Corbett drops bid to privatize state lottery

Gov. Corbett said Monday that he was dropping his controversial plan to transfer management of the state lottery to the British firm Camelot Global Services, stepping back from one of his legislative priorities.

The governor said he would not extend the $34 million deal with Camelot, but would "take what we've learned to make our successful lottery even better - expanding the player and retailer base, improving player loyalty, and implementing strategies that will grow our lottery responsibly and efficiently."

The Republican governor had spent more than a year and an estimated $4.6 million on lawyers and consultants, but the plan remained stymied by legal challenges and criticism from unions, senior citizen groups, lawmakers, and the public.

Critics on both sides of the aisle said the deal was at best unnecessary and at worst nefarious, with the governor trying to push through a single-bidder contract to a foreign firm with no legislative oversight.

"It is unfortunate that today's announcement comes only after millions of lottery fund dollars have been wasted on a scheme that made little sense and had even less public support," said State Sen. Mike Stack (D., Phila.).

Corbett's office said the process had been edifying and launched a needed conversation about improving the lottery system, which funds programs for the elderly.

With the senior population in Pennsylvania growing, "we don't have a predictable and reliable, sustainable, revenue stream," Corbett spokesman Jay Pagni said. "The need is totally outstripping our ability to pay for it."

The state-run lottery generated nearly $3.7 billion in sales in the last fiscal year, and sent more than $1 billion in profits to state programs that help the elderly, such as tax rebates, transit services, and senior centers. Corbett said privatizing the system could generate more money.

Democratic lawmakers disagreed, calling the plan "wasteful, secretive, and ill-conceived."

In February, Attorney General Kathleen Kane said the plan violated the state constitution and required legislative approval. The union representing lottery workers filed lawsuits and grievances.

The administration extended the bid at least nine times, tweaking the contract in hope of getting around those challenges. The last extension expires Tuesday.

Under the proposed contract, Camelot would have made annual payments, and if lottery profits fell short of those amounts, the firm would reimburse the state for the shortfall - up to 5 percent of profits - from cash required to be held as collateral. Camelot would guarantee a $34 billion profit over the 20-year contract.

Leaders on both sides of the aisle said the lottery system was already profitable and well run, and questioned the need to outsource.

"It made no sense to sell the most successful lottery operation in the country to an overseas firm," said House Democratic leader Frank Dermody of Allegheny County.

David Fillman, executive director of AFSCME Council 13, said he believed his workers could match or exceed Camelot's promised revenue increase if they were allowed to handle keno and online games - a key component of Camelot's bid.

The governor and his staff had worked hard behind the scenes to push the deal through, even as the Republican-dominated legislature shied away from the effort.

Corbett, up for reelection in November, closes 2013 having achieved only one of his three policy priorities for the year, the transportation bill. Liquor-store privatization was the third.

Still, a piece of the deal has a chance.

Senate Republicans will hold hearings in January to discuss expanded keno-style gaming and other ideas to generate revenue. A spokesman for Senate Majority Leader Dominic Pileggi (R., Delaware) said that privatization might still be a good idea and that the hearings would help sort that out.

Corbett's office said he was not closing the door on lottery privatization or Camelot. A spokeswoman for the company called the severance "mutually decided" and said Camelot was not opposed to working with Pennsylvania.

Several Democrats agreed that the conversation about lottery changes should continue. But they blasted Corbett for spending so much time and money on the issue.

"He wants us to be OK with him now saying, in essence, never mind. No acknowledgment that he has now officially wasted" several million dollars, said state Treasurer Rob McCord, who hopes to challenge Corbett in November.

McCord said the money spent on legal and consulting fees could have covered about 6,000 property-tax rebates or 152,000 drug prescriptions for seniors.