State says Richland Co. rejected offer to avoid repaying millions in Penny Tax funds
Richland County could have avoided repaying $32.5 million for its mishandling of penny tax projects had it accepted an offer from the Department of Revenue four years ago, a letter obtained by The State shows.
In the February letter, state Department of Revenue Director Hartley Powell wrote County Administrator Leonardo Brown to provide an update of the ongoing legal dispute between the state agency and the county.
Powell details how Richland County attorney Larry Smith and attorney Malane Pike rejected the proposal, saying that the county wanted the state Supreme Court to weigh in. At the time of the offer, however, it was unknown exactly how much the county had misspent, though it was estimated at several million.
The offer came early in the dispute between the DOR and Richland County over how the penny sales tax funds were being spent. DOR claimed that some of the money from the county’s 1% road tax was being spent on services not authorized by state law, such as public relations. The services themselves weren’t illegal. Rather, state law said road tax funds couldn’t be spent on them.
The DOR is seeking to have the county reimburse the misspent money, which it estimated last year to be $32.5 million, to the road program, meaning county taxpayers may have to foot the bill.
Smith, meanwhile, has decided to retire at the end of the year after three decades of service to the county. Chief Deputy attorney Brad Farrar, who has accepted a job as Aiken County’s lead attorney starting in January, will also be leaving.
“I’m just retiring, people do it everyday,” Smith said Thursday.
Smith also said that DOR made no such proposal. But former county officials, including former Administrator Gerald Seals, confirmed DOR’s offer by saying it was discussed in an executive session with council members.
According to the DOR letter, both parties would have dropped appeals in their court battle and settled the case if the county agreed to simply adopt a standard set of generally applied accounting principles (GAAP) to govern the penny tax moving forward. DOR also wanted the county to adopt a uniform standard that “tied expenditures to the specific transportation-related projects,” as required by state law, the letter said.
Rick Reames, who served as DOR’s director prior to Powell, said Thursday that his administration also provided Richland County a similar option that would have prevented future audits which identified further misuse of taxpayers dollars. Those efforts were also met with resistance.
“Richland County has spent an inordinate amount of tax dollars fighting accountability and transparency,” Reames said. “This was, and continues to be, a complete waste of public resources. It could have all been avoided years ago if the county’s leadership would have implemented accounting standards to ensure the penny tax dollars were being spent properly.”
County Council Chairman Paul Livingston said he was unaware of such an offer being made.
“Without knowing the details, if it had just simply said the county could move forward without having to pay the money back, it would have been considered,” Livingston said.
Seals, who was county administrator at the time, said he recalled the offer being discussed in a “very chaotic” executive session meeting of the county council.
“(Council members) felt that they needed an apology, that they wanted us to keep fighting and urged us to win,” Seals recalled. “They were very upset with the temerity of the Department of Revenue to challenge them on this. There was screaming and yelling, and then it just sort of let up. I couldn’t come out of that with an understanding of what the directions were.”
Seals said he was personally concerned about the county’s legal position, and said so at the time.
“If (DOR does) an audit, the county’s not going to win an audit,” he said. “Staff takes a lot of blame, but it’s the job of staff to make the council fully aware of their options, then it’s a policy decision for the council.”
Councilman Joe Walker said the burden is ultimately on the council to provide direction to its legal team. He said he is hopeful that change will allow the county to better tackle the issues surrounding the penny tax.
“This is the outcome of a lack of leadership and lack of clarity in the guidance provided by the then-council, and to a certain degree the current council,” Walker said. “It provides me a reason to be hopeful that the new council come next year will have opportunities to bring in a new legal team that’s aligned with our intent to govern with transparency.”
The Richland County penny tax tax was narrowly approved by voters in 2012. DOR later questioned some of the county’s use of money and began withholding funds when the county refused to come into compliance. The county then sued DOR, and the case ultimately went to the Supreme Court, which affirmed DOR’s authority in the matter and indicated the county misspent money.
Richland County is still fighting DOR in court to keep from repaying $32.5 million the agency says was misspent.
But that fight will continue without the county’s top two attorneys, who are leaving with no clear replacement plan in place.
Livingston, the council chairman, notified fellow council members of the departures via email earlier this week, leaving several members concerned about the timing. The departures were first reported by The Post and Courier.
Several council members were caught off guard by the sudden departures.
“This is all news to me!” Councilman Jim Manning wrote in an email.
“I’m deeply concerned by your email and Mr. Smith’s immediate departure without firm plans for a transition,” Councilwoman Chakisse Newton wrote to Livingston and others. “We are also in the midst of several significant lawsuits which would need to be transitioned to protect the county’s legal position. This is extremely short notice for a position of this importance.”
Smith said Thursday that he would be willing to help the county with ongoing matters as it transitions to finding his replacement. In an email to Livingston on Wednesday, Smith suggested that attorney Elizabeth McLean would be a suitable replacement, adding that she has been with the county for nearly 20 years and is “well situated to assume an acting or interim role as County Attorney.”
Smith’s departure is set to be discussed at the Dec. 8 meeting.
This story was originally published December 3, 2020 at 4:43 PM.
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