The S.C. Legislature voted overwhelmingly this week to override Gov. Nikki Haley’s veto of a budget proviso dealing with improper accommodations tax expenditures stemming from a Myrtle Beach case that made its way to the state Supreme Court.
The proviso lets Myrtle Beach pay back $302,545 in what the state’s Tourism Expenditure Review Committee, or TERC, called improper grants the city made with A-tax funds during the 2009 fiscal year. The proviso lets the city pay back the money from its general fund rather than having the state treasurer’s office withhold the amount from its future A-tax collections, as required by law. Once the money is paid back, the treasurer will be required to refund the withheld A-tax money to the city.
Haley’s veto was overridden by an 89-26 vote in the House and a 30-14 vote in the Senate. Every Horry County legislator voted to override the veto except for state Rep. Tracy Edge, R-North Myrtle Beach, who did not vote.
While the proviso is a one-time fix specific to Myrtle Beach, state Rep. Alan Clemmons, R-Myrtle Beach, said he thinks state law should be changed to give any municipality that fails to comply with A-tax regulations the opportunity to refund the misspent money from its general fund rather than having future collections withheld by the state.
“The municipality, in that case, has restored the funds and spent the money appropriately,” Clemmons said. “In that case, there would be no forfeiture of the funds that were disqualified due to a technicality.”
Clemmons introduced a bill this year that would accomplish that goal, but the proposal did not make it out of committee before the end of the legislative session. Clemmons said he intends to re-file that bill during the next session.
Myrtle Beach officials have fought TERC’s ruling through the court system, saying they did nothing improper. City spokesman Mark Kruea said the funds in question never came from A-tax collections and that TERC has misinterpreted how the grants were funded. An administrative law judge agreed with the city but the state Supreme Court overturned that decision by a 3-2 ruling in February.
A majority of the justices said the city improperly transferred A-tax money to its general fund and then used that money to cover tourism-related services. That transfer bypassed the S.C. Accommodations Tax Act, according to the ruling, although the justices admitted the current law sets up a “complex statutory scheme” that can be difficult to follow.
With the proviso surviving Haley’s veto, Kruea said the city now will transfer $302,545 from its general fund to its A-tax fund. In addition, the state treasurer will refund that same amount in A-tax funds that have been withheld from the city since TERC’s initial decision. That means there will be a double re-payment to the city’s A-tax fund — both from the city and the state treasurer.
Kruea said all of that money will go through the normal review processes and will be spent on tourism-related services.
Ed Riggs, TERC’s chairman, said he is not disappointed in the veto override and does not think the proviso dilutes the committee’s authority.
“Legislatively, they do what they do and we try to do the right thing by providing oversight of expenditures,” Riggs said, adding that the city and committee have been working more closely in recent months and that City Manager Tom Leath has been appointed to the committee.
“I’m very encouraged that we’re finally getting some dialogue going with Myrtle Beach,” he said. “I’m optimistic that things will come together moving forward.”
Haley had vetoed the proviso, calling it an “irresponsible budget practice” that circumvents the Supreme Court’s ruling and undermines state law.
“This proviso is essentially a get-out-of-jail-free card for municipalities that are caught breaking the law, because it would allow those local governments that are caught misusing these funds to put the money back where it belongs, without penalty,” Haley said.
Clemmons, who introduced the proviso into the state budget, said Haley’s get-out-of-jail-free card reference “incorrectly infers criminality in the Myrtle Beach TERC issue, where it is purely a civil regulatory issue.”
“Our goal should be to conform our oversight process to assure that every allowable penny of such funds are spent to support and promote tourism in the area where the funds were raised,” Clemmons said. “Allowing a municipality to be refunded unapproved accommodation tax tourism expenses to be applied to an approved tourism project, when the municipality has reimbursed the unapproved expense from general funds, best achieves that goal.”
State law requires hotels and other temporary lodgings to charge a 7 percent accommodations tax, with 5 percent going to the state and the remaining 2 percent going back to the county or municipality where the lodging is located. That 2 percent is to be used for tourism-related expenditures, such as advertising. TERC is the oversight group set up to determine whether those expenditures are proper.
Contact DAVID WREN at 626-0281 or via twitter at @David_Wren