Call to Order and Roll Call
The 5th meeting of the Interim Joint Committee on Transportation was held on<Day> Tuesday, October 7, 2014, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Hubert Collins, Chair, called the meeting to order, and the secretary called the roll. The minutes from the September 2, 2014 Interim Joint Committee on Transportation meeting were approved.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative Hubert Collins, Co-Chair; Senators Jimmy Higdon, Ray S. Jones II, Morgan McGarvey, Dorsey Ridley, Albert Robinson, John Schickel, Johnny Ray Turner, and Whitney Westerfield; Representatives Kevin D. Bratcher, Denver Butler, Leslie Combs, Tim Couch, David Floyd, Keith Hall, Toby Herald, Kenny Imes, Jimmie Lee, Charles Miller, Terry Mills, Rick G. Nelson, Tanya Pullin, Marie Rader, Steve Riggs, Sal Santoro, John Short, Arnold Simpson, Diane St. Onge, John Will Stacy, Jim Stewart III, David Watkins, and Addia Wuchner.
Legislative Guests: Representative Brian Linder
Guests: Adam Edelen, Auditor of Public Accounts; Christopher J. Bedell, Vice President and General Council, The David J. Joseph Company, River Metals Recycling, Kentucky Recyclers Association; Steve Levetan, Executive Vice President, Pull A Part, Kentucky Recyclers Association
LRC Staff: John Snyder, Brandon White, and Christina Williams.
Report of Auditor of Public Accounts: “Examination of Certain Policies, Procedures, Controls, and Financial Activity of the Cincinnati/Northern Kentucky International Airport”
Adam Edelen, Auditor of Public Accounts, discussed the findings of the report “Examination of Certain Policies, Procedures, Controls, and Financial Activity of the Cincinnati/Northern Kentucky International Airport (CVG).” He stated the primary focus of the investigation and report was to evaluate the current government structure of the airport board, as well as examine some of the board’s financial activity. The report has lead him to conclude that decades of waste and abuse and dysfunction between the board and airport management in recent years are largely a symptom of an outdated and flawed government structure that does not reflect the regional significance of the airport.
Auditor Edelen stated that CVG is routinely ranked one of the most expensive airports in the country and has lost approximately 500 daily flights and approximately 17 million passengers since 2005. The reduction is largely due to consolidation in the airline industry; however, the CVG boards continued dysfunction cannot be permitted to hinder the airports ability to attract new carriers and flights which help grow the economy of the region. The airport generates more than 16,000 direct and indirect jobs for the region; $2.7 billion in spending by CVG operations, construction, and visitors annually; as well as $92 million a year in taxes to Kentucky and Ohio. Auditor Edelen stated for too long CVG has operated as a political appendage of one person, the Kenton County Judge Executive. The Kenton County Judge Executive controls the airport that serves the metropolitan area of 2.1 million people and is critical to the economic vitality of the region and to two states, Kentucky and Ohio. Auditor Edelen proposed reform to bring much needed accountability and representation that reflects all of the stakeholders of the regional asset. He suggested a complete overhaul of the CVG board structure and has made recommendations to the Governor as well as to the General Assembly to make statutory changes in the 2015 Legislative Session. Auditor Edelen stated the reforms that must be made should be developed and driven by Northern Kentuckians and that his recommendations are a starting point to drive conversation to enact the reform.
Currently, the Kenton County Judge Executive appoints all seven of the voting members of the CVG board, as well as a majority of the board’s 11 member advisory committee, which does not have the power to vote. The board structure has created confusion and chaos among the board and advisory committee members, and it increases the risk of political influence affecting board member decisions. Auditors found a document created by the outgoing Kenton County Judge Executive outlining criteria for ideal board members. Among those criteria was the current or future support of the Judge’s campaign. Auditor Edelen recommended an 11 member CVG board with each member having equal standing and voting authority. Kenton County should have the highest number of board appointments to reflect the historical significance of Kenton County to the airport. The Auditor’s recommended board structure includes: 1) three members appointed by the Kenton County Judge Executive, with confirmation by the fiscal court; 2) two members appointed by the Boone County Judge Executive, with confirmation by the fiscal court; 3) one member appointed by the Campbell County Judge Executive, with confirmation by its fiscal court; 4) two members appointed by the Governor of Kentucky; 5) one member appointed by the Governor of Ohio; 6) one member appointed by the Mayor of Cincinnati, with confirmation of its council; and 7) one member appointed by the Hamilton County Board of Commissioners.
Auditor Edelen stated that restructuring the CVG Board was the first and most significant finding of the audit recommendations. The report also contains 11 additional findings and recommendations relating to contracts, travel, and spending. Auditors found that the CVG board engaged a contractor for $60,000 for public relations services that were not bid out, without first consulting the CVG staff. Several months after the contract was initiated, the CEO requested that all invoices for the PR firm be approved by the board chair because the professional staff could not attest to any work being performed by the contractor. The discord between the board and the management appears to have played a role in selecting a contractor that resulted in potentially duplicative services.
Auditors also found that the board engaged in the services of another contractor for $25,000 to duplicate the work of the auditor’s office, and that no formal written contract had existed for decades between the board and its legal firm despite CVG spending millions of dollars on these legal services.
The examination found excessive spending on travel to industry conferences, including expenses associated with the outgoing Kenton County Judge Executive and to board members and their spouses’ meals. The Cincinnati/Northern Kentucky International Airport Board spent more than $100,000 on travel and meals at four conferences. At one conference in Canada in 2012, CVG sent 11 board and advisory committee members, in addition to the CEO, board attorney, and the Kenton County Judge Executive. CVG-affiliated individuals represented 26 percent of all conference attendees. Ironically, the national association that sponsors the conferences indicates, as the primary best practice for running an effective airport organization, that no single entity should dominate the member appointment process to any airport board.
Auditor Edelen added that extravagant spending and travel and other airport perks have continued for decades despite public and media scrutiny, referring to an article that was written in the Kentucky Post in 1998 detailing much of the same findings as the current audit report. The question remains as to why the same issues have continued. He believes that it is due to a flawed and outdated government structure of the CVG board.
Auditor Edelen acknowledged Kenton County Judge Executive Elect Knochelmann, who is running unopposed in the November election, and his role in driving for CVG reform. He added that there have been measures of self correction taken by the CVG board.
Chairman Collins stated any board has a public trust to spend the money entrusted to it as if it were the board members’ own money. He said that, in certain instances, it seems as if the CVG board has forgotten that.
Representative Simpson stated he appreciated the work of the auditors’ office and agrees with the crucial need for transparency. He disagreed with Auditor Edelen’s conclusion that there have been decades of waste and abuse from CVG and its board, as it is his understanding that most instances have occurred recently. He reiterated that Kenton County taxpayers gave their tax resources for the startup of the Cincinnati/Northern Kentucky International Airport, and therefore the problem that has arisen is a Kenton County issue and not a northern Kentucky regional issue. He agreed that several board members have abused power and resources recently, but did not agree that abuse has been occurring for decades. Representative Simpson stated that the report was too broad and needed to be more detailed. Auditor Edelen respectfully disagreed with Representative Simpsons’ statements. He said that CVG is not listed as an asset or a liability to Kenton County on any balance sheet, and therefore the notion that CVG is a Kenton County asset is fiction. CVG is its own self-sustaining special purpose government entity, and that the Kenton County Fiscal Court is not even a secondary or tertiary recipient of the debt or the bonds that are promulgated by the airport. Although the taxpayers of Kenton County helped start CVG, it was primarily a $2 million grant awarded by the War Department in the 1940s that helped start the airport.
Representative Wuchner thanked the auditors for being respectful of the significance of the history of the airport board and the significance of the region and for the recommendations addressing the issues. In response to a question from Representative Wuchner addressing the governance problem with the nonvoting and voting members of the board and advisory committee, Auditor Edelen stated that the power to vote is the power that is needed for all entities to have a fair voice in the operations of CVG. Advisory committee members may have input, but when they do not have the right to vote on issues, the input may become null and void. Auditor Edelen stated that the only people able to vote on the governance of CVG are those board members appointed by one person, the Kenton County Judge Executive.
In response to a question from Representative Wuchner, Auditor Edelen stated that the Louisville International Airport board’s members are appointed by the mayor of Louisville, and those appointments are confirmed by the Louisville Metro Council. There are also appointments made to the board by the Governor. Auditor Edelen said that, after much research on other airports and their boards, his opinion is that the most successful airports are those with operations involving a diversity of opinions. The notion that Kenton County has sole control over an airport that serves 2.1 million people in a region is outdated.
In response to questions from Representative Santoro and Representative Riggs, Auditor Edelen stated there were no criminal offenses or activities with criminal intent found in the report; however the report has been forwarded to the Kenton County Attorney for review of possible violations of ethics codes.
Representative Simpson reiterated his earlier comments concerning the CVG board and Kenton County, stating the historical significance and the role Kenton County and its taxpayers have played in relation to the airport must not be overlooked. He said that other counties and entities wanting to share in the authority of the board should compensate just like Kenton County taxpayers.
Representative Simpson raised the issue about Kentucky owning the Ohio River and that the deeds of the airport are in Kenton County’s name. He stated that, when taxpayer money is referenced, Kenton County taxpayers’ money is what is being discussed. Because the airport sits in Boone County’s jurisdiction, Boone County receives hundreds of thousands of dollars of occupational taxes, therefore it is only fair if that, if it like a voice in how the airport is run, Boone County should share the tax proceeds with Kenton County in the spirit of the region.
To Representatives Simpson’s point of Kentucky owning the Ohio River and not Ohio, Auditor Edelen pointed out that the largest public infrastructure project in the United States is in Louisville, where two bridges are being built as a result of a bi-state commission, which of its very definition is an example of bi-state cooperation.
Representative St. Onge questioned the reasoning behind Auditor Edelen’s suggestion of having board members from Cincinnati. She said she is unaware of anything that will benefit Kenton County and northern Kentucky that will not also benefit the greater Cincinnati area as well. She is not against board members from Cincinnati being on the board, although she would like to understand the logic.
Auditor Edelen reiterated that his recommendation is that Ohio citizens have three seats on an 11 member board, which would provide Kentucky with a continued constitutional majority. He said it was important for Ohio to be part of the CVG board due to two-thirds of the airport’s travelers being from Ohio. It is imperative to ensure that business communities on both sides of the Ohio River are integrated into running the airport. The ability to continue to grow the airport long term depends on ensuring that Cincinnati businesses are not using the Dayton or Columbus airports. Continued disagreements and mismanagement of the airport’s operations may result in major airlines deciding not to use CVG.
Chairman Collins urged northern Kentucky legislators and residents to come together as a group on legislation that may be needed to help solve these issues. He said it would not be feasible to hear several bills during session on this issue, and thus it was imperative that northern Kentucky delegates work together on a solution.
Proposed Legislation Regarding Procedures for Motor Vehicle Recyclers’ Purchase of Vehicles
Representative Denver Butler; Christopher J. Bedell, Vice President and General Council, The David J. Joseph Company and River Metals Recycling, and member of the Kentucky Recyclers Association, and Steve Levetan, Executive Vice President, Pull A Part, and member of Kentucky Recyclers Association, discussed proposed legislation regarding procedures for motor vehicle recyclers’ purchase of vehicles. Representative Butler stated the goal of the proposed legislation is to simplify laws related to recycling automobiles. It is a relevant issue in order to keep accurate track of vehicle ownership, reduce vehicle theft, and further the work of scrap recycling, which feeds raw materials back into manufacturing, while including all stakeholders in the drafting of the legislation and resolving any concerns.
Mr. Bedell stated that River Metals and its predecessor companies have been operating metal recycling companies in Kentucky for over 50 years, and currently have over 250 employees in Kentucky. River Metals has invested over $100 million in state of the art metal recycling equipment and infrastructure in the Commonwealth and does not receive any government subsidies or funding. It has received awards for its safety and environmental practices. The company is owned by the David J. Joseph Company, which has been recycling metals since 1885 and has over 80 recycling facilities across the country. David J. Joseph Company is owned by Nucor Corporation, which is North America’s largest steelmaker. Nucor announced last month that it has purchased Gallatin steel and will soon become Nucor Kentucky. Combined, Nucor and its subsidiaries will have over 750 full-time employees in Kentucky. Approximately 60 percent of steel made in the United States is from recycled metal.
Mr. Bedell stated there should be clear and effective laws and requirements for end-of-life vehicles, adding that the proposal has three advantages over current law. The first advantage is that it provides accountability for the buyer and the seller of an end-of-life vehicle; secondly, it provides traceability by recording VINs and putting them into the new federal database for stolen vehicles so they can be checked to make sure that they were not stolen before and after their purchase; third, the proposal provides workability. Several other states have enacted similar laws and are extremely pleased with the results.
Mr. Levetan stated that Pull A Part is a used auto parts business based in Atlanta with 29 locations in 13 states, including a location in Louisville. The issue is that there are hundreds of thousands of vehicles that reach end of life every year in the Commonwealth, and those vehicles are either going directly to a scrap processor or to a company such as Pull A Part. These companies arrange for the removal of some or all of the parts for reuse; the remainder of the vehicle is recycled. Currently, there are two ways that the vehicle can legally come to either industry: it can be sold with a title, or it can be sold under Kentucky law with what is called a hulk vehicle. The sale of a hulk vehicle does not require a title, and the vehicle only has to be mechanically inoperable. The definition of a hulk vehicle is poor and leaves potential for misuse.
Mr. Levetan stated there is a problem due to vehicle titles often being misplaced on older vehicles, or vehicles can been transferred a few times without the transfer of the title when the title should have been transferred. There should to be a way to address problems for when a person is legally trying to recycle a vehicle. Problems arise such as how these companies are able to purchase the vehicle and how law enforcement is able to identify stolen vehicles. In either of these two instances, there is no paper trail or reporting required to the vehicle registrar or law enforcement. In 2009, Congress passed the National Motor Vehicle Title Information System (NMVTIS.) The system has improved dealing with end-of-life vehicles and getting a database of those vehicles at a federal level. A problem that has arisen is that reporting is required by either a scrap processor or a parts recycler, but the only enforcement is at the federal level by the Department of Justice. Reporting is must be done within 30 days of the purchase, but the potential 30-day delay is a problem. Mr. Levetan stated that the proposed bill would allow for that enforcement by incorporating the federal law at the state level. Louisville and Lexington have both recognized these problems in dealing with end-of-life vehicles and have adopted ordinances relating to the issue. The ordinances have better definitions and require a paper trail, reporting, and reporting to NMVTIS.
The highlights of the proposal include: 1) clear definitions, such as when a vehicle is no longer considered a vehicle; 2) limiting the sale of end-of-life vehicles to only registered secondary metals recyclers or licensed automotive recycling dealers, only applicable to vehicles that are ten years old and older; 3) a requirement for a signed statement from the seller, and a requirement to get a copy of the seller’s identification, vehicle identification information including the VIN, and a certification that the vehicle is owned by the seller and that the seller recognizes that there are criminal penalties to the falsification of the document; 4) the collection of the tag number of the vehicle that delivered the end-of-life vehicle, and the buyer’s NMVTIS ID number; and 5) creation of an online system requiring buyers to check the vehicle before purchase to determine if it has been stolen.
This is similar to a system that went into effect in North Carolina in December 2013. From that system’s inception through the end of September, the system has resulted in the identification of over 480 stolen vehicles that had been attempted to be sold as scrap or for parts out of 150,000 vehicles that had been run through the system. The proposed bill also requires reporting to NMVTIS, and requires reporting within 24 hours of purchase rather than within 30 days, giving law enforcement a real tool to determine if a vehicle has been stolen.
The proposed bill requires the industry to hold the vehicle undamaged for two days after the purchase, giving law enforcement time to investigate the vehicle to make sure it has not been stolen. The proposal classified falsification of the document itself as forgery in the second degree and creates penalties of $1,000 per vehicle if a recycler fails to keep the required records or to take required information, or fails to report to NMVTIS.
Because of a constituent concern and situation involving a stolen vehicle, Representative Floyd advocated the possibility of extending the amount of time more than the two day period required in the proposed bill between when the vehicle is purchased by a scrap metal company and when it is to be recycled. It takes one day to report that purchase to a national database, leaving only one additional day before the vehicle can be destroyed.
In response to a question from Senator Schickel, Mr. Bedell stated the Kentucky Recyclers Association has had input on the proposed legislation. The Kentucky Association of Truck and Automobile Dismantlers, the Kentucky Transportation Cabinet, and law enforcement are expected to be contacted along with other stakeholders before the proposed bill is placed before the committee.
In response to a from Representative Pullin, Mr. Levetan stated that no state has used this exact proposed approach, but that North Carolina has used a system and regulations most similar and is the state that has been used as a pattern for the proposed bill.
In response to a question from Senator Ridley concerning the possible prevention of a hulk vehicle being reissued a title, Mr. Levetan stated that, under the proposal, a vehicle can only be sold to a registered secondary metal recycler or a licensed automobile parts dealer, or it can be recycled for parts only. Hulk vehicles can only be sold again as recycled, but a vehicle with a title can be sold again.
Proposed Administrative Regulation 601 KAR 11:030
The committee reviewed Administrative Regulation 601 KAR 11:030 regarding codes for endorsements and restrictions on commercial driver’s licenses.
With no further business before the committee, Chairman Collins adjourned the meeting at 2:09 PM.