Press Release from Ed Hatchett,
Kentucky Auditor of Public Accounts

Subject: Hatchett Says Taxpayer Interests Abandoned in Economic Development Project
Release Date: October 3, 2000
Audit online at: http://www.auditor.ky.gov/Public/Audit_Reports/Archive/2000BluegrassHosieryReport10-3-00.pdf

Commonwealth of Kentucky
Auditor of Public Accounts
144 Capitol Annex
Frankfort, KY 40601

Contact:
Harold McKinney
Legal Counsel
Phone 502-573-0050
FAX 502-573-0067
APA.PressReleases@auditor.ky.gov
(Frankfort - October 3, 2000) State Auditor Ed Hatchett today reported on his examination of the public’s investment in Bluegrass Hosiery, Inc., a failed economic development project in Harlan County. "The public agencies that poured taxpayer money into Bluegrass Hosiery inexplicably abandoned the accountability they should have demanded of the project," said Hatchett.

The examination found

  • The public’s $1,044,000 loans to Bluegrass Hosiery—now in default—were inadequately secured and written off apparently without any collection attempts.
  • A $100,000 CD, consisting of Harlan County funds, was pledged to secure the private bank loans of one of the project’s owners.
  • The Bluegrass Hosiery manufacturing facilities and equipment, purchased and improved with public funds, produce monthly rental income of $ 14,000 which is used to repay the personal debt of one of the project’s owners.
  • After pouring more than a million public dollars into the venture and insisting on little, if any, accountability for success, neither the county nor the state have taken steps to enforce the public’s interests in repayment, despite the failure of the business.

The report cites numerous instances in which public funds were risked with little or no care taken to protect the public’s investment interest. In one case, Harlan County took a second position security interest in equipment. When the venture failed, the County made no effort to protect and enforce its interest.

According to the report, after less than three years, Bluegrass Hosiery ceased operation in 1998. In June of 1999, Harlan County, through its Development Authority, wrote off over $940,000 in loans to BGH and has made no attempt to collect the public money.

 

Edward B. Hatchett Jr.
Auditor of Public Accounts
144 Capitol Annex
Frankfort, KY 40601
WEB: www.auditor.ky.gov/