The stink emanating from the headquarters of Louisville’s Metropolitan Sewer District (MSD) is not from the sewers themselves, but from a number of things hitting the fan last Friday; not the least of which was a scathing, 142-page audit report  from Kentucky’s State Auditor Crit Luallen. The stories we’ve all been hearing and reading about for the past several months concerning the corruption and venality over at MSD are apparently true.
MSD Executive Director Bud Schardein—a 28 year MSD veteran—was let go on Friday by Louisville Mayor Greg Fischer, coincident with the release of the audit report.
Citing “significant management problems” at the Metropolitan Sewer District—ranging from conflicts of interest to questionable business practices—Mayor Fischer appointed Louisville Water President and CEO Greg Heitzman to serve as Interim Executive Director at MSD. Fischer also announced that he will create a task force to examine the possibility for shared services and cost reductions among MSD, the Louisville Water Company and the City’s Public Works Department.
Heitzman will be a loaned executive to help lead MSD during its transition toward compliance with the audit findings as well as a possible new business structure. In the official statement from the Mayor’s office, the current executive director, Bud Schardein, reportedly “…will retire in the spring but will remain with the agency in an advisory role until then to help ensure a smooth transition.”
Fischer stated that the task force will determine if MSD, the Water Company, and the city’s Public Works Department could share resources to reduce costs and create greater efficiencies. In other cities — from Indianapolis to Nashville and Atlanta to Boston — it is common for the sewer agency and water utility to partner.
Fischer plans to have the task force members named by early January and expects a four to five month review process. Fischer stressed that the employees at MSD have been doing good work managing the sewer system and protecting the city from flooding, but that the audit shows that upper management operated with inadequate board oversight and, at times, had a disregard for the agency’s own policies and procedures.
“After reviewing the report released today by State Auditor Crit Luallen, it is clear there are significant problems at MSD that will erode the public’s trust in the agency if immediate changes are not made,” Fischer said. “The changes that I am announcing will begin a new era at MSD.”
Fischer also announced that three long-serving board members — chairman Arnold Celentano, Doyle Stacy and Jerome Clark — will shortly “retire” from the board as soon as replacements are found. Fischer asked them to stay until replacements can be appointed to maintain a level of institutional knowledge during the interim.
There are eight board members, four of whom have been appointed by Fischer and have served fewer than six months. On Friday, the Mayor thanked Schardein and the board members for their service and their recognition that change needs to be made at MSD. “These men have helped build a solid sewer district. I appreciate their willingness to help with a smooth transition,” Fischer said.
The state audit report found numerous conflicts of interest, including contracts that were being given to board members and friends of MSD leaders. It also discovered that MSD has not negotiated or advertised for bids for its legal services since 1984, giving all the work to one firm. “Contracting with this attorney’s firm since 1984 for the majority of all other external legal services appears to be a conflict and waiving procurement requirements for the contract should not be acceptable,” the audit concluded.
The audit also discovered that MSD’s investment advisor received fees from the investments he recommended. The audit further revealed management compensation benefits “that could be considered excessive for a public entity,” the audit stated.
Beginning last Friday, Heitzman started working with MSD’s Board, management and employees on an action plan to address the audit’s findings in a timely manner. “I tapped Greg Heitzman for this important role because of Louisville Water Company’s stellar record and public performance. Greg can quickly implement many of the best practices –many of which are solidly in place at the Water Company – that are called for at MSD by the audit report. This is only an interim position that will last only a few months during this important transition period for MSD.”
“Louisville Water has an incredibly talented and dedicated group of employees and senior management,” said Heitzman. “In my absence, our employees will continue to deliver the outstanding water quality and customer service that has defined our company since 1854.”
Heitzman will also assist Mayor Fischer in a task force that will examine synergies between Louisville Water, MSD and Public Works. “Greg Heitzman will provide sound leadership for MSD during this significant time of change,” said Marita Willis, Board of Water Works Chair and PNC Vice President, Community Consultant and Community Banking. “The Board of Water Works appreciates the confidence the Mayor has in Greg’s leadership. In fact, we see it every day in Louisville Water’s operations.”
Heitzman has spent 29 years at Louisville Water, starting as project engineer in 1982, then serving as Chief Engineer and as President and CEO since 2007. He holds a MBA from the University of Louisville and earned a bachelor and a masters degree from the University of Kentucky in Civil Engineering.
It appears that our new Mayor is good at avoiding the knee-jerk reactions his predecessor in office usually had in response to bad press. Earlier this year, the local internet press began a series of investigative articles which started uncovering some serious problems with the management at MSD. Folks like Ed Springston  and Terry Boyd  began poking around and uncovering scandalous information. They were followed by the local television stations, and, eventually the Courier-Journal.
But instead of shooting from the hip, Fischer called for a management audit; to get to the bottom of allegations of questionable spending practices and mismanagement at the agency. “There are questions about MSD,” said Fischer, during a WFLP public radio interview, back in June. “These folks do a lot of good work every day. Let’s remove the questions.”
Kentucky state Auditor Crit Luallen agreed to work with MSD and the mayor’s office on developing the scope of the audit and helping in the selection of a private consulting firm to do the work. And the report released Friday certainly seems to vindicate even MSD’s harshest critics.
But the audit report and its attendant resignations may not be the end of the problems facing the MSD gang. In her report, Luallen added: “Due to the nature of certain findings discussed within this report, we are referring these issues to the Louisville Metro Police Department Public Integrity Unit and to the Internal Revenue Service to determine whether further investigation by those offices are warranted.”
Back in the Spring of this year, Bud Schardein gave an interview to reporter Larry Muhammad , over at the C-J. At that time, he said: “I don't gamble large amounts of money. Probably the largest amount I'll put on any horse is 20 bucks — I'm not getting into the bread money or rent money. Bookmakers say there's a difference between a gambler and a sucker. A gambler knows what he can afford to lose, and a sucker thinks he can make a living at it.”
Well, Bud, you’ve certainly made a pretty good living the past 28 years, off the MSD ratepayers. It remains to be seen who is the bigger sucker.
Get your own copy: MSD Audit Report  (142 Pp., .pdf)
Read McAdam’s previous article: Louisville mayor declares war on sewer rats 
Read more on MSD: Badwater Journal 
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