Updated: ‘A very big red flag.’ The city says they’re committed to transparency, released docs

Three abandoned buildings will one day become a theater.

But the journey to get there is “weird” and complex at best.

The cost for this? It’s over $22 million of government money.

The goal? For the LLCs to get at least $4.9 million in state and federal tax credits.

Where’s all that money coming from? A nonprofit called Myrtle Beach Downtown Redevelopment Corporation with a web of private LLCs that are muddled in mixed definitions and transparency.

When asked simple questions about the structure, politicians, nonprofit experts, and state employees in Columbia seem perplexed. These experts and leaders say they’ve never heard of something like this before.

Policy analyst Sam Aarons from the South Carolina Policy Council said that just because it seems like the city can structure the project like this doesn’t mean they necessarily should.

“The whole thing is very odd,” he said. “I would say this whole structure is very confusing at a minimum, intentionally vague at worst.”

A new downtown Myrtle Beach theater will be paid for by taxpayers and worked on by taxpayer-funded employees volunteering their time to a city-owned nonprofit. The lease agreement for the new theater carves out 150 minimum “use” days for CCU for plays and other performances and 100 other days available for third-party use via CCU. The city will have 30 “use days” a year based on the lease.

Myrtle Beach Mayor Brenda Bethune said on Tuesday that the theater is a core part of revitalizing downtown, which will benefit everyone once it’s completed.

Records show that the university isn’t contributing to the theater’s construction costs but will instead sublease it from the city after it is built.

Weeks prior, in a wood-paneled conference room on the second floor of Myrtle Beach’s City Hall, the city’s Chief Financial Officer, Michelle Shumpert, and spokeswoman Meredith Denari explained all of these financial logistics. At that meeting, Shumpert said this is how municipalities can use a “tool” to obtain the tax credits.

The “tool” is necessary because governments “can’t” apply for and receive these tax credits, Shumpert said in a sit down with city officials Tuesday.

However, by using nonprofits and LLCs as part of that “tool,” taxpayers could be left in the dark about what’s truly going on with their government and leaders.

In that case, what kind of government operation is really at play in Myrtle Beach?

What is a shadow government?

It’s a theory that believes that the political power lies not with publicly-elected officials, but with private citizens or organizations who are the ones actually making the decisions in the government, according to the Council on Foreign Relations.

The term became widespread after the 19th century book, “The English Constitution,” by journalist Walter Bagehot was published. In it, he talked about the duality of the British government, suggesting that one part of the government was for popular consumption, and the other was hidden, and meant for getting things done in the world.

In the case of Myrtle Beach, the city is not simply working with an outside nonprofit; the city created the nonprofit decades ago, and high-ranking city employees, including Chief Financial Officer Michelle Shumpert and Assistant City Manager Brian Tucker, and City Manager Jonathan “Fox” Simons, comprise the majority of the board of directors.

Shumpert previously 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.

In a research paper by American academic and Tufts University professor, Michael Glennon hundreds of years after Bagehot’s book was published, Glennon explored the same tropes.

A review of his work said he, “takes our political system to task, arguing that the people running our government are not our visible elected officials but high-level—and unaccountable—bureaucrats nestled atop government agencies.”

The nonprofit that Shumpert allegedly volunteers for alongside Tucker is the owner of the first LLC, who then owns the second LLC.

So within this complex financial map for the new theater in Myrtle Beach, all roads lead back to high-ranking city employees.

In a sit down with Shumpert, Simons, Denari, Mayor Brenda Bethune, assistant city attorney Amy Neuschafer and city council member Bill McClure they vehemently guaranteed government transparency.

A day later, on Wednesday, Denari sent this statement via email in response to a request from The Sun News for a city statement on their transparency:

“The City of Myrtle Beach has been transparent about downtown revitalization, specifically the theatre’s financing structure. All City Council and Downtown Redevelopment Corporation (DRC) meeting schedules, agendas and documents have been publicly available on the city’s website and in the Friday Fax since the week prior to the meeting. The public meetings and publicly available documents include the City Council and DRC meetings where the theatre, its financing structure and tax credits were publicly explained and discussed. The Sun News has been in receipt of and had access to these documents as has the rest of the public. For full transparency, ‘The Sun News’ should inform readers that all of this information has been available to them and the public. The most recent theatre discussion meetings occurred on the dates of February 12, 2019, September 8, 2020, September 22, 2020, December 8, 2020, February 27, 2024, May 28, 2024 and June 4, 2024. ‘The Sun News’ reporter, Elizabeth Brewer, also was invited to sit down with Chief Financial Officer Michelle Shumpert and myself to ask questions and learn about the theatre’s financing structure in a meeting Brewer recorded. The city cannot be blamed for a ‘lack of transparency’ when ‘The Sun News’ has not absorbed or researched the information publicly available for years and given to them, when asked, by the city.”

There was agreement among the six individuals that everything with the DRC, including board meetings, financing documents and all records are completely open to the public.

Transparency and ethics issues with the theater’s finances?

The way that this project is structured is unlike anything South Carolina policy analyst Sam Aarons said he’s ever seen before.

But new isn’t always a good thing.

After reviewing a city-produced and shared flow chart , he said the whole structure looked weird and confusing.

“That seems to be a common trend with these local governments and state government kind of groups, they talk about economic development, and it’s really just a nice way to say we’re going to spend a lot of money,” Aarons said. “I would say that money is probably not deserving to be spent in that manner, or at least if it is, the public should be informed of how their money’s being spent, and should be able to at a minimum hear how they’re going to spend it.”

For Aarons, the city’s financing of this theater and the flow chart trying to explain it raise red flags with government transparency.

“I think that all of the variables of the city establishing nonprofits and LLCs, the LLCs utilizing these tax credits in conjunction with none of these nonprofits filing 990s [and] Coastal [Carolina University’s] non-contribution when they seem to be like the direct beneficiary of the entire thing. All of that is definitely a very big red flag,” he said noting that it’s unclear who really benefits from all of these financial gymnastics.

“Like somebody’s directly benefiting from it, and I just don’t quite know who,” Aarons said after studying the flow chart.

New Myrtle Beach City Council member Bill McClure ran his campaign on keeping the city out of the real estate business.

“The city should not be in the real estate business,” he told a reporter in October 2023. “Let businesses do the developing.”

He suggested that all questions about the detailed financing structure of the theater project should go to the city’s CFO.

“I ended up voting ‘opposed’ to the project on the second reading of the ordinance,” he said about the theater via email to The Sun News on Friday.

Over the phone later that day, he said he was the only council member to vote against the theater project.

He said that the estimate of the total project, including everything, is closer to $31 million. McClure said he took that number and divided it by the number of square feet that the theater and two storefronts next to it would be, and he thought that total was really high.

“It is an exorbitant number. I just could not stomach it,” he said on the phone. “Love to see downtown in that area be redeveloped, but I’m just certain that the benefit that the taxpayers would get out of it is going to be negligible. So I voted against it.”

As for the financing structure of the deal, McClure said as far as he knows, it’s legal.

“So it’s complicated, it’s legal, but again, open it up for everybody to look at it. They may not understand it, but I’m in favor of total transparency,” he said. “And I think the city has been fairly transparent about it. Maybe they could have done more, but, you know, hindsight is always 2020.”

People don’t want to talk about the tax credits for the theater

With all the calls and emails sent asking for more information on this project, the majority of people said “no comment,” or they didn’t know anything about it.

South Carolina state Sen. Luke Rankin and House Rep. Thomas “Case” Brittain did not return The Sun News’s request for comment on the theater’s financing.

Rankin’s fellow state Senator, Stephen Goldfinch, said he didn’t want to comment on something he didn’t know—the theater’s financing structure.

“I’m not familiar with the structure, or the theater, or how they structured any of that,” he said. “So I really can’t comment on that, because I just don’t know.”

All three elected officials pushed in their respective legislatures for Myrtle Beach to receive approximately $10 million in state earmarks .

All $10 million was pitched as going towards the downtown revitalization plan, which Goldfinch said was much needed, and called the current state of the area an “absolute disaster for the last 20 to 30 years.”

“So I mean, I’ve totally bought into the idea that Mayor Bethune has about changing downtown, and she doesn’t want it to remain what it is, she wants to change it,” he said. “She doesn’t want those issues that are downtown to be her legacy.”

He said that theater talks weren’t specifically included in preliminary discussions about what the $5 million from the senate’s earmarks would be spent on, and that’s not how those discussions go.

“But I’m not sure there was ever a specific mention of any theater or anything like that,” Goldfinch said. “We don’t break them out like that and fund or not fund based on buildings within a downtown redevelopment project.”

Politicians weren’t the only ones who didn’t want to discuss the theater.

The organization Together SC is “the only statewide membership organization focused on bringing together South Carolina’s leaders and partners to strengthen the state’s entire nonprofit community,” their website states.

Spokeswoman for Together SC, Brooke Robertson, refused to speak to The Sun News about the DRC and their financial structuring with the tax credits for the new theater.

“We would like to provide no comment at this time,” she said via email.

The Sun News also raised questions about the legality of this financing structure and brought them to the South Carolina Attorney General’s Office.

A spokesman for the office, Robert Kittle, said they were unable to answer them and that they were out of their office’s jurisdiction. As a matter of policy, the AG’s office only gives opinions and not official legal advice on whether something is legal or not, he explained.

Is the City of Myrtle Beach following the law with its nonprofit records?

The most straightforward question of this project, which no one outside the City of Myrtle Beach seems to be able to answer, is whether this is all legal.

At the South Carolina Secretary of State’s Office, their public information director and general counsel, Shannon Wiley, said this structure isn’t something she’s seen before.

Based on records Wiley combed through, she said that the nonprofit that owns the LLCs, the Downtown Redevelopment Corporation, hasn’t filed a 990 tax form with their office since 2009. Wiley said that technically, they’re not required to if their expenses are less than $50,000 annually.

A 990 is a tax form that’s utilized by tax exempt organizations, or nonprofits by the United States Internal Revenue Service. They’re public documents that are accessible by anyone, and an important way for the public to ensure that nonprofits are not engaging in fraud.

Bylaws of registered nonprofits are also not required to be submitted to the Secretary of State’s Office in South Carolina, but, Wiley said sometimes entities will send them in anyways along with their articles of incorporation.

Records show that the DRC wasn’t one of them.

She also said that the DRC wasn’t listed as a charity with the Secretary of State’s Office.

Accessing the bylaws as a matter of public record is a tricky question, Wiley explained.

“If it’s a nonprofit and they receive public money, they could conceivably be subject to the Freedom of Information Act, but that would have to be determined by a court,” she said. “I don’t know if the Myrtle Beach Downtown Redevelopment Corporation has gotten public money or not, but if not, then that would not be public record.”

When asked by The Sun News for a copy of their bylaws, after being told by board member Jenny Halstead they were public, assistant city manager and other DRC board member Brian Tucker funneled the request to the city’s new FOIA paralegal, Agatha Puleo.

“I’ve requested. I am treating this as a FOIA just to make sure we don’t lose track of your request,” Tucker wrote in his email.

Those documents were sent to The Sun News at 4:12 p.m. on Tuesday from Puleo.

Puleo is not listed as a board member for the Downtown Redevelopment Corporation and is paid for by city funds.

Federal laws in the United States state that private nonprofits are not required to release their meeting minutes.

Some states have Sunshine Laws, which are public transparency statutes, but they usually only impact public entities and not private nonprofits. In Florida, if a private organization is created by a public municipality or group, they would probably be required to adhere to the Sunshine Laws.

In South Carolina, Wiley said such laws pertaining to nonprofits currently don’t exist, and haven’t been brought up during legislative sessions in Columbia yet.

Editor’s Note: This article has been updated to reflect the city leaders’ responses following a meeting they called with the Sun News on Tuesday, Aug. 20, 2024. (Updated 3:50 p.m. Aug. 20, 2024) The story was updated to reflect when the city provided the FOIA documents and the headline was also updated at that time to reflect that on Tuesday, Aug. 20, 2024. (Updated 5:31 p.m. Aug. 20, 2024) The story was updated with the City of Myrtle Beach’s statement on their transparency and updated the headline on Aug. 21, 2024. (Updated 2:17 p.m. Aug. 21, 2024). This story was updated to provide the usage number for CCU and clarified the “tool” could lead to transparency issues. (Updated 3:52 p.m. Aug, 21, 2024).