By Alex Saitta
May 11, 2015
I read the Greenville News article, Easley Backs Down From Fight With County On TIF. Reading the article, Easley agreed to pay the county all of the remaining surplus -- $160,000 over 4 years -- that was due under the precedent setting Clemson court ruling.
Under state law any annual TIF revenue generated from the TIF area that is more than the annual bond payment is considered surplus and is must be returned to the taxing authorities of the school district (55%), county government (25%) and the city of Easley (20%). Total revenue over the life of the 15-year Easley TIF will be about $4.25 million. The cost of the bonds (interest and principle) will be about $2 million, so the total surplus according to the law will be about $2.25 million. The school district should have received $1.2 million of that surplus, the county about $550,000 and the city of Easley about $450,000.
Up until this point, the Easley TIF had been spending the surpluses or about $1.5 million. The school board and county council called Easley on this, and argued the spending of the surpluses going forward needed to stop immediately and completely, pointing to the court precedent set in the Clemson TIF case. The county and board decided what was in the past, was the past and didnít seek to recoup surpluses the Easley TIF had already spent. That is, right off the bat we let Easley keep 11 years of surpluses. We were only asking for the 4 years going forward.
School District Settlement:
Looking over the next 4 years (the TIF ends in 2018), the school district was due $410,000 in surpluses and the county about $160,000. Unfortunately, the board/ administration settled with Easley in February to accept only three years or $300,000. That cost the school district $110,000 which it was entitled to.
The logic at the time was, the district should take less money because it would save money from going to court with Easley. I responded Easley was not going to go to court. They were not complying with the TIF law, and Clemson court ruling/ precedent assured Easley would lose in court at least at the first or circuit level if it went that route.
We Had A Stronger Case:
I voted not to accept the settlement for a couple of reasons. One, we had a stronger case against Easley than Clemson. Intially when Easley said to us their TIF case was different than Clemsonís, our lawyer said he didnít know why, but mentioned in an email he thought we had a stronger case against Easley. I agreed and responded to his email writing:
In an email, Bic [our attorney] said the case against Easley was a bit stronger. He didnít say why, so I read the Easley ordinance and redevelopment plan. I agree with Bic for the following reasons.
Easley more decisively [than Clemson] caps the total project cost with this statement... "The $2.635 million total includes actual project costs, reserves and allowances for increase costs in the future."
Easley has a clear estimate of TIF revenues that Clemson did not provide.
Also, Easley spends a lot of ink talking about issuing bonds equal to the total cost and using TIF revenue to service that debt. Nowhere does Easley write it will use extra TIF revenue and spend it as cash. I believe Clemson did write that somewhere in their ordinance. The closest Easley gets to that is here, when it wrote in a very vague way using the word "and"... "The city may use the TIF revenue in the special tax allocation fund to pay redevelopment costs and to repay debt."
The city wrongly believes it determines when there is a surplus using the word "may" rather than "must" as the law states. "Any TIF revenue not pledged or used by the city for payment of redevelopment project costs may be distributed among the city, county and school district..."
This conveys the false belief the city declares when/ what a surplus is, not the law. Supporting that point, TIF revenue is running 250% more than the city projected, and the city has never declared an annual surplus, but has just spent the surplus as it sees fit, likely spending on things beyond their project list.
Assuming Judge Miller doesn't change his mind, this is a bad case for Easley to appeal. Clemson had a better shot on appeal.
The city later told us their TIF was different than Clemsonís because Easley put in their ordinance the annual surpluses could be swept into another account and spent. I didnít see that in the ordinance, but that would have been incriminating because it would provided written proof Easley aimed to violate the state law which states surpluses MUST be distributed back to the county and school board. A city canít arbitrairly decide to spend surpluses just because they pass an ordiance that says so.
If Easley went to court, they were going to lose at the lower level. If they appealed, the board and county would have counter sued for the entire surplus going back 10 years. Instead of looking at a few hundred thousand, Easley could have been looking at more than $2 million judgement.
I Couldnít Cast The County Aside
By settling with Easley, only the school board settled with Easley and the partnership the board had with the county from the start was unilaterily broken. The county only had $160,000 to gain. Against the high legal costs the county would face suing Easley by itself, the board put the county council in a tough spot by bowing out. I wasnít going to do that to them. If it wasnít for the county government, we would have never stopped this nonsense in the first place.
How It Started:
Let me explain how this all started. In late 2010 the City of Central wanted to renew their TIF. I was the board chairman and thought, why the heck are we giving school district tax dollars away, when we are eliminating positions to plug a budget deficit? I sent an email asking, what are the end dates of all the TIFs? Thinking we need to get out of all of them. Initially, I was given a list of what turned out to be incorrect ending dates. Central made a public case for the board renewing their TIF, so I responding writing a letter to the editor saying why I opposed extending the Central TIF. In the last paragraph, I wrote the ending dates of the Liberty, Clemson and Easley TIFs and wrote I would vote not to extend those either.
On my website, someone corrected me on the ending date of the Liberty TIF. I went to the county auditor and asked for the TIF contracts. Brent Suddeth and I figured out what the exact dates were by looking at the contracts.
Looking into that we started to wonder how do TIFs work and were the cities actually implementing them correctly? We were stumped. The auditor suggested I speak to the county finance director. Ralph Guarino explained how TIFs worked in Georgia, where he was from. He said, any extra TIF revenue is supposed to pre-pay the bonds, and once the bonds are paid off, the TIF ends. The TIF canít just spend the surpluses, making up new projects along the way.
He said go to the county administrator, Chappel Hurst, because he knew about TIFs in South Carolina. Before I did that, I got the state TIF law, and studied it. While the law was vauage in places, it clearly stated how the surpluses were calculated and they had to be returned annually to the county and school district. The county administrator confirmed that and said, he drives through Clemson all the time, and with all the sidewalks they are building and city flower gardens cropping up there, they must be spending the surpluses.
I then asked the County Treasurer, Dale Looper, for Clemsonís annual TIF revenue numbers. I contacted the city administrator of Clemson, Rick Cotton, who gave me the amounts of the annual bond payments. Comparing the two, viola, there was a massive annual surpluses the city of Clemson was not returning.
I contacted Senator Larry Martin and he hooked me up with the state Senateís general counsel and I gave him all my numbers and paperwork. The attorney requested the entire Clemson TIF ordinance from the county treasurer and said, this looks illegal. I then contacted the McNair Law Firm who is the school districtís lawyer for bond issuance and Clemsonís lawyer on the TIF and said this looks illegal to me and I explained why and asked what am I not seeing here? He pointed to three phrases in the law taken out of context ó a very weak defense in my opinion, and I told him so.
At that point, Dr. Hunt and I talked about it in detail and it was then brought to our attorney. They agreed with had a case. We met with the county leaders again to share all the information, and the council and board approved moving on this.
As you can see the county was instrumental in this. The board's settlement left them hanging to fend with Easley alone and I didnít support that.
My two reasons didnít convince our lawyer (who I think did a 180 turn on this), the district administration or the majority of the board. In a 4 to 1 vote the board settled for less with Easley. I didnít say a lot at the vote, because I said it all already in executive session. At the vote, before casting my vote against the settlement, I said, "I have a different and quite unique point of view on this TIF issue. To me this just doesnít look right concerning the figures or how the county was treated, nor is it consisent with how we dealt with Clemson.Ē
County Didnít Settle:
Instead of negotiating down on what the county government was entitled to, to its credit the county threatened to sue Easley. Why not. Right off the bat Easley was given years of surpluses it was not entitled to. Generous. Once seriously confronted with the potential of a lawsuit by the county, Easley agreed to give the county all the surpluses it was due (4 years for $160,000). Not a surprise. The law and court precedent was on the side of the county government.
My Facebook Comment:
In February, in a Greenville News article Mayor Bagwell called the countyís insistance on all 4 years of surpluses ďembarrassingĒ. Naturally, there was a response. County Councilman Trey Whitehurst responded. I didnít say anything initially. On Facebook the article was posted and Easley Councilman Chris Mann questioned the board and councilís legal case, and right below that I wrote the following.
The Easley TIF walked/ fell into the same hole the Clemson TIF did. Their leaders didnít know the TIF law, nor its limits and frankly couldnít identify the limits either when they were asked as well. They deferred to their lawyers throughout whose eyes will filled with alluring bond fees and said there was no limit to how much school district or county money their TIF could spend on bike trails, ball fields and sidewalks. In the end, the judge ruled the lawyers/ Clemson TIF had stretched the law, so the Clemson TIF had to pay the county and school district plus their lawyer fees for all the bad advice Clemson received.
The TIF law is very clear ó Section 31-6-40: Any pledge of funds in the special tax allocation fund [annual TIF revenue] must provide for distribution to the taxing districts of monies not required for payment and securing of the [bond] obligations and the excess funds are surplus funds. All surplus funds must be distributed annually to the taxing districts in the redevelopment project area by being paid by the municipality to the county treasurer of the county in which the municipality is located.
The city of Clemson hadnít distributed any of the annual surpluses, and the judged ruled against them. Easley hasnít distributed the annual surpluses either. If Easley is sued by the county, theyíll be taken back to the same judge who will look at the same state law, his past ruling and very similar facts in the Easley case.
Instead of trying to take their case to the court of public opinion which doesn't matter to the courts, if I was sitting on the Easley City Council I would pay the county the surpluses they are likely asking for -- from the point Easley was notified of the problem, going forward [4 years for a total of $160,000]. That way, Easley will get to keep the past surpluses (10 years worth) and itíll just have to follow the law going forward.
I followed up with more details in the next post.
In 2005, revenue from the Easley TIF rose to $205,000 [the bond payment was about $170,000], so that was the first surplus, and the city of Easley didnít return it, but evidently just spent it. Every year since then, there has been a surplus and the Easley TIF didnít return the surplus. Recently, TIF revenue has gotten as high as $380,000 (or a $110,000), surplus and again it wasnít returned to the taxing authorities. The numbers are glaring.
The Easley government is not a victim here. The school district was nice enough in giving up education dollars to these TIFs so they could use that money to revitalize their downtown areas. The TIFís went way beyond what was agreed to or what was stated in the law.
Why the Mayor started a public discussion on this I donít know; I knew it was going to not end well for them. Iím sure the city of Easley didnít listen to me, but they took the advice of someone who was saying the same thing. Easley gave the county their 4 years of surpluses of $160,000.
Overall the pursing enforcement of the TIF law was a positive for the school district. This upcoming year the district will receive about $660,000 in surpluses from the TIFs in Clemson, Easley, and Liberty. For instance, we funded $355,000 of additional classroom supplies with this money already. I thank the County Council for standing with the school board on correcting this issue.