KACO And KLC: Lessons In Kentucky's Unbridled Corruption.

Atmosphere changing for boards, executives?
By: lblackford@herald-leader.com ralessi@herald-leader.com
Published: Sun, 09/06 @ 6:13AM

When Bob Arnold was forced to resign Friday as chief of the Kentucky Association of Counties, he became the fourth executive of a quasi-governmental organization in nine months to lose his job amid a controversy over spending.

Arnold joined Michael Gobb, director of Blue Grass Airport; Kathleen Imhoff, director of the Lexington Public Library; and Sylvia Lovely, director of the Kentucky League of Cities — all of whom were either fired or pressured to resign.

Expenses at those organizations for travel, meals and other perks created such a public outcry that the groups' boards were forced to take action.

Players in and observers of these recent dramas say the current economic atmosphere has made the public a lot less forgiving when tax dollars are involved.

"When you're trying to put food on the table and you've got people spending tax dollars outrageously, well, it smells worse during an economic downturn than if everyone is flying high," said Jim Waters, director of the Bluegrass Institute, a free-market think tank.

State Auditor Crit Luallen, whose office audited the airport and is auditing the League and KACo, says she thinks the stories of Wall Street moguls getting perks and bonuses at the same time their companies are getting federal bailouts have enraged Kentuckians who have lost income or jobs.

"I think people are more sensitive to any instances of abuse of the public trust because they are feeling such pressure," she said.

Urban County Council member Diane Lawless agrees that the economy has made people less forgiving. But she says the salacious nature of much of the spending — every group but the library had expenses at strip clubs, for example, and some meals and trips cost thousands of dollars — got people's attention in a way that bigger but more complex examples of self-dealing don't.

"Maybe people don't read stories about conflicts of interest," she said. "I think these stories caught the public's eye because there were these specific behaviors and specific money spent. That's different from 'Oh, his cousin is the contractor that got the job.'"

Lawless said people she talked to seemed particularly upset by $20,000 spent by the Kentucky League of Cities at a restaurant co-owned by Sylvia Lovely's husband, Bernard, or $2.3 million paid to law firms where he was a partner.

League officials repeatedly said they considered the organization a private business, not one that mostly ran on taxpayer dollars or was accountable to the public.

KACo and KLC are funded through dues, insurance payments and finance payments from counties and cities. The two groups' employees are also part of the County Employees Retirement System.

"That was a really bogus argument, and it was frankly offensive to taxpayers and the General Assembly," said state Sen. Damon Thayer, R-Georgetown, one of the lawmakers who called KLC and KACo officials to appear before a legislative hearing.

"I hope the message was sent at the hearing that we consider those agencies to be funded by taxpayers," he said.

Both Blue Grass Airport and the Lexington Public Library receive taxpayer funds either directly or indirectly.

Lasting reform?

While the public outrage has burned hot toward these spending sagas, will it be enough to cause systemic, far-reaching reform? As Rep. Adam Koenig, R-Erlanger says: "If people resign and nothing changes, then we've gained nothing."

Even though the boards share responsibility for failing in their oversight, Koenig said those board members must be given the chance to implement reforms and stick to them. And it should be the local officials who rely on these organizations who keep those board members accountable, he said.

"Hopefully, the county leaders and the city leaders will make sure that their elected board members take care of it," Koenig said. "The people who elected those board members need to keep a better eye on them."

Some board members are elected by their organizations' members, others are appointed by elected officials.

Not everyone agrees that boards need to do a better job.

Trimble County Judge-Executive Randy K. Stevens, who is on several of KACo's program boards, said the forced resignations are signals that board members were doing their due diligence in making corrective actions once they had all the information "of what was happening around them."

"I don't think it's the sign of the times. I think it's a sign of how serious the boards take their job," Stevens said.

He said prospective members of other boards are likely to be more conscious of the expectations that they will keep a closer watch on an organization — responsibilities that will "obviously take away from other work endeavors."

While he said these sagas and their lessons won't be a deterrent for him to serve on other boards, "it will be a consideration."

'A wake-up call'

Luallen, who issued a set of recommendations for board members shortly after her office audited the airport, says she is getting calls from all over the state from various boards and commissions — from the Paducah Industrial Authority to the Kentucky Educational Television Foundation — that want advice or are changing their policies and procedures.

"I think these controversies will have an impact all across Kentucky," she said. "I just sense this has been a wake-up call for a number of groups and board members who may not have realized how much responsibility a board member has, how accountable they have to be for every dollar that is spent."