The real estate deal that was designed to bring a public health clinic to Southland Drive is now the focus of an investigation by state Auditor Adam Edelen.
An audit of HealthFirst Bluegrass was announced at a news conference Tuesday morning, with Edelen and Lexington Mayor Jim Gray.
At least $250,000 has been spent on rent and management fees with few tangible results, Gray and Edelen said.
"We are a poor state. We can't afford to make dumb decisions," and that's especially true of financing a need as crucial as public health, Edelen said.
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It's possible that the audit might reveal some poor management choices, he said, "but if there is something larger going on, the public has a right to know."
HealthFirst has had since 2010 to spend a $11.7 million federal grant for a new clinic to serve thousands of new patients who are poor or lack sufficient insurance. But the project has floundered, and no construction has begun.
In fact, in April, the HealthFirst board of directors set a deadline to pull the plug on the construction, citing external financial woes such as a potential decrease in local tax dollars that the board said makes long-term success of the clinic difficult.
The audit will focus on the real estate deal involving property for the clinic at 496 Southland Drive and should take about a month, Edelen said.
Articles in the Lexington Herald-Leader about the HealthFirst arrangement with Ted J. Mims that paid Mims to be the project manager for $15,000 a month, paid him and a partner $23,000 a month in rent and set a multimillion-dollar payout for the purchase of the land were a tipping point to asking for the audit, the mayor said.
HealthFirst executive director William North had provided some construction-related project documents to Edelen's office in April but did not specifically ask for an audit.
North said Tuesday that HealthFirst will cooperate with the auditor's office. Mims said Tuesday "I'm looking forward to getting it done and over with."
Mims owns 10 percent of the property on Southland Drive with investor Greg McDonald. According to the Property Valuation Administrator's office, the properties are valued at $1.9 million.
Edelen made his announcement at 10:30 a.m. Tuesday, but the words "state auditor" were not uttered during a HealthFirst building committee meeting later in the afternoon.
Committee chair Tom Burich opted to "focus on the positive," saying the external financial woes that had made the project nonviable two weeks ago had been resolved.
At a meeting May 1, the committee had said deficits from federal cuts and cuts in local tax dollars remained unresolved, and that an internal audit showed HealthFirst losses at $515,000, more than double what had been forecast.
But on Tuesday afternoon, North said with an increase in local health tax dollars — an increase that was approved by the Board of Health last week — and a smaller-than-expected loss tied to the federal budget sequester, the project could move forward. He also said the new clinic would attract thousands of new patients to HealthFirst, making it critical for the agency's long-term survival. A construction schedule slated June 24 as a date for demolition to begin.
In order to get the project on the best financial footing, the committee directed North to ask major vendors, such as the architect and engineering firms, to forgo payment for up to six months to provide "short term relief."
Vendor contracts reviewed by the Herald-Leader showed specifics for termination but not "short-term relief." When asked how such relief would be possible, North said, "We can ask, can't we?"
North was also directed by the committee to request that Central Bank unfreeze a $500,000 line of credit frozen in April. Burich hopes the vendors and banks will help because "this is a community project." He said after the meeting that the auditor's announcement had no bearing on the building committee action, so it didn't need to be discussed. He said he believes the land deal is "great" for HealthFirst.
The full HealthFirst board is scheduled to meet on Thursday.