Since July 1981 when operations began after being approved by voters in the 1980 election, the Arizona Lottery has taken in almost $6.5 billion in revenue. It has distributed more than $2.1 billion to various state and local government programs, while paying out almost $3.6 billion in prizes. Of the remainder, $431 million has been paid to retailers as commission, and $476 million has been retained to pay for operations.
A prioritized list of beneficiaries of Lottery proceeds is prescribed in statute. Generally, each beneficiary must be funded to a certain level before the next beneficiary in line may receive any distribution. Here’s the list as described in A.R.S. 5-522:
Initial Distributions
At least 21.5 percent of the proceeds from two special scratcher games each year are earmarked for economic development (see A.R.S. 5-522(A)(2) and 41-1505.10). This has produced an average of $3 million per year over the last five years.
At least 29 percent from “multistate” games (like PowerBall) and from Pick 3 games to a combined maximum of $18 million annually goes for mass transit projects (see A.R.S. 5-522(A)(3) and 28-8101). However, the state general fund must receive at least an annual $31 million before this item is funded. The $18 million maximum was reached for the first time in fiscal 2005-06. The average over the last five years has been $10.5 million.
At least 21.5 percent of proceeds from instant bingo games and at least 29 percent of proceeds of Pick 3 games go the state general fund. However, if Heritage Fund distributions to state parks and to the Game and Fish Department do not annually equal $10 million each (see below), money is taken from the amount that otherwise would go the state general fund to insure the Heritage Fund beneficiaries receive as much of the statutory minimum as possible.
Heritage Funds
In 1990 voters approved an initiative to set aside a prioritized $20 million of Lottery proceeds to be distributed equally to the State Parks Board and the Game & Fish Department. Statute now specifies how each agency may expend its Heritage Fund money.
For the Parks Board:
• 5 percent for local, regional and state trails
• 35 percent for outdoor recreation and open space
• 17 percent for acquisition of natural areas
• 4 percent for maintenance and management of state parks
• 17 percent for historic preservation projects
• 17 percent for state park acquisition or development
• 5 percent for environmental education
For Game & Fish:
• 5 percent for on public access, maintenance and operations
• 60 percent for acquisition and preservation of sensitive habitat of which 40 percent must be for habitat used by endangered, threatened or candidate species.
• 15 percent for habitat evaluation or protection
• 15 percent for urban wildlife and urban wildlife habitat programs
• 5 percent for environmental education
The Heritage Fund was not funded to its maximum of $20 million five times since fiscal 1990-91.
Local Government
For Lottery proceeds, of what remains after the above authorized distributions are made:
• 75 percent to an annual maximum of $23 million goes to the Local Transportation Assistance Fund (LTAF), and
• 5 percent to an annual maximum of $7,650,000 goes to counties’ general funds as unrestricted revenue. If $30.65 million is not available for distribution under this provision, the LTAF is funded completely before money is distributed to counties’ general funds.
Healthy Arizona
Of the remainder, after all the above distributions are made to their statutory maximums, the following distributions are made for Healthy Arizona programs:
• up to $5 million to the Department of Economic Security for the Health Families Program (per ARS 8-701);
• up to $4 million to the Board of Regents for the health education system (per ARS 15-1643);
• up to $3 million to the Department of Health Services to fund teen pregnancy prevention (per Laws 1995, Chapter 190);
• up to $2 million to the Department of Health Services for the Health Start Program (per ARS 36-697);
• up to $2 million to the Disease Control Research Fund (per ARS 36-274); and
• up to $1 million to apply to the state match requirements of the federal WIC (Women, Infants and Children) Program.
(Note: the statutory maximums for these distributions were established by Laws 1997, Chapter 214 and included provisions for annual adjustments based on the GDP price deflator.)
There were sufficient Lottery proceeds to fully fund Health Arizona programs for the first time in fiscal 2003-04. Since that time the distributions have been at the maximum statutory level.
Of what remains after all the above distributions are made to their statutory maximums, up to $1 million is appropriated to the Department of Economic Security for grants to nonprofit organizations for homeless emergency and transitional shelters and related services. This provision was added by legislation passed in June of this year, and if sufficient funds are available, the first distribution will be made later this fiscal year.
After all the above distributions are made, the reminder goes to the state general fund. The average contribution to the general fund over the past five years has been $41.1 million.
Unclaimed Prizes
By statute, half of Lottery proceeds must be reserved for prizes that winners must claim within 180 days of the drawing or close of the game. However, a significant amount of prize money is never claimed. In 1991 the Legislature determined that instead of dedicating all of this unclaimed prize money to future prize pools, 30 percent should be distributed to the court system. The courts use this money to help fund the Court Appointed Special Advocate (CASA) program to ensure children involved in dependency actions have an advocate to work with the court but act in the child’s best interests.  CASA has received as much as $3.3 million in one year; the average over the past five years has been $2.7 million.
Special Transfers
On two occasions, the Legislature has ordered one-time transfers from Lottery proceeds. In 1997 $500,000 was transferred for clean air programs, and in 1999, $1.5 million was appropriated to the general fund in addition to $21 million authorized by formula.
The Lottery was narrowly approved by voters in the 1980 general election — 50.9 percent to 49.1 percent. In 2002, when the Lottery came up for sunset review, the Legislature chose to refer to the ballot the question of whether to continue the Lottery (see HCR 2002). That proposition passed 73 percent to 27 percent. The Lottery will not come under sunset review again until 2012.