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Lottery funds misused

Nov 10, 2003, 5:02 am

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Colorado LotteryColorado Lottery: Lottery funds misused

Records show proceeds spent in ways not endorsed by voters

A multimillion-dollar state lottery fund that is supposed to pay for parks and recreation is being used for everything from cellphone bills to air conditioners and Christmas parades.

The Conservation Trust Fund is a $43 million pool of lottery profits that, according to state law, is to be given to local governments and used "only for the acquisition, development and maintenance of new conservation sites or for capital improvements or maintenance for recreational purposes on any public site."

In concert with another fund, Great Outdoors Colorado, the two pots of lottery proceeds were sold to the public in separate elections as ways to preserve the state's natural beauty.

But critics say that each fund has broken faith with Coloradans. Great Outdoors' funds are increasingly being used to subsidize salaries rather than the open-space acquisitions voters approved more than a decade ago.

The Conservation Trust Fund, meanwhile, has become a pool some local officials exploit in ways voters never envisioned.

An examination of records shows that while the majority of the lottery funds appear to be spent for the purposes designated by voters, as much as $1.6 million annually falls into a category defined as questionable by a 1995 state audit.

"It's disturbing," state auditor Joanne Hill said. "The voters have spoken several times on this issue. It's very clear what voter intent is."

Particularly troubling to some critics is the lack of new oversight after the 1995 audit.

One result: A town official was able to steal more than $1,500 in lottery cash to feed an out-of-control Internet gambling habit, records show.

Even though the state officials who oversee the Conservation Trust Fund knew of this theft - they were told months after the fact - they did not pursue any action against the town official, records show. Even as the Kiowa County district attorney brought theft charges against the official, the fund overseers made no changes to prdvent a repeat theft somewhere else.

That is because state law prohibits the state from redressing misuses of the fund. Essentially, all the state can do is cut a check to every community each year and wait for an annual report to see how they spent the money.

Hill said the program reminded her of a federal "pass-through" grant program, with one exception: This program is devoid of meaningful oversight.

"There are some interesting ... issues here that need to be examined," she said. Hill said state auditors are researching the fund and will come up with reforms to propose to legislators.

'Your ticket to a more beautiful Colorado...Colorado Lottery proceeds are distributed according to the will of the voters through a 1992 amendment to the state constitution.'  (Colorado Lottery advertisement)

In general, all the profits generated through the Colorado Lottery are supposed to support the state's park, recreation and open-space projects.

The lottery profits flow chiefly to three pots of money.

The Colorado Division of Parks and Outdoor Recreation gets a slice of about 11 percent. In 2002, that came to $10.8 million. Great Outdoors Colorado, run by a board that awards grants for open-space projects, gets up to half the lottery profits, taking in $45 million last year.

The Conservation Trust Fund gets a little more than 40 percent of the profits to devote to local-government decisions. That came to $43.1 million in 2002. Most of that was clearly used for its intended purpose.

"Conservation Trust Fund" accounts are created by nearly every city, town, county and special district in Colorado and receive lottery profits on a formula based on population.

At the same time, the Colorado Lottery's advertising campaign hammers the point to would-be players that participating in the lottery "is your ticket to a more beautiful Colorado."

What state law does not address is what should happen if communities do not spend Conservation Trust Fund money correctly.

In one case, the town of Castle Rock, to pay for a huge TABOR tax refund, dipped into its trust fund account to help defray that cost.

City officials defended the move, saying none of the state's money was used.

Rather, they say, the tax rebate cash came from park user fees and Douglas County open-space funds that the city commingled with lottery money in its trust fund account.

"All use of lottery funds is for authorized purposes only," Castle Rock spokeswoman Carrie McCausland said.

Still, state officials point to the Castle Rock example as proof of how cloudy the state laws are that govern the fund.

"The fund is one of the largest grant programs in the state, but it's the one with the least controls over it," said Michael Beasley, executive director of the state Department of Local Affairs, which oversees the fund.

After learning of potential problems with the fund, Beasley called for an audit of how the money is spent and said he will ask legislators to tighten the fund's rules.

The Post's review found that:

The state did little about oversight of the fund even after being warned. A 1995 audit called $383,500 of trust fund spending two years earlier "questionable," citing local governments that used some money to pay salaries - some for parks employees and others still undetermined. Fireworks and athletic dvents were paid for with those funds, too. Using the same criteria, the amount of questionable spending in 2002 appears to have ballooned to about $1.6 million.

In the 1999 theft case, the town clerk of Haswell was given a suspended sentence after promising to pay back the money she stole: $45,000 in all, including more than $1,500 from the lottery fund. The state administrators of the Conservation Trust Fund, although informed of the theft, cannot provide documentation that they ever checked to see whether the money was reimbursed.

Some communities spend lottery money on long-distance calls, cellphones and office supplies. Last year, in Hartman, officials purchased two air conditioners for a town building. And Aurora spent $3,653 for office supplies, $6,136 for computer software and $1,273 on cellphone calls. Aurora officials defended the expenditures by saying all the costs supported its parks programs.

Trust fund money has been passed along to other organizations to pay for local dance teams, youth baseball and booster clubs. In Grand County, officials used $1,500 in trust fund monies in 2001 to assist with a school ski trip.

The amount of money some communities spent differs from what local officials told the state. In Fort Lupton, officials told the state they spent $75,315 in trust fund money, but city records show that $117,315 left the account. City officials did not tell the state about a $45,000 loan to help build the city's golf course. "I would have marked it in," said Fort Lupton finance official Richard Batman. The former town finance team is no longer there, he said.

'We agree that it does appear the majority of Fund uses meet with statutory intent. ... Nonetheless, we believe that greater ongoing scrutiny would be beneficial.'  (1995 audit of the Colorado Department of Local Affairs and its oversight of the Conservation Trust Fund)

To be sure, many communities follow the letter of the law, resulting in the preservation of thousands of acres of land, and amenities like trails or water fountains in parks.

The newly formed city of Centennial, for example, is a recipient of Conservation Trust Fund dollars. Even as the city faced a $9 million shortfall, it made sure its trust fund cash went for the purchase in August of Bow Tie park, 28 acres of prairie grasses and cottonwood trees, named for its distinctive shape.

"We haven't had much practice at using these funds," city spokeswoman Nancy Reubert said. "We're looking forward to finding new uses for it."

That may be part of the problem, though, for many cities. Since the fund's creation in 1982, some local governments have sought many uses for the cash, and critics say that some of those uses go beyond what the voters intended.

The 1995 audit of the Conservation Trust Fund questioned nearly $400,000 that local governments spent from the fund.

Specifically, the audit pointed to more than $310,000 spent on salaries; $6,000 on uniforms, tournament fees and basketball camps; $500 on a fireworks display; $52,000 for a variety of programs such as performing arts, busing and a Christmas celebration; and nearly $15,000 spent on various supplies.

The audit noted that the amount of questionable spending was a small portion of about $20 million distributed that year, but it still urged greater scrutiny.

The audit recommended that the Department of Local Affairs "develop a list of acceptable fund uses based on current practice" and then send the list to local governments. The audit also said that "the department should increase its oversight of the Conservation Trust Fund."

The department, in response, sent letters to local governments offering examples of acceptable uses. But in their response to the audit, department officials wrote that "local elected officials are responsible in their administration of these funds ... (and) additional oversight is not necessary nor cost effective."

Using the criteria the auditor applied in 1995, the amount of questionable spending in 2002 ballooned to about $1.6 million.

As sales-tax revenues have decreased in Colorado, there appears to have been a significant shift in using the trust fund for salaries.

And the number of community Christmas and Easter dvents and fireworks displays paid for by trust fund dollars has also increased. San Luis, for example, spent $1,043 in 2002 on "Christmas bags." The town of Wellington shelled out $5,000 for fireworks.

Larry Kallenberger, chief of the Department of Local Affairs during the 1995 audit, said he did not ignore the audit. Among other things, he said, he sent a letter to local officials showcasing some good ways to spend lottery money.

"At the time, honestly, it appeared to us that these were not dramatic problems, not gigantic problems," he said. Spending his budget dollars to enforce better reporting "probably wasn't worth it."

"Locally elected officials, by and large, seemed to be hewing a pretty straight line as far as how they were spending the funds," he said.

And besides, Kallenberger said, state rules say there is no way to punish local governments that do not spend the money correctly. So unless they caught a government worker in a clearly criminal act, like stealing the money, "the question would be, what could we do about it?"

It appears, though, that despite the audit and Kallenberger's efforts, many communities continued to spend on "questionable" items highlighted in the audit.

'Players must believe the money generated by the Lottery goes to a higher purpose, and that they benefit from this purpose.'  (Declaration on Colorado Lottery website)

The rules governing spending of lottery money in Colorado were supposed to be simple. But in practice, the spending of money raised through the state lottery has a long and tortured history.

Colorado voters approved a state- run lottery in 1980. Key for voters was the premise of the lottery: Its profits would be funneled to a newly created "conservation trust fund," as the ballot language said.

Soon after voters approved the lottery, it fell to state legislators to spell out exactly how the money would be spent.

It was a fierce and fiery debate. Gov. Dick Lamm said he wanted all of it used for parks and recreation, since that was promised to voters. Home- builder lobbyists wanted it used for water projects. The Senate president wanted to finance an electronics institute. The attorney general wanted to create an organized crime strike force. The House majority leader argued that some of the funding should go to prisons.

Ultimately, lottery profits were divvied up. Fifty percent for state "government construction projects," 40 percent for the Conservation Trust Fund for local parks, and 10 percent for state parks.

But in just a few years, the legislature pushed through legislation that diverted lottery profits to build prisons, arguing that prisons are certainly a "government construction project."

But as prisons in Ordway, Cañon City and Denver were being built along with other public works projects, Colorado voters, who thought they had approved the lottery for parks and open spaces, recoiled.

In 1992, voters overwhelming mandated that the chunk of lottery profits that was helping to build prisons instead go to a new organization called Great Outdoors Colorado. GOCO monies are earmarked for wildlife, open space, parks and recreation.

But by 1995, the lottery profits pouring into the Conservation Trust Fund were getting a fresh look, too. State auditors examined the fund and found areas in which it could improve, including calling for greater accountability over how local governments used the money.

But since the audit's recommendations on oversight appear not to have been acted on in a significant way, questionable spending has continued until today.

"I'm not surprised, but I'm disappointed," said Rikki Santarelli, a former Gunnison County commissioner who has been fighting for years to make sure lottery profits are spent correctly.

Part of the problem, some experts say, is much of this spending falls into a "gray area" in which the statute is not clearly defined. For example, many communities will spend money on salaries and justify it by saying it is for park workers. Or buy a stereo/CD player, saying it is for a recreation center.

"They make a rational connection it is for a recreational purpose, and, until the state tells them differently, they are going to keep spending money this way," said state Sen. Ron Tupa, chairman of the state audit committee. "It's not a black-and-white issue; there are shades of gray here."

Tupa, a Democrat from Boulder, said some communities are "testing the limits of where that gray boundary is."

"The answer may be re-examining where the gray lies, and more successfully defining where the gray area is," he said. Tupa believes that some of the "questionable" spending should be allowed, such as park workers' salaries.

Even officials who use the trust fund for salaries should use it cautiously, they say.

"There's a danger in relying on it for your entire parks payroll," said Adams County Parks Director Crystal Gray, who uses trust fund money to pay for workers on specific trust fund projects, such as nature trails. "You never know when lottery profits might dip. If it goes away, and you've been relying on it for your core budget, you have a problem."

Certainly, communities passionately justify all their expenditures. They report to the state what they spent annually, in many cases long after the money is spent and gone.

In Gray's case, Adams County reported in 2002 that it spent $212,521 on park salaries.

But in other places, city officials are not detailed about their spending, making it impossible for state overseers to decide whether Conservation Trust Fund money is, in fact, being used wisely.

In Aurora, for example, city records in 2002 show that city officials used portions of the city's trust fund cash for supplies and operating expenses at parks ($3,653), paying cellular phone bills that they said were related to recreation ($1,273), and other spending they claimed was park-related at stores such as Barnes & Noble, Amazon.com, and King Soopers.

In Longmont, city records for 2001 show $3,169 in telephone bills charged to the trust fund account and separate trips to Safeway with bills totaling $177, $146 and $77. Another $147 was spent at the bistro Barro's on Main.

All the expenses were related to parks and recreation, officials in both cities said in response to inquires from The Post, but they offered no proof of that to the state. There is no evidence that the state ever asked.

Instead, in most communities' reports to the state, vague descriptions are provided. In the case of Longmont, for example, the city told the state that it spent its trust fund cash on four broad categories: a "master plan design, including public meetings"; "visitor center misc. improvements"; "development of a nature area"; and "seeding and tree planting."

'Currently, the department believes local elected officials are responsible in their administration of these funds and that additional oversight is not necessary nor cost effective.'  (Department of Local Affairs' response to 1995 audit)

There is no question that the town clerk of Haswell broke the rules by stealing the cash.

In late 1999, town officials discovered Clerk Katherine Eikenberg had been taking funds since at least 1997.

City officials worked out a deal with Eikenberg, allowing her to pay back the $45,408 she took, as long as she paid back the cash on a payment plan and enrolled in counseling to address her "addiction to the Internet."

Her husband, mayor at the time, did not sign off on the deal, because of their relationship. They were divorced soon after.

Eikenberg's theft included more than $1,500 from the city's conservation trust fund. Haswell officials reported the theft to the state months later in their annual report.

The state apparently did not react at all. No correspondence with Haswell can be found in the Department of Local Affairs office, officials there said.

In the Castle Rock case, town records show that in 2000, it dipped into its trust fund to help pay for a tax rebate. The $92,144 helped defer a massive Taxpayer's Bill of Rights, or TABOR, refund due to residents there. The refund, which totaled about $1,400 for every resident, was due because the city collected excess funds the year before, mostly in the form of homebuilders' fees.

The town returned the money to its residents but dipped into its trust fund to help, which appears to fly in the face of the statute.

Town spokeswoman McCausland said, "On the surface, it does appear that some stuff was used inappropriately." However, she said, other monies were mixed in with the town's conservation trust fund account and only the other funds were used for the rebates.

The law establishing local conservation trust funds states that, certainly, other monies may be placed in local governments' conservation trust fund accounts. But once that cash is there, it must also be used for "similar purposes," like "the acquisition, development and maintenance of new conservation sites."

One Department of Local Affairs official called the use of the money a "unique situation that affected all funds," saying it should be allowed because it dealt with TABOR.

Beasley, the department's chief, called the statute "cloudy."

"That's part of the debate I want to start at the legislature, from a policy standpoint, what do they want done with these dollars?" Beasley said.

To Tupa, these examples showcase loopholes that other communities may continue to exploit.

"To prdvent this kind of misuse in the future, we need to make sure we have some kind of mechanism to correct that," the state senator said. "Why wouldn't there be a way to correct that? No entity should be spending money inappropriately without any recourse at all."

Beasley has pledged to do exactly that.

He has been in the post only four months but has been studying all the grant programs his department oversees, including the Conservation Trust Fund.

Beasley said the misuses that have been uncovered may not be extreme, but if the rules are not tightened, they may get out of hand. He said he will work with the legislature and local governments to create a "balanced program" to do so.

"You don't see me shrugging my shoulders," Beasley said. "These are state dollars; they should be used correctly. I have a moral obligation to make sure that they are."


Today: Voters have twice endorsed the use of lottery proceeds for the conservation of Colorado lands. But some local officials haven't gotten the message.

Coming Monday: The Owens administration has shifted the focus of Great Outdoors Colorado, a second fund intended by voters to preserve wild lands. Today, the fund is spending half as much on land preservation as it did during the previous administration, and the amount going to operational costs like salaries at the Division of Wildlife has nearly doubled.


Communities and counties throughout Colorado have spent Conservation Trust Fund money on items that a state audit said are questionable and may veer from the fund's intent as approved by voters.

Castle Rock: $92,000 for a tax refund mandated by the Taxpayer's Bill of Rights

Commerce City: $25,000 for acquisition of a bronze statue

Pueblo: $20,000 toward a now- defunct minor league baseball team

Carbon Valley Parks & Recreation District: $13,632 for a 2002 Chevrolet pickup

North Fork Pool, Park & Recreation District: $7,174 for property and liability insurance

Dacono: $3,078 for portable toilets

Montezuma County: $2,500 for cultural education programs

Teller County: $1,828 for public relations

Julesburg: $1,340 for Christmas wreaths

Antonito: $570 spent at Kentucky Fried Chicken to celebrate a property acquisition

Otero County: $397 for marketing points of interest

Victor: $269 for office supplies

Cañon City Area Metropolitan Recreation and Parks District: $65 for bank charges

Denver Post

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