asked the State Controller’s Office to expand an audit of the lottery’s expenses. The request followed a July report by LAist and KPCC that drew attention to the lottery’s rising revenue but comparably flat contribution to school funding.
Separately, the governor’s office asked Attorney General Xavier Becerra to investigate lottery personnel practices after an anonymous writer sent a letter to various offices in Gov. Jerry Brown’s administration and news organizations describing alleged misconduct by senior lottery executives.
“The lottery has and will continue to be cooperative and transparent for any requests by these entities. I look forward to the conclusion of these external reviews and the 14 identification of any deficiencies to enable the lottery to reassess its current mitigation plan if necessary,” Lottery Director Hugho Lopez said at a September Lottery Commission meeting.