Audit says Richland road taxes improperly paid for coffee, cars, computers
This story has been updated to include comments from the management group that ran the penny program.
Some of the sales tax money raised to improve Richland County roads was instead spent on everything from coffee and computers to cars and public relations services, according to a preliminary audit by the state Department of Revenue.
The DOR’s report also said taxpayers on some occasions paid for the same services more than once, including up to three times in some cases. The duplicate payments improperly cost taxpayers nearly $20 million, the report said.
The report, completed in October, found a total of $41.4 million had been misspent between 2013 and 2018. Under a state Supreme Court ruling last year, Richland County taxpayers could be responsible for repaying that money to the roads program.
The audit has been the basis of ongoing talks between the county and DOR, but both refused to release the document to the public. The State acquired a copy of the report after filing Freedom of Information requests to multiple agencies.
WLTX-TV first reported on the audit findings.
The DOR’s goal in conducting the audit was to determine whether the money was spent according to the state’s Transportation Act. In 2018, the state Supreme Court ruled the act required that money from Richland County’s 1% transportation tax be spent on direct capital costs for transportation-related projects.
The DOR said a series of expenditures did not meet that requirement.
The transportation tax, often called the penny tax, was approved by voters in 2012. It is expected to raise about $1 billion over 22 years, but The State reported earlier this year that the program faces a $154 million shortfall.
When asked about the document, county council vice chair Dalhi Myers referred The State to a prepared statement on behalf of the county council.
“Richland County remains in negotiations with SC DOR, regarding issues surrounding the penny,” Myers said. “Richland County will provide a statement once we have received and reviewed the relevant information. We remain committed to transparency and resolving all disputes with SC DOR so that Richland County can move forward with the penny.”
In response to a previous FOI request, DOR told The State that “the preliminary audit report does not reflect the Department’s final report or final audit findings.”
Because the audit is preliminary, Richland County officials have been given 90 days to challenge the findings. The 90-day period ends in January.
The audit, first presented to the county in October, details some spending areas that were highlighted more than a year ago by the department. They include paying two public relations firms $25,000 a month each and giving payments to the county’s small-business program.
The report says that in addition to payments to two public relations firms, the Dennis Corp. was paid $648,292 for public relations services related to the penny program’s dirt roads effort. The Dennis Corp. was originally hired to manage the county’s dirt road program.
In all, the audit says $993,868 was improperly spent on public relations. It also notes that the county already has its own public information office.
Among other findings of the preliminary audit report:
▪ The county improperly paid nearly $20 million to the consortium of companies hired to manage the penny roads program. That’s nearly two-thirds of the $30 million paid to the consortium — the Program Development Team, or PDT — over its five-year contract. The county decided this year to move all of the program’s management in-house.
The PDT created 29 management positions that were funded by the program. Yet the consortium also received an additional payment for each project of up to 11%.
The county also paid the costs of outside contractors hired to do work the PDT was supposed to perform. The audit calls all of this spending into question.
“To summarize, the County pays the salaries for 29 PDT employees, and then pays the PDT up to 11% of the total cost of each transportation project,” the report said. “In some cases, the county then hires non-PDT firms, paying for the same services a third time.”
Rick Ott, who was principal executive at the PDT, denied in a statement that any of the positions or payments to the consortium were duplicative.
“The services rendered were very typical for similar transportation projects across South Carolina,” Ott said. “The PDT expects Richland County and DOR to expeditiously find a solution to their preliminary report so the citizens of Richland County can continue to see their tax dollars go to good use.”
▪ The audit also disputes $1.8 million in start-up costs paid by the county when the PDT was getting set up, including “routine office expenses (such as) coffee supplies, cups, lids, postage, tables, chairs, software, napkins, engineering supplies, office supplies, plumbing/toilet services, plants, cars (GMC Acadia and Chevy Silverado), insurance, Google Apps for Business, a Nikon Camera, an icemaker, an office lease and a protection plan for refrigerator/microwave.”
Other “miscellaneous” costs born by the county road tax for the PDT include the costs of computers and phones, garbage services, HVAC repair, and even a subscription to The State newspaper. All these costs, adding up to another $1 million, is not tied to a specific transportation project and therefor inadmissible.
The county previously withheld the last two months’ worth of payments to the PDT before its contract with Richland County ended in November, as the county disputes some of the PDT payments it already paid out.
In an interview with The State in October, Ott said any dispute with DOR had to do with how the county chose to spend money, not the PDT, and that any spending decisions made by the PDT had to receive authorization from county officials.
“We have a very extensive contract that lists those services that the county expected us to provide,” Ott said. “We provided those services, and we anticipate getting paid for those services.”
▪ The county purchased an 1,800-acre piece of property to use as a mitigation bank — essentially a patch of wetlands Richland County preserves to balance out any damage to waterways caused by construction projects.
Although the property at Mill Creek is valued at $2.5 million, the closing statement provided to DOR shows the county paid a holding company $6.6 million to close on the property, and then purchased $11 million worth of mitigation credits from the holding company.
“Based on the Department’s audit, the County spent almost $17 Million to obtain less than $11 Million in mitigation credits necessary for eligible projects,” the audit reads, before labeling the $6.6 million purchase price ineligible.
▪ The county spent $71,275 on audits of the roads program by the Cherry Bekaert and Elliot Davis firms, something the DOR audit report calls “a normal cost of doing business” and not a capital cost.
The county is now in an ongoing dispute with Cherry Bekaert over confidential documents that county council members believe will boost their case in the dispute with the PDT.
▪ Even some road costs are labeled ineligible in the audit. Some $7 million in local road resurfacing was ruled ineligible because it was maintenance and not “major additions, renovations and other improvements.”
▪ Finally, when the county became engulfed in a lawsuit with DOR challenging the penny tax spending, Richland County even spent almost $500,000 from the penny program to pay attorneys’ fees to combat the lawsuit. That spending is also deemed ineligible.
The Midlands bus system, the COMET, is also on the hook for $1.4 million of its penny spending.
The money includes $126,000 for lobbying; $108,000 in a promotional “mystery rider” program; and, like Richland County, $202,867 in legal expenses related to fighting DOR over the penny tax.
The COMET could remedy those ineligible expenses by shuffling money from other parts of its budget, COMET board chairman Ron Anderson has told The State. But first, Anderson said, “our attorneys are working with (DOR’s) to ascertain how those things did or didn’t get on the list” of ineligible expenses.
Richland County Councilman Joe Walker, who previously called for an investigation into allegations of irregularities at the county, said he was limited in what he could say because of the ongoing legal negotiations with the DOR.
However, “I am glad the public has access to it,” Walker said. “A public financial audit by a public entity of a tax-funded project should be in the hands of the people.”
He said the findings warrant further investigation, but the county’s responsibility is on keeping the penny program viable and ensuring the taxpayers see a return on their investment in the program.
State Sen. Dick Harpootlian, D-Richland, said anyone who misappropriated the money should “absolutely” lose their jobs.
Harpootlian, a former Richland County Council member, noted that the penny tax was paid for by anyone driving through Richland County, not just Richland County taxpayers. (i.e. Lexington residents who commute here and purchase goods), but the reimbursement will have to come from the Richland County general fund, putting the burden entirely on Richland County residents.
The audit findings are “a slap in the face to the Richland County taxpayer,” Harpootlian said. “There is a general sense that Richland County government is out of control, and this is just further evidence that this is true.”
But Rep. Todd Rutherford, D-Richland, said he hasn’t seen any indication of misappropriation. He said a comparison to other areas with similar programs would show whether the spending in dispute was standard for a program of this size. He’s also unsure who should ultimately be responsible for paying the money back, and to whom.
“I don’t see what I would consider to be misappropriation,” Rutherford said, noting of the legal fees, “where else was that supposed to come from?”
”Just tell them don’t do it again and keep moving,” he said. “That’s how government usually works.”
Rep. Kirkman Finlay, R-Richland, who had commented on the report’s conclusions before it became public, called the findings “very, very troubling.” He previously expressed the worry that the state would ultimately have to step in to deal with any funding gap.
“Seeing the size of the deficiencies, plus the bus system, only raises my concerns,” Finlay said.
Reporters Lucas Daprile and Sarah Ellis contributed.
This story was originally published December 11, 2019 at 7:42 PM.
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