A look at the financial dealings of the multimillion-dollar Kentucky Health and Welfare Fund, a benevolence organization that already has been the subject of a review by the Kentucky Auditor of Public Accounts, will continue later this year, legislators said during a Feb. 12 hearing.
The House Licensing and Occupations Committee was presented with the state audit, which questioned investments made by the fund and suggested it needs more oversight. Members of the audience who spoke claimed the fund isn't serving the backstretch workers for whom it was created.
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), is funded each year by revenue from uncashed pari-mutuel tickets.
"There is little or no oversight by any state agency," Rep. Tom Burch, who was instrumental in formation of the fund by legislative action in 1978, said during the committee hearing. "It's not the only fund out there like this. It has gone beyond what we anticipated when we did the legislation."
In a letter to fund chairman Don Ball, Rep. Larry Clark said the fund should communicate with the Kentucky Racing Commission regarding its expenditures. He said though he recognizes the fund is by law an entity independent of state government, it "receives public money, and therefore the public has an interest in seeing that those funds are kept safe, that they are expended consistent with the legislature's intent, and that responsible instrumentalities of state government exercise appropriate oversight of fund practices and expenditures."
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, the audit said. The money used to be paid every two years, but in 1998, legislation changed that to one year.
The fund is in line for about $2.6 million generated in 2002, but the money has not yet been released. Kentucky, in the throes of a financial crunch, is carefully looking at all expenditures as it attempts to adopt a budget for 2003.
By the end of 1999, the fund had more than $7 million invested in U.S. Treasury notes, according to the audit. Earlier, 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.
The fund formed a separate non-profit corporation to purchase an old school located near Churchill Downs in Louisville for the purpose of housing backstretch workers. The current project cost estimate is $5.75 million, according to the audit.
"People started looking for ways to spend (the money) in other ways," Burch said. "The fund is investing $5 million in a building worth $800,000. I'd like to run into a business guy like that all the time."
Attorney Bill Lear, who spoke on behalf of Ball and Kentucky Horsemen's Benevolent and Protective Association president Susan Bunning, said he was serving as "special outside counsel" and not as attorney for the fund. Lear said the fund's investments reflected typical patterns in the stock market, and that money lost on stocks was more than made up on bonds.
Lear said the Louisville residential facility, which has 40 rooms as well as offices and a day-care facility on the first floor, would "become a model for Thoroughbred tracks around the country."
There are complications. For example, even though the facility was designed for backstretch workers, the fund used some federal money, and therefore can't keep people out. That led Burch to ask exactly what purpose the living quarters serve.
"How are you going to set aside 40 apartments for backstretch people?" Burch said. "How many people on the backside are going to benefit from this $5-million building?"
Marty Maline, executive director of the Kentucky HBPA, said the fund has been a major asset to backstretch workers, and that a new day-care facility would be of "tremendous benefit." He said some grooms and hotwalkers are forced to leave children in tack rooms.
Others believe more could be done with the millions of dollars the fund receives each year, and they claim the process is too complicated. For example, several people sought burial funds for a deceased backstretch worker, but failed to obtain the money because a copy of the man's income taxes was required. They instead took up a collection to have him cremated.
Mary Alice Harthill, wife of Dr. Alex Harthill, the former president of the Kentucky HBPA, said many people have come to her husband's office across from the Churchill Downs backstretch "because they have been refused benevolence by the Kentucky Health and Welfare Fund."
Richard Riedel, who administrates the fund, said it operates under guidelines that some people fail to meet. He said the rules "keep people not directly involved in the business from taking advantage" of fund programs.
Rep. Reginald Meeks questioned auditors as to why they had nothing to report on distribution of funds. Brian Lykins, director of examinations for the auditor's office, said there were "no significant exceptions as to what should occur" within the organization.
Rep. Denver Butler, who chairs the Licensing and Occupations Committee, said further meetings on the issue would be held. The legislature, because of its schedule, won't be able to address the fund during the current session.
"We'll be able to do some real hard digging, and maybe by working together come up with some solutions," Butler said.