Richland County Council recently approved a $1 million payment — likely the first of several — from its general fund to its transportation fund to begin reimbursing the transportation fund for millions of dollars in penny tax expenditures that were unallowable per the S.C. Department of Revenue and state Supreme Court.
Council also authorized an independent audit of the Richland Penny that will likely be far more exhaustive than any that have come before.
The initial $1 million reimbursement to the transportation fund was authorized with a 10-0 vote at a Feb. 5 meeting. (Councilwoman Gwen Kennedy was not in attendance that evening.) The resolution approved by Council details that it will also pay reimbursement funds for the transportation program in the 2020 and 2021 budget years, and that it will “continue reimbursing the transportation fund with funds from the general fund until the transportation fund is completely reimbursed.”
County transportation director John Thompson told County Council that there are “approximately $3.4 million of expenses that should not have hit the penny fund budget.”
The Transportation Penny was approved by Richland County voters in a contentious 2012 referendum. The penny tax is set to collect more than $1 billion in the next two decades, to be used for various road and pedestrian projects and the COMET bus system.
However, questions about the penny tax began to bubble up in 2015, when the state Department of Revenue began to look into its spending. Rick Reames, who was director of DOR at the time and has since moved on to the private sector, said the department’s probe into the penny “uncovered millions of dollars of potential fraud, waste and abuse.”
The county and DOR subsequently fired lawsuits back and forth at one another, and the legal escalation eventually led to a March 2018 opinion from the state Supreme Court. That opinion called into question a number of expenditures that were being paid out of the penny tax fund, including monthly $25,000 payments to a pair of public relations firms, $550,000 in penny money used to establish a small business leadership fund, and cash for what the court called a “vague and duplicative” mentor-mentee program.
Addressing Council Feb. 5, Thompson listed those flagged expenditures, as well as some attorneys' fees, when detailing which payments were not allowed to come from penny tax funding.
“Again, this is what the Department of Revenue is saying, that these costs are disallowable costs [from the penny fund],” Thompson said. “We’re making sure we follow their guidelines, so that we’re not held in contempt of court.”
Meanwhile, Council also approved an audit of the penny program, and all of the expenses that have come from it, going back to the inception of the program. The resolution authorizing the audit says that it is to be done “post-haste.”
Councilwoman Chakisse Newton asked interim County Administrator Edward Gomeau about the timeline of such an audit. Gomeau replied it will likely not take terribly long to handle the portions of the audit that relate to the Program Development Team (PDT), a compendium of private companies which manages the various transportation construction projects under the penny. But other aspects of penny expenditures could take some time.
“The biggest amount of activity was with the PDT. That’s centrally located; we can do that fairly quickly,” Gomeau noted. “Probably by the middle of the year or end of the year we should have that. It’s the question of where the rest of the money went and looking at that and being able to audit it and make sure it went where it was supposed to, that it was done the way it was supposed to. I’m thinking this is going probably be a year-long project.”
Councilman Jim Manning asked Gomeau about a penny tax audit the county did a couple years back. Gomeau acknowledged that he had a record of the audit Manning was referring to, but said the penny program needs an audit that is far more exhaustive.
“I have a draft order from our regular auditors who did a financial statement audit of the PDT for 2016-17,” Gomeau said. “That’s all that I have, I can’t find anything else. But that’s not the requirement that was in the enabling legislation [for the transportation penny]. It was for all expenditures, not just the PDT. It was any money that we spent out of the penny fund had to be audited. So, we’ll do a comprehensive look at this in terms of where we’ve spent money, who’s spending it, and then come back with the audit reports for those years.”
Former Councilman Seth Rose, who moved on to a spot in the state Legislature earlier this year, notes that, in early 2016, he sponsored a host of reforms for the penny tax program. Those proposed reforms languished in committee.
“They weren’t just voted down, but they were given the ultimate disrespect of being tabled in committee,” Rose says. “They were killed in committee. Those reforms included, among other things, the county doing the PR portion of the program in-house, using in-house staff. Now, years later, there’s a Supreme Court [opinion] saying these funds need to be repaid.”