The Myrtle Beach Sun News’ investigative team published an eye opening expose on the City of Myrtle Beach and how it is financing a downtown theatre through historic tax credits.
The theatre is a gift to Coastal Carolina University in that the city is finding creative ways to finance the construction through historic tax credits, and also, passing many of the costs onto city taxpayers.
More than $22 million is being spent on a new theatre for CCU in downtown Myrtle Beach. State and federal tax credits worth at least $4.9 million are the goal. The money comes from a nonprofit called Myrtle Beach Downtown Redevelopment Corporation, which is muddled with a web of private LLCs.
Is Myrtle Beach running a shadow government?
If S.C. Speaker Murrell Smith and the General Assembly allow this kind of suspicious historic tax credits funding, every other city in the state will create these same financing methods for state handouts. Are these legal?
Politicians, nonprofit experts, and state employees in Columbia seem astonished when asked simple questions about the structure. MyrtleBeachSC News reached out to state legislators across the state. All found this creative financing suspicious.
Historic Tax Credits
South Carolina allows a credit of 10% of QREs for a certified historic structure (as defined in Code section 47) for taxpayers claiming the federal credit, or a credit of 25% of QREs (capped at $1 million) for taxpayers not eligible for the federal HTC. Taxpayers must take the credit in equal installments over three years, and may carry it forward up to five years. The statute allows disproportionate allocations among partners, including, without limitation, an allocation of the entire credit or unused carryforward to any partner who was a member or partner at any time in the year in which the credit or unused carryforward is allocated, in a manner agreed to by the partners or members. Separate 25% credits exist for former mills or abandoned buildings.
City governments are NOT entitled to historic tax credits. So, the City of Myrtle Beach purchased the property through the Downtown Redevelopment Corporation. The board members of that corporation are largely city employees.
Key Questions about Historic Tax Credits
Theatre Ground Breaking with CCU
From these varied schemes we can discern the following: Investors seeking a state historic tax credit as well as the federal historic tax credits must ask the following questions in each state:
- Does eligibility for the state HTC mirror eligibility for the federal HTC?
- What percentage of QREs are eligible?
- Under what circumstances can taxpayers receive an additional credit?
- Is there a cap on the state HTC, and is it an aggregate statewide cap, or does the cap apply per project?
- Is the credit transferable to another taxpayer or refundable (i.e., refunded to the taxpayer if it exceeds the amount of tax for the year in question), and if not, can it be carried forward and how long is the carryforward period?
- Are disproportionate allocations of the credit allowed among partners in a partnership?
As our readers can see, these tax credits are meant for private investors and not city governments.
Each state that provides an HTC also has its own approval process requiring application to that state’s historic preservation commission. All these regimes have one thing in common, however: They encourage private investment in these otherwise costly projects. It is important, therefore, to consult with experienced counsel to navigate both the requirements for eligibility and to receive the credit.
The Sun News reports that Sam Aarons, an analyst with the South Carolina Policy Council, said that just because the city appears to be able to structure the project this way doesn’t mean it should. Aarons told the Sun News, “This whole structure is very confusing,” he said. “I would say it is intentionally vague at the very least.”
As part of a city-owned nonprofit, taxpayer-funded employees “volunteer” their time to build a new downtown Myrtle Beach theater.
The theater will primarily be used for Coastal Carolina University students. According to records, the university is not contributing to the theater’s construction costs at all, but rather will sublease it from the city.
Michelle Shumpert, the city’s Chief Financial Officer, and Meredith Denari, the city’s spokeswoman, explained all of these financial details to the Sun News in a wood-paneled conference room at City Hall.
Shumpert told the Sun News this is how municipalities can obtain tax credits by using a “tool”. Currently, the system does not allow governments to apply for and receive these tax credits, and nonprofits are not set up as quasi-governments.
No one MyrtleBeachSC News spoke with in the State Legislature endorsed this idea. We did not reach out to Val Guest, Case Brittain, Carla Schuesslar, nor Jeff Johnson in preparing this publication.
We did reach out to Myrtle Beach Mayor Brenda Bethune. She has yet to respond.
The mayor will be hosting S.C. State Legislators at her restaurant 44 & KING this month. Legislators informed us she is calling elected state legislators individually for one on one meetings with each of those coming to the Grand Strand.