A private utility company in Pike County can keep secret how it spends public money under a change the General Assembly made to the Kentucky Open Records Act in 2012, a judge has ruled.
"This is a disappointing development not only for Pike County water users and ratepayers but for anyone in Kentucky who cares about having transparent government," said Chris Harris, a Pike County magistrate who has led a two-year fight to open spending records at Utility Management Group.
UMG is paid more than $11.6 million a year by the Mountain Water District to manage Pike County's water and sewer systems.
Until 2012, entities that received at least 25 percent of their funds from local or state governments in Kentucky had to provide many kinds of records if requested by a member of the public. But under House Bill 496, sponsored by state Rep. Johnny Bell, D-Glasgow, and signed into law by Gov. Steve Beshear, entities are exempt from the disclosure law if they get those public funds through a "competitive procurement process."
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During the 2012 legislative session, Bell denied reports that his measure was meant to help UMG keep its spending private. He did not return calls seeking comment on Friday.
"There is no legislative intent to protect UMG or any other entity that's spending taxpayer dollars on public business," Bell said on March 8, 2012.
But last week, Pike Circuit Special Judge John David Caudill cited the new law when he ruled that UMG, which is paid through contracts with the public water district, doesn't have to disclose how it spends taxpayer dollars.
Caudill decided against Pike County Fiscal Court, which had filed an open records request in March 2011 for UMG's spending records. Attorney General Jack Conway's office ruled in September 2011 that UMG is a public entity under the Open Records Act and must disclose its spending. But the changes passed by the legislature in 2012 should be considered retroactive, shutting down the county's pursuit for information, Caudill wrote.
"There is no dispute that the contracts were 'obtained through a public competitive procurement process,'" Caudill wrote, quoting language used in HB 496. "Thus ... UMG is not subject to the Open Records Act and should not be required to provide the information requested by the fiscal court pursuant to its open records request."
The fiscal court will discuss a possible appeal at its May 21 meeting, Judge-Executive Wayne Rutherford said Friday in a statement.
UMG did not believe the public was entitled to review its spending even before the legislature changed the law in 2012, said its attorney, J. Guthrie True of Frankfort.
"For the same reason that I wouldn't give the financial records of my law firm to a fiscal court: Private businesses are not intended to be covered by that statute," True said.
The Kentucky Press Association did not oppose HB 496 during the 2012 legislative session, a fact many lawmakers cited when voting for it.
KPA attorney Jon Fleischaker — who was not involved in the UMG lawsuit — said he disagreed with portions of Caudill's opinion. Another judge might interpret the amended open records law differently, he said.
"This may be something we want to take another look at," Fleischaker said. "There's always a risk with these things."
UMG and the Mountain Water District have been at the center of several controversies in recent years, including no-bid contracts that led to an ethics sanction of state Rep. Keith Hall, D-Phelps, who owns a company that digs sewer lines. UMG refused to share its financial data with the state auditor in that case.
UMG also made headlines in the 2010 bid-rigging trial of highway contractor Leonard Lawson and former Kentucky Transportation Secretary Bill Nighbert in U.S. District Court. Nighbert collected but did not cash checks for consultant's fees from UMG, which Lawson co-owned, and federal prosecutors said that amounted to bribes. However, a jury acquitted both men on all counts.
Harris said these controversies and others worried the Pike County Fiscal Court. The fiscal court approves the membership of the water district board, which awards contracts to UMG, Harris said. However, divisions within the fiscal court have made it difficult to change the water district board membership and end privatization of the utility, he said.
"We just want to know where the money that was in Mountain Water District's coffers, where it all went, where was it spent, who got it?" Harris said. "We believe there is a lot of waste and unaccountability over there at the district."
UMG and Mountain Water District chairwoman Rhonda James did not return calls seeking comment Friday.