Beshear’s investigation yields no criminal charges at troubled Kentucky water district

Following an investigation by the Kentucky Office of the Attorney General last year, a grand jury in Martin County found no basis for criminal charges against current or former officials with the Martin County Water District.

Attorney General Andy Beshear launched the investigation last year amid allegations of theft and fraud at the district, which has been under heavy scrutiny from state regulators since a massive water outage in January 2018.

The investigation — prompted by a letter co-signed by a local activist group, the national Food and Water Watch, and an attorney from the Appalachian Citizens’ Law Center in Whitesburg — centered around three specific allegations of financial mismanagement:

▪ That some of the district’s board members, and other Martin County residents, received free water service.

▪ That the district misused and was unable to account for how it spent a $3 million state-funded grant.

▪ And that district employees misused funds due to its spending policies, particularly at a local gas station chain.

According to a partial report of the Martin County Grand Jury, which met in April, the jury reviewed evidence concerning all three allegations and “found no basis for criminal charges against any person or entity associated with the water board.”

“We were glad that there was no reason for any criminal charge, and what we hope is to move forward as a community, put this behind us, and move forward together to fix our utility,” said Jimmy Don Kerr, the chairman of the Martin County Water Board. “I believe in the system. I believe they did a thorough investigation.”

The grand jury heard evidence from an attorney general’s office investigator and from a forensic auditor, who gave detailed information on some of the district’s finances, including the $3 million Kentucky Infrastructure Authority grant.

According to the auditor’s supplementary report, former Martin County Judge-Executive Kelly Callahan applied for the grant during his first term from 1994 to 1998. (Callahan lost an election after his first term, but was re-elected in 2003.)

The grant was officially issued in 2004, and was to be used for upgrades to the district’s treatment plant, according to the auditor’s report.

A list of receipts shows the district designated much of that money for the treatment plant, but also designated $126,000 for a raw water intake. About $82,000 from the grant could not be accounted for by the Kentucky Infrastructure Authority, according to the auditor’s report.

The report also detailed some employee purchase records from Zip Zone, the local gas station chain.

Less than 2 percent of recorded purchases at Zip Zone between January 2012 and May 2018 were for things other than gasoline. The report cautions, however, that “there are missing invoices in which non-fuel related purchases could be calculated.”

Non-gasoline purchases during that time period, which totaled about $6,300, included $200 for dishwashing liquid, $473 for ice and $287 for toilet paper, according to the auditor’s report.

Kerr said the district was transparent and cooperative with Beshear’s investigation, and that “anything they wanted, they got to see.”

“We wanted them to do a good and thorough investigation, and if there was any wrongdoing we wanted them to be charged,” Kerr said. “Hopefully people can put it behind them. We’re making good and steady progress, and if our people get behind us and keep the positivity rolling, we can fix this thing.”

The district has been embroiled in ongoing deliberations with state regulators over the past year and a half, and has been ordered to find new management to take over the district’s day-to-day operations.

Customers have complained of poor water quality and reliability in Martin County. During long outages, some families have reported going more than a week without running water.

In a public meeting last week, Kerr said the district has made significant strides in recent months. It has reduced its water loss rate from above 70 percent to about 38 percent, which, he said, will save the district money and allow it to focus on improving its infrastructure.

Mary Cromer, the attorney with the Whitesburg law firm who co-signed the letter that prompted Beshear’s investigation, warned that new management would likely mean significant rate hikes for customers.

If the district fails to find new management, state regulators have threatened to put the district into receivership, which would completely relinquish control of the district to an outside utility.

Both Cromer and Kerr said that process would lead to even steeper rate hikes.

“We’re facing a real affordability crisis,” Cromer said last week.

This story was originally published May 8, 2019 at 1:55 PM with the headline "Beshear’s investigation yields no criminal charges at troubled Kentucky water district."