Beaufort County and Hilton Head leaders have issued a one-two punch to the Hilton Head Island - Bluffton Chamber of Commerce over its failure to divulge how it spends $3.3 million in public money.
This article was originally published by Island Packet. See original article by clicking here.
The chamber recently denied three Beaufort County Council members’ request for a slew of documents and accounting for how the chamber spends the money it gets from the county. One council member said the denial violated state nonprofit laws because Beaufort County is a member of the chamber with the right to inspect its finances.
A year ago, the chamber denied a request by Hilton Head Island leaders for quarterly reports on how the chamber spends the $2 million in tax money it receives each year from the town. Now, the town is inviting other marketing groups to bid for the designated marketing organization contract, which previously automatically went to the chamber.
The dispute between local governments and the chamber is important because the chamber is responsible for making sure tourism thrives on Hilton Head, in Bluffton and Beaufort County. The industry is Beaufort County’s largest, at $1.48 billion. Local governments provide 40 percent of the chamber’s $8.2 million marketing budget, but without an accounting of its spending, it’s hard to tell how successful the marketing effort is.
Council members Mike Covert, Chris Hervochon and Brian Flewelling wrote chamber president and CEO Bill Miles on Oct. 29, arguing that the public has a right to see how the chamber spends the more than $300,000 of county money included in its marketing budget. In fiscal year 2019, the chamber spent $3.3 million in public money for marketing, according to an audit published by Columbia-based accounting firm J.W. Hunt and Co.
The council members requested financial statements, a list of vendors the chamber uses for marketing, credit card statements and other documents associated with the organization.
When the chamber denied the request, Covert, who is running for Congress, forwarded the matter to S.C. Attorney General Alan Wilson’s office this week.
He suggested that the chamber’s failure to show how it spends tax dollars, even in a confidential setting, is against state law because Beaufort County is a member of the chamber.
HOW THE CHAMBER WORKS
The chamber is organized as a 501(c)(6) not-for-profit, a tax code reserved for business leagues and chambers. Under federal law, these types of organizations are required to disclose three years of IRS Form 990s and confirmation that the organization is tax-exempt.
State law says members of a nonprofit have the right to view and make copies of the organization’s accounting records if the request is made “in good faith and for a proper purpose.”
The chamber’s mission, as the designated marketing organization, is to increase tourism to Hilton Head Island and Bluffton through marketing efforts, according to its website.
Separately, the Beaufort Chamber of Commerce represents Beaufort, Port Royal and the sea islands, so those governments do not contribute money to the Hilton Head-Bluffton chamber.
The Hilton Head-Bluffton chamber budgeted $56,000 in fiscal year 2019 for an ad campaign in Travel + Leisure magazine, according to its marketing plan, which it posted online after The Island Packet reported on the chamber’s hesitancy to release spending summaries.
The island was named Travel + Leisure’s No. 1 island in the continental U.S. for the third year in a row.
VIOLATION OF THE LAW?
Miles, the chamber’s CEO, has repeatedly said the chamber is not a public agency but instead a private vendor for marketing services. He cites a 2018 South Carolina Supreme Court ruling that the chamber is not subject to the Freedom of Information Act.
The ruling, according to Miles, means the public has no right to ask the chamber how it spends tax dollars.
“We have consistently demonstrated complete compliance with, and in many cases, exceeded the transparency standards set forth by federal, state and local laws regarding accommodations taxes, DMOs, and non-profit organizations,” Miles wrote, adding that the chamber posts its marketing plans and budget summaries online.
In August 2018, Miles said showing municipalities more information about how the chamber spends tax dollars would give away the marketing organization’s “secret sauce.”
Contacted Thursday, chamber spokesperson Charlie Clark sent a copy of Miles’ letter to county leaders but declined to comment further.
‘WHAT ARE YOU HIDING?’
After Miles declined the county council members’ October request to view how the chamber spends public money, Covert forwarded the letter to attorney general Wilson and accused the chamber of violating the S.C. Nonprofit Corporation Act.
That law states that members of a nonprofit organization have the right to view and make copies of any record — including “appropriate” accounting records — of the organization “at a reasonable time and location specified by the corporation.”
In his letter, Covert said county leaders are stewards of the public’s money and de facto members of the chamber due to the county’s membership with the organization and, therefore, have the right to view how the chamber is spending public money.
To continually have to ask the chamber for this information, Covert said, “is certainly out of line and not appropriate.”
Covert also cited another portion of the law: If a nonprofit declines a member’s request to view records, a circuit court can order the inspection of the records.
“It’s very simple. It’s definitely not an attack on the chamber — they serve an important purpose. But it doesn’t matter if it was them or Mickey Mouse, what was done was improper,” he said. “That’s why I sent the letter to the A.G.’s office.”
He said the information is vital because it’s the county’s responsibility to tell the public how its tax money is being spent.
“We’re not accusing anybody of anything, because we can’t see it,” he said. “If you’re not willing to give the answer out, or if you’re not willing to make it [accessible] to the common guy, what are you hiding?”
WHAT DID COUNTY OFFICIALS REQUEST?
In the Oct. 29 letter to Miles and chamber board chair Chris McCorkendale, county council members Covert, Flewelling and Hervochon requested the following information related to how the chamber spent public money in the most recent fiscal year:
- Quarterly and year-end financial statements
- Copies of all banking statements and check disbursements
- Copies of all credit card statements
- List of vendors paid by the chamber and the total amount paid per vendor
- Documentation of all the chamber’s receipts to compare to all accommodations-tax and hospitality-tax money paid by the county and local municipalities
- Copies of the chamber’s 2018 state and federal tax returns
- The most current copy of the chamber’s bylaws and amendments
- Records of all actions taken by chamber officers or board of directors without a meeting
- All records that allow chamber members to determine their share of profits and losses
These requests go far beyond what the Internal Revenue Service requires a nonprofit organization to make publicly available, which is limited to annual returns for three years after the due date (Form 990), the organization’s application for income tax exemption, and confirmation from the IRS that the organization has tax-exempt status.
HOW MUCH MONEY DOES THE CHAMBER GET?
As the designated marketing organization for Hilton Head, the chamber gets an automatic allocation of accommodations taxes each year — taxes paid by tourists when they stay in a hotel.
The marketing duties are separate from the chamber’s organization of local businesses, although the body’s work directly benefits chamber members.
In the most recent fiscal year, $2 million in accommodations, or ATAX, funds were automatically allocated to the chamber from the Town of Hilton Head, according to the audit published by J.W. Hunt and Co. The county gave the chamber $283,904 in ATAX money during that time, according to the audit. Bluffton paid $204,703, the audit shows.
The chamber also applies for annual supplemental grants from Hilton Head. Last year, the chamber was awarded $646,321 in an additional grant to market awards the area has won, such as Travel & Leisure’s designation of Hilton Head as best island in the nation, as well as for golf advertising and video promotion.
Beaufort County gave the chamber a $21,000 grant for similar accolade marketing and a “destination photo and videoshoot,” according to the audit.
The chamber also periodically receives allocations for post-storm marketing. In 2019, the town gave $175,000 from its crisis marketing fund for the chamber to advertise after Hurricane Dorian. The chamber got the same amount in 2018 after Hurricane Florence — a storm that entirely missed Hilton Head.
“It’s all public money, and it all adds up,” Covert said. “We want to make sure every county dollar is spent wisely.”
LOSING HILTON HEAD?
The chamber is hearing calls for transparency on numerous fronts.
After a request from outgoing Hilton Head Mayor David Bennett that the chamber submit quarterly receipts for tax spending, the town finance committee agreed last fall to reopen the designated marketing organization position and allow other firms to compete.
In a Nov. 4 letter, finance chair Tom Lennox officially scrapped the automatic renewal on the chamber’s contract, which would have lasted for another five years.
The town requested bids for firms to act as the designated marketing organization, an attempt to formalize the contract the chamber had for years described as a “handshake agreement.”
At a Nov. 19 finance meeting, town council members reviewed the applications for the designated marketing organization, but have not announced a decision.