The California Constitution authorizes the establishment of a statewide lottery. An initiative statute, the California State Lottery Act of 1984 (Act), created the California State Lottery Commission and gave it broad powers to oversee the operations of a statewide lottery. The primary purpose of the Act is to provide supplemental monies to benefit public education without the imposition of additional or increased taxes. The Lottery is administered by a five-person Commission appointed by the Governor and confirmed by the State Senate.

The Act requires that 50 percent of total annual revenues be returned to the public in the form of prizes and at least 34 percent of total revenues be allocated to the benefit of public education. No more than 16 percent of total revenues are to be used for administrative costs. The Commission may also use a portion of its administrative funds to pay for prizes in order to increase sales and revenues to education. Those revenues are allocated to public education and placed in a special fund, known as the California State Lottery Education Fund, which is appropriated for the benefit of public education and which holds revenues until they are allocated on a per capita basis, using prior year certified Average Daily Attendance data, to the following categories: K-12 education, Community Colleges, the California State University, the University of California, and other educational entities. These funds are to be spent for instructional purposes, and may not be spent for acquisition of real property, construction of facilities, financing of research, or other non-instructional purposes.

The Act was amended by a legislative initiative in March 2000 to provide that one-half of the amount of the share allocated to public education in excess of the amount allocated to education in fiscal year 1997-98 be allocated to school and community college districts for the purchase of instructional materials.

In the 21 years since sales began in October 1985 through June 30, 2006, the California State Lottery has raised over $18 billion for public education.

Because of the inherently variable nature of lottery ticket sales, revenue estimates for 2006-07 and 2007-08 cannot be made with certainty.