According to a recent article in the Courier-Journal, the Louisville Metro Government, the Louisville Water Co., and the Metropolitan Sewer District are paying legal rates for their public bonds that are six to nine times higher than the state’s more competitive rates. This is another strike against the government, which recently had been criticized in audits for legal fees.
Instead of using a bidding process, or a reverse auction which has become more popular, the aforementioned organizations relied on their own finance and legal staff to select and negotiate with firms. According to the report, the State of Kentucky, which borrowed $3.7 billion since 2009, only paid $594,218 in legal fees. Compare this with the MSD, which only borrowed $1.1 billion since 2006 (less than a third of the state borrowed amount) at a rate 6x the amount of the state rate, and paid $1.6 million in legal fees (almost 3 times the amount the state has paid).
The law firm that is at the center of this controversy is the Zielke Law Firm. That is the same firm that allegedly has billed the MSD for 5 million dollars worth of services and was criticized in a prior audit. The district continues to maintain that this is saving money in the long term.
“The MSD board chooses … to maintain a long-term relationship with our co-bond counsel and our financial adviser, who have years of working together as a team to produce excellent financial results for our customers,” MSD senior engineer Brian Bingham said in a written statement. “The same results would not have been possible if MSD replaced its bond counsel each time another law firm submitted an artificially low bid to do the work, but then needed years to learn what the existing bond team already knows about MSD.”
MSD chairman Arnold Celentano did indicate that changes would be forthcoming depending on the review of the state auditor. The State indicates that they maintain a list of qualified firms and put out RFPs (Requests for Proposals) whenever they are issuing bonds. Furthermore, cost is not the only factor, but the competition that it creates has driven down costs in the long term.
For now, taxpayers and the district must wait until recommendations are made by the state auditor.