The California Lottery, like many state lotteries, presents itself as a way to generate more money for education. Lotteries, though, are a highly regressive means of raising public funding; they draw dollars disproportionately from poor neighborhoods. Compounding the problem, California distributes lottery funding without regard either for communities’ investments in the lottery or for schools’ levels of need. Like property taxes for education, which tie public school budgets to local wealth, the lottery brings economic inequality into the school system.

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The California Lottery’s stated mission is to “maximize supplemental funding for our state’s public schools.” The lottery’s homepage, under the heading “Giving Back to the Community,” displays a picture of a little girl smiling over a stack of schoolbooks. There’s a page showing the education allocations from the lottery to every county, and how much that county has received since the lottery was established in 1985. But even though lottery money does add a little bit to the state education budget—between 1 and 2 percent annually—the lottery is an extremely poor way of raising those funds. A state lottery is one of the least efficient and most regressive means possible of raising government revenue.

In this way, sadly, it’s not unlike most state funding of public schools. America’s education systems, like all public services, are financed mainly through a variety of taxes—local property taxes, state income taxes, sales taxes, and all manner of smaller funds. Taken together, the result is far from progressive. In only a handful of states do low-income school districts get the greater funding they require to address their students’ needs. And when states introduce state lotteries as a way to improve the situation, they end up compounding rather than diminishing the inequities of school funding.

The failings of the lottery are felt most sharply in needy schools. Berendo Middle School in Los Angeles Unified School District has just over 1,000 students, 90% of them eligible for free or reduced-price lunch (FRL). Lottery retailers in the school’s immediate neighborhood sold $1.2 million in lottery tickets last year. They got back $50,000 from the California State Lottery for education—a net loss of over $4,000 per student. And there are school communities hit even harder: Potrero Elementary in San Diego County, which is 99% FRL-eligible, loses more than $6,200 per pupil. Yerba Buena High in San Jose, which is 89% FRL-eligible, loses over $15,000 per student on the lottery.

The lottery is one of the most regressive and inefficient means possible of raising government revenue: it draws funds disproportionately from the poor, and less than a quarter of the money raised actually goes to public schools.

Californians bought over $5 billion in lottery tickets last year as part of a government effort to raise revenue for education. Only a fraction of that money, though, ended up in California classrooms. So, where did the money come from, and where did it go?

As with most lotteries, the California Lottery draws a disproportionate share of its revenue from the poor.^[1] As you can see in the chart below, the state’s poorest neighborhoods spend four times as much per person on the lottery as the richest ones do. Retailers know their markets, and it’s no surprise that more stores choose to sell lottery tickets in low–income neighborhoods than in well–off areas. While the median household income in California is $61,933, homes in census tracts containing more than 10 lottery retailers earn just $43,250. The median household income of neighborhoods with no retailers, on the other hand, is more than $80,000.

Meanwhile, the state hands out the K–12 education funding produced by the games at a flat rate—in 2014, about $163 per pupil.^[2] This means that disadvantaged communities get back a smaller fraction of their spending than wealthy ones, and much of the money spent on lottery tickets by low–income Californians ends up subsidizing schools in better—off neighborhoods.

Note: Allocations vary slightly because of the inclusion of charter schools, which appear to receive lottery funding at somewhat different levels than school districts do.

Now, the sales data in this figure is per capita—in communities where families bring in less than $25,000 on average, $206 is spent on the lottery annually for every man, woman, and child. When the money comes back, though, there is only $163 per student. Clearly, a lot of dollars are lost along the way.

Of an estimated $5 billion dollars in ticket sales in 2013-14, about $3.1 billion was paid out in prizes. Another $651 million went to administrative costs, leaving approximately $1.3 billion for education in the lottery budget. Based on the lottery’s reports from last year, about a fifth of that money goes to colleges and universities, leaving the rest for K-12 education. After all is said and done, public schools get less than a quarter from every dollar spent on lottery tickets.

$5.008 billion in ticket sales
- $3.085 billion in prizes
- $651.04 million in administration
- $260.41 million for higher ed
$1.088 billion for K-12 public schools
Note: dollars may not total precisely due to rounding in different information sources.

Because of how many lottery purchases are made in the lowest–income areas, a small number of people are supplying quite a lot of lottery revenue. When you rank census tracts by per–pupil loss to the lottery, the 150 tracts that lose the most provide 8.3% of lottery revenue—but they are home to just 1.5% of the state’s population. That means that these neighborhoods spend more than five times as much on lottery tickets as you’d expect, given their populations. In California, because lottery profits are allocated at a flat rate to all schools, the biggest buyers are also the biggest losers. In 2014, these areas spent a total of $423 million on lottery tickets, but less than 3% of that money was returned to their local schools. That meant a collective loss of almost $5,900 per student.

The lottery isn’t meant to be a casino, where a few win big but the odds are always stacked in favor of the house. It’s a government program whose stated purpose is to maximize public education funding—and by that yardstick, the lottery does a pretty poor job. Even worse, this program wrings an outsize share of its revenue from poor neighborhoods.

Though the vast majority of neighborhoods in California pay more into the lottery than they get back in education funding, the losses are not spread evenly over the state. The chart below calculates the average losses for each income group in the state—the total lottery sales in each census tract minus the estimated lottery allocations. As you can see from the chart below, communities at every income level come out behind, but the lowest–income communities are, by and large, losing the most. This is powerfully illustrated by the case of a single census tract in Maravilla, a high–poverty neighborhood in east Los Angeles where a many lottery tickets are sold and fewer than half of students graduate from high school. The diagram to the right shows how, in 2014, this community lost $4,765 per pupil to the lottery.

Because poor communities pay so much more into the lottery than wealthy ones, and because the current system of allocations does not take into account neighborhoods’ levels of investment, low–income areas get shortchanged, while affluent ones are radically overpaid. A fairer system of allocations would look very different.

Under California’s current system of lottery allocations, communities at different wealth levels put very dissimilar amounts of money into the lottery for every dollar they get back. The highest–income areas invest $1.80 for every dollar they get in education funding through the lottery. California’s poorest communities, though, are paying out $6.00 for every one dollar they receive.

But what if the state took a different approach? How much would each neighborhood receive if lottery money proceeds were allocated back to communities in proportion to their spending on lottery tickets? Statewide, 21.7% of lottery revenue ended up in K-12 public education in 2014. If Maravilla had received 21.7% of its own lottery outlays back in education funding in 2014, it would have gotten $971,318—over $1,000 per student. Under the actual system, it got less than $153,000 in total. On the other end of the spectrum, Pacific Palisades, a wealthy neighborhood just north of Santa Monica, would have received just over $4,000 in all, or $6.38 per pupil, instead of the $107,450 it was given.

Comparing how much each community would receive under a fairer distribution system with what California doles out now, it’s clear that, across the state, poorer areas are once again getting especially shortchanged, while affluent neighborhoods receive a big boost. As you can see in the chart below, the lowest–income communities are getting an average of $51 less per student than they would if allocations were commensurate with lottery spending, and the wealthiest are getting $101 more.

Because a community’s level of investment in the California lottery bears no relationship to its return in education funding, money is effectively transferred from poor school districts to wealthy ones. The situation is starkest in areas where wealth and poverty collide. As EdBuild showed with the Dividing Lines map of school district poverty rates, which highlights the destructive impact of the American education funding system overall (of which lotteries are a part), there are many school district borders that segregate sharply by socioeconomic status. One of the most poignant examples is Oakland, a high–poverty California district, which has a hole carved out of its center: the well–to–do Piedmont City, which has a median household income almost four times that of Oakland.

When we compare what Oakland would earn in lottery funding under a fairer system with what it actually receives, we find that the district is losing out on over $2.3 million in total funding. Piedmont, meanwhile, gets almost $445,000 more than it would if the state distributed the funding in proportion to local lottery spending. This amounts to a transfer of $44 per pupil out of Oakland which serves higher-need students, into a system that overpays wealthy Piedmont City by $161 per pupil.

California’s already-struggling urban school districts see huge losses to the state lottery.

Below, you’ll find maps of the school districts serving six major California metropolitan areas, divided into their census tracts. Choose a school district to see its neighborhoods, shaded by income level, and see how much each of those neighborhoods spends on lottery tickets. The taller the spire, the higher the sales per capita. Select “2D MAP” and click the individual tracts to learn more about the lottery losses and gains in each community.

In Los Angeles, one red census tract soars above the rest. That’s West Compton. If the neighborhood were to run its own lottery, even with the same costs and inefficiencies of the state lottery, its schools would get more than 16 times as much lottery money from the program, just by keeping locally raised lottery profits for local classrooms.^[3] And if all West Compton residents instead gave their ticket money directly to their neighborhood schools, they would raise $11,637 per student; that’s instead of the $163 per student they get by paying it to the State Lottery Commission. Some neighborhoods do even worse. One census tract just south of downtown San Jose, whose residents hover around the federal poverty line, loses about $15,200 per student on the lottery—more than the entire 2013 per-student budget of its local school district, East Side Union High.

Who, then, benefits from all of this lottery spending? Mostly those living in neighborhoods with no lottery retailers at all—just one–fifth of California’s 7,900 census tracts, represented in these city maps by the areas that remain completely flat. As you can see, they’re almost entirely upper—income neighborhoods (depicted in blue). As is so often the case with education finance mechanisms, those comparatively wealthy places are the ones that come out ahead in lottery funding, with their gains drawn largely from the outlays in low-income neighborhoods.

The map below highlights schools in some of the neighborhoods hardest hit by the lottery.

The map below highlights schools in some of the neighborhoods hardest hit by the lottery. Click on the school districts to learn more about their losses or gains from the lottery. It also shows the location and total sales for every lottery retailer in the state—ZOOM IN to see the retailers most clearly. Though they broadly cluster along major highways and in population centers, they do not tend to fall in upper-income areas. The gray markers are the public schools that are located in the census tracts that lose the most money per pupil to the lottery program.^[4] Click on any school in the legend to zoom to the school and learn about the lottery sales in its surrounding community.

View the map fullscreen

Most public schools in America are part and parcel of their neighborhoods. They serve local students, whatever their needs and advantages; they engage with community parents; they attract—or fail to attract—families to the area; and they draw, to varying extents, on local financial resources. When a government program draws money out of the community, it by nature hurts neighborhood schools. Impoverishment of communities in the name of aiding public education makes no sense, and doing so in a way that primarily benefits wealthier areas at the expense of those that struggle the most is worse than self–defeating – it’s cruel, and it’s bad policy.

A healthy way of financing schools will recognize that greater needs have to be met with correspondingly greater resources, and that those resources can’t be funded with money money pulled out of struggling neighborhoods. The California lottery does the reverse on both counts, mirroring the injustice of state education funding systems across the country. As EdBuild’s previous work has shown, in most states, more education dollars go to rich and middle-class districts than to poor ones, and funding schemes fail to address low–income students’ unique challenges. When that happens, needy communities are forced to pay a higher proportion of their incomes into the school system than the wealthy do in order to keep their schools alive. This kind of regressive system harms both poor students and their neighborhoods, and school systems end up reproducing inequality for the next generation. That doesn’t sound like a winning approach.

A Note from the Authors: Matt Richmond (former Director of Policy for EdBuild) felt strongly that this story should be told, and it was under his vision that this project began. When Matt was called to Malawi as part of the Fulbright program prior to completion of the project, we carried it forward in his name. His friends at EdBuild are grateful for his vision.