The Kentucky Auditor of Public Accounts has issued recommendations in the wake of an examination of the activities of the Kentucky Health and Welfare Fund, formed in 1978 to provide assistance to Thoroughbred racing personnel and their families.
The examination looked at the fund's investment practices and development of an old school in Louisville into a residential facility for beneficiaries. The fund, governed by a four-person board of directors (two from the Kentucky Horsemen's Benevolent and Protective Association, one from the Kentucky Racing Commission, and one from the governor's office), receives its money from uncashed pari-mutuel tickets.
In a report released Jan. 22, the agency, led by state auditor Ed Hatchett Jr., recommended the following:
-- the fund work with the racing commission to review its investment policies, with "focus on the fiduciary duties inherent in managing public funds";
-- the General Assembly examine the fund's mission and existing statutory authority "to determine whether modifications should be made to further delineate the fund's appropriate use of public funds for benevolent purposes";
-- the fund formally notify the racing commission and auditor's office prior to initiating new programs;
-- the General Assembly evaluate the fund's interpretation of the statute and provide guidance or clarification if there is a conflict between the fund's interpretation and legislative intent;
-- the fund ensure that all tenants of its residential facility comply with its statutory requirements for providing benevolence.
Until 1989, the fund earned about $500,000 from uncashed tickets, but in each of the last two years, it has garnered more than $2.8 million. In 2001, the fund had almost $8 million.
By the end of 1999, the fund had more than $7 million invested in U.S. Treasury notes. The fund's general counsel sought an opinion from the state attorney general's office as to whether the fund could invest the money in common stocks.
The attorney general concluded a court probably would conclude the statute does not apply to the fund, but he also cautioned that the office had not addressed whether "limitations contained (in the statute) or any other limitations may apply to investments made by the fund and/or its directors."
The fund pursued investments and, according to the auditor's report, has lost more than $632,000 as a result of its investment in equities. In an attached letter, a representative of PNC Advisors suggests equities must be part of the fund's portfolio to meet long-term needs.
The fund formed a separate non-profit corporation to purchase the school, located near Churchill Downs. The fund expected the development project to cost no more than $1 million, but the current project cost estimate is $5.75 million, according to the report.
The statute requires that residents of the complex be "Thoroughbred racing personnel employed in connection with racing, and their spouses and children, who can demonstrate their need for financial assistance..." The report, by underscoring the word "employed," indicates the possibility people who don't qualify live there. The fund assured the auditor's office the requirements would be met, the report said.