How is Myrtle Beach getting $4.9 million? There’s a complex web of LLCs and a nonprofit

How exactly do the tax breaks work for Myrtle Beach’s new $22.3 million dollar theater ?

The answer is a complex map of LLCs and a nonprofit run by said local government. The arrangement is seemingly the first of its type in South Carolina, but calls into question the lack of transparency and leaves questions about the complicated financial maneuvers.

Myrtle Beach’s Chief Financial Officer Michelle Shumpert said the city had to work with the decades-old nonprofit Myrtle Beach Downtown Redevelopment Corporation to create other companies to get federal and state tax credits that are expected to total approximately $4.9 million, if not more.

However, the city is not simply working with a nonprofit; the city created the nonprofit, and high-ranking city employees comprise the board of directors.

The city-run nonprofit does not file a 990 form because its expenses are allegedly under $50,000 annually, according to Shumpert. She said the nonprofit does not have any paid staff.

Shumpert said she manages the nonprofit. She is already on the city payroll. Shumpert said the work she does for the DRC is as a volunteer and is not paid for by the City of Myrtle Beach for that work.

The DRC’s annual financial statements are included in the city’s annual comprehensive financial report, which is on the city’s website . Shumpert said they’re audited and published publicly every year.

The board of the DRC nonprofit organization manages a chain of LLCs.

“DRC is the manager, and I am the manager of the manager,” she said.

Nonprofitaccountingbasics.org states that nonprofits should have independence and that “board members should act independently and avoid conflicts of interest that could compromise their ability to act in the organization’s best interests.”

As far as conflicts of interests, the organizations that guides accounting and nonprofit management also states, “ Board members, particularly those in leadership positions, should disclose any potential conflicts of interest and recuse themselves from decision-making processes when conflicts arise.”

The DRC’s board members are mostly city employees, including Myrtle Beach City Manager Jonathan “Fox” Simons, Shumpert as the treasurer, and Assistant City Manager Brian Tucker. Two additional members include Jacob Smith and Jenny Halstead.

Jacob Smith is an attorney and a real estate developer with ownership of an ocean-front resort, according to his bio; he did not return The Sun News’ request for comment on Aug. 2, and his voicemail inbox was full on Friday. He’s also on the board of directors for the Myrtle Beach Chamber of Commerce and the Myrtle Beach Downtown Alliance, a separate nonprofit funded by the City of Myrtle Beach to nearly $2 million and tasked with revitalizing downtown.

Halstead, who is the executive director of eMYRge which operates the HTC Aspire Center in a city-owned building downtown said she only recently joined the board in the past couple of months after starting in her role at the HTC in March 2024, and has attended one board meeting in June since.

“I think being apart of eMYRge and being in support of the downtown redevelopment project, I know that they felt that I was a good fit just being so closely linked, and just being apart of that project, it made sense for them to have a presence like mine on the board,” she said over the phone on Friday.

Since joining the DRC as a board member, Halstead said she’s seen the organization’s bylaws and that they’re available to view through the city. She said she’s not a member of any other nonprofit boards in Myrtle Beach, so she did not sign any conflict of interest forms. But, she is the executive director of a nonprofit that does business with the city.

When asked if the theater’s financing was discussed at the June board meeting, she said the minutes are still being finalized.

“I think those minutes would have to be reviewed, I know those minutes are made public,” Halstead said.

How did the city get involved with running a nonprofit and forming LLCs?

According to Myrtle Beach Public Information Officer Meredith Denari, this maneuvering was all part of a collective goal to help revitalize downtown.

“I think it’s important to note. . . that these buildings could’ve sat empty and idle for longer, but that we did step in and we found an innovative way to turn them around for the benefit of the taxpayer and for families, and all Myrtle Beach residents, visitors,” she said.

The whole process began more than five years ago, when the DRC nonprofit purchased all three buildings that will make up the new theater downtown on Dec. 31, 2018, according to Denari.

“Because of the desire to preserve that historic architecture and preserve some of the histories of towns, state and federal governments offer credits,” Shumpert said. “The state of South Carolina offers state historical credits and abandoned building credits.”

She added that the DRC wasn’t created just for this project, but has been around for more than two decades.

As a local municipality, the City of Myrtle Beach cannot be a corporation.

That’s where the decades-old nonprofit downtown redevelopment organization and two brand new LLCs come in.

The State Historic Rehabilitation Tax Credit in South Carolina is meant for taxpayers, according to the South Carolina Department of Archives and History.

By structuring the theater project like this, the City of Myrtle Beach is attempting to use a nonprofit they founded, run by volunteers from the city and closely aligned board members, to create two taxable LLCs that will help them qualify for the state and federal tax credits.

Based on her knowledge, Shumpert said Myrtle Beach is the first municipality in the state to arrange tax credits like this one.

“As a government, we don’t pay taxes, so can’t take advantage of the credits,” she said. “A credit goes directly against your tax liability…and this is where the syndication comes in, and partnering with private companies. There are people out there who want those tax credits.”

In order to do that and take advantage of those credits, Shumpert said folks will buy the credits from them through a process called syndication.

Through the DRC owned MB Theater Manager LLC, which also owns the MB Theater Owner LLC. One of the LLCs subleases the building to the city.

The City of Myrtle Beach is effectively covering the construction loan payments through the cost of their sublease via a subleasing agreement approved by city council earlier this summer.

By organizing the finances of the new theater this way, Shumpert said the city should get at least $4.9 million off of that initial $22.3 million in loans since the LLC can accept the state and federal tax credits.

Shumpert defended the practice by claiming the goal of benefiting the public is achieved.

“You would have to be a member of a corporation for any sort of a tax credit to benefit directly,” she said. “Utilizing this syndication to capture the revenue from the credits and offset the cost to the public is achieving the goal that both the federal and the state governments wanted it to achieve.”

Shumpert also points out the city is using a “tool” that is not technically available to them.

“So while we as a government might not be able to directly utilize that tool that they government has provided, we are able to, through this process” she said.

Where is the money now?

The first installment of that credit, equaling approximately $80,000, was paid when the LLC closed the initial deal. Shumpert said the next installment of a much larger sum will come after they receive their certificate of occupancy.

At this point, the rough breakdown of what the tax credit totals will look like is $700,000 in state historical credits for the former Helen Mates Dress Shop Building, $3.5 million in the state abandoned building tax credit for all three buildings and $1 million in federal historical tax credits for the Helen Mates building, according to numbers provided by Shumpert.

Governance and transparency of the city-run nonprofit and LLCs

According to documents from the city, the ground lease for accounting purposes will transfer ownership of those buildings to the MB Theater Owner LLC.

The primary owner of that new company, with over 98% control, is listed as “Federal Tax Credit Investor Entity.”

The city-produced slides about the financing do not clearly state who is in charge of that entity.

The other owners are the equity partners that will be responsible for using the state and federal tax credits and pay the city back for them, Shumpert explained.

The MB Theater Owner LLC took out the $22.3 million loan from Pinnacle Financial Partners. That LLC is responsible for the construction of the project and the loan.

How does a newly formed LLC owned by a nonprofit with no assets qualify and qualify for a $22.3 million loan? Who signs off on all of that?

Shumpert said it’s the manager, who’s the DRC, so it goes back to them.

“So while the owner has the bulk of the ownership interest, the manager is the one who runs it,” she said. “That’s all important because the DRC makes a ground lease to the theater owner. So for tax purposes, for accounting purposes, the ground lease that’s 50 years is a central ownership.”

How is CCU involved in the downtown theater?

From there, Coastal Carolina University in Conway will sublease the theater from the city and operate the day-to-day operations once it’s completed.

“The city is involved because after this is done and we get the construction done, the theater owner subleases the property to the City of Myrtle Beach, and then we’re gonna sublease it to CCU,” Shumpert said.

The theater is set to be completed in the summer of 2026 and has not been formally named yet.

Once completed, the city will rent the theater to CCU, and the university will oversee the building’s operations.

According to financial records reviewed by The Sun News, the university is not contributing to any of the construction costs.