Are Richland penny road projects $104 M in the red?

About $18.5 million in upgrades around the University of South Carolina’s Colonial Life Arena were paid for with penny sales tax money. The future of other major road projects around Richland County funded by sales tax revenue might be decided next week in a vote by Richland County Council. 9/6/17
About $18.5 million in upgrades around the University of South Carolina’s Colonial Life Arena were paid for with penny sales tax money. The future of other major road projects around Richland County funded by sales tax revenue might be decided next week in a vote by Richland County Council. 9/6/17 tdominick@thestate.com

Road projects funded by Richland County’s controversial penny sales tax are in the red by $104 million over initial estimates, the county administrator says.

The excessive expenses may mean the county might not meet its commitment to voters, who in 2012 approved a 1-cent increase in the sales tax to finance $1 billion in transportation improvements, according to administrator Gerald Seals.

“Substantial cost overruns appear to have become chronic, thereby potentially jeopardizing compliance with the approved referendum,” Seals wrote in a Nov. 14 memo to council, which he entitled, “Returning the penny to health.”

But the private contractors hired by the county to help oversee the ambitious 5-year-old plan to upgrade or build roads, greenways and bicycle paths dispute Seals’ contentions.

The clash of views has fueled a debate about whether county leaders should borrow $250 million next year to pay for road improvements. The money would be borrowed through a bond in anticipation of revenue generated by the penny tax. The bond, which amounts to a loan, would be repaid with penny revenue.

By not borrowing the money, county leaders could face a cash flow problem, and some major projects might be delayed for several months, according to a consortium of private companies the county hired to help administer the penny program.

But borrowing the money means incurring millions in interest and borrowing fees, Seals said.

Seals has reviewed the penny program and highlighted either the actual or anticipated cost of about 60 projects. With some of the projects, construction contracts have not been awarded. For those, Seals reviewed the anticipated new costs.

He found overruns he called persistent.

Though some projects are under budget, Seals cites net overruns of $103,881,050 for the projects itemized in his memo. The overruns average $1,702,968 per project, Seals wrote. He bases his calculations on initial estimates for each project, which were listed in county laws that enacted the sales tax increase five years ago.

“As the program now stands, for every $7 budgeted there is an average net overrun of $1,” Seals wrote.

Seals was not administrator at the time the program was approved by voters. He’s been administrator since July 2016.

About 300 of the 700 projects that are to be financed by the penny tax have been completed, said Rick Ott, who is a senior vice president at M.B. Kahn Construction Co. The Kahn company is one of three that compose the consortium.

The consortium, known as the “program development team” or PDT, disagrees with Seals’ assertions and data.

It’s inaccurate to say some of the projects are over budget because they have not been completed, Ott told The State newspaper. “We’re saying, no, they’re not overruns because the projects have not been bid or constructed.”

The consortium has been trying for months to present the higher cost projections to council, he said. “(T)hat’s what we’ve been saying – that we want to come before council to ask what it wants to do.” The consortium supports a loan.

Ott said numerous requests have been sent since January to the county’s transportation department, which reports to the administrator.

Councilman Paul Livingston, council’s longest-serving member and its former chairman, rejects that projects have overrun their budgets.

“We’re not talking about costs that exceeded contracts,” Livingston said. “This is about exceeding estimates. The cost is higher than the 2012 projections – that’s not an overrun.”

Ott does not see problems. “The program has been going well,” he said.

The county even got a $52 million boost because the state Transportation Department is going to pay for upgrades on Broad River Road in its overhaul of Malfunction Junction instead of using penny money, Ott said. The county can now use that sum for other road projects.

The consortium, which also includes Brownstone Construction Group and ICA Engineering, has been paid $38.3 million so far during its five-year contract with the county to administer the penny program, Seals wrote. Two years remain on the contract.

Costly widening projects

The largest overruns in Seals’ memo involve widening major thoroughfares. For example, Atlas Road was projected in 2012 to cost $17.6 million. The latest estimate is $40.8 million, the administrator wrote. That’s a 135 percent increase from five years ago. And it’s a 69 percent increase from a 2-year-old projection provide by the consortium.

The widening of Shop Road is projected to cost $20.3 million more than previously estimated, according to the consortium’s figures.

Planned widening projects for Pineview and Bluff roads also appear headed toward being way over budget, each exceeding earlier estimates by $20 million, the administrator said in the memo.

Seals lists numerous smaller overages such as $9.4 million for intersection improvements at Clemson Road and Sparkleberry Lane, and $6.7 million for a project at Williams Street, which will link to major Congaree riverfront developments.

Rising costs

All road projects, not just those that involve the penny, are exceeding their budgets as costs rise and inflation takes a toll, Ott said.

The extra costs are caused largely by rising expense for asphalt, which he said has jumped by 119 percent since 2012. Acquiring rights-of-way, as well as design and engineering changes, can be unpredictable and expensive.

Further, resurfacing costs are up 53 percent over five years ago and excavation expenses have risen 25-27 percent, according to a report the consortium provided last week to a council transportation committee.

To illustrate, Ott provided the newspaper with documents from the state Department of Transportation for Hardscrabble Road improvements. The lowest bid the state agency received is $22.1 million more than its estimated cost, the figures show.

Many of the penny project roads where costs are high are state-owned, Ott said. That means the state agency has final say on design and construction standards.

In a specific example of a penny project, Ott said stormwater standards have been toughened since the historic 2015 flood in the Midlands and many other areas of South Carolina. On Bluff Road alone, a state-owned corridor, pipes must be much larger than once planned and a larger bridge must be constructed over a tributary of Gills Creek, which is prone to flooding. In addition, a stretch of Bluff Road must be elevated by 5 feet, Ott said.

But Seals said in the memo that construction engineering and inspection costs were included the initial projections, which were made by a consultant firm hired for the referendum.

Ott also questions the accuracy of the consultants’ initial cost estimates. He calls those figures “bare bones.”

He called those 2012 figures “conceptual estimates.” They did not include calculations on engineering expenses, nor the unpredictable cost of acquiring private property to make way for wider or longer roads, Ott said. Those consultants also did not take into account the effect of inflation, he said.

Related stories from The State in Columbia SC