SC earmark process has granted more than $11M in public dollars to unregistered charities

  • In Business
  • 2022-10-02 09:30:00Z
  • By The State

More than 30 South Carolina charities granted a combined $11.3 million through the budget earmark process over the past two years were out of compliance with state law and should not have been soliciting donations, an analysis by The State Media Co. has found.

Some of the nonprofits had never registered with the Secretary of State, as required by law. Others simply let their registrations lapse or failed to submit financial reports on time, leading in extreme cases to their suspension by the agency.

Regardless of the circumstances, critics say the fact that so many organizations awarded public money were in violation of the Solicitation of Charitable Funds Act speaks to the lax oversight that continues to plague the earmark process.

"At a minimum, any charity that meets the criteria for mandatory registration should be registered," said John Crangle, a Columbia attorney and government watchdog. "If they're not, they should be disqualified from receiving any money."

Each year, the General Assembly doles out tens of millions of dollars for lawmakers' pet projects through the opaque earmark process, which until recently was almost entirely hidden from public view.

Only after The State newspaper began reporting on the practice and found taxpayer money had flowed to churches, shadowy nonprofits and organizations with close ties to politicians did lawmakers begin to reform the process.

The Secretary of State's office, which until last year couldn't discern which charities got earmark money, has started scouring the list of recipients to confirm that all are properly registered and sending violation notices to those that are not.

All 21 of the unregistered charities awarded earmarks last year eventually came into compliance, although for some it took months of badgering, said Shannon Wiley, the Secretary of State's general counsel.

Most of the 14 non-compliant charities granted public dollars this year have since registered or are in the process of doing so. But as of Wednesday, four had not responded to violation notices, she said.

The process of identifying unregistered earmark recipients can be tedious because the budget doesn't always identify organizations by their proper name, Wiley said. As a result, the Secretary of State's office is still researching dozens of this year's earmark recipients because it could not determine their registration status.

"We search our own charity database, our business filings database and the IRS website and do internet searches, but there are times when we cannot discern the identity of some organizations receiving earmarks," said Wiley, who quipped that hunting down earmark recipients makes her feel like Scooby Doo, the cartoon canine sleuth.

Keeping tabs on SC charities

Under the Solicitation of Charitable Funds Act, any charity that intends to solicit donations must register annually with the Secretary of State, unless it meets criteria for an exemption.

Registration statements include things like the organization's name, address, purpose, founding date and the names and addresses of its chief executives and board members.

Once registered, charities are required to file annual financial reports that itemize revenues and expenses and disclose total assets and liabilities.

The reports help prospective donors make informed decisions about charitable giving and let lawmakers assess whether organizations should be supported with public dollars.

"(The filing requirements) basically provide transparency to the public," Wiley said. "So if someone is solicited by an organization or they see an organization getting public funds through grants they can go to our website or contact our office and get information on the organization."

Charities that don't register with the Secretary of State, allow their registrations to expire or fail to file annual financial reports are subject to violations that can lead to fines and, ultimately, suspension. Suspended charities that continue to solicit are subject to legal action.

Because the Secretary of State is generally lenient with delinquent charities, only a relatively small number of nonprofits that fail to register or submit financial reports - typically repeat offenders - are actually fined.

None of the charities granted earmarks last year paid fines, even though four were assessed fines and three were suspended after failing to resolve their fines.

"We agreed to waive the fines (because) it was the organizations' first violation," Wiley said.

Why are unregistered charities getting earmarks?

The General Assembly's disclosure of earmark sponsors and recipients has added a modicum of transparency to the heretofore secretive process. But without adequate vetting or discussion of earmark proposals it remains difficult to assess their worthiness.

Lawmakers this year had the opportunity to peruse a list of earmark sponsors and recipient organizations before voting on the budget, but would not have known what those organizations planned to do with the money unless they asked the sponsors directly.

Sometimes even sponsors aren't aware of an organization's plans, as state Reps. Mike Burns, R-Greenville, and John McCravy, R-Greenwood, claimed last month when it came to light that a $1.5 million earmark they sponsored for an Upstate Christian organization had been intended as seed money for a residential school.

Since earmark requests undergo only a cursory review by budget finance chairs and their staff, and are rarely, if ever, debated publicly at budget hearings, most fly entirely under the radar.

"There ought to be a debate about these things and people ought to have to explain them, but that doesn't happen," Senate Majority Leader Shane Massey, R-Edgefield, said. "It's never happened as long as I've been there."

Massey, who said he's never asked for an earmark because doing so comes with the implicit expectation one will support the budget, cast doubt on the thoroughness of the earmark vetting process.

"There's a lot about the earmark process that I don't like," he said, "but the lack of vetting is one of the biggest problems."

Senate Finance Chairman Harvey Peeler, R-Cherokee, said that while he and the Finance Committee strive to ensure all money appropriated goes to legitimate public uses, lawmakers are extended latitude in their earmark requests and trusted to choose recipients wisely.

"That trust includes a responsibility on their part to ensure they are not requesting inappropriate funding that will embarrass themselves or the Senate," Peeler said in a statement. "And further, that the distribution of those funds is handled appropriately and timely. Violations of this trust should and will be considered when future requests are made."

House Ways and Means Chairman Gary Simrill, R-York, said the lower chamber has also historically relied on its members to submit ethical earmark requests.

"You're under the honor system," said Simrill, who replaced now-Speaker Murrell Smith, R-Sumter, as House budget chief earlier this year. "Because each member of that 170-person bicameral government works and is accountable to the people who elect them."

Simrill, who this year sponsored an earmark for a charity that was unregistered and has been issued violations for late financial reports each of the past two years, defended the earmark process and said it had helped fund countless worthwhile projects in communities across the state.

"While you can find a flaw in any system, the earmark process provides more good to communities in South Carolina than those instances where you have an issue with someone not following the spirit or letter of the requirement," he said.

Simrill said he hadn't been aware that American Legion's Boys State program had let its registration lapse this year when he requested $25,000 for the charity, which offers leadership and citizenship training for select high school seniors.

While he acknowledged the group's late registration with the state this year is a red flag, he said the organization has received state funding for years and provides a valuable service to South Carolina students.

Boys State, which recently began the process of renewing its registration with the Secretary of State, did not respond to a request for comment.

Noncompliant nonprofits

Delinquent charities offered a variety of explanations for their noncompliance.

Some chalked it up to an oversight, while others said they were unaware of the annual registration requirement or had been preoccupied with personal circumstances.

As of this past week, four charities - Wadmalaw Island Community Center, Criterion Club of Dillon, Greater South Farrow Road Community Development Foundation and Penn Center, Inc., - had not responded to registration violation notices issued by the Secretary of State, the agency said.

Wadmalaw Island and Criterion Club, which operate community centers in their respective areas, have not submitted registration or financial documentation to the state in roughly a decade, records show.

The Secretary of State, which is still owed fines it assessed Wadmalaw more than 10 years ago, last year changed the organization's status from "suspended" to "terminated" because it assumed the charity had shuttered after "no current activity could be found," Wiley said. After Wadmalaw was awarded an earmark earlier this year, however, the Secretary of State returned the organization's status to "suspended," and opened a new registration violation, she said.

Criterion Club, which was earmarked $125,000 over the governor's objection, has twice had its tax-exempt status automatically revoked by the Internal Revenue Service for failing to file financial documents for three straight years. It does not appear to have filed with the IRS, as required by law, since 2011, online records show.

Neither Wadmalaw Island nor Criterion Club responded to requests for comment.

Michael Baker, who runs Greater South Farrow Road Community Development Foundation in Columbia, said the charity, which has not registered with the Secretary of State in more than a dozen years, had only recently resumed operations after an extended dormancy.

The organization was awarded $100,000 in earmark funding to erect a memorial wall adjacent to Greater St. Luke Baptist Church in Columbia on which the names of deceased community members could be engraved, said Baker, who serves as the church's pastor.

Baker said the organization recently registered with the Secretary of State after getting a violation notice in the mail, but as of Wednesday morning, the agency had not received a registration statement from the charity, Wiley said.

Richard Kenyon, finance director for Penn Center, which operates a museum on St. Helena Island in Beaufort County that was awarded more than $1 million this year, last week told The State his failure to register the charity was an oversight that would soon be rectified.

Penn Center remained unregistered as of Tuesday, Wiley said.

For some South Carolina charities, earmarks constitute a near-annual stream of funding.

Three nonprofits awarded public dollars each of the past two years were out of compliance in both years, according to the Secretary of State's office.

Jamie Fore, executive director of the Palmetto Foundation for Prevention and Recovery, a Chapin-based nonprofit that helps people struggling with addiction, blamed the organization's late registration each of the past two years on its former director.

She said the nonprofit, which the state has awarded $300,000 to implement a youth substance abuse intervention program, moved on from its director last year due to her "failure of duties," which included failing to keep the organization in compliance with the state.

Fore, who took over as director in August, said the organization has appointed a treasurer with an accounting background and entrusted an accounting firm that specializes in nonprofits to file its financial reports and annual registration paperwork.

"It is my goal as the new Executive Director to ensure we are in-compliance with the Secretary of State at all times," Fore wrote in an emailed statement.

The organization registered with the state last week, agency records show.

Monika Lamb, project manager for Tri-City Visionaries, a Lower Richland nonprofit that does home repairs for low-income community members, said her organization's late registration the past two years stemmed from confusion about the filing date.

After speaking recently with someone from the Secretary of State's office, Lamb said she's now clear about the filing deadlines and doesn't expect the issue to reoccur.

Tri-City Visionaries, which has been awarded $350,000 in earmarks over the past two years, registered with the state Sept. 19, records show.

Gracie Tilmon, business manager for Fresh Start Transitional Housing Project, also attributed her failure to register the Greenville nonprofit to a lack of experience navigating the system.

Unlike the Palmetto Foundation and Tri-City Visionaries, which were late to renew their registrations, Fresh Start had never previously registered with the state when it was awarded $250,000 last year.

"We weren't aware of the requirement (to register) until the state reached out to us," Tilmon said. "This is brand new."

She said the Department of Probation, Parole and Pardon Services, which served as the pass-through agency for the earmark, withheld Fresh Start's money until it registered.

Once the money was disbursed, the startup, which provides transitional housing and life skills training to women in crisis, used the appropriation to get off the ground, Tillmon said.

Fresh Start's registration had lapsed by the time it was granted another $75,000 in this year's budget, but the organization quickly came into compliance after being contacted by the Secretary of State's office. The charity has until mid-November to file its first annual financial report after being granted an extension by the agency.

Not all non-compliant charities had their earmarks withheld until they registered, however.

In at least three cases identified by The State, pass-through agencies disbursed public dollars to unregistered nonprofits awarded earmarks in last year's budget. In another instance, the agency cut a check to the lawmaker who sponsored the non-compliant charity's earmark before it had registered.

All four of the unregistered charities were assessed fines and three were suspended for failure to pay them, although all of the fines eventually were waived.

Two of the charities came into compliance in March, one registered in April and the last holdout didn't register until June, nearly a year after it was awarded the earmark.

That organization, Trinity Educational Community and Conference Center, actually sent the governor's office a proposal for a new $300,000 earmark on the same day it registered with the state.

Trinity's 2022 request was funded a few weeks later. The organization's project manager did not respond to a request for comment.

The case for additional earmark reform

Regardless of any charity's merits, lawmakers need to know some basics about its operations before appropriating public funds, said Lynn Teague, vice president for issues and action with the South Carolina League of Women Voters.

Teague said legislative staff should, at minimum, check the registration status of charities tapped for public dollars and ensure they have submitted an intelligible proposal detailing their plans for using the money.

"For anyone requesting tens of thousands of dollars, it's not unreasonable to have them sit down and crank out a few paragraphs to tell you what their official name is and a rough budget," she said.

Gov. Henry McMaster, a critic of the earmark process, this year asked lawmakers to provide his office specific information about their requests, including written summaries, budgets and justifications for projects. Most members responded with information on their pet projects, but some did not, or provided so little detail the governor said he could not reasonably assess the worthiness of the request.

McMaster ended up vetoing 32 earmarks worth about $52 million dollars, including one due to the recipient's suspended charitable status.

He has proposed replacing the current method of doling out public dollars with a competitive grant process administered by state agencies, but has not gotten legislative buy-in.

Simrill said he opposes a grant process for earmarks because it transfers decision-making authority to unaccountable agency bureaucrats rather than letting elected officials decide what is best for their communities.

A grant process, he said, would favor lawmakers in leadership positions who are better able to exert pressure on the agencies tasked with making appropriation decisions.

"The (current) earmark process allows a member with one year of experience and a member with 30 years of experience and who is a chairman have equal access at helping their community," Simrill said. "I think that's an important distinction that needs to be part of the process."

Both Simrill and Peeler, however, said they are open to further reforms of the earmark process to ensure greater transparency and accountability going forward.

One possibility, Simrill said, is for both chambers to incorporate the governor's earmark disclosure form in their own budgeting process. If that is done, the finance committees could weed out unworthy projects before they vote on the spending plan.

"I would support something like that (earmark disclosure) sheet, and even beyond that," said Simrill, who proposed including additional questions about a charity's registration status and its fiduciary ties to lawmakers.

Peeler said he and his staff had not yet finalized protocols for next year's budget, but asserted that going forward no charitable organizations would be granted public dollars unless they were registered and in good standing with the Secretary of State's office.

"I am confident the projects will be vetted thoroughly and funded equitably," he said, adding that the House and executive branch must also fulfill its obligations to review earmark requests. " Only through working together can we ensure all appropriations are handled appropriately and in the best interest of our citizens."


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