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Richland Council gets grim answers to impact of meeting penny tax demands

Richland County Council had a litany of questions and concerns at a Friday work session relating to what one councilman described as the “hostage situation” with the county’s transportation penny sales tax funds.

Council learned it would cost more than $3 million from the county’s annual general fund budget – separate from the penny tax fund – to cover costs that the state Department of Revenue says should not be paid for by the penny sales tax.

Council members were uncertain whether they also might have to repay from the general fund the nearly $10 million that have already been spent that DOR says shouldn’t have been paid by the penny.

But they don’t yet have all the answers.

At issue are “program costs” associated with the transportation improvement program, or costs that do not directly relate to a specific transportation project. Examples of these costs include portions of the transportation department’s salaries and the entirety of a public information website that details plans for the program’s projects as well as financial and progress reports.

Earlier this week, DOR told the county it would withhold further allocations of penny sales tax collections until the county changes its accounting practice to ensure that only project-specific costs are paid for by the penny tax.

Besides the possible hit to the county’s property-tax-backed general fund, stopping the flow of penny tax revenue from the county would have a negative impact on the county’s future ability to borrow money against the penny tax, attorneys told council.

“If there’s a chance the penny would be withheld from y’all in the future, then that’s a risk factor that will have an impact,” said Frannie Heizer, an attorney with the McNair Law Firm who works with the county on borrowing money. “The phone call we got yesterday was from a very nervous investor.”

The county has enough penny funds in the bank – roughly $110 million – to pay off debt and continue current program operations for about nine months if the county does not come into compliance with the standards DOR demands and penny tax funds continue to be withheld from the county, the county’s chief financial officer, Daniel Driggers, estimated.

Council members discussed their feelings that many of the costs being pointed to as not project-specific are still necessary to the overall viability of the penny program and, therefore, should justifiably be paid by the penny.

“Isn’t it somewhat logical to say that without having these projects that must be done, we wouldn’t need a program or we wouldn’t have the rest of the program costs?” Councilman Bill Malinowski said. “So aren’t they tied together? We need them all.”

Expressing frustration at the overall situation, council members continued to question the authority of DOR to demand the changes it has and to withhold the county’s penny revenues.

“What specific authority or other statute has the Department of Revenue cited that they are using to request Richland County to make the changes that they are?” Malinowski said. “But they’re at the point where they’re saying, ‘Do it my way, or else.” ... A hostage situation.”

For months, county attorney Larry Smith told council, the county’s lawyers have asked DOR “to be more specific” with the legal grounds it stands on.

“We have attempted again and again to have them be more specific about what laws (DOR director Rick Reames is) referring to,” Smith said. “But what we get is a generalization and a conclusion that (some expenditures are) not in compliance without specifically saying, ‘These are the laws we’re referring to.’”

When County Council meets again Tuesday, members will continue to try to move toward a resolution in the best interest of taxpayers on the penny program, county officials said in a late afternoon press release.

Reach Ellis at (803) 771-8307.

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