In 1984, Proposition 37 amended the California Constitution to authorize the establishment of a statewide lottery. As an initiative statute, the California State Lottery Act (Act) of 1984 created the California State Lottery Commission and gave it broad powers to oversee the operations of a statewide lottery. The purpose of the Act was 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 initially required 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 were to be used for administrative costs.

In 2010, the Act was changed to allow the Lottery flexibility to pay out more money in prizes and reduce the administrative cost limit to 13 percent of total revenues. Along with that flexibility, the new law requires the Lottery to meet minimum levels of contribution to public education. Revenues to education are placed in a special fund, known as the California State Lottery Education Fund, 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.

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 25 years since sales began in October 1985 through June 30, 2010, the California State Lottery has raised more than $23 billion for public education, including $1 billion in FY 2009-10.

Because of the inherently variable nature of lottery ticket sales, revenue estimates for 2010-11 and 2011-12 cannot be made with certainty.