California Lottery officials expect revenues to drop 8 percent

California Lottery officials on Tuesday lowered revenue estimates for the year by $275 million, just as Gov. Arnold Schwarzenegger said the state could double sales in a decade.

Citing a flagging economy and poor brand image for the games, officials said the lottery's declining performance would reduce contributions to public education by $94 million, about 8 percent less than expected in the fiscal year that ends June 30.

Lottery officials said the numbers show the program needs to be untethered from arcane rules that are stunting its growth. Others suggested the slippage shows Schwarzenegger's reliance on improved sales to help balance the state budget is overly optimistic.

"It makes it more difficult for the lottery to meet the goals in the governor's scenario," said Jason Dickerson of the Legislative Analyst's Office. The revision means lottery sales will slip to levels similar to five years ago, Dickerson said.

Schwarzenegger last week revised his state spending plan with a proposal to borrow against future lottery revenues to generate $15 billion over the next three years. About $5 billion of it would be used to help fill the state's $15.2 billion general-fund deficit in the new fiscal year.

On Monday, Legislative Analyst Elizabeth Hill questioned whether the state could double sales in 10 years because California has a historically lower-than-average participation rate.

Lottery Director Joan Borucki acknowledged that sales will always fluctuate with the economy. However, she said the key to increasing sales is to increase prize payouts. State law caps payouts at 50 percent of revenues but Borucki said other states perform better because they hand out more.

"Even states like Texas and Oregon, they don't have the same kind of strange or arcane … restrictions," Borucki said.

Instead of sales reaching $3.35 billion, the lottery commission Tuesday approved revised sales estimates of $3.075 billion. Lottery staff noted player interest continues to drop: The proportion of the population playing games such as SuperLotto and Scratchers has dropped from 60 percent to 50 percent over the past five years.

California wasn't the only state to experience the most recent drop. Staff said 19 other state lotteries reported flat or declining sales in the fourth quarter of 2007. Some of those states attribute the decline to the poor economy and high gas prices.

Lottery officials said they are trying to improve the game's image by touting the number of winners in each region. A new game show is being developed, and the lottery has designed a new logo.

At the same time, the commission moved ahead Tuesday with plans for a new $60 million headquarters facility on the lottery's existing 13-acre property off Richards Boulevard. Borucki said part of the lottery's current office is sagging from an unstable foundation and needs millions of dollars in improvements.

The proposed new headquarters would be six stories and 148,000 square feet. The commission unanimously voted to seek a consultant for the new headquarters. Commissioners still need to approve funding and design.

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