Corbett faces challenges on plan to privatize Pennsylvania lottery

HARRISBURG - For Gov. Corbett, the next few weeks will be critical in deciding whether he salvages his administration's most aggressive foray to date into privatizing state government services.

For months, Corbett has been working behind the scenes to bring in a private company to manage the Pennsylvania lottery, which last fiscal year recorded more than $3.5 billion in sales and more than $1 billion in profits that went toward programs that benefit the state's senior citizens. The administration has argued that a rapidly growing senior population in Pennsylvania has made it necessary to explore ways to make the lottery more profitable.

But the governor's plan to privatize the lottery management with the British firm Camelot Global Services has run into roadblocks and may be running out of time. Camelot's bid expires Dec. 31, but last week, without an agreement from Camelot, the governor granted the lottery employees' union more time to present an alternative plan to privatization. AFSCME Council 13 originally had until Monday to submit its plan, but now will have until Jan. 8.

Whether the governor will persuade Camelot to agree to extend its bid remains a question. But how he handles the tricky negotiations will be viewed by many as a test of his administration's effectiveness in closing a high-stakes deal.

Administration officials have at least tried not to let anyone see them sweat.

"I think the overall strength of the project, in the view of all the business decision makers, will outweigh any negatives to a short-term extension of the deadline," Revenue Secretary Dan Meuser said last week.

Pressed on whether the deal might be coming apart, Meuser said: "I have no reason to believe it's on the verge of blowing up."

Even if Camelot agrees this week to an extension, privatizing lottery management will face other obstacles. AFSCME Council 13, which represents 175 of the lottery's 230 employees, has sued to stop the contract, arguing that Corbett lacks authority to privatize the lottery without legislative approval. Seven Democratic lawmakers have joined in the legal proceedings and have called the deal a multimillion dollar giveaway to a foreign firm that will end up taking money away from Pennsylvania seniors.

"We've got some very significant concerns about this whole privatization deal," Sen. Vincent Hughes (D., Phila.), ranking Democrat on the Senate Appropriations Committee, told reporters earlier this month. "The numbers don't add up."

Two states, Illinois and Indiana, have awarded contracts to privatize the management of their state lotteries, and New Jersey is taking steps in that direction.

In Pennsylvania, Corbett has repeatedly said he would move to privatize lottery management only if he believes a private company can deliver stronger profits than the state Department of Revenue employees who currently run it.

Under the proposed deal, Camelot, which runs the national lottery in the United Kingdom, would guarantee profits totaling $34 billion over the life of the 20-year contract. The administration has said it expects Camelot's profits to be helped by the introduction of keno terminals in bars and restaurants.

That, in particular, has set off a firestorm of criticism, primarily from Democrats, who say that would amount to an expansion of gambling and would therefore require legislative input and approval. State Treasurer Rob McCord, also a Democrat, has threatened to withhold payments to Camelot unless he is satisfied its plans to expand gambling are legal.

Administration officials have insisted they can negotiate a privatization deal - and introduce keno – without the legislature.

Last week, the chorus of criticism began to spread to some on the Republican side. Rep. Paul Clymer (R., Bucks), the legislature's most prominent opponent of gambling, wrote Corbett to say he was concerned privatization would usher in a gambling expansion that could hurt families. He, too, argued that any such expansion would require legislative approval. And a handful of other Republican legislators have privately said they have questions about the proposed deal.

Meuser said last week the administration was committed to answering any questions, and Corbett suggested at a news conference Thursday that he was open to legislative hearings on the proposal.

The potential deal with Camelot, Meuser insisted, is good.

"It's an aggressive proposal from a growth standpoint," he said. "We would be negligent if we didn't look at something to enhance revenue."