Seriously Flawed Settlement Agreement Proposed for Hospitality Fee Lawsuit

By Paul Gable

The proposed settlement agreement presented to county council at its regular meeting Tuesday night appears to have many serious flaws, according to information gathered by Grand Strand Daily.

Council member Harold Worley vented his frustration with the settlement agreement during the council meeting. His complaint was having attorney fees of approximately $7 million come off the top of an approximately $20 million the settlement award if the lawsuit is settled as a class action.

The $20 million was collected from a countywide 1.5% hospitality fee collected between the date the bonds were paid off in February 2019 until June 30, 2019. Worley’s statement is based on a 1/3 contingency fee to be paid off the top of the settlement amount to the attorneys representing the cities.

The basic claim in the original lawsuit was that Horry County illegally collected a 1.5% countywide hospitality fee since January 1, 2017. The fee was collected with the agreement of the cities for an initial 20 year period beginning January 1, 1997, in order to pay off bonds issued to pay for the initial RIDE road projects.

The county first extended collection of the fee until the bonds were paid off and, later, in perpetuity. The cities allege they did not give approval for the extensions which prevents the county from legally collecting the fee in their respective taxing jurisdictions. However, the cities apparently dropped a claim for fees used to pay off the bonds between January 1, 2017 and February 2019.

But that money is not the cities to claim, a fact GSD first reported last spring when the lawsuit was filed. It is not the cities’ money. It is not the county’s money. It is taxpayer money.

If it were held the county did illegally collect hospitality fees after the bonds were paid off, any rebates of tax revenue would be owed to the people from whom the taxes were collected, not the cities in which the fee was collected.

Hospitality fees are collected by vendors at point of sale and remitted monthly directly to the county in accordance with the provisions of state law. The cities are not involved in the collection process at all, nor is it their money being collected.

Furthermore, none of the cities had legislation in place to collect any portion of the 1.5% countywide hospitality fee until they passed ordinances in accordance with the new state hospitality tax statute. Those collections by the cities went into effect on July1, 2019 and the cities have been collecting that fee since that date.

Therefore, in no way did any of the cities have any legal claim to any of the 1.5% countywide hospitality fee revenue until July 1, 2019, even if the county did collect the fee illegally as the cities claim.

If the county were forced by a court to refund illegally collected hospitality fees, and such has not been ordered to date, the refunds would have to go to the individuals who paid the tax, a virtually impossible task considering how reporting and remitting of the taxes is done by vendors, not the individuals.

The only other possible use for that revenue would be to use it for projects listed in the county road plan as the revenue is deposited into a special road projects account as required by county ordinance.

In July 2018, county council passed a resolution directing county staff to prepare an amendment to county code allowing the 1.5% hospitality fee revenue to be used for funding such items as public safety and other infrastructure needs in addition to the special road fund. To date, this amendment has never been prepared by county staff nor voted on by county council.

Worley said the agreement could ‘rape the taxpayers.’ It is my understanding that there are even more questionable clauses, as yet to be made public, with regard to how the cities, especially Myrtle Beach, plan to use the money if this agreement is ultimately approved.

Of course, this is all being negotiated behind closed doors under the ‘cloak of confidentiality’, as Worley was reminded by county attorney Arrigo Carotti during Worley’s monologue to council, in order to keep as many details as possible from becoming known  to the public.

This is a lawsuit between public agencies, paid for and proposed to be settled with taxpayer dollars, but it must be negotiated and agreed to in secret to keep the details from those same taxpayers it proposes to rip off.

It is my understanding that some of those still unknown details, with regard to how the cities plan to use the money, is even more outrageous than the cities’ claim that they are entitled to refunds.

It is impossible to comprehend how attorneys representing the county and the cities believe refunding the excess collected revenue to the cities is legally possible. It is just as impossible to comprehend how the county administrator, to whom the county attorney reports, believes this is a settlement agreement that is legally sound and should be presented to county council for approval.

There is one public official who doesn’t. Horry County Treasurer Angie Jones filed documents with the court in July 2019 challenging the validity of the cities’ claim of their legal right to a refund and requesting a denial of class action certification on the basis this was taxpayer money not the cities’ money.

Several attorneys I have spoken with say Jones’ filing must be withdrawn for any settlement to go forward. When asked about this detail, Jones responded by saying a certain underworld region would ‘freeze over’ before she would approve refunding taxpayer funds to the cities and their attorneys without being ordered by a judge to do so.

There is one other fact to be considered when attempting to understand these secret, closed door shenanigans being proposed. Reaching a settlement agreement so the cities would agree to county resumption of collection of the 1.5% countywide hospitality fee is all about attempting to save county funding for the Interstate 73 project, a fact substantiated by county staff refusal to prepare the ordinance amendment directed by council and mentioned above.

Governor Henry McMaster met with county and city officials recently urging settlement of the lawsuit and approval of a funding mechanism by which the county could maintain an agreement signed with the S.C. Department of Transportation eleven months ago.

McMaster reportedly told local officials that approval of a state application to the federal government for a $346 million grant for I-73 would be jeopardized if the local government agencies did not come to a settlement quickly.

It must be noted, not one penny of this $346 million would be spent for the I-73 project in Horry County, if the grant is awarded.

The governor, a former state attorney general, is effectively asking local governments to approve what certainly appears to be an illegal settlement, certainly one not conforming to current state law or county ordinances, in order to potentially benefit not Horry County only other counties in the state.

What is not being mentioned, but remains fact, is there are several influential local political donors who stand to gain millions in contracts if the I-73 project is kept alive.

Tuesday’s proposal of a settlement agreement was just another day for local government councils in Horry County where taxpayers are ‘raped’ for the benefit of insider cronies.


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