Attorney general calls new lottery contract illegal

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HARRISBURG -- State Attorney General Kathleen Kane threw a major initiative of the Corbett administration off course Thursday by declaring illegal a private management contract for the Pennsylvania Lottery.

The announcement by the Democratic attorney general, who took office in January, left uncertain the future of the state's 20-year agreement with Camelot Global Services PA LLC, which operates the United Kingdom lottery. Gov. Tom Corbett, a Republican, has argued that the management agreement signed last month would ensure a larger and more reliable stream of funding for a growing population of seniors, and the budget he has proposed for the coming year relies on the deal to provide an additional $50 million for senior programs.


State law requires the attorney general to determine if a contract is in an improper form or violates state law. In a memorandum to the chief counsel of the Department of Revenue, Robert Mulle, chief deputy attorney general of the legal review section, gave three reasons for declining to approve the contract.

Gov. Corbett reacts to rejection of lottery contract

Gov. Tom Corbett reacts to Attorney General Kathleen Kane's rejection of the Pennsylvania lottery contract. (Video by Nate Guidry; 2/14/2013)

The office concluded the contract is an "unlawful extension of executive authority" that infringes on the power of the Legislature to make policy decisions. It found that state law does not authorize the development of monitor-based and other electronic games, such as keno. And it found the contract makes too broad a provision for Camelot to claim damages against the state.

At an afternoon event in O'Hara on Thursday, Mr. Corbett said his office is reviewing the determination and considering possible responses.

"I'm deeply disappointed in that decision," he said. "I don't agree with the position that the attorney general has taken in her analysis."

The law allowing the attorney general to review contracts also provides for an appeal to the Commonwealth Court.

"We're looking at all our legal options," said Kevin Harley, Mr. Corbett's spokesman. "That certainly is a legal option."

Camelot has pledged to bring in more than $34 billion in profits over life of the contract, in part by introducing online ticket sales and keno. Proceeds from the lottery are used to benefit older Pennsylvanians through programs including property-tax rebates and discounts on prescription drugs.

The company issued a statement of disappointment with the decision.

"We guarantee our proposal will produce unprecedented profits for senior programs and we have backed our investment in Pennsylvania with $200 million -- transferring all risk from state taxpayers," it said. "Camelot has indicated it would headquarter in Pennsylvania, pay all taxes required of any commonwealth business, and keep all lottery jobs in the state. We have also publicly stated we would not oppose union organization by our employees."

AFSCME Council 13, which represents 175 of the more than 220 lottery employees, has sued to stop the contract. Executive director David Fillman praised the decision: "For our members and all 200 lottery employees, this couldn't be a better Valentine's Day present for them."

Ms. Kane, a Democrat, was elected in November after promising to review how the attorney general's office, while under the direction of Mr. Corbett as attorney general, handled the investigation of former Penn State University assistant football coach Jerry Sandusky that led to convictions of child sexual abuse.

Speaking to reporters Thursday, Ms. Kane said her office based its lottery determination only on the legality of the contract, not the wisdom of privatizing lottery management. Her remarks anticipated being faulted for denying seniors increases in state funding.

"Be wary of information by politicians that attempts to blame the lawyers who reviewed the contract for the loss of any monies to seniors," she said.

"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 was legal, and then blaming the messenger when it is deemed illegal," she continued.

In making the determination, Ms. Kane said in a statement, she relied upon the advice of Mr. Mulle and the attorney in charge of the office's civil division, both of whom worked for Mr. Corbett when he was attorney general.

The decision was roundly applauded by Democrats, including both of Ms. Kane's fellow row officers. Treasurer Rob McCord, who has said he is considering running for governor, previously said he would not authorize spending for expanded gambling until he was assured it was legal.

"Expanding the lottery is a policy decision that should include the General Assembly, not be done through a closed-door contracting process," he said.

House Minority Leader Frank Dermody, D-Oakmont, said he would push for even greater increases in the upcoming budget for programs benefiting seniors, and Senate Minority Leader Jay Costa, D-Forest Hills, said the lottery could be changed to generate more revenue while remaining under state management.

The announcement drew fewer responses from Republican legislators. Senate Majority Leader Dominic Pileggi, R-Delaware, expressed openness to the claims made by Ms. Kane.

"I'm surprised by the attorney general's decision, but it does focus attention on the intersection of the lottery law and the Gaming Act and highlights the need for us to clarify this area of the law," he said.

In the House, Speaker Sam Smith, R-Jefferson, and Majority Leader Mike Turzai, R-Bradford Woods, indicated concern that the determination could undermine contracts in other parts of lottery operations. They said also that the state lottery law grants broad powers to the secretary of revenue.

"Right or wrong, it's the legislative branch of government that should decide if the governor has too much say," they said in a statement. "Consequently, we expect that the Legislature will be reviewing the attorney general's determination with great interest."


Karen Langley: Staff writer James O'Toole contributed.


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