3 firms decline comment on allegations they helped Richland commit civil fraud

Officials with the three private companies that allegedly acted unlawfully in handling millions of dollars of Richland County’s penny sales tax said Tuesday they could not comment on the case.

The accusations were made by the S.C. Department of Revenue in legal filings this week against Richland County over alleged mismanagement and “civil fraud” in the handling of millions of dollars raised since 2013 by the county’s penny sales tax, due to last for 22 years and raise $1 billion.

The $1 billion is supposed to be spent only on transportation projects, but DOR asserts some of the millions raised to date have been spent unlawfully and gone to non-transportation projects.

Officials with the county’s three private firms – who together make up what is called the “project development team” – said that because of the litigation, the only thing they can say at present is that the transportation projects are going well.

Only the county, not the firms, had been accused of wrongdoing before this week.

One of DOR’s assertions is that the county should not have hired those companies at all, but formed a Transportation Authority as set out by state law.

Such an authority would be a publicly appointed body and has to comply with state regulations concerning procurement and other actions, according to state law. Under the county’s arrangement with ICA Engineering, Kahn and Brownstone, the county has agreed to pay them $31 million to “perform program development services for the ... penny tax program,” according to DOR.

County officials have argued they did nothing wrong in hiring the companies.

Bill Cram, executive vice president of M.B. Kahn Construction, said he can’t comment because of the pending litigation. But, he said, “There are a number of projects under construction. We are continuing to progress while this is going on.”

“Everything is continuing to move forward, and we are constructing a large number of projects, and designing a large number of projects,” said David Beatty, regional manager for ICA Engineering, one of the three firms targeted in DOR’s legal filings. “We’ve got upwards of $100 million worth of projects ready to hit the streets, but it’s dependent on this issue being resolved.”

Dale Collier, president of Brownstone Construction Group, said, “The program itself is going well, and we hope to see this (litigation) resolved in an expedient manner.”

In 2013, ICA Engineering, Kahn and Brownstone were hired by county council to handle contracts and the spending of the millions raised by the county’s penny sales tax, whose proceeds are required by law to go for various transportation projects. Voters approved the tax in 2012.

For more than a year, the county and DOR have wrangled over whether the millions in penny sales tax proceeds raised to date has been handled and spent lawfully. In December, after a lengthy audit, DOR concluded the program was riddled with mismanagement and improper spending. The county insists it is acting properly.

DOR is involved because under state law, it collects penny sales tax proceeds from thousands of county merchants and then, once a quarter, distributes that money to the county. After its audit, DOR warned the county it was going to withhold the money until Richland County starts obeying the law.

In response, Richland County filed a lawsuit in May, asking a judge to rule that DOR is merely a collection and disbursement agent for the penny sales tax proceeds and lacks the authority to withhold money from the sales tax.

In its reply to the county, filed late Monday, DOR launched a 36-page legal counter-attack, asserting ICA Engineering, Brownstone and Kahn were “engaged in a civil conspiracy” with the county to spend penny tax revenues “in an illegal manner.”

In the reply, DOR also accused the county of going back on a promise to appoint a strong “watchdog” committee, instead appointing a 15-member citizens’ Transportation Penny Advisory Committee (TPAC) that has no staff and little power to investigate any spending of penny sales tax funds.

Richland County Council “stripped the TPAC of any and all responsibilities to provide any oversight of the proper administration and expenditure of the Penny Tax funds,” DOR’s legal filing said.

Contacted Tuesday, TPAC chairman Hayes Mizell said “stripped” is too strong a word. “That assumes we had any power in the first place,” Mizell said. From its inception, his supposed oversight committee lacked any authority to do serious work, Mizell said.

County Council also was required to conduct a separate, annual audit of penny sales tax funding, but never has, DOR’s filing said.

The county says it has been auditing the expenditures in tandem with the rest of the county’s spending.

In May, the county did hire a well-known, independent auditing firm, Elliott Davis Decosimo, and authorized it to do a full audit of the penny sales tax program from May 2013 through June 2015.

A initial hearing has been set in the legal dispute for 10:30 a.m. Tuesday in the Richland County courthouse.

That hearing is expected to be narrowly focused on the question of whether DOR has the authority to impound Richland County’s sales tax money while litigation between the county and DOR is pending. The county’s next disbursement from DOR is due in July.

In the coming weeks and months, issues raised by both the county and DOR are sure to be explored in depth.

Until the issues are resolved, DOR is asking the court to appoint a receiver “to ensure that penny tax funds are expended on appropriate projects and capital costs ... ”

County spokeswoman Beverly Harris said the county will not comment on this issue because of the ongoing litigation.

John Crangle, director of S.C. Common Cause, a watchdog group, said Tuesday that a court is the proper place for this dispute. “Whether it is in civil court, or in state criminal court, evidence can now be compelled, and the court can get to the bottom of this,” Crangle said.

This story was originally published June 21, 2016 at 8:17 PM with the headline "3 firms decline comment on allegations they helped Richland commit civil fraud."