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Lottery Expenses Again Expected to Exceed State Limits : Budgets: Officials say they were overly optimistic in sales projections. Agency may overspend by $5 million.


SACRAMENTO — Despite a substantial rebound in ticket sales, California lottery officials acknowledged Thursday that their administrative expenses are expected to exceed the limits set by state law for the second straight year.

Gordon Jones, the lottery's chief financial officer, told a legislative committee that unless ticket sales increase dramatically in the next two months, the lottery will overspend its administrative budget by $5 million.

California law states that the lottery cannot spend more than 16% of its revenue on operating costs--including promotion, advertising, computer expenses, salaries and retailer commissions--and must return at least 34% of its earnings to education. The remaining 50% is used to pay prize winners.

Replying to questions from lawmakers, Jones said that even if the lottery exceeds its spending limits, schools will still get at least 34% of the agency's revenues. He said an unclaimed prize fund and interest dividends would be used to make up any excessive administrative spending.

Because there is no penalty for exceeding the limits, Assemblyman Curtis Tucker Jr. (D-Inglewood) is pushing for legislative control of the lottery budget. The lottery is one of the few state agencies whose spending is not subject to legislative scrutiny. Its budget is approved only by the five gubernatorial appointees who make up its governing commission.

"As of now, the Legislature has no authority to do anything with them. We call them in and they can basically tell us: 'We're busy.' They report only to the commission and the commission doesn't seem to be in a position to make them stay at 16%," said Tucker, chairman of the Assembly Government Operations Committee, which oversees legislation relating to the lottery.

Last year, a precipitous drop in sales caused the lottery to overspend its budget by $21 million. This year, Jones said the overspending was the result of overly optimistic sales projections. He said officials had projected sales at $1.9 billion for the year, but sales have been tracking at only $1.75 billion.

Even so, Lottery Director Sharon Sharp said that sales would show a strong upswing and that they should be at least 26% higher than last year by the end of the fiscal year on June 30. She said the lottery has been able to revive player interest by introducing multiple Scratchers--two or more instant games running simultaneously--and a Keno game.

"The California Lottery has not been this strong in three years," she said.

Jones said lottery expenditures could be within the 16% limit if the agency is lucky enough to have a huge jackpot in its Super Lotto game before the end of the fiscal year. Tickets sales usually soar when the Lotto jackpot is more than $30 million.

Jones made his comments during an Assembly Government Operations hearing to determine why the lottery had attracted only one bid for a $500-million contract to run its computer-operated games. The hearing is expected to resume next week.

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