Here at ForwardKY headquarters, we subscribe to a bunch of newsletters and email lists. We scan them all, because you never know when something will come across your virtual desk that screams (or whispers) “there’s more here.”
One of those administrivia emails we get is the Secretary of State’s update. It’s an automatically-generated list of items filed through the SOS office, including legislation, candidate filings, business records, and so on. You can customize your subscription to a pretty granular level.
One of the items you can subscribe to is the Executive Journal. This is a running record of acts of the Kentucky governor, including appointments to boards, proclamations, and the item that caught our attention: employments. These are contracts that are let by executive order, usually because they are impractical to bid through the procurement process (supposedly).
The item that caught my eye was a contract of $500,000 for an outside legal firm to do work for the Kentucky Retirement Systems. “Hmm, that seems kinds large,” I thought. So, I decided to search the Executive Journal to see what else turned up.
Having found a number of such contracts, I then decided to cross-check my work via the state’s Transparency site. This is a site where you can search contracts, spending, salaries, properties, and school report cards.
And before I go any further, I have to throw a big bouquet to the team that designed and built this part of the state’s web site. Having used similar pages from other states, I can say without a doubt that Kentucky’s Transparency site is WAY ahead of those other states. So, kudos to the Transparency web team!
So, having cross-checked my work, and then having sent it to KRS to make sure it was right, I am sharing it with our readers, with some comments at the end.
The contracts
There are no KRS contracts in either the Executive Journal or the Transparency site before fiscal year 2017. (Why?) So, that’s where the numbers start.
Also, if a contract covered multiple years, I split the numbers either evenly across the years, or according to the explicit wording in the contracts.
You can see why these got my attention. An increase of 3,200% (!!) from one fiscal year to the next? Wow.
And note that we are just into FY 2020, so there could be more of these contracts let later in the year. In other words, we’re over half the contract amount from 2019 in this year of 2020, and we’re not even halfway through the year. (If some get added later, we’ll update the numbers.)
The spending
It’s important to note that the above numbers are for contracts, not spending. You get a contract in place that you think is going to cover all the spending you need to do, then you spend against it. So, here’s the spending I found in the Transparency site.
Note that the Transparency site just gives the total spend for the year, not the individual invoices. Still, you get some idea of how much is being spent. Also note, for some reason there are no expenses in the Transparency site for this fiscal year. (Why?)
So, for fiscal year 2019, they contracted for $3.2 million in outside legal counsel, and spent $1.3 million.
Additional information and observations
As noted above, I was shocked when I saw some of these numbers. So, I did what any good journalist should do – I contacted some experts. Here is the feedback they shared.
Mitigating factors
Outside counsel is often required. Some people are certainly asking “Why aren’t the KRS lawyers handling these cases?” Because of the need for attorney-client privilege. Since the state’s attorneys work for the people of Kentucky and not directly for the board members or executive director, they do not enjoy the same attorney-client relationship that an outside counsel would. In fact, one lawyer I spoke with said they themselves were often added into a state government case in order to ensure attorney-client privilege.
Some top-drawer law firms charge up to $600 an hour, or more. Certain of these firms are known nationally for dealing with investment and pension cases, and they have both expertise and gravitas. You want them to represent you when dealing with big investment firms.
KRS is dealing with some ongoing legal cases that are significant. There is a lawsuit against KRS from an investment firm, and that case could run into some serious dollars. There was the lawsuit by some pensioners against KRS and various hedge funds. You don’t know how these are going to go, or how many hours they will take, so you budget for the worst.
But on the other hand …
No other agencies in state government have similar contracts for outside counsel. I dug through pages of contracts, and could not find any other agency coming even close to these amounts.
Are other states paying like this? It’s hard to find good data. A few bullet points:
- The Arizona State Retirement System, Arizona’s largest pension fund with assets of $34.5 billion, planned to spend $1.24 million in FY 2015 on all legal bills.
- The Tennessee “transparency” site (which is really bad) doesn’t let you search by agency, but only by vendor. I put in Reinhart and Ice Miller, since those are national firms, and got back one contract for each company. The contracts were for $1 million each – BUT, over five years. So, $200,000 a year.
- Indiana’s retirement system doesn’t even make their contracts or spending public. You have to do an open records request, which I did. If we get data from them, we’ll update.
Are these cases really that hard? One lawyer commented that it should be possible to find competent legal representation for less than $600 an hour. That lawyer continued “They like to show up with these high-powered lawyers to make a point in the courtroom and show that they’re serious.”
The bottom line, at this point
Without being “on the inside” of these cases, it is difficult to know whether to be upset about these contracts and spending amounts, or accept them as the cost of running a multi-billion dollar business. Any of these situations — or all of them — are possible:
- KRS is receiving work whose value is equal to what it is paying.
- KRS is just paying for the name and the “gravitas.”
- KRS is going with the easy choices: local firms that have done lots of business with the state and that are known entities, and national firms that are a safe choice. (We used to say in IT work that “no one got fired for going with IBM.”)
Could KRS do a better job of managing these contracts and costs? Could they find some less-expensive firms that do work that is just as good as the Reinharts and Ice Millers of the world? Probably.
But for now, this is simply something to ask about, to keep an eye on, and to see where it goes.
After all, we don’t want to “wear” any contracts that make our retirement system look fat.
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