February 14, 2013

Attorney General Disapproves Contract With British Lottery Firm/Reaction

The Office of Attorney General Thursday announced its determination that the proposed Lottery contract with Camelot Global Services violates the Pennsylvania Constitution and is not statutorily authorized.
"The Office of Attorney General conducted a very thorough review of the Professional Management Agreement, the State Constitution, the State Lottery Act, the Gaming Act and applicable case authority and has determined that it cannot approve the contract to allow Camelot to operate and manage the Pennsylvania Lottery," Pennsylvania Attorney General Kathleen G. Kane said.  
The Attorney General is required under the Commonwealth Attorney's Act to review contracts for 'form and legality.'  In a memorandum to David Kraus, Chief Counsel for the Department of Revenue, Robert A. Mulle, Chief Deputy Attorney General and head of the OAG Legal Review Section, provided three reasons why the Professional Management Agreement (PMA) failed the 'form and legality' test.
First, the memo states that the Executive Branch exceeded its authority under Article II, Section 1 of the Pennsylvania Constitution by unlawfully infringing on the General Assembly?s power to make basic policy choices regarding the management and operation of the Lottery.
Second, the memo states that the development of monitor-based or other electronic games, such as KENO, is not authorized by the State Lottery Act and usurps the authority granted by the General Assembly to the Pennsylvania Gaming Control Board.
Lastly, the memo points out that allowing Camelot to be indemnified for "indirect expenses," as provided in the PMA, is an unconstitutional waiver of the doctrine of Sovereign Immunity as set forth in Article I, Section 11 of the Pennsylvania Constitution.
"It is our duty to defend and protect the Constitution of our Commonwealth and that is what our office has done by declining this contract," Kane said.  "In the course of making this determination, I have taken the advice and counsel of the Executive Deputy Attorney General in charge of the Civil Division and the Chief Deputy Attorney General in charge of the Legal Review Section.  Together, these attorneys have many years of experience reviewing Commonwealth contracts for 'form and legality.'  It should be noted that these attorneys worked for the Governor when he was Attorney General, as well as several Attorneys General before him."
Kane continued, "Promising money to people in need based on a contract that is not legal and then blaming those entrusted to do their job correctly is both disingenuous and a perfect example of putting the cart before the horse.  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."
A copy of the Attorney General’s letter is available online.
Gov. Tom Corbett issued the following statement on the Attorney General’s review of the Lottery Private Management Agreement:
“I'm deeply disappointed. I don't agree with the attorney general’s analysis and decision, and we will review our legal options.
My job is to protect Pennsylvania’s seniors, and we will continue to do that.
We have a growing population where one in four Pennsylvanians will be over the age of 65 by 2017. My goal is to ensure that funding for senior programs keeps pace with that growth.”
Pennsylvania Speaker of the House Rep. Sam Smith (R-Jefferson/) and House Majority Leader Mike Turzai (R-Allegheny) released the following joint statement regarding the attorney general’s unilateral decision to reject the administration’s contract for outside mangers to run the Pennsylvania Lottery:
“The administration’s interest was always about growing Lottery proceeds to increase funding for programs, thus helping the state serve its expanding senior population. We also realize many may feel this action by the attorney general ‘saves the Lottery.’ However, given that the Lottery has contracted out significant portions of its current operations, and has done so for many years, we hope the attorney general’s decision does not set the current operations back.   
“The legislature passed the lottery law in 1991, giving broad powers to the Secretary of Revenue to manage the operations. Right or wrong, it’s the legislative branch of government that should decide if the governor has too much say.  Consequently, we expect that the legislature will be reviewing the attorney general’s determination with great interest.”
House Democrats applauded Attorney General Kathleen Kane on her decision to reject Gov. Tom Corbett’s contract with United Kingdom-based Camelot Global Services to manage the Pennsylvania Lottery, and they urged the Republican leaders of the General Assembly to swiftly pass legislation guaranteeing more than $120 million in additional funding for senior programs.
“We applaud Attorney General Kane for making the right legal decision on this ill-conceived and illegal contract to outsource our lottery to a British company,” said House Democratic Leader Frank Dermody (D-Allegheny). “We urge Governor Corbett to end his wrong-headed outsourcing crusade and start making Pennsylvania workers, taxpayers and seniors his top priority.”
House Democrats dismissed Corbett’s claims that outsourcing the state’s successful lottery operations would sacrifice the proposed $50 million in new senior funding Corbett announced last month. They said the Pennsylvania Lottery has a projected surplus of $187 million this year, which can be used to fund senior programs. That surplus is projected to rise to $200 million next year.
“Gov. Corbett is using Pennsylvania seniors as pawns in his scheme to outsource our lottery to a foreign corporation,” said House Democratic Whip Mike Hanna (D-Clinton). “It’s a shameful ploy, and Pennsylvanians aren’t buying it.”
House Democrats introduced a bill, sponsored by Rep. Dermody, which would guarantee more than $120 million in additional funding for senior programs next year – without the need to privatize the lottery. The bill, House Bill 765 (not yet online), would require that funding for senior programs increase next year by at least the same amount funding increased this year – more than $120 million, due to record growth in lottery profits under state-employee management
The House Democrats’ bill would retain the $50 million proposed for the four programs included in Corbett’s proposal – the Aging Waiver Program for in-home services to seniors; the OPTIONS program for care management, home-delivered meals, protective services and in-home services for seniors; the 52 Area Agencies on Aging; and a new Senior Center Modernization program – and would add more than $70 million for other important programs that benefit seniors.
Under the bill, the $70 million would be divided among the following programs according to the proportional share of funding the programs would receive under the governor’s proposed 2013-14 budget: PennCARE (which includes the 52 Area Agencies on Aging and full- and part-time senior centers); family caregiver support; Alzheimer’s outreach; grants to senior centers; home and community-based services; property tax and rent rebates; and free transit and reduced-fare shared rides.
The additional funding would be used entirely for senior programs and could not be used for administrative expenses for any agency or private contractor, including expenses such as: advertising, vendor transition fees, bonuses, commissions, prizes and general government operations.
The House Democrats’ effort to provide more than $120 million in new funding for senior programs has drawn support from senior advocacy groups, including AARP and the Pennsylvania Alliance for Retired Americans.
“We have watched with dismay as Governor Corbett attempted to claim that he has the support of Pennsylvania seniors for his plan to outsource the Pennsylvania Lottery to a private British firm,” said Jean Friday, president of the Pennsylvania Alliance for Retired Americans. “In truth, many seniors are rightly skeptical and concerned about his privatization scheme. We don’t think lottery privatization is necessary or right.
“We applaud the House Democrats for providing a commonsense plan to invest more money in programs for older Pennsylvanians without sacrificing the long-term health of those programs for the sake of overseas profits,” Friday said.
“Pennsylvania’s seniors won a battle today,” said House Aging and Older Adult Services Committee Chairman Steve Samuelson, D-Lehigh/Northampton. “The truth is we never needed to privatize the lottery to generate more money for our important senior programs. That was all a smokescreen for the governor’s scheme to award a foreign company a multi-billion-dollar, sweetheart deal of a contract.”
“The governor’s ill-conceived deal with Camelot was questionable from its inception,” said House Democratic Policy Committee Chairman Mike Sturla, D-Lancaster. “Both Republicans and Democrats were initially concerned with the legality of the scheme, and, as more details came to light, became even more concerned with the loopholes and liabilities of the contract.
“Attorney General Kane simply verified what many, including a majority of Pennsylvanians, already expected -- that this was a raw deal for Pennsylvania,” Sturla added.
House Democratic Appropriations Committee Chairman Joe Markosek said the focus now should be on giving the state lottery workers the tools they need to continue that record-setting pace and ensuring that Pennsylvania seniors are the only beneficiaries of the lottery’s success – rather than a foreign corporation.
“The truth is we have the money now to increase funding for senior programs using the millions of dollars in surplus generated by the lottery’s recent record sales and profits,” said Markosek, D-Allegheny. “And I urge the majority party to quickly pass our bill that would provide more than $120 million for senior programs next year without sacrificing Pennsylvania jobs for overseas profits.”
“Both parties must now work together to ensure the Pennsylvania Lottery continues to prosper,” Markosek continued. “Let’s make Pennsylvania seniors our priority – not foreign investors.”
Senate Democrats applauded Pennsylvania Attorney General Kathleen Kane’s decision to reject the Corbett Administration’s plan to privatize the management of the Pennsylvania Lottery to a U.K.-based company Camelot Global Services.
“The Attorney General made a proper decision,” Sen. Jay Costa (D-Allegheny) said.  “Pennsylvania seniors all Pennsylvania residents can rest easy now that the Attorney General took this action and put a stop to the expansion of gaming without proper authorization.”
“The entire plan was flawed.” Sen. Costa, the Democratic Leader said.  “It is clear that there are ways for current employees of the Lottery to be given the latitude to implement changes that will produce better results and even more money being generated.”
At a news conference in Harrisburg, Kane said that she could not approve the deal negotiated between the Corbett Administration and Camelot.  The Attorney General cited several reasons for her denial including that the arrangement infringed on the legislative powers of the General Assembly, that the plan was an illegal expansion of gaming without proper authorization and that the plan involved a waiver of sovereign immunity.
Sen. Vincent Hughes (D-Philadelphia/Montgomery) who serves as Democratic Chair of the Senate Appropriations Committee said that Kane took the correct course in refusing to approve the Private Management Agreement (PMA.)
“We do not need a foreign-based company managing the operations of the Lottery when we have Pennsylvania residents with the ability to produce more dollars to bolster senior programs.”  Senate Democratic Appropriations Chair Sen. Vincent Hughes said.
“The AFSCME study indicated that there were many pathways available for Pennsylvania officials to take to generate new dollars without privatizing the Lottery,” Sen. Hughes said.  “There are tools available for the legislature to give to the Lottery that will produce a better deal.  Plus, we can be transparent with our action and deliberation.”
The recommendations made by AFSCME were contained in a counterproposal that the union generated following the governor’s decision to privatize the Lottery.  AFSCME indicated in its presentation that it could generate $1.5 billion more in lottery profit.
“We can do a better job and do it in an open process involving the current Lottery personnel,” Sen. Anthony Williams (D-Philadelphia), the Senate Democratic Whip said.  “The Attorney General was clear that the General Assembly needs to be involved and that arbitrary action cannot be taken by the administration.
“There is no reason why we cannot open the process and allow the Lottery to suggest ways it can generate even more profits.”
Sen. John Blake (D-Lackawanna/), the Democratic Chair of the Senate Finance Committee, said that there were so many questions about the privatization scheme that went unanswered and that the whole process needs to be restarted at the beginning and include the General Assembly.
“From the time the PMA was announced there has been great unease about the process and the procedures that were included in the deal,” Sen. Blake said.  “I am pleased that Attorney General Kane put a roadblock up today and announced her decision to deny the PMA.
“Now members of the General Assembly can look at ways on building on the strengths of the successful Lottery that we now operate to generate more funds for seniors, using employees of the Lottery who are Pennsylvania residents.”
Sen. Costa said that he especially appreciated the fact that Attorney General Kane removed politics from the decision, focused on the legal issues involved in the contract and made the right call on behalf of Pennsylvania’s seniors.
Sen. Hughes said that there is no question that lawmakers will be able to generate the $50 million that was part of the agreement and that was included in the governor’s budget presentation.
Auditor General Eugene DePasquale issued the following statement on the decision:
“While I have not opposed all privatization, in the case of the Pennsylvania Lottery, Attorney General Kane and her team of lawyers made the right decision after identifying the legal flaws in the contract that would have led to an unprecedented expansion of gambling without legislative and public input.
“I am concerned that the benefits from the private management agreement would not meet or exceed what the current, very well run Lottery could produce in the same time frame. That concern, and the decision to expand gaming, need to be addressed with input from the public and Pennsylvania General Assembly before we go any further.
“I suspect today’s decision will not be the end of this story, but I hope Gov. Corbett will carefully weigh the cost to taxpayers before he decides to pursue this matter further. My office will continue to monitor the situation and be prepared to conduct and fair and independent audit should the contract eventually be implemented.”
State Treasurer Rob McCord issued the following statement:
“I commend the Attorney General for her independent review and subsequent rejection of the administration’s attempt to expand gambling through the state contracting process.
“The administration was repeatedly warned, as early as last year, that the proposed contract would permit new forms of gambling not currently authorized by the Legislature and not regulated by the Gaming Control Board.
“Expanding the Lottery is a policy decision that should include the General Assembly, not be done through a closed-door contracting process.  Beyond the legal issues, this proposal also raised serious questions about how best to serve seniors efficiently with the programs that the Lottery pays for.”
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