Chapter 1 General Government - The California Performance Review

The California Performance Reviewcapped in 1998 at 52 percent. Four years after the cap was restored to its prior level, revenueshave steadily increased to $3.1 billion. 6Top lottery officials from Massachusetts, New York, Florida, Texas and Georgia have recentlystated that higher payouts were instrumental in increasing revenues and generating additionalfunds for their beneficiaries. 7The Lottery Act does not give the lottery the flexibility to increase prize payouts. The LotteryAct requires that education receive at least 34 percent of gross lottery revenues, that 50 percentbe allocated to prizes and no more than 16 percent to administration. Given these restrictions,the only way the lottery could increase prizes above 50 percent is to spend less onadministration and put the savings into the prize fund.In 1997 the lottery did just that. It streamlined its business processes and cut its workforce bynearly 30 percent. The result was a reduction in administrative expense from 16 percent to 13.5percent. The Lottery took those savings and put them into the Scratchers® prize fund. Thisrelatively small increase in payouts more than doubled revenues in 20 months from just under$10 million per week in the fall of 1997 to more than $20 million per week in the summer of1999. 8 Total contributions to public education increased by $191 million after three years,primarily due to this program. 9Exhibit 2Effect of Higher Payouts in California 1997–20002520Higher PayoutsInitiatedWeekly Scratchers Sales1000750757Contributions to Education835899948In $ Millions1510In $ Millions50025050FY 96-97 FY 97-98 FY 98-99 FY 99-00Jul-97 Oct-97 Jan-98 Apr-98 Jul-98 Oct-98 Jan-99 Apr-99 Jul-99A Government for the People for a Change 31