Generally speaking, the money that gets earmarked goes where it belongs. It's all the other money that wasn't earmarked before-hand that gets pulled out.

The political promise is usually "Hey, we'll implement a lottery and earmark 100% of the taxes towards education -- that'll be $20 million a year!" to which everybody thinks that $20 million will be added to the $30 million already being spent. But what happens is the $20 million lottery gets added, then the $20 million non-earmarked funds get pulled to pay for <insert other thing here>, such that the schools don't end up with any more or less than they had.

Past that, "earmarked for schools" is also a way to reframe over political opponents against the lottery as "voting against education".

This isn't a misconception in California; the literal text of the law in some circumstances effectively earmarks funds. For example, take the first proposition from the last election — which happens to be about schools — Prop 51 from the November 2016 general election:

> A fund is hereby established in the State Treasury, to be known as the 2016 State School Facilities Fund

> no disbursement shall be made from any funds required by law to be transferred to the General Fund.

> Bonds in the total amount of nine billion dollars ($9,000,000,000) […] may be issued and sold for the purposes set forth…

(This proposition was approved by the voters.)

Right, but if you were paying schools $x from the general fund, then a special law gives them an extra $y, you can reduce the payment from the general fund by $y.

Thus the schools are receiving the $y, just as promised. Only they aren't any better off, and the general fund has an extra $y in it now.