Richland County told to repay millions for roads program. It might be just the start
Richland County taxpayers will have to pay back $32 million that was improperly spent on the county’s penny tax road program, a state audit of the program says. Other moves by the S.C. Department of Revenue mean county residents could end up paying even more.
In a letter to the county last week, the S.C. Department of Revenue told Richland County it would have to repay $32 million of the money already spent on the $1 billion road improvement program. The revenue department said that spending violated the state’s Transportation Act, which says the money can only be spent on capital costs.
That’s less than the $41 million in misspending DOR identified in a preliminary report reviewed by The State in December. The revenue department and Richland County remain locked in a legal dispute over the issue.
The issue centers on spending from Richland County’s penny road improvement program, which is funded by a 1% sales tax. The Department of Revenue says that under the Transportation Act, the county has improperly used penny tax revenues on several activities. The activities themselves aren’t illegal, but paying for them with penny tax revenue is, the DOR says.
The audit covers spending by the penny program from its creation in 2012 to to mid-2018. But in a July 30 letter to Richland County Administrator Leonardo Brown, the department also requested financial information on the program from June 1, 2018, until May 31, 2020, essentially extending the audit and potentially adding to the costs Richland County may have to repay.
“Richland County should advise the Department when and how the County intends to reimburse the Penny Tax Fund for the ineligible expenditures identified in the final audit report,” DOR director Hartley Powell said in a separate letter to Richland County Council Chairman Paul Livingston. “If the County intends to continue with litigation, the Department has no choice but to move forward with completing discovery, presenting the final audit report to the Circuit Court, and asking the Court to order the County to reimburse the Penny Tax Fund for the improper expenditures identified in the final audit report.”
In March, Richland County Council voted 6-5 to reject a potential settlement offer from DOR, something dissenting council members at the time said may end up costing taxpayers more money.
The program once faced a $154 million deficit due to ballooning construction costs, but the county council voted in May on a scaled-back plan that now projects a $56.5 million surplus.
Richland County continues to dispute DOR’s findings, as it has since the state’s tax collection agency took the county to the S.C. Supreme Court to dispute the penny tax spending. The state’s highest court ordered the county to halt any spending unrelated to direct capital costs, and opened the door for Richland County having to reimburse its own penny tax program for past spending.
“Based on the information available to Richland County at this time, Richland County disagrees with the majority of SCDOR’s findings,” Livingston said in a statement on the audit on Monday. “Those findings and conclusions have not been substantiated by information provided to Richland County and some appear to be based on conjecture.”
Councilwoman Gwen Kennedy, one of the council members who voted in favor of a settlement in March, was reluctant to discuss details of the dispute as negotiations between the two sides continue, but said she was optimistic the two sides could come to a resolution.
“I would like to see us work it out at a minimal cost,” Kennedy said. “I certainly don’t want it to cost the taxpayers any more. The longer we wait, I feel like the more it’s probably going to be.”
Livingston said the lion’s share of the spending identified by DOR “are attributable to a third party.”
The Department of Revenue ruled that $19.9 million in management fees paid to the Program Development Team, the private consortium paid to manage the county’s road program until 2019, is ineligible and must be repaid, as well as $1.8 million in start-up costs for the PDT and another $900,000 in other PDT costs.
That number represents nearly two-thirds of the PDT’s $30 million contract with the county over five years.
When the preliminary audit was reported in December, the former principal executive at the PDT, Rick Ott, told The State its services were “very typical for similar transportation projects across South Carolina,” and that any spending decisions by the PDT had to be approved by the county.
Some of the inadmissible spending cited by the audit included “routine office expenses” ranging from computers to coffee to company cars. Money from the penny tax program was even used to pay for a subscription to The State newspaper.
Livingston said Monday that Richland County’s roads program is similar to others in the state, including ones operated by Charleston and Beaufort counties, yet “To date, Richland County’s Transportation Penny Program is the only transportation program to be audited by SCDOR.”
Other spending ruled ineligible by DOR includes $6.6 million spent on a mitigation bank to offset the environmental impact of road projects; $1 million spent on a small business program; $993,868 in public relations costs; and $800,124 in legal expenses related to the program.
The reduction from the $40 million in the preliminary audit is primarily the result of DOR dropping a request for the county to pay back more than $7 million spent on local road resurfacing, which the agency said was maintenance work and not “major additions, renovations and other improvements.”
“The County maintains that these roads were fully resurfaced and not merely repaired,” DOR says in the final audit. “Based on this explanation, the Department has determined these particular costs are permissible because these expenses extend the useful life of existing property for more than one year and therefore are capital costs according to the Guidelines.”
This story was originally published August 4, 2020 at 12:31 PM.
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