Raising scratch for schools

The California State Lottery is a big deal. Every year, about half of all adults in California buy at least one ticket, knowing that — win or lose — a portion of the price of the ticket goes to support California’s public K-12 schools and colleges.

The lottery delivers only 1½% of the education budget

Catchy advertising and media coverage make the lottery seem bigger than it is, and many people overestimate its contribution to the education budget. In reality, the lottery delivers only a tiny portion of the money spent on public education in California — about 1½ percent, in the neighborhood of $200 per student.

This small percentage is still a heck of a big number for education — in the neighborhood of $1.9 Billion in 2021, despite the pandemic. The revenues from ticket sales are split between winners, schools, retailers, and the cost of operating the business, including advertising. About 23,000 retail locations in the state sell lottery tickets, so we are reminded of it constantly.

History of the lottery

Lotteries have a long history in America, extending back to the colonial era. In the 20th century, states created lotteries partly as a response to illegal gambling, which was popular and expensive to enforce against. If people want to gamble, legislators reasoned, the public might as well benefit! Today, virtually all states have lotteries — as of 2021 the only exceptions were Alabama, Alaska, Hawaii, Utah, and Nevada.

California voters created the State Lottery in 1984. It’s a big operation with nearly a thousand employees and a substantial marketing presence. The program operates under close scrutiny. In early 2020, the state auditor issued a critical report arguing that the lottery had awarded more than it should have in prizes, and that it owed the state’s schools $36 million. The lottery disagreed with the auditor’s report. [It’s unclear to this author whether a resolution has been reached; either way, the scope of the dispute is minimal in context — it amounts to funding of about $6 per student.]

As in other states, the California lottery has grown over time:

Who buys lottery tickets?

Lottery tickets are inexpensive and easy to buy. As already mentioned, many people like to gamble, and about half of adults buy at least one ticket per year. Participation rates match the demographics of the state according to surveys by the lottery commission.

People buy lottery tickets for many reasons. They are a form of entertainment, an easy and affordable gift, and a way for a group of people to bond over a moment of shared hope. Many of the lottery games are set up to be easy to play. Obviously, people buy lottery tickets hoping to win. The odds of winning are statistically poor, but the games are designed to reward participants with small payoffs that create winning experiences.

Who loses?

Lotteries are a form of gambling, and every gambling system is statistically designed to pay “the house” at the expense of those who lose. Most people who buy tickets, knowing this, don’t gamble more than they can afford to lose, but gambling can be addictive.

State lotteries operate in a morally ambiguous space. They raise money for the benefit of a cause, which is good, but they contribute to gambling, which isn’t. They help displace organized crime. In some states the lottery is the only permitted form of legal gambling other than investing. Commentator John Oliver argues that lotteries for public education are moral camouflage for a big business that by nature involves real harm. He reserves his most piercing disdain for states where the lottery business has expanded to include casino-style games, which draw in a lot of money because they are tremendously addictive by design.

To mitigate the downside problems, the California lottery has avoided adopting addictive casino-like games. It was the first state lottery in the nation to direct a portion of revenues toward treatment for gambling addiction. This level of restraint is reflected in lottery revenues. California brings in fewer dollars per student than other state lotteries that operate with fewer qualms.

Does lottery money actually add funds for education?

When introduced, the original premise of lottery funding for education was that it would add incremental money, making the system a little better. Has it actually done that?

Lottery funds are reliable and fairly steady, and school district business offices know they can count on them. Some argue that this dependability is actually a problem. If the school system knows the money is coming, won’t it just spend new money on something else?

California’s education funding system does a better job than most other states at avoiding this problem, for reasons that are a little technical. Education funding in California is mostly determined by the taxes collected each year, sausaged through a formula that was voted into the state constitution with the passage of Proposition 98 in 1988.

Yes, the lottery probably delivers incremental money to education.

Here’s the twist: California’s lottery fund is not counted as part of the Prop. 98 fund, so in that sense it really is incremental funding. Each fiscal quarter, the Lottery reports the amount of money allocated to each school district. For example, last quarter, the fund reported $1.8 million for Oakland Unified school district. Since 1985, Los Angeles Unified has received a cumulative $3.2 billion. These are not small figures.

At present, school districts direct a majority of lottery funds to salaries and benefits, but this pattern is gradually changing due to passage of Proposition 20 in 2000. With this ballot measure, voters specified that half of any increase in lottery funds must be directed to school districts as restricted funds to be used specifically for purchase of instructional materials. As of this writing, districts are required to use about a third of their lottery funds for this purpose. Lottery funds alone are not sufficient to cover the cost of instructional materials, which is part of the reason why education organizations opposed the measure. By entangling lottery funds with district budgets for learning materials, it can only be said for certain that voters made the system more complicated.

Does the lottery compete with taxes?

Some argue that the lottery distracts people from their moral obligation to support schools by paying taxes. Big jackpots can make it feel as if paying for a lottery ticket is a big contribution to education. It isn’t. By being implicated in the lottery, does the education system play into the false impression that schools are showered in cash?

There may be something to this, but consider the alternatives. State lotteries are popular. They aren’t going away. For a lottery to work, it needs to have attractive-enough prizes and odds. It also has to benefit a worthy cause, and there are plenty of worthy causes. The education establishment has become comfortable enough to look the other way and take the money.