Bluegrass ADD to appeal order to repay state $898,525

The executive committee of the Bluegrass Area Development District is moving forward with an appeal of a state order to repay $898,525 that state officials say was misspent from 2010 to 2013.

The board’s unanimous vote at a specially called meeting Wednesday also authorized Bluegrass attorneys to hire experts and start the bidding process for securing a loan or a line of credit to repay the Kentucky Education and Workforce Development Cabinet.

A 31-page cabinet letter dated March 31 said if Bluegrass doesn’t repay the state in 90 days, it could risk immediate suspension. Every dollar of federal workforce money the agency spends will be monitored by the state. Bluegrass serves 17 Central Kentucky counties, including Fayette.

The letter came about two years after a state examination of the agency’s books was released.

Former state auditor Adam Edelen’s office in 2014 found a host of problems at the agency, which oversees worker training programs and aging and planning services. The Education and Workforce Development Cabinet and the state Department of Aging and Independent Living conducted audits after the 2014 report. The education and workforce audit found more than $2.5 million in questioned costs.

Much of those costs involved rent payments to Bluegrass Industrial Foundation, which owned Bluegrass’s Perimeter Drive building in Lexington. The foundation was overseen by Jas Sekhon, founding director of Bluegrass ADD. The payments totaled more than $300,000 from 2010 to 2013, according to the letter. The agency also must repay more than $25,000 in disallowed travel costs and more than $23,000 in questioned credit card payments. More than $226,000 spent on staff salaries for a prison re-entry program and $117,000 for one-time bonuses for Bluegrass employees through federal workforce grant funds also must be repaid.

Some of the $2.5 million in questioned costs was not paid using federal workforce money, state officials found. That’s one reason why Bluegrass doesn’t have to repay the full $2.5 million in questioned costs. The money will be paid to the state, which will forward the payment to the federal Labor Department.

Jon Gay, an attorney for Bluegrass, said his firm will meet with state workforce cabinet officials to determine whether Bluegrass could use a line of credit or a loan to pay the $898,525. Even if the appeal is successful and the amount Bluegrass owes is determined to be less, the letter says Bluegrass must pay the state in 90 days or face immediate suspension.

Bluegrass has no mortgage, and its building’s most recent assessment was $2.5 million; the district could use the building as collateral for a loan, Gay said.

David Duttlinger, executive director of Bluegrass, told the board the organization has $1.1 million it can use to pay the $898,525, but because the state is paying Bluegrass every two weeks instead of weekly for its federal workforce funds, it might need the $1.1 million if the agency runs into cash-flow problems.

Much of the discussion during Wednesday’s meeting centered on how and whether the agency should appeal the final cost determination. Lexington Mayor Jim Gray pointed out the letter said there were ongoing concerns with the fiscal integrity of Bluegrass.

“That’s a pretty searing statement,” Gray said.

But Duttlinger and others on the executive committee said the state made that determination without providing proof or backup documentation.

“We need some clarification here on what they are referring to,” Duttlinger said.

Gray countered the agency has been fighting with the state for nearly three years. If the agency does not right its ship, the letter says it can be suspended immediately from federal workforce programs.

Gray recommended that the agency bring in an outside financial expert to help it determine whether there were ongoing financial control problems or whether there was a misunderstanding between the state and workforce development officials about what had been corrected. The group eventually agreed.

Some on the board said Wednesday they felt that problems mentioned in the March 31 letter had been addressed repeatedly.

“The state wants to keep bringing up an old row that has already been plowed,” said Edwinna Baker, who represents Anderson County on the board.

Gay said the attorneys will return to the board by its next meeting — possibly in two weeks — to give it an update on what state officials have said about the appeals process and whether the state will accept a bank loan or line of credit. Meanwhile, Bluegrass will begin pursuing a loan or line of credit.

This story was originally published April 13, 2016 at 8:52 PM with the headline "Bluegrass ADD to appeal order to repay state $898,525."