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PA’s Private Lottery Contract Unconstitutional, AG says

Pennsylvania’s newest attorney general Kathleen Kane said the administration’s contract to privatize management of the Pennsylvania Lottery is unconstitutional and not statutorily authorized.

By Melissa Daniels | PA Independent

HARRISBURG — Pennsylvania’s Attorney General Kathleen Kane rejected the governor’s contract with Camelot Global Services to manage the Pennsylvania Lottery.

Kane, during a five-minute news conference Thursday, said the contract “contravenes the Pennsylvania Constitution and is not statutorily authorized.”

Gov. Tom Corbett’s administration entered the contract — a professional management agreement — with Camelot in January. The Office of the Attorney General is required by state law to review contracts for “form and legality.”

In this case, the Camelot PMA failed to meet that test, according to a letter from Kane’s office to the administration sent early Thursday.

State officials in the Department of Revenue said, upon entering the Camelot agreement, it would bring in more money than the lottery makes as a state-run entity. Profits fund programs for senior citizens, like prescription drug and at-home assistance costs.

But throughout the procurement process, lawmakers from both parties, unionized workers at the PA Lottery and State Treasurer Rob McCord publicly wondered if the contract was legal, if the procurement process was fair, or if it overstepped the rights of lawmakers to authorize an expansion of gaming.

The rejection means that the state won’t see additional revenue from the state lottery that was projected.

Corbett’s budget officials have said the Camelot contract would bring an additional $50 million to senior citizen programs’ in the 2013-2014 budget, which was proposed on Feb. 5.

Corbett said in a statement that he was “deeply disappointed.”

“I don’t agree with the attorney general’s analysis and decision, and we will review our legal options,” he said. “My job is to protect Pennsylvania’s seniors, and we will continue to do that.”

Kane, who won the office by a landslide in November, is the first Democrat and first woman elected to the Attorney General seat. This announcement marks her first major decision in the office.

In her announcement, Kane said that the PMA failed the form and legality test on three main points. First and foremost, Kane said the executive branch, namely the secretary of revenue, overstepped legal boundaries.

“The PMA is an unlawful extension of executive authority that infringes on the General Assembly’s powers to make basic policy choices regarding the management and operation of the lottery,” as described in the state constitution, Kane said.

Kane said parts of the proposal adding electronic and monitor-based games like Keno to the state lottery system are not authorized by the State Lottery Act. That’s because the expansion “usurps the authority” of the Pennsylvania Gaming Control Board, Kane said.

Lastly, the contract allows Camelot to be compensated for “indirect expenses.” This “open and undefined indemnification” is unconstitutional, she said.

Kane did not take questions from reporters after she made the announcement.

Democrats have denounced the Corbett administration’s move to privatize the state lottery, but Kane said her decision was based solely on the legality of the contract.

And she said she wanted to warn the public against politician’s who may point the finger at her office from taking money from seniors.

“It is disingenuous to put the cart before the horse by promising money to people in need based upon a contract before making sure that that contract is legal and then blaming the messenger when it is deemed illegal,” Kane said.

Kane said the office reviews as many as 5,000 contracts a year.

“While most are approved, we do not rubber stamp any one of them,” Kane said.

Contact Melissa Daniels melissa@paindependent.com

Cinderabi February 18, 2013 at 05:39 PM
God Bless You Kathleen Kane for standing up agsinst this blatant attempt on the part of another republican attempt to take something away from the senior citizens of this state. So many of us rely on the good that comes from the PA lottery funding our senior centers, public transportation & food (meals on wheels). I am so glad I voted for you. You Go Girl!!!! Please keep up your crusade to curb the corruption that runs rampant in our state government!
Earle Leo Nelson Jr. February 18, 2013 at 07:18 PM
Cinderabi This has nothing to do with Republicans and Democrats. It has to do with someone in control that is totally stupid, as to the job loss. That is what is so disturbing to me. These rich SOB's dont think about the common people that they are taking jobs away from, plus how can the state outsource jobs overseas? George Washington just turned over in his grave!!!!
Mike Shortall Sr February 18, 2013 at 10:12 PM
Although it's hard for me to fathom why people are so opposed to this arrangement (Camelot is promising roughly $34 billion in profit - over 20 years - for a state lottery that's only profited $22 billion over its entire 40-year existence.), Kane's action is exactly why it's not a bad idea to have an opposition presence in offices like the AG or Comptroller. Would just LOVE to hear proposals on how Pennsylvania could match that increase in revenue with out raising taxes, especially since other ideas like developing PA's natural gas deposits or selling off the liquor sales cartel are also routinely shouted down.
Elaine February 18, 2013 at 10:36 PM
And I believe that Corbett is just trying to pull a fast one...again. I would bet you dollars to doughnuts that if this contract went through, in 6 months we would an "oops" from Corbett and Camelot that they "overestimated" the profits.
Mike Shortall Sr February 18, 2013 at 11:30 PM
That's all speculation though, Elaine. Camelot was willing to put up $200 million in cash collateral to back up the income commitments. I really haven't heard anyone provide a valid reason for disliking the deal other than "suspicions". Nor has anyone suggested how the State could pull in the increased revenue Camelot was committing to.
Earle Leo Nelson Jr. February 19, 2013 at 12:05 AM
Enlighten us Mike you tell us how its possible to increase revenue without raising taxes and not getting more people to play the games. I would like to know why anyone would want to farm out to a company in another country our own lottery IE jobs?
Stephen Bliss February 19, 2013 at 01:28 AM
The agreement between the state and camelot was contingent upon Camelot being able to put Keno and online gambling. The current lottery administration could get more profits if they were allowed to have Keno and online gambling. Corbett does not care about people. He has no heart. He is the worst governor of modern times. Corbett seems to rule like a dictator. My way or the highway. Thank God for the two party system. Go AG Kane. Hold Corbett back until we can elect a better governor.
Jeff Lugar February 19, 2013 at 12:06 PM
It also has nothing to do with "[taking] something away from the senior citizens of this state." They'll still be the beneficiaries of the proceeds.
Mike Shortall Sr February 19, 2013 at 03:36 PM
Earle, you forgot to also throw in " ... or developing our natural gas deposits ..". But thanks for making my point. You can't raise additional revenue for the State if you're going to block every revenue-raising initiative, unless you're willing to live with higher taxes! What's wrong exactly with enticing people to play more lottery games or on-line gambling in Pennsylvania? Do you really think people aren't going to spend that money gambling just because you block it in PA??? They will just spend that money in New Jersey, New York, etc. As for farming out to a company overseas ... My understanding is that Camelot will still require "feet on the ground" here to run the current lottery system, so the only jobs lost would be duplicative management positions. One negotiated contract change (if it's not already there) could be to require any on-line gaming or IE jobs remain or be developed here. Kane has scored her political points; but IMO it would be stupid for PA to pass up the increased revenue commitment Camelot is willing to make and financially back.
James Kephart Jr. February 19, 2013 at 05:06 PM
That is too funny! Really? The worst of modern times? And you think people will take you seriously with that? Corbett has done wonders to pull this state out of the mess Rendell (but Rendell did give us DROP!!!) left it in! It's never fun cleaning up the mess, but that is what folks say about the Democrat's lord and savior President Obama - right? Can't spend money you don't have - and only one party recognizes that - they just can't figure out how to continue to assure they are re-elected while they cut people's expectations of free things from the public treasury! That goes for State and Federal level! I suggest that it is all downhill from here. Once folks start electing officials based solely on what's in it for me me me, the party is over... It is actually the reason why past democratic societies eventually failed.
James Kephart Jr. February 19, 2013 at 05:10 PM
Corruption? If you are aware of corruption, I would suggest you forward that to Kane for her to investigate. Or are you just another democrat on a rant? With all of the victories the Demcrats have been getting over the past few years, I am beginning to get tired of the whining. What more do you all want? No argument from the other 49 percent of the nation? Then you will say we are "working together"?

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