Treasurer Rob McCord urges Corbett to drop the idea
The price tag for exploring Gov. Tom Corbett's idea for outsourcing management of the Pennsylvania Lottery has crossed the $4 million threshold and is marching toward the $5 million mark.
Recent revisions to the contract with the administration's outside legal advisers, DLA Piper, alone now allow it to be paid as much as $3.4 million.
That is up from the original $375,000 cap set when the firm was hired in March 2012 and has steadily risen over subsequent months, according to the Pennsylvania Treasury's contract database.
The cap was bumped up from the most recent limit of nearly $2.5 million to cover the continued legal services associated with this private management exploration "which we anticipate will have a return on the investment down the road through the insight we gained during the process," said Elizabeth Brassell, a spokeswoman for the state Department of Revenue, which oversees the lottery.
Another $1 million gets added to the outsourcing's tab from contracts with Greenhill and Co., a Chicago-based private equity firm serving as financial adviser, and Philadelphia law firm Blank Rome, which was hired to defend the commonwealth in a lawsuit filed by a state employee labor union over this privatization scheme.
All of the money to pay these bills comes out of the Lottery Fund, which is used to fund programs and services for older Pennsylvanians.
Tuesday is the latest deadline for the administration to make a move in deciding its next step with regard to the outsourcing.
That is when the bid from United Kingdom-based Camelot Global Services is set to expire.
Camelot's bid, which was initially was due to expire Dec. 31, 2012, has been extended 10 times while administration officials ponder a way to make Pennsylvania join the ranks of Illinois, Indiana and New Jersey that have privatized their state lottery's operation.
But as the deadline for a decision gets delayed, the consultants' fees rise.
State Treasurer Rob McCord sees that use of tax dollars as a waste.
At a news conference in Philadelphia on Monday with the Comcast Building towering in the background, McCord noted that if the $3.4 million to be paid to DLA Piper were a stack of $1 bills, it would be taller than that skyscraper that is the tallest building in Pennsylvania,
"I call on Governor Corbett to put this failed and costly experiment to an end," McCord said. "Do not extend this bid again. Do not divert more money from our seniors."
The Corbett Administration pitched this lottery privatization idea as a way to provide increased and more predictable profits to pay for the rising demand for programs from the state's growing senior citizen population.
Camelot, which was the lone company to submit a bid, is promising to generate $34.6 billion in profits over the next 20 years. That promise is backed up by a $200 million fund to cover any shortfall if it fails to meet annual profit commitments.
But critics see potential pitfalls in the way the original contract proposal is structured that make that commitment less than ironclad.
Attorney General Kathleen Kane saw constitutional problems with it, along with other issues, prompting her to reject the proposed contract last February.
Since then, the administration has asked Camelot to extend its bid expiration date 10 times to allow more time for it to figure out a way to address Kane's concerns.
Democratic and some Republican lawmakers also were not pleased with the outsourcing deal that Corbett tried to strike without seeking their approval.
Camelot's profit commitments rely on introducing Keno to the lottery portfolio, which some lawmakers joined with Kane in saying that would require legislative approval.
The Senate-passed small games of chance bill that now sits in state House that would legalize some gambling in taverns also could complicate matters, potentially making Keno less profitable than initially thought, some observers say.
A spokeswoman for Camelot declined comment about the impact of legalized small games in taverns on its interest in managing the state's lottery.
McCord threatened not to pay bills associated with the lottery privatization if he determined the payments failed to meet minimum legal standards.
But he said he will pay DLA Piper $2.36 million for the legal services it has billed the state for, following his office's review.
"I consider the administration's lottery consulting contracts to be a gross waste of money, but they are not illegal," McCord said. "Unfortunately, the fiscal code does not allow me to block foolish payments, only unlawful ones."
Critics question whether the taxpayer dollars going to pay consultants is money well spent. But Brassell said, "If we didn't find value to the work, we wouldn't be asking them to do anything."
McCord looks at what the $3 million spent to date on consultants would otherwise have bought for senior citizens– 428,571 meals through Area Agencies on Aging and senior centers, 151,975 prescriptions, or 6,380 property tax and rent rebates to seniors.
"This is real money that should have been used to help our senior citizens," McCord said. "Instead, it has lined the pockets of consultants who are pursuing an ill-advised plan to privatize our efficient and well-administered lottery."
The lottery last year set a new record for ticket sales of $3.69 billion, resulting in more than $1 billion in profits for senior programs.