Why won’t Myrtle Beach ask for a legal opinion & does nonprofit work break federal laws?

The City of Myrtle Beach responded “no” to two questions about the downtown theater.

After repeated requests from The Sun News, the City of Myrtle Beach said it would not provide a written legal opinion about the theater’s financial structure and denied any claims that having city-paid staff work as unpaid volunteers for the Downtown Redevelopment Corporation violates the federal Fair Labor Standards Act.

These questions follow months of public discussion about a new $22 million theater downtown. With interest, loan documents show the theater is expected to cost closer to $31 million. The project consists of gut-renovating three historic buildings in downtown Myrtle Beach and creating a 300-seat theater in partnership with Coastal Carolina University.

After meeting with staff from The Sun News in August, assistant city attorney Amy Neuschafer refused to answer if the structure involving the Downtown Redevelopment Corporation and two LLCs was legal.

“I don’t make that assessment, that’s why we have hired experts,” she said at an in-person meeting called by top city staff. “I’m not going to give you a legal opinion. That’s not my job.”

The Sun News has asked the city leaders, city attorneys, and attorneys hired by the city if it is legal for a town to own a nonprofit, which in turn creates LLCs to get tax credits since the city does not pay state or federal taxes.

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 expected to total approximately $4.9 million if not more.

The city has partnered with a “Federal Tax Credit Investor Entity,” which will own 98.99% of the LLC. According to city staff, that entity is a company called Tax Credit Marketplace based in Greenville, SC. The city encouraged the Sun News to speak with the company as experts in the field, but company officials have declined interviews on several occasions and not returned calls.

Days after the city requested an in-person meeting, The Sun News contacted and spoke with Robert Lewis, the city’s hired attorney for the theater project, from the firm Rogers Lewis Group LLC, based in Columbia, South Carolina. The question of a legal opinion about the overall structure was also posed.

“I think it’s better to ask the city about that, every city you know has different ordinances, different regs, but the city can certainly own property, and I think the city can own for profit or nonprofit property,” he said. “I know of no law or ordinance or regulation that would prevent that.”

A nonprofit owning an LLC to get tax credits is legal and something Lewis said he’s seen before, noting that he knows of one other city that has structured a deal like this.

Lewis said he could not give the names of those cities or towns that he’s worked with before because of attorney-client privilege.

The city also declined to give the name of the other city.

In response to a later question asked via email about if the city would provide a written legal opinion regarding the legality of a city to own a nonprofit that in turn owns multiple LLCs, spokeswoman Meredith Denari said it was not appropriate.

“The City Attorney’s Office provides legal counsel to the mayor and City Council, the city manager, employees of City departments, and the city’s boards and commissions,” Denari said via email on Aug. 26, 2024. “It is not appropriate for the City Attorney’s Office to provide legal advice or opinions to the media or public, nor does the city obtain written legal opinions from attorneys to provide to the media or public. The Sun News should consult with independent legal counsel if it wishes to obtain a legal opinion.”

Later on in the same email exchange, The Sun News asked again if the City of Myrtle Beach would ask South Carolina’s attorney general for a legal opinion on the structuring of this deal.

“No. This was addressed in our meeting,” Denari said in reply.

The City of Myrtle Beach told The Sun News they will not ask the AG’s Office for an opinion on the overall structure.

Weeks earlier, Communications Director for the South Carolina Office of the Attorney General Robert Kittle said his office does not provide written legal opinions to members of the general public, including the media. Instead, municipalities would need to reach out to the AG’s Office to request a legal opinion on the matter.

The DRC is a city-founded nonprofit organization, according to its bylaws.

Currently, Myrtle Beach staff comprise three of the five positions on the board of directors. They are the city’s Chief Financial Officer Michelle Shumpert, City Manager Jonathan ”Fox” Simons Jr. and Assistant City Manager Brian Tucker.

Part of their jobs in those positions require them to volunteer for the DRC by serving on the board of directors. Shumpert previously confirmed that she is not paid for her volunteer work with the DRC.

“Public sector employers may not allow their employees to volunteer , without compensation, additional time to do the same work for which they are employed,” the U.S. Department of Labor Fair Standards Act states.

In response to queries about if the DRC roles occupied by Shumpert, Tucker or Simons violate federal law, Denari replied on behalf of the city stating it does not.

“No,” her email reply said. “The Bylaws state that, by default of their position, Fox (city manager), Brian (assistant city manager) and Michelle (chief financial officer) serve on the Board of Directors without compensation.”

In recent weeks, the city’s Freedom of Information Act paralegal Agatha Puleo has responded to requests for documents from the DRC made by The Sun News. She later completed a FOIA request that asked for a copy of the nonprofit’s bylaws.

At the DRC’s last board meeting in June which met for eight minutes and produced a unanimous vote in favor of the $22 million loan for the theater, the city clerk was in attendance taking notes, according to meeting minutes.

The Sun News asked if directing either city employee to do work for the DRC violates the Fair Labor Standards Act.

“No,” Denari said via email. “The DRC is a City of Myrtle Beach affiliate and the city is in possession of the documents requested through FOIA. We comply with FOIA by providing those documents, when requested.”