By Hilary Russ
Dec 30 (Reuters) - Pennsylvania is scrapping a deal with a U.K.-based company to privatize management Of the state's lottery system, Governor Tom Corbett said on Monday, the latest of the Republican's high-profile initiatives to falter.
The state struck a deal more than a year ago with Camelot Global Services LLC, a subsidiary of Britain's national lottery operator, Camelot Group PLC, to guarantee $34.6 billion in payments to the state over 20 years to manage the Pennsylvania lottery.
But Corbett's administration repeatedly had to extend the contract after Pennsylvania Attorney General Kathleen Kane, who reviews state contracts, rejected it in February. Kane, a Democrat seen as a potential rival to Corbett for re-election next year, said the first-term governor had overstepped his authority and contravened the state constitution in signing the deal.
The latest extension is set to run out on Tuesday and will not be renewed, Corbett's office said. Lottery operations will continue to be managed by the state.
"As we move forward, we will 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," Corbett said in a statement.
Corbett spokesman Jay Pagni said that privatization was still an option but that there were no other bidders or specific plans.
"The need still exists to grow the lottery to provide a predictable and reliable revenue stream for those that benefit from it," Pagni said.
Pennsylvania's is the only U.S. state lottery that dedicates all of its proceeds to programs that benefit senior citizens - including property tax and rent rebates, reduced transportation costs and low-cost prescription drug programs.
"We remain on good terms with the Commonwealth of Pennsylvania and are open to future possibilities," Camelot Global Managing Director Alex Kovach said in a statement.
Both Pagni and Camelot cited changes in Pennsylvania's political landscape and competitive environment since the deal was struck in November 2012. Lottery employees also sued to stop the privatization.
Corbett has struggled to enact some of his largest agenda initiatives, including the lottery deal. His proposals to reform the public pension system and privatize state-owned and operated liquor sales have stalled in a legislature controlled by his own Republican party.
He is considered among the most vulnerable U.S. governors seeking re-election in 2014. A Quinnipiac University poll this month found that his approval rating had fallen to 36 percent - his lowest since being elected in 2010 - with 53 of registered voters disapproving of his job performance.
Corbett's push to privatize the lottery is "by far" the least popular of his main initiatives, and the administration could not gather enough public or legislative support for it, said G. Terry Madonna, public affairs professor at Franklin & Marshall College and director of its polling unit.
That could actually work in Corbett's favor in his tough re-election bid.
"People don't favor it. If you don't do it, it doesn't create any harm," Madonna said.
Meanwhile, Kane, who is both the first woman and first Democrat to be elected Pennsylvania's attorney general, received more votes than any other statewide candidate in 2012, outpolling even President Obama. She pledged to serve a full four years as attorney general and has downplayed local speculation that she would consider a run for governor as early as next year.