Tuesday, February 20, 2001

Sparta admonished by auditor

City lawyer got OK to open club

By Patrick Crowley
The Cincinnati Enquirer

        SPARTA, Ky. - A state auditor says Sparta City Council appeared to have a conflict of interest when it improperly approved plans for a combination strip club and restaurant that opened last year near the Kentucky Speedway.

        The audit, performed by the office of Kentucky State Auditor Ed Hatchett and released Monday, also found that the city misspent more than $9,000 from a law enforcement grant and from state road funds.

        But much of the document concerned the relationship between Sparta City Attor ney Larry Lawrence, who developed the Racers strip club and restaurant, and the council in the tiny city of less than 200.

        Mr. Lawrence represents the city in legal matters free of charge and also provides the city with a rent-free building.

        “This relationship creates both the appearance of impropriety and a perception that conflicts of interests exist,” the audit states.

        Mr. Lawrence scoffed at the suggestion of such conflicts.

        “There is no conflict here, and the audit did not find a conflict,” Mr. Lawrence said Monday. “The auditor recognizes the potential for conflict ... but I can't imagine anything we've done here is wrong.”

        Furthermore, the tiny Gallatin County city that is home to the Kentucky Speedway may not be able to meet an April 2002 deadline for coming up with the $70,000 match as required under the federal police grant.

        “They are a city in distress. They need help,” Mr. Hatchett said in an interview Monday. “We are concerned (the City Council) may not be in a financial condition to be able to deal with issues that are coming before them right now.”

        City officials agreed Monday with aspects of the audit but were defiant in commenting on some findings, including statements about apparent conflicts of interest.

        In a written response to Mr. Hatchett, Sparta Mayor Brenda Henry called the audit “a hatchet job designed to correct a few missteps in a small developing city.”

        According to the audit those “missteps” included:

        • Using nearly $8,000 in state road money to purchase and equip a Ford Ex plorer SUV for the city's police department.

        • Spending $1,088 of the federal police grant, most of which went to hiring police officers, on other expenses, including interest on an unrelated city loan and office supplies.

        Mr. Hatchett called the spending “improper” and recommended better accounting procedures in the city.

        Sparta Clerk-Treasurer Jayne Smith said Monday that spending matters have been cleared up through reimbursements and revised accounting practices.

        Ms. Smith also said that the city has requested a waiver from the federal government so it does not have to pay the $70,000 grant match.

        Ms. Smith added that if a second request for the waiver is denied — the first was turned down last year - the city should have enough money raised by property taxes from new development around the speedway for most, if not all, of the match.

        The audit included a long narrative about events that led to the opening of Racers.

        In April 1999, council approved plans for Racers and an adjacent 20-room hotel.

        Council had planned to pass an ordinance earlier that year regulating adult entertainment establishments. The ordinance was modeled after a Lexington law.

        But after the first reading of the ordinance city officials learned that the Lexington law had been declared unconstitutional by a Kentucky court. Fearing a costly legal fight, the city backed away from the ordinance.

        The audit, however, states that the plans for the club and hotel were approved after council was asked to do so by Mr. Lawrence.

        In addition to serving as city attorney, Mr. Lawrence has given the city money to buy a police car and owns the building Sparta uses rent-free as a city building.

        In the audit Mr. Hatchett said Mr. Lawrence's involvement with the city gives the appearance that a conflict of interest existed at the time Mr. Lawrence wanted approval for his project.

        The audit also states that council's dropping of its original adult entertainment ordinance benefitted Racers because the legislation may have prevented the club from opening, which it did last spring.

        “The city has received significant financial support” from Mr. Lawrence, the audit states. “At the very least it is not good public policy for the city to be in a business relationship with (Mr. Lawrence), whose adult entertainment business can be regulated by the city.”

        The auditor also found that the city did not properly act when it approved a license for Racers that Mr. Lawrence paid $10,000 to receive.

        An ordinance should have been drafted and passed by council, Mr. Hatchett said.

        Without the ordinance, the license is invalid and the club is operating illegally, Mr. Hatchett said. The city said it will pass an ordinance and the club will not be asked to close.

        “Having announced its intentions to regulate adult entertain ment, including imposing an annual $5,000 renewable license fee, the city changed direction,” Mr. Hatchett said.

        “This coincided with the city's acceptance of money and property from the business owners. (The city) then issues a 20-year business license for a fee of $10,000,” he said. “We find these facts and this chronology troubling.”

        Mr. Lawrence called the comments “preposterous.”

        He said he does own the building where Racers is located but is not involved in the business. He added he provides legal work to the city free of charge and allows the city to use his building “out of the goodness of my heart.”

        Mr. Lawrence said he allowed the city to move into the building - which is near Racers - after the former city building was damaged in the flood of 1997.

        Mr. Hatchett said that in the future, a city attorney not so closely aligned with the city should be hired.

        Mr. Lawrence said the city will codify the ordinance and follow the other recommendations of the audit.

        “It's instructive, and we are going to make sure we follow it,” he said.

        A suit filed by the Kentucky Speedway in Gallatin Circuit Court seeking to de-annex the $154 million speedway from Sparta is pending.


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