FRANK DERMODY DEMOCRATIC LEADER

33RD LEGISLATiVE DISTRICT ROOM 423 MAIN CAPITOL P0 BOX 202033 HARRISBURG PENNSYLVANIA 171 20-2033 PHONE: 17 I 7) 787-3566 FAX (717)767-8060

DISTRICT OFFICE

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CHESWICK PENNSYLVANIA I 5024 PHONE: (724) 274-4770 FAX: (724) 274-6814

HOUSE OF REPRESENTATIVES
COMMONWEALTH OF PENNSYLVANIA

HARRISBURG

January 17, 2013 Honorable Kathleen Kane Pennsylvania Attorney General Pennsylvania Office of Attorney General 16(11 Floor, Strawberry Square Harrisburg, PA 17120 Dear Madam Attorney General: It is our understanding that the administration of Governor Tom Corbett has signed a long-term contract with Camelot Global Services PA LLC (Camelot) to operate and manage the Pennsylvania Lottery. As you know, the contract cannot become effective unless and until the Office of Attorney General approves the contract for form and legality under the Commonwealth Attorneys Act. We write to you today to urge you not to approve this contract for form and legality. Under section 204(t) of the Commonwealth Attorneys Act, if the Attorney General determines that a contract is not statutorily authorized or is unconstitutional, the Attorney General is required to notify the Governors Office of General Counsel and the General Assembly of that fact. We urge you to carefully consider your important obligation under this statute while you are reviewing the Private Management Agreement (PMA) with Camelot. The PMA poses serious financial and legal questions that have yet to be satisfactorily answered by the Corbett administration. Chief among our concerns is that this contract was awarded and signed without statutory authority. As we have publicly stated for some time, it is our determination that an amendment to Pennsylvanias Lottery Law is required for Governor Corbett to enter into such an agreement. And, as this contract is dependent upon a dramatic expansion of gaming in Pennsylvania with the widespread introduction of Keno and online gaming, it is clear that such gaming expansion must be vetted and approved by vote of the General Assembly. In short, the Executive Branch of this Commonwealth has overstepped and usurped the authority of the Pennsylvania Legislature by unilaterally executing a 20-to-30-year contract that significantly expands gaming opportunities in Pennsylvania. The actions of the Corbett administration, relative to the Camelot PMA, are clearly contrary to Pennsylvania law. We are enclosing for your use a draft of an amicus brief we are preparing to file in support of the petitioners in the case filed by AFSCME and others contesting the Governors authority to enter into the PMA with Camelot.2
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71 P.S. 732-101 et seq.

American Federation of State, County and Municipal Employees, Council 13 et al. v. Commonwealth of Pennsylvania et al.,

Commonwealth Court, No. 706 MD 2012

Honorable Kathleen Kane January 17, 2013 Page 2 We also believe the Camelot PMA violates federal law, specifically Title 18 of the U.S. Code, which prohibits the promotion and advertisement of lotteries in interstate commerce with an exception for lotteries conducted by a State acting under the authority of State law. The exception requires the state to exercise actual control over all significant business decisions made by the lottery enterprise and that the state retain all but a de minimis share of the equity interest in the profits and losses of the business. We believe the PMA fails to meet these exceptions and therefore is contrary to federal law. A discussion of this issue may also be found in the enclosed draft brief. The Camelot PMA has vast long term implications for the taxpayers and senior citizens of Pennsylvania. Beyond the scope of the contract which gives the United Kingdom-based Camelot unfettered control of Pennsylvanias esteemed 41-year-old lottery theres also a staggering amount of money at stake. Some estimates peg the contract value as worth more than $3 billion over 20 years. Thats billions of dollars that would otherwise go to critically important programs benefitting older Pennsylvanians. As you know, Pennsylvania remains the only state to dedicate all lottery proceeds to programs for older residents. Every dollar paid to Camelot would be a dollar taken away from programs that help older Pennsylvanians including property tax and rent rebates, PACE and PACENET prescription drug assistance, free and reduced-fare public transportation, long-term living programs and other critical services.

The Corbett administration continues to claim that lottery privatization is necessary to ensure higher and more predictable lottery profits. However, the administration has yet to answer the basic question as to why its necessary to privatize in order to raise lottery profits without first exploring less drastic measures to increase the Lotterys profitability using current employees within the Department of Revenue. In fact, the Pennsylvania Lottery, with its existing public employees, had a record year in 2011-12, with profits of more than $1 billion. And, for the first six months of this fiscal year, sales are up more than 9 percent, reaching more than a half-billion dollars in profits to date. With these impressive results, we see no compelling reason to pay potentially billions of dollars to a private corporation to fix something that isnt broken. Its clear that there are serious issues with this PMA regarding legal authority, fiscal responsibility, public accountability and transparency. It is our firm belief that this contract is counter to state and federal law. For these reasons, we ask you to reject the Camelot PMA for form and legality. Sincerely,

Jay Costa Democratic Leader Pennsylvania State Senate

Frank Dermody Democratic Leader Pennsylvania House of Representatives