EXCLUSIVE: Revenue department gives Richland County 30 days to make penny tax changes

Richland County has 30 days to start making changes to its transportation penny tax program or face punishment by the state Department of Revenue, a new letter to the county says.

In a letter dated Wednesday and received Thursday by County Council members, state revenue director Rick Reames lays out a list of four demands for action related to his department’s ongoing investigation of the county’s 3-year-old, $1.2 billion penny sales tax program:

▪ Repay from the county’s general fund all penny tax money that has been spent to establish and operate the Small Local Business Enterprise (SLBE) program.

▪ Repay from the county’s general fund all penny tax money that has been spent for public relations purposes not directly related to transportation-specific projects.

▪ Immediately hire an independent accounting firm to audit each year of the penny tax program and require companies who were paid by the penny tax program to provide the county with independent financial audits of expenditures.

▪ Immediately take corrective action to assure that future uses of the penny tax are solely related to capital costs associated with transportation projects and provide the public with information as to how those costs are to be determined.

The strongly worded letter, obtained by The State newspaper Thursday afternoon, claims the revenue department “has uncovered millions of dollars of potential fraud, waste and abuse” resulting from illegal uses of the penny tax and “numerous conflicts of interest found in the program.”

If the county does not begin to take the requested actions within 30 days, Reames writes, the revenue department “is prepared to enforce the state’s tax laws.”

County Councilman Paul Livingston, council’s longest-serving member and chairman of its transportation committee, said Thursday the county believes Reames’ department is wrong in asserting it has illegally spent the penny tax on public relations and the SLBE program.

Attorneys from the McNair Law Firm, one of the leading law firms in the Columbia area, helped draft the county’s contract with the penny program development team and stand by the legality of the county’s use of the penny tax, Livingston said.

“I’m still not clear on the basis (Reames is) saying those funds were not appropriately spent,” Livingston said. He has questions about “whether or not that’s just his preference or whether (the money) is actually appropriately spent.”

It is not clear whether enforcement by the revenue department could mean filing a lawsuit, or withholding from the county the penny tax revenues the department collects, or some other course of action by the revenue department. Spokeswoman Ashley Thomas said Thursday she could not elaborate.

“The department looks forward to working with the county to resolve these issues and bring the program into compliance,” Thomas said. “It would not be appropriate to comment further.”

Attempts to reach County Council Chairman Torrey Rush were unsuccessful Thursday evening.

The Feb. 24 letter and an attached report provide more details of concerns first revealed in a Dec. 3 letter to the county, which said that information found in the revenue department’s audit had been turned over to the State Law Enforcement Division for investigation into possible criminal activity.

In late December, County Administrator Tony McDonald defended the use of the penny tax to found and operate the county’s SLBE program, which, to date, only has been used for the purposes of transportation projects, McDonald said.

McDonald also defended the hiring of two public relations firms, Campbell Consulting Group and BANCO Bannister Co., saying it is “not uncommon” for governments to hire outside public relations personnel to assist with projects, particularly given the large scope of the penny tax program.

Livingston said county leaders have taken the department’s concerns seriously and immediately made moves immediately both to request further information from the department and to authorize the penny program’s citizens watchdog group to hire an auditor.

But county leaders aren’t moving with a great enough sense of urgency to address concerns about the penny program, County Councilman Seth Rose said Thursday.

“I’ve looked at the concerns raised by the Department of Revenue, and I felt strongly enough that the issues raised have merit and need to be addressed, which is why I sponsored (proposals for reforms),” Rose said. “I am frustrated because there appears to be a reluctance from many council members to accept that there’s even a problem that needs to be fixed. I urge council to accept my reforms.”

In a proposal brought to the transportation committee Jan. 19, Rose asked council to repay from the county’s general fund all penny tax money spent on the SLBE program and to fund the program from the general fund moving forward, the same action being requested now by the revenue department. That proposal stalled and was forwarded to the county’s upcoming budget-crafting process.

Rose also has asked council to repeal an ordinance it passed in May 2014 that allowed it to circumvent its usual procurement procedure in the choosing of the penny program development team. Reames’ letter said the new process “effectively allowed Council to award tens of millions of dollars in contracts without sufficient objective bidding and scoring – and has resulted in numerous conflicts of interest in the program ... .”

This story was originally published February 25, 2016 at 7:48 PM with the headline "EXCLUSIVE: Revenue department gives Richland County 30 days to make penny tax changes."