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Auditor: Warnings about KentuckyWired project were ignored

December 16, 2019 GMT

FRANKFORT, Ky. (AP) — Kentucky paid more than $1.3 million to two main outside consultants over three fiscal years to offer advice about creating a statewide broadband network but largely ignored their concerns about how the project was developing, according to an audit released Monday.

The report, released by state Auditor Mike Harmon, detailed how financial risks for the troubled KentuckyWired project shifted from Australian investment bank Macquarie Capital to the state. The report was the second phase of the review of the ambitious project meant to bring high-speed internet access to all 120 Kentucky counties.

“What we found in phase two was there were numerous changes made after the commonwealth signed a contract with the main contractor for the project that ‘flipped the script’ to move the costs and risks from private investors, and placed it almost entirely on taxpayers,” Harmon said in a statement Monday.

The findings will give critics of KentuckyWired more leverage next year, when lawmakers will be asked to approve another $100 million for the project in the next two-year state budget.

The new audit reviewed the project’s formative stages up to when final project agreements were signed in September 2015. Former Democratic Gov. Steve Beshear and Republican U.S. Rep. Hal Rogers announced the project to improve internet access by installing some 3,000 miles of fiber-optic cable. Beshear left office in December 2015.

The project was originally set for completion late last year but now is supposed to wrap up by October 2020. It is expected to cost taxpayers $1.5 billion — far exceeding the original estimate.

The new report details how the state hired outside consultants, with two main consultants — a law firm and an engineering firm — paid more than $1.3 million in total over three fiscal years.

Several consultants raised repeated concerns about Kentucky’s approach to the project, but those concerns were largely ignored by state officials involved in contract negotiations, the audit found.

In a 2015 email, an outside legal firm reviewing the initial draft agreement between the state and Macquarie said the deal shifted most, if not all, risks — both financial and liability-based — to the state, the audit showed.

Based on documents reviewed by auditors, there were numerous revisions to the master agreement from January 2015 until the project agreement was signed, Harmon said.

“The differences from the contract awarded and the final project agreement is striking and troubling,“the auditor said.

Outside consultants also raised concerns about the removal of language from the agreement that had placed the financial burden on the private sector, the audit said.