Editorial: Pike water business smells funny, merits more scrutiny

State Rep. Keith Hall, D-Phelps
State Rep. Keith Hall, D-Phelps

An audit report on the Mountain Water District in Pike County should serve as another cautionary tale about the risks involved in privatizing public services.

And not just the risk of the financial losses the district suffered when its contract with a private company, Utility Management Group, resulted in what the audit report called "costly management fees and conflicts of interest."

Of equal concern is the loss of transparency and public accountability.

For instance, UMG refused to provide the auditor's office with certain financial records, even though state law gives the auditor the authority to examine the management of "public works" in which the state has any financial interest. Mountain Water is such a public work and is partially funded by the state.

Auditor Crit Luallen's office ran into similar stonewalling in recent reviews of Aramark's contract with the Department of Corrections and Passport's contract for managing Medicaid services in the Louisville area.

Seeking a court ruling on the authority to obtain the records in one of these cases no doubt would have led to a lengthy legal dispute and an equally lengthy delay in completing that particular audit.

It's understandable the auditor's office would want to avoid such a delay. Still, at some point, this issue needs a court resolution.

But UMG's refusal to turn over records wasn't the only instance where transparency and public accountability suffered in regard to Mountain Water. Indeed, secrecy was a recurring theme in the audit report.

Mountain Water entered into the agreement with UMG without any true public debate, according to the report. The decision was made after a "very persuasive" presentation by the water district's superintendent — who, conveniently enough, subsequently became a part owner of UMG.

Instead of going through the state Public Service Commission's process, which would have required disclosure of actual operating costs, the water district avoided such public accountability by getting several rate increases approved through a federal program, according to the report.

Then, there was the matter of the $171,000 the district paid for electrical work done by a company owned by state Rep. Keith Hall, D-Phelps.

Each bill submitted by the company was for less than $20,000 (several of them just slightly less), which kept a requirement for competitive bidding from coming into play. Hall told auditors he did this at the instruction of Will Brown, the district superintendent at the time the work began in 2004.

Luallen said last week she would refer the entire audit to Attorney General Jack Conway and the portion relating to Hall to the Legislative Ethics Commission. And deservedly so. The activities outlined in the audit report strongly suggest the operations of Mountain Water District need a bit more scrutiny — quite a bit more.