EXCLUSIVE: Richland County defends 2 penny tax uses questioned by state investigation
A small, local business recruitment program and two public relations firms are justified recipients of Richland County’s transportation penny tax funds, the county has asserted to a state agency investigating potential misuse of the controversial sales tax.
In a Dec. 31 letter to Department of Revenue Director Rick Reames III, obtained by The State newspaper through a Freedom of Information Act request, Richland County administrator Tony McDonald defended use of the county’s transportation penny sales tax dollars to start and operate the county’s Small Local Business Enterprise (SLBE) program and to pay $600,000 annually to firms for public information work.
We feel strongly that Richland has done nothing in error.
Tony McDonald
Richland County administratorThe DOR called into question expenditures for both causes in a letter from Reames to McDonald dated Dec. 3. In it, the DOR claimed to have “discovered multiple instances of illegal activity by individuals and/or companies associated with the penny program” over the course of an audit that began in April.
The DOR letter was vague on what findings could constitute “potential public corruption and fraud,” but it specifically cited payments to public information firms Campbell Consulting Group and BANCO Bannister Co. and funds spent on the SLBE program as uses that might be outside the legal scope of the penny program.
McDonald defended both uses of the penny tax funds in his Dec. 31 letter, saying, “We have had the opportunity to examine both of these issues and we feel strongly that Richland has done nothing in error.”
The Dec. 31 letter was the county’s second written response to DOR’s letter announcing its investigation. McDonald also sent a letter dated Dec. 9 saying the county was “shocked and alarmed” by the DOR’s suggestions of illegal activity and promising the county’s ongoing cooperation. DOR has turned over its information to the State Law Enforcement Division for investigation.
Since McDonald’s second letter, there have been some follow-up discussions between the county and the DOR, county spokeswoman Beverly Harris said.
Small Local Business Enterprise program
The creation and operation of the SLBE program, McDonald wrote on Dec. 31, is a legal use of the penny tax program because it is a procurement tool to give small, local firms opportunities to participate in transportation contracts.
In its letter, the DOR said that “because the SLBE is a countywide program applying to all facets of county operations – not just Penny expenditures,” it is an illegal use of the penny tax. More than $600,000 in penny revenue has been the exclusive funding source for SLBE personnel and startup costs, the DOR said.
In response, McDonald’s letter countered, “Critically, to date, all contracts awarded through the SLBE Program have been solely related to the Penny tax. Thus, the use of the Penny tax to fund it.”
The more than 80 businesses certified by the SLBE program include BANCO Bannister Co., Campbell Consulting Group and Brownstone Construction Group, which is one of three principle companies that make up the transportation program development team.
How many more roads could we pave in Lower Richland if we didn’t have someone on the county payroll preparing paperwork?
Don Weaver
penny tax opponentThe Sept. 2013 ordinance establishing the SLBE program does not specify it as an arm of the transportation penny program.
The county plans to expand the use of the SLBE program to all procurements in the county, McDonald said. But when the program is expanded, it will be paid for by sources other than the transportation penny tax, he said.
Don Weaver, president of the South Carolina Association of Taxpayers and a staunch opponent of the penny tax before it passed, said that while it’s an admirable goal to include small, local businesses in county contracts, he’s “not sure that’s the wisest use of tax money” to create a department just to encourage that.
“How many more roads could we pave in Lower Richland if we didn’t have someone on the county payroll preparing paperwork?” Weaver said. “I don’t think it’s that complicated of a job.”
County Councilman Seth Rose recently proposed refunding all the penny tax funds already spent on the SLBE program and funding it from the county’s general fund budget moving forward, which will be considered during the county’s upcoming budget process.
Public information services
After county voters approved the penny sales tax in 2012, county leaders “quickly realized that the public information needs relating to these transportation projects would be massive and would overwhelm the County’s small in-house public information office,” McDonald wrote to Reames.
The sheer volume of work that this level of public involvement necessitates is well above that of a typical county or municipality.
Tony McDonald
Richland County administratorThe DOR questioned the transportation program management team’s payments of some $50,000 a month for public information services over five years “when an entire public information office already exists within Richland County government and other PDT (program development team) members also provide public relations services.”
McDonald justified the payments to Campbell Consulting and BANCO Bannister, saying it is “not uncommon” for governments to hire outside public relations personnel to assist with projects.
A high level of public involvement efforts is necessary for the county to qualify for federal grants to accompany the penny tax, McDonald said. So far, he said, the county has secured more than $12 million in federal funding for penny projects.
“The sheer volume of work that this level of public involvement necessitates is well above that of a typical county or municipality,” McDonald wrote to Reames.
Other counties have managed that need differently.
York County, where voters in 1997 approved the first local option sales tax in South Carolina, never hired outside public information personnel for any of its three transportation penny sales tax programs in the past two decades, former county manager Jim Baker said. The scope and budget of those three programs combined, however, amount to less than half that of Richland County’s penny program.
In Charleston County, where voters in 2004 approved a 25-year, $1.3 billion half-cent transportation sales tax program, a single public and media relations coordinator was subcontracted by the county’s program management firm, said Jim Armstrong, Charleston County’s assistant administrator for transportation and public works.
In contrast, the public information component of Richland County’s program includes five personnel earning what McDonald described in his letter as “fair market value” salaries and benefits.
Weaver, the anti-tax advocate, said paying four or five people to do public relations work for the penny program is “a foolish use of money.”
“Now that we’ve moved into the phase of just delivering the information to the public ... I certainly think county staff are capable of doing that,” Weaver said.
Reach Ellis at (803) 771-8307.
Point-Counterpoint
Here’s a summary of claims the Department of Revenue made about two examples of potential misuse of Richland County transportation penny tax funds and, in response, the county’s defense of those uses.
Small Local Business Enterprise program
DOR said: While the purpose of the SLBE program – to ensure that small, local businesses have opportunities to participate in county contracts – “may be laudable,” DOR director Rick Reames wrote, it is not a legal use of the penny tax “because the SLBE is a countywide program applying to all facets of county operations – not just Penny expenditures.”
Richland County said: “Critically, to date, all contracts awarded through the SLBE Program have been solely related to the Penny tax,” McDonald wrote. “Thus, the use of the Penny tax to fund it. It is Richland County’s plan to expand the use of the SLBE program to all procurements within the County ... . It is also Richland County’s plan to allocate the costs of the SLBE program once its use is expanded to other procurements...”
Public relations work by Campbell Consulting Group and BANCO Bannister Co.
DOR said: “In effect,” Reames wrote, “the Penny Tax program is paying $50,000 per month, $600,000 per year, and $3 million over five years (before reimbursements) for the equivalent of fewer than two full-time employees – when an entire public information office already exists within Richland County government and other PDT members also provide public relations services.”
Richland County said: “Given the breadth of the twenty-two year omnibus Penny Transportation Program, the County quickly realized that the public information needs relating to these transportation projects would be massive and would overwhelm the County’s small in-house public information office,” McDonald wrote. Further, “the sheer volume of work that this level of public involvement necessitates is well above that of a typical county or municipality.”
McDonald also said that the number of public information personnel working for the penny program was initially four and is now five, not two, as the DOR said in its letter.
What Charleston and York counties have done
Eighteen South Carolina counties currently collect a local-option transportation or capital projects sales tax, or both, as in Richland County.
In Charleston County, voters approved a half-cent transportation sales tax in 2004, set to expire after 25 years or once $1.3 billion has been collected, whichever comes first. Similar in scope to Richland County’s transportation sales tax program approved by voters in 2012, Charleston County’s tax is to go toward road, public transit and “greenbelt” projects.
Charleston County hired a single program management firm, LTA Group, said Jim Armstrong, the county’s assistant administrator for transportation and public works.
For the first year or two, the program management firm handled public involvement duties internally. Later, the firm subcontracted with a single public and media relations coordinator, whose work included organizing public meetings, publishing program information and coordinating education efforts in schools and communities, Armstrong said.
“It is a big task, and it is commonplace for sales tax programs to have a standalone media relations type person,” Armstrong said.
Charleston County also created a Small Business Enterprise program, similar to Richland County’s program, after its transportation tax program was approved, Armstrong said. Charleston County’s SBE program, however, never was used solely to procure contracts for transportation projects, as Richland County’s so far is, and is run through and paid for by the county’s procurement office, Armstrong said.
York County voters have approved a one-cent “Pennies for Progress” transportation sales tax three times in the past two decades, beginning in 1997. Support for the penny tax program grew each of the next two times voters went to the polls, with 73 percent voting in favor in 2003 and 83 percent in 2011.
York County has used the funds raised by its penny tax to leverage millions of dollars from the State Infrastructure Bank to go toward projects that have included the widening of Interstate 77.
In none of its three penny tax programs, which together amount to less than half the budget of Richland County’s, has York County hired outside public information personnel, said former York County manager Jim Baker, who served from 2007 through 2012 during the most recent penny tax installment.
York County did not create a program or department to handle small business involvement in county contracts, Baker said.
This story was originally published February 11, 2016 at 5:14 PM with the headline "EXCLUSIVE: Richland County defends 2 penny tax uses questioned by state investigation."