Kennedy Is a Drop Out; Gov. Disputes Reason

Caroline Kennedy's abrupt announcement that she no longer wants to be appointed to Secretary of State Hillary Clinton's vacated Senate seat has touched off a political brawl between her supporters and the office of New York Gov. David Paterson.

Kennedy, the daughter of President John F. Kennedy, took Paterson and the rest of New York by surprise with her midnight announcement that she was withdrawing her name because of "personal reasons."

"I informed Gov. Paterson today that for personal reasons I am withdrawing my name from consideration for the United States Senate," she said in her statement.

Her supporters leaked to ABC News that Paterson wanted to make her New York's senator and had asked Kennedy to take 24 hours to reconsider. But a few hours later Kennedy issued her statement, ending her quest.

Caroline KennedyPlay

Kennedy's stunning departure from contention came on the day that Clinton was confirmed to be secretary of state, clearing the way for Paterson to choose a successor.

Apparently stung by Kennedy's about-face, sources described in various media as being close to Paterson did some leaking of their own: that Kennedy was forced to withdraw because she had a "tax problem and potential nanny issue."

Paterson's office countered today by telling the New York Times, New York Post and New York Daily News that the governor had no intention of making the daughter of Camelot a senator because vetting of Kennedy had turned up complications in her personal life. All three newspapers went online with their reports this afternoon.

Late today, Paterson's office issued a statement saying that the governor had not yet "informed any Senate candidates that they have not been selected, nor has any information gathered during this selection process created a necessity for any candidate to withdraw."

"Any speculation to the contrary is both inaccurate and inappropriate," read the statement.

Caroline Kennedy spokesman Stefan Friedman also released a statement this afternoon, reitering her reason for dropping out of the race.

"Caroline Kennedy withdrew her name for consideration from the United States Senate for personal reasons," wrote Friedman. "Any statements to the contrary are false."

"The governor set up a fair and deliberative selection process. This kind of mudslinging demeans that process and all those involved."

A Kennedy backer, speaking off the record, quickly told ABC News that the governor's office was wrong and that Kennedy did not have a tax or nanny problem.

Kennedy did not say anything in public, although she called several leading politicians today, including the powerful Assembly Speaker Sheldon Silver, to thank them for backing her candidacy. She did not, however, tell them why she backed out of consideration.

Paterson is scheduled to announce his Senate selection on Friday.

Biographer David Heymann said that it was no secret that Kennedy was the only city employee who declined to release her financial records when she began working at for the New York City Department of Education nearly five years ago.

"She was the only NYC employee – including the mayor – who never revealed her finances," said Heymann.

During the day, several versions of what happened Wednesday night emerged.

Almost immediately there was speculation that Kennedy withdrew as a face-saving measure after Paterson informed her that he was going to choose someone else. But Kennedy associates say they were convinced that Paterson was going to offer the job to the daughter of JFK.

"He was offering her the seat," said one confidant. "There's no doubt about that."

Ted Sorensen, former special counsel and adviser to President John F. Kennedy, told that he believes the daughter's reason for dropping out had to do with her desire for privacy.

"Kennedy all her life has, like her mother, cherished first and foremost her family and her privacy," said Sorensen.

"She would have been foolish not to try the tempting dessert of a political career which so many people she knows and are related to have tried," he said. "But having briefly tried it she has gone back to her first priorities -- family and privacy."

"I'm not going to say anything to violate that privacy," Sorensen added.

One source close to Kennedy told ABC News that she called the governor to back out because she was made aware of a personal situation that was going to make her unable to accept the Senate seat.

Paterson asked Kennedy if she'd rather take some time to think about it, and she agreed, the Kennedy source said. But by 11 p.m., she had called Paterson back to say the personal situation was preventing her from taking the job.

Kennedy adviser Josh Isay would not specify what "personal reasons" had caused Kennedy to bow out, referring to her written statement.

The turnabout also came as her uncle Ted Kennedy, the family patriarch and a leader in the Senate, recuperated from seizures stemming from his treatment for brain cancer. The source told ABC News that Ted Kennedy's health was not factor that prompted her to abandon the Senate quest.

When Kennedy announced two months ago that she was interested in being appointed to Clinton's vacated seat, she immediately vaulted to the front of the pack of politicians vying to become New York's second senator, a job once held by her slain uncle Robert Kennedy.

During her brief campaign around the New York, she cited her pedigree as well as her family's history of public service.

"You know, from a family that really has spent generations in public service. … I feel this commitment, this is a time when nobody can afford to sit out," she said.

Andrew Cuomo's Chances Improve

Kennedy's exit from the race was as shocking as her entrance. At the time she announced her interest in the position, a handful of veteran politicians were jockeying for the post, including New York Attorney General Andrew Cuomo, who was once married to Kennedy's cousin Kerry.

Cuomo, also a member of Democratic royalty, may now be the most prominent candidate contending for the post. Cuomo is the son of former Gov. Mario Cuomo, a man who was once considered a presidential contender.

Others who have been mentioned as names on Paterson's list include Rep. Kirsten Gillibrand, Rep. Carolyn Maloney, Rep. Steve Israel and city teachers union President Randi Weingarten.

There were indications as recently as last Friday that Paterson may not have made up his mind on his choice for Clinton's successor.

A spokesman for Maloney said that as recently as Friday, Paterson had called Maloney and had not ruled out her bid for the Senate seat.

During her stint as a candidate, Kennedy, who had previously been best known for Jackie-like reserve, got a rough greeting from the press and from some New York politicians.

Rep. Gary Ackerman noted that Kennedy had one qualification for a successful politician: name recognition. "But so does J-Lo," he said, referring to the celebrity Jennifer Lopez.

The criticism prompted Kennedy to campaign around the state, although the only vote that counted was Paterson's. Her effort to demonstrate her commitment to the office hurt as much as helped her.

Tabloids initially laced into Kennedy for her refusal to answer questions, but when she sat for interviews she was lampooned as inarticulate and ridiculed for lacing her answers with a steady stream of "you knows."

ABC News' Joel Siegel contributed to this report