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Time: 08-06-2011 22:47 User: ccathcart PubDate: 08-07-2011 Zone: IN Edition: 1 Page Name: A 1 Color: CyanMagentaYellowBlack

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INDIANA EDITION
L O UIS VILLE, KENTUCK Y
courier-journal. com
SUND A Y , A U GUS T 7 , 2 0 1 1
USPS 13 5560

U. S. SUFFERS RECORD TO LL

30 American deaths in Afghanistan include SEAL unit tied to bin Laden ra id

By Laura King, Ke n Dilanian and David S. Cloud

Lo s Angeles Ti mes

King, Ke n Dilanian and David S. Cloud Lo s Angeles Ti mes It was the

It was the largest number of statement saying his thoughts and

American troops killed in a single prayers go out to the families of

those who perished. Their deaths are a reminder of the extraordinary sacrif ices made by the men and women of our mili-

bility. Eight Afghan commandos tary and their families, including also were killed, Afghan President all who have served in Afghani-

stan,” the president said. We will draw inspiration from their lives, and continue the work of securing

ing loss when nearly two dozen extraordinary” price the U.S. mili- our country and standing up for

Hamid Karzai said. President Barack Obama said the deaths are a reminder of the

mented their place in military leg- end, the SEALs suffered a devastat-

day in the war. U.S. officials said the helicopter appeared to have been felled by enemy fire, and the Taliban quickly claimed responsi-

The deaths are a re minder of the ex traordinary sacrifices made by the men and wo men of our military,” President Obama said.

KABUL, Afghanistan — Their name conjures up the most cele- brated moment of America’s post- Sept. 11 military campaigns. Now the Navy SEALs belong to a grim- mer chapter in history: the most deadly incident for U.S. forces in the 10-year Afghanistan war. Three months after they killed al-Qaida leader Osama bin Laden

in neighboring Pakistan and ce- shot down early Saturday.

were among 30 Americans who died when their helicopter was

tary is paying in the war.

Obama, who learned of the in- cident at Camp David, issued a Se e AFGHAN , A8, col. 1

the values that they embodied.”

UZB. TAJIK. TURKMEN. Wardak Kabul province AFGHANISTAN Fatal helicopter crash PAKISTAN 0 100 mi 0
UZB.
TAJIK.
TURKMEN.
Wardak
Kabul
province
AFGHANISTAN
Fatal helicopter crash
PAKISTAN
0
100 mi
0
100 km
SOURCE: ESRI
AP
IRAN
FA NCY FA RM PICNIC SUNDAY PRINT EXCLUSIVE Beshear hails troops as Williams jabs him
FA NCY FA RM PICNIC
SUNDAY PRINT EXCLUSIVE
Beshear hails troops
as Williams jabs him
No -bid approach
on bond fe es
co sts Louisville
State pays lowe r
rate to attorneys
By James Bruggers
jbruggers@courier-journal.com
Th e Courier-Journal
Louisville’s government agen-
cies and utilities are paying legal
rates for its public bonds that are
six to nine times higher than the
documents The Courier-Journal
obtained through Kentucky’s
open-records law.
The bonds have been sold to
finance capital projects such as
sewer and water system im-
provements, road and building
construction, and park develop-
ment.
Specif ically, the newspaper
found:
Kentucky paid its bond at-
torneys just 0.02 percent of the
more competitive rates paid by $3.7 billion it borrowed since
By Jim Ro shan, Special to The Courier-Journal
Members of the lively crowd at the Fa ncy Fa rm Picnic show their suppor t fo r Re publican candidates Sa turday.
Th e candidates who spoke to ok on each other as we ll as hecklers.
the state, costing taxpayers and
customers hundreds of thou-
sands of dollars, according to a
Courier-Journal analysis.
Instead of using competitive
bidding, Louisville metro gov-
ernment, the Louisville Water
Co. and the Metropolitan Sewer
District relied on their finance or
legal staff to select and negotiate
with a law firm or firms to do the
work for bond issues that cover
long-term debts, according to
2009 on 25 bond issues, totaling
$594,218 in legal fees.
By comparison, metro gov-
ernment paid bond attorneys 0.19
percent of the $355 million it has
borrowed since 2006 on 11 bond
issues, totaling $679,452 in legal
fees. That rate is 9. 5 times higher
than the state’s rate.
MSD paid 0.15 percent of
the $1.1 billion it has borrowed
Se e BONDS, A10, col. 1
Galbraith, others assail gove rnor ’s speech
By Joseph Ger th
jger th@courier-journal.com
Th e Courier-Journal
Credit downgrad e
ratt les fi scal fa ith
FANCY FARM, Ky. — Republicans and an inde-
pendent bashed Gov. Steve Beshear at the 131st Fancy
Farm Picnic in Graves County on Saturday, and the
Democratic governor, fresh off an
ON THE WEB
Obama: We ‘must
do bette r’ on debt
By Pa ul Wi seman
ST EVE BESHEAR
overseas trip to visit Kentucky
soldiers, didn’t fight back.
Instead, he talked about his
trip to Afghanistan and Iraq and
about the Kentucky National
Guard troops he visited.
DAVID WILLIAMS
Associated Press
AA+, deals a blow to the conf i-
dence of consumers and busi-
nesses at a dangerous time, econ-
omists say.
The agency is “striking at the
heart of what makes the global
economy tick,” said Chris Rup-
key, chief financial economist for
I wa s on the
“I know the great tradition of
Fancy Farm. I know that there
Go to www.c ouri-
er-journal.com to
see a gallery of
photos of the
activities at the
Fa ncy Fa rm Picnic.
Yo u did the
WASHINGTON — The real the Bank of Tokyo-Mitsubishi
ground with
these troops,
and I know
what they are
go ing
through.”
should be great, fiery, partisan po-
litical rhetoric here … and quite honestly, I was pre-
pared to give just one of those speeches,” he told the
crowd, which didn’t quite know how to react as he
launched into an eight-minute salute to the troops
and veterans.
“I’ll tell you something, my heart and mind are not
with partisan politics,” he said.
wrong thing
wh en yo u
wouldn’t leave
the Oaks to go
to Fo rt
Ca mpbell.”
danger from the downgrade of UFJ. “It isn’t just dollars and
U.S. government debt by Stan- cents.”
dard & Poor’s isn’t higher inter-
est rates. It’s the hit to the nation’s
fragile economic psyche and rat-
tled financial markets.
S&P’s decision to strip the
U.S. of its sterling AAA credit
rating for the first time
and move it down
one notch, to
One economist, Paul Dales of
Capital Economics, worried Sat-
urday that the downgrade could
trigger another financial crisis
Se e DEBT , A10, col. 5
Se e PICNIC , A8, col. 1
WEATHER | B2
INDEX
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Time: 08-06-2011 21:42 User: ccathcart PubDate: 08-07-2011 Zone: KY Edition: 1 Page Name: A 10 Color: CyanMagentaYellowBlack

A10 | SUNDAY , AUGUST 7, 2 011 | THE COURIER-JOURNAL

FROM PAGE ONE |

courier-journal.com

KY-

BONDS | Ci ty doesn’t use co mpetitive bidding

Continued from A1

since 2006, totaling $1.6 million in legal fees on seven bond issues. That rate is 7. 5 times as much as the state’s rate. Louisville Water paid 0.12 percent of the $287 million it has bor- rowed since 2006 on two bond issues, totaling $351,396 in legal fees. That rate is six times as much as the state’s rate. Louisville Metro Coun- cilman Jerry Miller, R-19th District, has been calling for more competitive bidding, and he said the newspaper’s findings illustrate why that’s so important. It’s just not being fiscal- ly responsible not to bid,” Miller said. MSD, whose legal fees and executive leadership have come under the scruti- ny of the Kentucky state auditor, defended its prac- tice for handpicking attor- neys, including two Louis- ville firms that do all of its bond work: The Zielke Law Firm and Wyatt, Tarrant & Combs. Each firm has col-

law firm to match the city’s bond needs. It was just the system we had in place,” she said, adding that the issue hasn’t come up for her in Lexing- ton. The Louisville Water Co., which the city owns, defended its practice of handpicking its bond attor- neys, but a spokesman said it would consider competi- tive bidding the next time it issued bonds. There is a lot of value in making sure you have a le- gal team that is very familiar with your structure and how you operate and what your culture is,” Vince Guenthner said. If you are just looking at a competitive bid, where you are just look- ing at the lowest price, you might be sacrif icing on quality somewhat.” At MSD, the mayor also

the low bidder doesn’t al- makes board appointments

and both the MSD execu- tive director and chief engi- neer serve at the mayor’s pleasure. Still, Poynter said the mayor leaves decisions such as competitive bidding to MSD officials. Poynter noted, however,

two other board members fices in 16 cities that has that Fischer called for the

Recent bond attorney fees

Attorney charge for bond work based on the dollar amount of a government agency bond issue. Competitive bidding has helped the state of Kentucky reduce the rate it pays for hiring attorneys to do bond counsel work. MSD, Louisville Metro and Louisville Water have not used competitive bidding.

Percent of bonds issued 0.20% 0.19% 0.18% 0.16% 0.15% 0.14% 0.12% 0.12% 0.10% 0.08% 0.06%
Percent of bonds issued
0.20%
0.19%
0.18%
0.16%
0.15%
0.14%
0.12%
0.12%
0.10%
0.08%
0.06%
0.04%
0.02%
0.02%
0
Metro
MSD
LouWater
State
Sources: The agencies
The Courier-Journal

But Celentano said the board might make some changes, pending the out- come of the review by State Auditor Crit Luallen, who has promised a close look at how MSD contracts its pro- fessional services. What we are going to do is follow the recommenda- tions of Luallen,” said Ce- lentano, a retired engineer who has been on the MSD board since 2007, became chairman in March after an- other controversy prompt-

lected $1.09 million for the ed the former chairman and Rock, a law firm with of-

work since 2006.

won 12 of the last 25 bond- counsel contracts with the state. I am sure it’s brought fees down,” Brennan said of

chooses … to maintain a

long-term relationship with

our co-bond counsel and

our financial adviser, who for certain professional the bidding.

Kentucky law allows government agencies to avoid competitive bidding

A f irm is selected based on a combination of techni- cal factors, which are weighted 75 percent, and the dollar amount of the bid, which accounts for 25 percent of a bidder’s score. Although Howard said

ways win, the process intro- duces an element of com- petition that often results in lower costs. It’s a smart thing to do,” said Pat Brennan, Omaha- based spokesman for Kutak

He said he works on his firm’s business proposals nationally and such com-

State and local officials acknowledge it can be diffi-

management audit of MSD by Luallen after the newspa- per reported questionable MSD spending practices and alleged conflicts of in- terest. Luallen has said her au- dit will include an examina- tion of MSD’s procurement policies as well as looking into a 2008 internal audit

have years of working to- gether as a team to produce excellent financial results

for our customers,” MSD tice, said James Chen, the petition is very typical.”

senior engineer Brian Bing- ham said in a statement.

The same results would Louisville.

not have been possible if MSD replaced its bond counsel each time another law firm submitted an arti- ficially low bid to do the work, but then needed years

outside attorney, Larry Zielke, plays in the agency, and the billing practices of Zielke’s former law firm. The newspaper has re-

should consider competi- firms like the prestige of

to learn what the existing tive bidding as a way of listing state governments ported that Zielke and his

past and current firm have been paid at least

While MSD awaits the edge in securing competi- $5.9 million by MSD since

Jan. 1, 2006, including the $1.09 million for bond coun- sel work. Zielke and the Wyatt

competitive bidding might indeed result in lower fees

measured as a percentage of

bond counsels, with Zielke and Wyatt attorney Stephen Berger previously saying they divide the tasks. Berger, an attorney for the Wyatt firm, which has also handled some of the bond counsel work for Lou-

Rowland said he didn’t isville Metro, declined to

answer questions. He said

He speculated that it and through competitive sued previous bonds and MSD officials told him to

would result in higher over- all costs to the community. MSD’s board chairman, Arnold Celentano, said the board relied on the agency’s recently retired finance di- rector, Marion Gee, to de- cide how to hire bond attor- neys. Gee has moved and couldn’t be reached for comment. Celentano said he was

relieved to hear that MSD tion along with local, you ington.

— which has accumulated a

bond debt of $2.7 billion in-

cluding interest payments ard, executive director of fied law firms and then evaluate their perform-

— was pretty much in line

quent contact with our two

nance policies in recent staff members are in fre-

ment. Zielke didn’t return tele- phone calls or emails. Bingham wrote that MSD’s top finance and legal

negotiation, you can save couldn’t explain why it defer to Bingham’s state-

services associated with tend to be more complex firm work together as co-

The MSD board to resign.

services, such as law work. But in general, competi- tive bidding is a good prac-

dean of the Brandeis School of Law at the University of

It strikes me that what you have is a situation where the agencies are act- ing within the law, though one could argue … that they

keeping rates low,” Chen said.

outcome of Luallen’s audit,

cult to compare the legal that questioned the large

fees associated with bond role that MSD’s longtime

work. Some types of bonds can be more complicated than others, they said. And Howard said law

among their clients, which may help give Kentucky an

tive rates. Often the larger value of the bond issues, like many of those done for the state,

and demand more work by lawyers, Chen said. But in many instances, it’s just as expensive to prepare a small but complex issue as it is to work on a big bond.”

Questions re main

work for the city when it is-

didn’t use competitive bid- ding. He and the mayor’s spokesman, Chris Poynter, directed questions about fi-

years to the city’s former

top finance officer, Jane co-bond counsel firms to

Driskell, who now works as commissioner of finance and administration for Lex-

verify the reasonableness of their fees in relation to the value of the work they per- form for us, to manage and

Driskell said the city coordinate the division of

maintained a list of quali-

spread the business around,

labor between them, and to

ance.”

bond team already knows about MSD.”

Process debated

Bingham agreed that the city is already moving

toward more competitive bidding, including for legal

the principal amount

of

any new bond issues, said

each bond issue,” but he said that would not assure

the city’s chief financial of- ficer, Steve Rowland.

immediate and continuous access to the bond counsel experience and expertise MSD needs to manage its fi-

Mayor Greg Fischer, who took office in January, is committed to a competi- tive process,” Rowland said.

nancial

planning before,

We are interested in paying

during,

and after every

market rates, and we be-

bond issue.”

lieve that through bidding

taxpayers dollars.”

State may have edge

State finance officials said they maintain a list of qualif ied law firms and put out a request for proposals when state agencies seek to borrow money by issuing bonds. With national competi-

get a very competitive price,” said F. Thomas How-

the Kentucky Office of Fi-

with the water (company) nancial Management. as bonds needed to be is- and (Louisville) metro,” in They are pretty aggres- sued. She said they would

factor in the skills of each

terms of the lawyer fees.

sive.”

Reporter James Bruggers can be reached at (502) 582-4645.

10,0 00th re scued sea lion re leased

Calif. center also does research

By Jason Dearen

Associated Press

center also does research By Jason Dearen Associated Press anymore.” Since it opened its doors 36

anymore.” Since it opened its doors 36 years ago in the Marin Headlands just north of the Golden Gate Bridge, the nonprof it marine mammal hospital has become fa-

rine critters back to health — but its biggest contribu-

role in collecting and stor- ing thousands of tissue and other samples from the ani-

Jason De aren/Associated Press

The center’s mix of labora- tory science, marine zoo and educational outreach has led to dozens of pub- lished scientif ic papers and helped push understanding of effects of toxic algae, dis-

mate change on these coas- tal denizens. Only about half of the an-

survive to be released. Still, many of the more than

including entangled whales, otters and elephant seals — the center has aided or tak- en in have contributed sam- ples that will help further research that can aid threat- ened and endangered spe- cies around the world. Indeed, many of the ani- mals nursed back to health are not facing imminent ex- tinction — there are 200,000 California sea lions in the wild — but their mal- adies and their genetic makeup are similar to other species in peril. California sea lions share genetic traits with Steller

sea lions, which are a threat- also don’t get to see them miles of California coast. ened species. The center’s

Zo diac Girl, left, and Milestone, both California sea lions, are re leased in nor thern California on Th ursday.

POINT REYES NA- TIONAL SEASHORE, Calif.

— Two juvenile California

sea lions paused for a mo- ment at the edge of the sea, each raising their whiskered faces toward the silvery wa- ter before sliding in to free- dom. For the Marine Mammal Center crew standing be- hind the rehabilitated pinni- peds on Thursday, it was a signif icant day: rescued sea lion No. 10,000, nicknamed Milestone, and 10,001, Zo- diac Girl, had been nursed back to health and sent back to the wild. There’s always some at-

tachment. There’s always mous for nursing sick ma- ease and the effect of cli- which share traits with the

some animal that captures your heart,” said Shelbi

Stoudt, the center staffer tion perhaps has been its

imals the center takes in Girl had leptospirosis, a

bacterial infection that at- tacks the kidneys and can be

endangered Hawaiian monk seals. Milestone and Zodiac

who organizes the regular releases. It’s a bittersweet feeling because you’re send- ing them back home but you

researchers say collecting and banking scientif ic sam- ples from many of the thou- sands of sea lions the center has treated contributes to efforts to save Stellers. Same goes for elephant seals,

mals it rescues along 600 17,000 marine mammals — fatal.

Downgrade’s impact may be big or small

Ex perts are split on botto m line

Th e Wa shington Po st

that if a downgrade forces up interest rates on U.S. debt (which is likely, but will depend on how the markets react), interest rates for those will shoot up as well. This would raise the cost of

Commentators are split borrowing across the sys-

tem, depressing the econo-

as to whether Standard &

Poor’s downgrade of U.S. debt will have major nega-

tive consequences for the Ratings generally are used

U.S. and world economy, or whether it will be basically meaningless. Why It Might Mat-

ter: If U.S. debt is down- knows about the health of

graded, many other debt in- struments likely will be

downgraded as well. When bate has passed, no one

Moody’s put U.S. debt on re- view for downgrade during the debt ceiling standoff, it also put on notice 7,000 other bonds, worth a total of

$130 billion, that rely direct-

ly on revenue from federal

government payments, such

as certain kinds of munici-

have considered loosening

Bonds that are indirectly their rules to allow higher

holdings of U.S. debt in the event of a downgrade. Fur- ther, AA is still a very high rating. AA firms have statis- tically identical perform- ance to AAA ones, accord- ing to the Fitch rating agen-

addition, many everyday in- cy. Just this past January,

terest rates — such as those

for mortgages, car loans and

credit cards — are pegged to

and money market funds

pal bonds.

urys. Indeed, some pension

my. Why It Might Not:

as a proxy to determine the financial health of entities that investors may not know much about. But everyone

the U.S. government, and now that the debt ceiling de-

thinks it is going to default anytime soon. Thus, inves- tors who might normally be inclined to not buy or keep AA-rated debt could make an exception for U.S. Treas-

dependent on the federal government, such as those issued by hospitals that re- ceive Medicare payments,

or defense firms reliant on

Pentagon contracts, could get downgraded as well. In

S&P downgraded Japan’s debt from AA- to AA, and markets more or less didn’t

U.S. Treasurys, meaning care.

DEBT | Re ce ssion fe ars

Continued from A1

that sends Western econo- mies back into a recession. The Obama administra- tion made its displeasure known quickly after the downgrade was announced

ments, and rates will likely rise. The greater conse- quences are going to be in the intermediate and long- term,” he says. If it didn’t mean anything, S&P wouldn’t have downgraded

Friday. The Treasury De- us.”

partment said S&P had act-

Already, there were signs

ed

on an analysis that had a

that the downgrade itself

$2

trillion error. On Saturday, the admin-

would become a volatile po- litical issue.

istration appeared to soften

Senate Majority Leader

its

tone. White House press

Harry Reid, D-Nev., said the

secretary Jay Carney, with- out referring directly to the

S&P decision showed that Democrats’ preferred solu-

downgrade, said President Barack Obama believes

tion to long-term debt, a mix of tax increases on the

Washington must do bet- wealthy and budget cuts,

ter” tackling the def icit. The timing of S&P’s de- cision could hardly be worse for the U.S. The econ-

omy added 117,000 jobs in Ju-

ly, more than expected. But around the edges” of the

other economic indicators, including manufacturing, consumer spending and

overall growth, are getting Obama.

S&P had called for $4 trillion in U.S. def icit re-

other country, a downgrade duction. The deal cut by

in a sovereign debt rating Congress last week called

probably would force its government to pay higher interest rates to persuade in-

vestors to keep buying its to address America’s debt

debt. If that happened, it would drive up the rates that

consumers pay on mortgag- dence in the U.S. political

es and auto loans, which system. Republicans and

Democrats didn’t reach a deal on debt reduction until hours before the federal government’s borrowing limit was to expire, which some say would have trigged a U.S. default on its debt or massive, immediate government cuts. Economists say the downgrade, the first since the U.S. received the top rat- ing in 1917, will rattle al- ready-worried consumers and businesses. Some fear that the Dow Jones industrials, which fell 512 points on Thursday alone because of fears about the economy and European debt, will plummet Monday when investors get to vent

to drive up interest rates their anxiety.

problem. It also said its decision reflected its loss of conf i-

weaker. In normal times, in an-

U.S. debt problem. And Re- publican presidential candi- dates for 2012 laid blame on

was the right answer. House Speaker John Boehner, R-Ohio, said he hoped Democrats would learn they can’t tinker

for only about $2 trillion in the next decade. The rating agency said it wasn’t enough

often are tied to the govern- ment’s interest rate. But the United States is a special case. Treasury debt is considered the safest in- vestment in the world — even after the downgrade. Investors don’t doubt the U.S. government’s ability to repay the $9.8 trillion it owes. Anytime there’s a prob- lem anywhere on the planet, investors come to the safety

of the U.S., and they don’t go anywhere else,” said Mark Zandi, chief economist at Moody’s Analytics. Mark Vitner, senior economist at Wells Fargo Securities, agrees that the S&P downgrade is unlikely

right away. But he says that’s partly because the economy is so weak that borrowers aren’t competing for money and driving rates higher. In three to five years, he says, loan demand will be

higher. When that happens,

a U.S. Treasury with a

dinged credit rating will be vying with private borrow-

ers for loans and invest- S&P downgrade.

An early sign of what’s to come may emerge today U.S. time, when Asian mar- kets open. America’s reputation has already taken a hit abroad. China, the largest foreign holder of U.S. debt, on Sat- urday demanded that the

United States tighten its belt and overcome its addiction to debt” in the wake of the