FRANKFORT — Gov. Steve Beshear said state officials will "examine our options" regarding an apparently illegal land swap in Perry County between the Transportation Cabinet and a coal company that wanted to surface-mine an estimated 418,993 tons of coal on state land.
Transportation Secretary Mike Hancock is examining the case and will decide if any Cabinet employees should be disciplined, Cabinet spokesman Chuck Wolfe said this week. The actions of one Cabinet employee have been referred to the Executive Branch Ethics Commission.
Meanwhile, Cabinet attorneys are trying to correct deeds on file to clarify the land's ownership and determine what compensation from the coal company the state might be entitled to, if any, Wolfe said. The coal company appears to own the land's mineral rights, but it's not immediately clear whether the state signed documents forfeiting its surface rights to the coal company, he said.
"One of the problems the folks in the cabinet are having is figuring out exactly what was agreed to and whether the terms were put down in writing," Wolfe said.
The deal began under former Gov. Ernie Fletcher, Beshear said, leaving him little choice when he took office but to authorize its completion. From 2006 to 2008, the cabinet spent more than $1 million rerouting — and then rebuilding — a two-mile section of Ky. 699 that ran on state land the coal company wanted to mine.
"The prior administration authorized this project but did not follow the proper process," Beshear said. "As a result, we were confronted, very early in our administration, with the need to complete a project already in progress."
The Herald-Leader reported last week that the cabinet rebuilt a section of Ky. 699 near the Leatherwood community at the request of Blue Diamond Coal Co., which was surface-mining in the area and wanted access to coal under the highway. The project was not on the cabinet's list of priority roads in need of improvement.
"It certainly is unusual that a road that did not appear in the six-year highway plan was nonetheless chosen for construction," Beshear said this week.
Blue Diamond Coal is owned by James River Coal Co. of Richmond, Va. Officials at James River Coal, including some involved in the land swap, have given at least $69,191 in campaign donations since 1997 to state political leaders, including to Fletcher's and Beshear's opposing campaigns in 2007.
The Transportation Cabinet's District 10 office in Jackson oversaw the deal. It arranged for deeds to be filed temporarily exchanging the state's highway land with nearby coal company land, allowing for a Ky. 699 detour to be built during the mining. Afterward, Blue Diamond Coal and cabinet workers built a permanent replacement roadway.
State Auditor Crit Luallen and David Ray, the cabinet's inspector general, recently issued reports criticizing the land swap as illegal, although not a criminal act. Only the Finance and Administration Cabinet, with the governor's permission, can give away state assets, they said.
Further, Ray wrote, the cabinet official who helped put the deal together — Jason Blackburn, the District 10 permits engineering supervisor — asked the coal company about possible jobs for his father, which could present a conflict of interest. Ray referred this to the Executive Branch Ethics Commission for further review.
Richard Douthat, vice president at James River Coal's Lexington office, declined to comment this week about the land swap.
Another James River Coal executive, Brian Patton, told Transportation Cabinet investigators last year that his company helped rebuild Ky. 699 better than it was before, providing a benefit to the state worth several million dollars.
Patton told investigators that his company netted only "a couple hundred thousand" dollars profit on the coal it mined at the site because it was a "high-cost" operation.
Wolfe, the cabinet spokesman, said the company, if pressed for a share of the coal revenues, might reply by saying the state was more than compensated with a new and improved section of highway. Beshear made a similar point in his comments.
"It is highly unlikely that sufficient funding for conventional construction would have become available in the foreseeable future," Beshear said. "This agreement did allow the state to vastly improve a section of road at a fraction of the cost it would normally have incurred."