The high cost of doing the counties' business

ralessi@herald-leader.comJune 28, 2009 

When the Kentucky Association of Counties sent six people to Washington, D.C., in March 2008 to attend a conference and lobby officials, the $31,700 trip included two dinners totaling $4,277 and a $10,000 cancellation fee for hotel rooms that weren't used.

That trip was one of the most expensive among dozens of jaunts taken by leaders of KACo, a non-profit group that lobbies for counties and provides them with insurance and financing services.

In all, the association's top five executives racked up nearly $600,000 in travel, entertainment and other expenses over the last two years. More than half was charged on the credit card of Executive Director Bob Arnold.

The county association's officials purchased thousands of dollars worth of sports tickets and gifts and paid 50 restaurant tabs of more than $1,000 each between January 2007 and 2009, according to a Herald-Leader review of records provided under the Kentucky Open Records Act.

The five top officials whose expenses were examined were Arnold; Denny Nunnelley, deputy director; Joe Greathouse, director of insurance; Grant Satterly, director of financial services; and Tim Sturgill, general counsel. Fourteen other KACo employees have credit cards.

The spending and salaries for KACo executives increased over the two years while the organization raised fees on its insurance and financing programs for counties. Those same counties were often strapped for cash as they struggled with increased costs from overcrowded jails and employee pensions.

Many of the 34 county officials who serve as KACo board members have traveled out of state on trips paid for by the association. Besides that board, no state or regulatory group oversees how it spends the counties' money.

"Ultimately, it's these boards that are the ones that have to be held responsible and accountable," said State Auditor Crit Luallen. "They are on these boards by virtue of their elected positions, and they have a fiduciary duty" to be good stewards of counties' money, she said.

She also noted that there is a precedent for her office to audit KACo. In 1993, it performed a management audit of the association.

The current president and head of the KACo board, Christian County Attorney Mike Foster, instituted a more stringent approval policy for travel expenses in March after the Herald-Leader filed a request for the organization's expense records. Previously, no one person examined all expenses. Now the association's general counsel will.

Foster says he's willing to consider other ways to tighten oversight.

Still, other county leaders, while praising the training and other services KACo offers, said they're concerned that the organization is spending too much of the counties' money to benefit a group of insiders.

"The purpose of KACo is service to the counties, so we have to ensure that the purpose of KACo is not to serve KACo," said Tommy Turner, LaRue County Judge-Executive. Turner serves on the KACo board and said he has previously raised concerns about the organization's spending.

Arnold, a former Democratic Franklin County judge-executive, said the money spent on travel, meals and entertainment for officials and vendors is the "cost of doing business."

"We have spent a lot of time and money over the last nine years to try to make us a really good business for counties," he said. "We are operated by counties, for counties. Do we make money? Yes, we do make some money," but, he added, that's because KACo does a good job for the counties.

Only a 'low end' BMW

Created in 1974 to help the counties lobby state government, KACo gradually expanded to include various insurance services and financing for big county projects. KACo is also financing the construction of its new $12 million headquarters near the intersection of I-64 and U.S. 60.

Membership in KACo is voluntary, but all 120 counties pay dues — $134,000 in total this year. Much of the rest of KACo's income comes from counties' payments for its services.

Arnold said KACo's group purchasing power has saved the counties millions of dollars over the years — even for those who don't use the association's insurance or financing programs.

"Those counties who get it cheaper from someone else only get it cheaper because we're in the market," he said. "If we weren't in the market, there would be no competition."

Administration fees built into what counties pay for insurance and financing have jumped 25 percent between 2006 and 2008, rising from less than $3.9 million to $4.9 million, according to the organization's financial statements.

Employee compensation is the biggest chunk of its $7 million annual budget. In a June 12 letter to KACo board members, Arnold wrote that only six of KACo's 45 full-time employees earn six-figure salaries. He compared that with the Kentucky League of Cities, which pays 18 of its 83 staff members $100,000 or more.

Arnold's compensation is $178,080 plus a car and country club membership.

KACo pays more than $4,500 a year for Arnold's membership dues, food and alcohol at the Frankfort Country Club.

His vehicle: a BMW SUV. Its price: about $38,000.

"I will say this: It is a BMW, but it is an X3, which is the low-end BMW SUV," Arnold said. Various KACo employees drive for Arnold, who is blind. KACo also pays for satellite radio and OnStar services in the SUV. The association reimbursed Arnold $350 in December to have the BMW detailed.

Visiting county customers

In a recent interview, Arnold acknowledged that, with customers in 120 counties, "our travel has gone up significantly. .... But we find the best way to deal with our members is to get out and to see them."

KACo officials not only see their county customers on tours across Kentucky but also on group trips to cities such as Washington, D.C.; Naples, Fla.; and San Diego.

During the $31,700 trip to Washington, D.C., last year, two KACo staff members and four county judge-executives stayed at the Willard InterContinental Hotel, where their room rates ranged from $454 to $549 a night, according to the statements.

The total cost of the stay, which lasted between three and five days, depending on the official, included a $10,000 "attrition fee" because several people who had signed up in January could not attend the March meeting, said Tim Sturgill, KACo's general counsel.

The group stayed at the Willard even though the National Association of Counties' conference they were attending was two miles away at the Hilton Hotel. Arnold, who was not on that trip, said the Willard is closer to Capitol Hill, where the group visited Kentucky's congressmen.

Spouses of KACo staff members and local officials sometimes go along on the trips. Unlike the Kentucky League of Cities, which until recently covered the cost of spousal travel for top executives, KACo requires reimbursement for plane tickets the association purchases for spouses.

Invoices KACo provided to the Herald-Leader confirmed most of those reimbursements were made soon after the purchases. However, Arnold acknowledged that the association does pay for meals of spouses when they attend KACo events.

In December 2008, a group of 14, including staff members, county officials and spouses, flew to Florida for the annual Southern Association of Workers' Comp Administrators' conference.

While staying at the Ritz Carlton in Naples, the site of the conference, the group paid $1,750 for a late dinner at Truluck's Seafood, Steak and Crab House, an average cost of $125 a person. Two days later, they spent $2,075 at Ristorante Ciao, an average of $148 for each meal.

On a trip to New York City later in December, eight association employees flew to a bond closing virtually free, thanks to credit card points.

But the trip's cost still surpassed $13,000 because they stayed at the W Hotel in Midtown Manhattan, where the room rate was $429. They charged $1,300 at the hotel's Oasis Lobby Bar, restaurant and mini bars, according to hotel receipts.

Arnold said the W Hotel was one of four hotels recommended by JP Morgan Chase & Co., which handled the bond closing. He said the W had the cheapest rate of the four at that time of year.

JP Morgan spokesman Tom Kelly declined to comment, other than to say that the hotels Arnold said the firm recommended are all within two blocks of JP Morgan's building.

A $7,000 dinner

Among KACo's costliest trips each year is the National Association of Counties' annual conference. But a review of expense documents from those trips rarely reveals key details, such as how many people from Kentucky attended and who was wined and dined at the event.

At last summer's national conference in Kansas City, for instance, KACo picked up the tab for a $7,083 late dinner at a steakhouse, Starker's Restaurant.

Arnold said it was the "Kentucky night dinner" for between 50 and 70 people. That would mean an average cost of between $100 and $140 per person.

But other KACo expense documents show that the association purchased just 27 plane tickets. Sturgill said other officials from Kentucky made their own travel arrangements, though he didn't know how many.

"I knew who was there," Arnold said of the dinner. "No, there's not necessarily a record or a signed piece of paper saying A, B, C, D, E was there."

Larry Long, executive director of the County Commissioners Association of Ohio, said $7,000 isn't out of the ordinary for entertaining a large group at that conference.

"We've had some that approach that when we've had a good number of people there," Long said.

Still, the annual entertainment and meals budget for the Ohio association, including its separate insurance and services branches, is less than $70,000, Long said. KACo's top executives spent $102,727 on meals and drinks in 2008, according to the Herald-Leader's analysis.

Many of the same county officials have been treated to expensive meals and multiple trips on KACo's dime over the last two years, Arnold acknowledged.

"Although we try to be as diverse as we can and include as many people as we can, obviously there are some that are repeats," he said. "Some people are more involved than others."

Occasionally, the big bills also led to generous tips.

At an April 2007 dinner at the Tavern on the Green restaurant in New York, for instance, Arnold left a tip on a bill that already included a 20 percent gratuity. The total tip ended up being about 47 percent on top of the $816 meal for a total of $1,200.

Henry County Judge-Executive John Logan Brent, who doesn't sit on any KACo boards, said he doesn't have a problem with Kentucky officials traveling out of state, as long as it's "reasonable."

"A good litmus test would be if you were willing to turn those expenses in to your own fiscal court," Brent said.

Hotel rooms costing more than $450 a night wouldn't fly, he said. Neither would KACo paying for a group to go to the national association's conference in Hawaii in 2005, he added.

Two Henry County magistrates served on the board and went on that trip, and Brent said several constituents inquired about whether the county paid their way. It didn't, he said.

"I thought that was excessive," Brent said of the trip. "There's no place cheap in Hawaii."

Policy changes

At the time the Herald-Leader requested the association's expense records, Arnold gave final approval for all expenses and didn't provide details to the board or executive committee.

"We saw the expenses in sum total — not broken down," said Foster, the president. "I felt it was appropriate for the officers to review the expenses."

Foster suggested a review of KACo's expense policies after being elected president in November because he said he wanted to make sure the growing association was running efficiently.

He proposed that Sturgill, the group's lawyer who also has an accounting degree, review all employee expenses after a supervisor approves them.

The KACo board agreed with the move in March, a month after the Herald-Leader first requested the documents.

Now, Sturgill also gives officials on KACo's board monthly reports of out-of-state spending, Foster said.

Foster said he did not call for an examination of past spending.

KACo has adopted few of the recommendations made by Luallen, the state auditor, in the wake of a spending scandal at Blue Grass Airport. Among them are suggestions that a board member review all credit card statements before payment and that details of expenses — such as who attended and the purpose of the event — be included.

Even under KACo's new system, Arnold won't be required to turn in his receipts for the board's approval. Instead, Arnold will submit his expenses to Sturgill, his subordinate, then to the executive committee "not necessarily for approval, but for their information," Arnold said.

Foster said he's willing to revisit spending policies and see whether KACo should adopt more of Luallen's recommendations.

"Those are issues that need to be addressed on a continuing basis," Foster said.

He said the goal is to achieve balance between being financially prudent and spending enough to remain competitive with private insurers and finance companies and to take advantage of national conferences.

"We want people to attend those conferences, where they can learn a lot," Foster said. "And historically, across the United States, they have conferences at hotels that people like to stay at to encourage participation."

Ryder Cup and the Derby

Travel and meals have cost KACo more than half a million dollars in the last two years, but charges for gifts and sports tickets also show up regularly.

Arnold charged more than $5,000 on Christmas presents for KACo employees in 2007 and 2008. And the association picks up the tab on monthly staff birthday lunches.

KACo spends about $1,000 on gifts for its president at the end of each term. In 2007, Arnold bought outgoing president Tony Carriss, a Shelby County magistrate, a $1,000 gift card from the Belterra Casino in Florence, Ind. Last year, Arnold used credit card points to buy Spencer County Judge-Executive David Jenkins a flat-screen TV as his thank-you gift, Arnold said.

In October, KACo officials bought three bottles of $65 William Larue Weller bourbon, which Arnold said were gifts for a retiring Environmental Protection Agency official for the region.

The association bought more than $7,000 worth of tickets for KACo board members to attend golf's Ryder Cup in Louisville last September. And it paid nearly $6,000 in spring 2008 to take officials from Munich Re, KACo's reinsurance company, to the Kentucky Derby.

Chris Harris, a Pike County magistrate who is KACo's second vice president, said there are "always going to be mistakes in every organization," especially one that's grown as rapidly and is as diverse as KACo. However, he said he wasn't aware of any specific spending problems.

The challenge, he said, is for officials on the executive committee and board to be vigilant in monitoring and adapting oversight policies.

"We're always going to be a work in progress, and any good board will be," Harris said. "And if there's any problem, then we're going to address it. It's as simple as that."

It's your money: The Herald-Leader's examination of the expenses of top officials at the Kentucky Association of Counties is the fourth in a series of stories about how organizations spend public money. The previous subjects were Blue Grass Airport, the Lexington Public Library and the Kentucky League of Cities. Each has a different culture, a different purpose and different policies. But these very distinct groups share one vital element: Much of the money they spend comes from you, the taxpayer.

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