Special Reports

Head of KACo resigns over spending issues

Bob Arnold, the embattled head of the Kentucky Association of Counties, was forced to resign Friday amid a scandal regarding inappropriate spending that has tarnished his organization.

Arnold, who said for weeks that he had no plans to step down, immediately relinquished his duties as head of the group, which provides services such as legal advice, lobbying and insurance for county governments.

Arnold will receive his $178,000 annual salary plus benefits through June 2010 because that's "the way we interpreted the contract," said Jack Smith, Arnold's attorney.

KACo President J. Michael Foster, the Christian County Attorney, said he was "surprised" that the termination clause necessitates paying Arnold through next year, but he said two lawyers he consulted agreed the language was clear.

Arnold will give up his KACo cell phone and the BMW SUV that KACo provided him, Smith said.

In a statement Friday morning, KACo's executive committee praised Arnold for his efforts to expand services to counties. But it added that evidence of unchecked spending couldn't be ignored.

"The development of systematic internal controls regulating spending has not kept pace with the growth of programs and services" during Arnold's tenure, the statement said. Arnold has headed the group for nearly nine years.

In June, the Herald-Leader published stories detailing how five KACo executives spent $600,000 over two years on travel, meals, and other expenses. More than half of the expenses were on Arnold's KACo-issued credit card.

Among the expenses were two $7,000 meals, hotel rooms costing more than $450 a night and gifts for officials and board members costing as much as $1,000.

Arnold's expenses were not overseen or approved by anyone until Foster changed the rules in April after an initial request under the state's Open Records Act by the Herald-Leader. Foster has made other changes to bolster oversight.

State Auditor Crit Luallen, who is investigating the organization's expenses, declined to comment on Arnold's resignation Friday.

Strip club charges

Charges to two Louisville strips clubs and a $175 charge to a Lexington escort service showed up on the KACo credit card of Spencer County Judge-Executive David Jenkins, the group's president in 2008. A $270 charge to an escort service appeared on Arnold's KACo credit card.

Both men denied making the charges.

Jenkins resigned from KACo's executive committee in July after KACo launched an internal investigation into the charges.

Earlier this week, the executive committee received the results of that investigation, conducted by Lexington lawyer Brent Caldwell.

Smith said the signature for the charge on Arnold's card for the escort service, which bills under the name Calypso Enterprises, was scrawled and illegible.

Arnold, who is blind, often scribbles his name on documents. But Smith said the signature raised suspicions that it was not Arnold's because it "went straight across on the line."

Foster said it couldn't be determined who made the charge on Arnold's card. But Arnold took responsibility for not catching that $270 to the escort service as well as the charges for an escort service and strip club on Jenkins' KACo credit card. Arnold has repaid $270 to the group.

Foster said the investigation did show that Jenkins had used his card for inappropriate purposes. He has paid back $620 to KACo.

Jenkins could not be reached for comment Friday.

The report has not yet been made publicly available and no further details were available.

Consequences for actions

Arnold said as recently as last week that he had received no pressure to resign, even after Sylvia Lovely stepped down as executive director of the Kentucky League of Cities, where there were also spending issues. The Herald-Leader reported in June that three top leaders at the League spent $300,000 in three years.

But after Foster appeared before a legislative committee to answer questions, several lawmakers said they were concerned there weren't enough "consequences" for inappropriate spending.

Rep. Adam Koenig, R-Erlanger and a former county commissioner, called for Arnold's resignation after that meeting. Koenig said that allowing an organization that uses public money to pay for charges at an escort service and strip clubs was particularly unacceptable to taxpayers and state leaders.

State Sen. Damon Thayer, R-Georgetown, the co-chair of the Committee on Local Government, said Arnold's resignation "sends a message that KACo, like the League, is willing to show there are consequences to these embarrassing episodes." He added that "a nearly one-year salary package is very, very generous. We'll have to wait and see how that plays out with the public and General Assembly."

'A debt of gratitude'

Denny Nunnelley, deputy director of KACo, will take over day-to-day operations, with significant oversight from the executive committee, the recently named audit and finance committee and the full board of directors, according to the statement.

Nunnelley, a former state senator from Woodford County, also served as interim director between Arnold and his predecessor, Mike Magee, in 2000.

Arnold is a former Franklin County judge-executive. He has been at KACo since the fall of 2000.

Created in 1974 to help the counties lobby state government, KACo gradually expanded to include various insurance services and financing for big county projects.

Foster and many board members credited Arnold with expanding KACo's services and bolstering its financial strength. Previous KACo managers in the 1990s had left the insurance division with a $9.8 million deficit.

By 2009, 112 of the 117 counties that need to purchase insurance chose KACo for their liability insurance, and that fund had a $20 million surplus. KACo's project financing programs also have blossomed during Arnold's years at the helm. KACo is also financing the construction of its new $12 million headquarters near the intersection of I-64 and U.S. 60.

Trimble County Judge-Executive Randy K. Stevens said county officials and Kentuckians "owe a debt of gratitude" to Arnold for furthering counties' legislative agendas during his tenure. "It's with a degree of reluctance that I think we'll accept his resignation," said Stevens, a KACo board member.

Others praised Arnold for his loyalty and work ethic.

"Bob has been a tireless advocate for county officials and county government," said Chris Harris, a Pike County magistrate.

Harris, one of the five members of KACo's executive board, said the search for Arnold's replacement will begin immediately.

Foster said he will bring a new set of policies to be approved at the next board meeting on Sept. 30.

"While this has been a very difficult problem," Foster said, "it's an excellent opportunity to adopt new policies and procedures to make sure this never happens again."

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