Last updated: March 16. 2013 7:38PM - 196 Views
By MARC LEVY Associated Press

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HARRISBURG — Pennsylvania Attorney General Kathleen Kane on Thursday rejected a long-term contract sought by Gov. Tom Corbett that would let a British firm manage the $3.5 billion Pennsylvania Lottery, saying parts of it contravene the state constitution and other parts are not authorized by state law.

Her politically fraught decision came after Corbett undertook a nine-month process to find and hire a private firm to replace state employees atop one of the nation's largest lotteries. Corbett, whom had endured months of criticism about the policy and process from Democrats, settled on London-based Camelot Global Services, the United Kingdom's official lottery operator.

It is important that my office perform its role in the system of checks and balances that our government desperately needs and that our citizens deserve, she said in reading a short statement at a news conference.

Corbett and Camelot each later released statements saying they were disappointed. Corbett also reiterated that his motivation is to ensure that lottery profits keep pace with rising demand for programs for senior citizens that the lottery funds.

For now, the lottery will remain managed by state employees. Corbett can challenge Kane's decision in court, but would only say Thursday that he did not agree with her analysis and was reviewing his legal options. Camelot's bid expires Saturday, and it would not say Thursday whether it will agree to extend it.

House Republican leaders said they expect the Legislature will review Kane's decision, while Democrats and labor unions were effusive.

Sen. John Yudichak, D-Plymouth Township, criticized Corbett's misguided plan to privatize one of our most consistent and predictable sources of revenue. Rep. Eddie Day Pashinski, D-Wilkes-Barre, said Kane made the right decision and that Corbett should work with the Legislature to expand the lottery and enhance funding for senior programs.

Pashinski said the lottery surplus should grow to $200 million next year and House Democrats will soon propose legislation to use part of it to provide an additional $120 million to senior programs – more than double what Corbett promised under Camelot.

Kane ran on a pledge last year to be an independent voice and to investigate how the Attorney General's Office under Corbett handled the child sexual abuse investigation into former Penn State assistant coach Jerry Sandusky in 2009 and 2010.

The Attorney General's Office reviews state contracts for form and legality.

In a memo she sent Thursday to Corbett's Department of Revenue, which oversees the lottery, Kane's office revealed that it had asked Corbett to withdraw the contract because of a pending lawsuit filed by Democratic lawmakers and the union that represents lottery employees. Corbett refused.

Kane's office subsequently decided that state law does not allow the governor to privatize the operation or management of the lottery nor does it allow the expansion of gambling that the contract would permit.

Her office also concluded that the indirect expenses that Camelot can claim under the contract – essentially a management fee of up to 0.75 percent of the annual profit, or hundreds of millions of dollars over the life of the deal – are an unconstitutional waiver of the state's sovereign immunity protection against paying certain damages or claims.

Corbett, whose administration signed the agreement last month, has said Camelot can produce higher and more stable lottery profits. Democrats have said Corbett is simply diverting money from programs for the elderly to a foreign firm at a time when state employees are achieving profit and sales increases with low overhead.

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