FRANKFORT — The state Transportation Cabinet spent more than $1 million from 2006 to 2008 to close and move a 2-mile section of Ky. 699 in Perry County at the request of a coal company that wanted to strip-mine the land where the highway was located, according to state records.
The cabinet's inspector general concluded in a Dec. 8 report that cabinet officials were not authorized to execute the subsequent land swap with subsidiaries of James River Coal Co. of Richmond, Va., giving up the highway site in exchange for nearby land owned by the coal company. Only the state Finance and Administration Cabinet, with the governor's permission, can give away state assets, Inspector General David Ray wrote.
State Auditor Crit Luallen issued an audit of state government Feb. 17 that mentioned the land deal in passing, with few details, concluding that the Transportation Cabinet could not legally give away state land.
Records show that then-Gov. Ernie Fletcher's transportation secretary, Bill Nighbert, authorized the project in 2006. Joe Prather, Nighbert's successor under Gov. Steve Beshear, approved its completion in 2008. That section of road, near the Leatherwood community, was not in the cabinet's six-year plan of priority projects.
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"This happened, or it was authorized, under the previous administration. For what it's worth, the rationale was that the cabinet would get an improved roadway to serve an otherwise isolated community," cabinet spokesman Chuck Wolfe said Friday.
The rebuilt section of Ky. 699 is open to traffic, although cabinet engineers must examine it before it's accepted into the state highway system, Wolfe said. Also, the land ownership remains in question because "the property was not properly conveyed from one party to the other party," Wolfe said. The cabinet is trying to prepare a "deed of correction" that should solve the problem, he said.
No cabinet employee has been disciplined in connection with the land deal, Wolfe said.
Richard Douthat, vice president at James River Coal's Lexington office, said Friday the company had no comment on the inspector general's and auditor's reports or the land deal.
But several cabinet employees told cabinet investigators in interviews last year that the project troubled them. They questioned the unusual land transfers and the lack of payment to the state for an estimated 418,993 tons of coal mined at the site by Blue Diamond Coal Co., which James River Coal owns.
One cabinet superintendent, James Deaton, told investigators that he "didn't want to have anything to do with the project," investigators for the inspector general wrote in their report.
"In my opinion, there is something not right about the whole deal," Deaton told investigators, according to the report. "Why would the coal company be able to come in and take the highway to mine?"
Cabinet e-mails show that the official at the cabinet's District 10 office in Jackson who put the deal together asked the coal company in 2006 if it had any jobs available for his father. The inspector general forwarded that part of his report, regarding Jason Blackburn, the district's permits engineering supervisor, to the Executive Branch Ethics Commission for further review as a possible conflict-of-interest violation.
Blackburn did not return a call seeking comment Friday, and the ethics commission declined to comment. Speaking to cabinet investigators last year, Blackburn said he did not intend to link his assistance for the coal company to a job for his father. His father did not go to work for the company, he said.
An attorney for Nighbert, Howard Mann of Corbin, said Friday he was not familiar with the contents of the inspector general's report, and Nighbert was outside the state and not easily reachable for comment.
Investigators said Blue Diamond Coal approached Blackburn in 2004 and asked about a land swap involving a section of Ky. 699 with coal underneath it. In 2006, the cabinet's District 10 office presented the project to Nighbert, who approved it, records show.
Linda Justice-Wagner, the district's chief engineer, told Nighbert the coal company would help the cabinet with the construction of a temporary detour road and a permanently relocated road. The new highway would be wider and straighter and therefore safer for motorists, Justice-Wagner wrote in her letter, which is in the investigators' report. The coal company would mine the coal and pay taxes on it, she wrote.
"We feel this project is a win-win situation for everyone involved," Justice-Wagner wrote.
Cabinet officials told investigators that the coal company handled the project's earth-moving and grading while cabinet workers did paving and striping. The cabinet's final cost was $1,039,111. The project required overtime pay for workers called in from across the region, Arch Sebastian, a cabinet program coordinator, told investigators.
Brian Patton, a James River executive, told cabinet investigators that the company made only "a couple hundred thousand" dollars profit on the coal it mined at the site because it was a "high-cost" operation.
Patton told investigators he could not remember speaking directly to Nighbert about the project, although he "vaguely recalled asking if it would help to meet with Nighbert," investigators wrote.
"He added that any contacts he would have had with Nighbert would have either been at a ball game or a political fund-raiser," investigators wrote.
Patton and others at James River Coal have given at least $69,191 in campaign donations since 1997 to state political leaders, including Fletcher's and Beshear's 2007 campaigns opposing each other. Patton gave to both Fletcher and Beshear that year.
In the end, Patton told investigators, the state got a road improvement project worth $4 million to $5 million for a fraction of that cost.