State auditor demands transfer of ownership for Bluegrass ADD building within a week

lblackford@herald-leader.comJune 25, 2014 

FRANKFORT — State Auditor Adam Edelen told lawmakers Wednesday that he had run out of patience with the Bluegrass Area Development District, which continues to rent office space from an affiliate organization in an arrangement he deemed inappropriate in March.

After explaining to lawmakers the findings of his highly critical examination of Bluegrass ADD, Edelen said the two groups have one week to transfer ownership of the building to Bluegrass ADD.

"It is time to bring this thing in for a soft landing," Edelen told visibly dismayed members of the Interim Joint Committee on Local Government.

However, it's not clear what power Edelen has to enforce his one-week deadline.

"We're confident it won't come to that," Edelen spokeswoman Stephenie Hoelscher said after the legislative hearing.

Jon Gay, a lawyer for Bluegrass ADD, said Monday that he expected the agency's executive board would meet next week to approve a deal that would transfer ownership of the office building at 699 Perimeter Drive from the Bluegrass Industrial Foundation, headed by the Bluegrass ADD's former executive director, to the Bluegrass ADD.

The unorthodox landlord-rental situation was one of many problems Edelen found in his special review of the Bluegrass ADD.

Area development districts were created to assist local governments in regional planning for economic growth. The Bluegrass ADD, in Lexington, serves 17 counties in Central Kentucky. It has an annual budget of more than $24.4 million, 90 percent of which comes from federal and state grants.

In his review, Edelen called the multicounty district an "octopus" that overspent and misused funds without proper oversight.

One of its tentacles was the Bluegrass Industrial Foundation, founded by Jas Sekhon, the first executive director of the Bluegrass ADD. The foundation apparently bought the building, using collateral provided by Bluegrass ADD for the loan, because entities such as a development district cannot hold a mortgage.

Edelen has said the building should have been turned over eventually to Bluegrass ADD, which has paid more than the $1.4 million purchase price in rent since it moved into the offices in 1994.

Edelen also found that Sekhon's successor, Lenny Stoltz, demanded $20,000 for past expenses from the Bluegrass ADD board and was paid without any receipts or expense reports. Stoltz was pressured to resign by the Bluegrass ADD board last year.

Several lawmakers asked Edelen why criminal prosecutions have not moved forward based on the findings of his review. Edelen forwarded those findings to several state and federal law enforcement agencies, but no charges have been filed.

"These are criminal offenses, in my humble opinion," said Rep. Richard Henderson, D-Mount Sterling, who also said he thought Bluegrass ADD ignored small, rural counties. "I've been quite disappointed for some time."

Committee co-chairman Steve Riggs, D-Louisville, questioned how the Bluegrass ADD had passed its regular financial audits. He and Edelen discussed meeting with the state association of certified public accountants to ask why their examinations often don't look beyond whether an agency's numbers add up correctly.

"CPAs need to drill down more deeply into the operations," said Edelen, pointing out that many groups he's investigated have gotten clean financial audits.

Rep. Damon Thayer, R-Georgetown, also raised a question about whether legislation was needed to provide more oversight of the state's 15 area development districts. Last year, Thayer helped pass a bill that requires special taxing districts, such as library boards and fire departments, to submit their budgets to an online registry.

The Bluegrass ADD's new executive director, David Duttlinger, attended Wednesday's meeting but did not speak to legislators.

"I feel like the Bluegrass ADD has a solid corrective action plan, and we are going to continue making progress towards reform until we have adequately addressed everything in the APA examination and any other suggested reforms, whether they come from the state, federal or local officials," Duttlinger said afterward.

Still, there's plenty to be hashed out. The Bluegrass ADD remains in a tussle with the Bluegrass Workforce Investment Board, a relationship that has plenty of conflicts, Edelen found. The Bluegrass ADD wants to continue administering $7 million in workforce development funds for the region, but some members of the workforce investment board would like to search for a new administrator.

Legislators also heard from two Lexington men who started the public scrutiny of Bluegrass ADD. Charles Payne and David Vinson, members of River Park Neighborhood Association, first raised questions about Stoltz's plan to start a felony re-entry program in their neighborhood. Vinson and Payne said conflicts of interest and a lack of transparency still existed within the organization.

"I still don't think they've gotten the message," Vinson said.

Linda Blackford: (859) 231-1359. Twitter: @lbblackford.

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