Top court orders review of Columbia water, sewer revenue transfers

The South Carolina Supreme Court questioned Columbia’s practice of spending water revenue on things other than upkeep of its utility system in ordering scrutiny Wednesday of those transfers.

It stopped short of ending the 22-year-old practice, saying it is permissible at times.

But the state’s highest court unanimously sent the dispute back to lower courts for review after deciding “there are genuine issues of material fact as to whether the city’s expenditures of water and sewer revenues were lawful.”

Those transfers seem to have occurred without “any sort of periodic determination” by city leaders on the changing cost of utility service, the decision said.

“Simply put, the statutes do not allow these revenues to be treated as a slush fund,” the decision written by Justice John Kittredge said.

The ruling gives fresh ammunition politically to critics of the transfers, including some City Council members who oppose the practice.

It’s “a wake-up call to reform,” said political activist Michael Letts of Richland County, who was among a group who originally brought a legal challenge to transfers that some residents say is helping drive up utility bills.

Councilman Cameron Runyan called it a warning to stop diverting profits to other uses.

“If the highest court in South Carolina is struggling with whether or not this is legal, that ought to tell politicians something,” said Runyan, who initially supported the transfers.

The transfers are akin to “a corporation raiding a subsidiary financially without showing there is pressing need to do it,” Councilwoman Leona Plaugh said.

Mayor Steve Benjamin declined comment since the legal dispute is still pending. Mullen Taylor, the lawyer hired by the city to defend the transfers, couldn’t be reached.

The 5-0 decision by the top court overturns an appellate ruling that dismissed the challenge of the city’s practice.

Columbia has since 1993 siphoned away money generated by its utility service for various projects.

Between 1999 and 2010, $78.6 million was transferred for other uses, according to records, The State newspaper reported in 2010.

The total is more than $12 million during the past three years, according to the lawsuit seeking to stop it and restore that amount for upkeep and operation of water and sewage service.

Columbia is among many municipalities across South Carolina that divert money from utility service for other uses.

The challenge has created anxiety in other cities about possible loss of a key revenue stream that provides extra income for other services as well as holds down property taxes.

Transfers are permitted when there is a surplus of water and sewer revenue but it’s unclear if Columbia leaders complied with requirements allowing diversions, the ruling said.

Columbia utility customers, especially those who live outside the city and pay more for water and sewage service, complained loudly as City Council used the transfers to pay for things such as police, firefighters and economic development.

The transfers should end regardless of what the courts finally decide, Councilman Moe Baddourah said.

“It’s time to stop raiding the water and sewer fund,” he said. “We shouldn’t need a court to tell us this.”

Those complaints have led council members to start reducing the transfers by a third to $2.7 million this year. But other transfers sprinkled throughout city finances make the total as much as $7 million, Runyan said.

The legal challenge comes as homeowners and businesses across Richland County and parts of Lexington County face a series of major utility rate increases in coming months.

Those rate hikes are needed to repair Columbia’s aging and decaying water and sewage lines whose failures allow sewage to spill and pollute Midlands rivers, consultants have said.

The repairs are mandated in an agreement with the U.S. Environmental Protection Agency to make $750 million in improvements to end spills.

Five Points businessman Joseph Azar, also among the group that brought the challenge, said the ruling is a signal City Hall is in trouble.

“I regard it as a step forward,” he said.

Runyan is running for re-election while Azar is among those seeking a council seat in the Nov. 3 election.

Azar and Letts no longer are part of the challenge after courts decided they lack standing to make it.

Neither Frank Cumberland, the last member left in the group challenging the transfers, nor his attorney, Dixon Lee, could be reached for comment.

This story was originally published September 9, 2015 at 10:02 PM with the headline "Top court orders review of Columbia water, sewer revenue transfers."