Power Grab: STIB Directly Paying Companies Millions

June 1, 2015

Investigative Reports

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Money HandshakeMost folks probably think of the State Transportation Infrastructure Bank as just that – a bank that finances major highway and bridge projects.

S.C. Rep. Chip Limehouse, R-Charleston and a member of the Infrastructure Bank (STIB) Board of Directors, described the bank, created by the Legislature in 1997, as a “funding arm” in a recent (Charleston) Post & Courierstory.

But in addition to providing funding to the state Department of Transportation and local governments, STIB in recent years also has assumed the role of a general contractor or project manager, paying millions of dollars directly to certain companies for work on projects, The Nerve found in a review of state treasurer records obtained under the S.C. Freedom of Information Act.

The Nerve’s review found that from Jan. 1, 2010 through March of this year, STIB directly paid a total of about $111 million in 248 payments to 12 companies, which represents nearly 40 percent of the nearly $279 million in all STIB payments made during the period. STIB also paid lesser amounts to dozens of other businesses.

Of the top-12 total amounts paid by STIB to companies during the period, five involved projects in Florence County, according to information provided to The Nerve by a STIB official.

Florence County is the home county of Senate President Pro Tempore Hugh Leatherman, R-Florence, and the other legislative member of the seven-member STIB Board. Leatherman also has considerable influence over transportation funding in South Carolina as the Senate Finance Committee chairman; a member of the Senate Transportation Committee; the Joint Bond Review Committee chairman; a member of the Joint Transportation Review Committee, which nominates candidates to the Department of Transportation Commission; and a member of the S.C. Budget and Control Board’s governing panel, chaired by Gov. Nikki Haley.

The Nerve reported last week that STIB since 2010 has made a total of 642 payments to Florence County – mainly to the Florence County Clerk of Court’s Office – which represents nearly 19 percent of the total 3,413 payments made by the bank during the period. The largest payments to the county, according to a county official, primarily were deposits for court-ordered judgments in property condemnation cases involving the proposed Pamplico Highway expansion project, which some residents and others have criticized as unnecessary.

STIB has funneled several billion dollars over the years for large, mainly expansion projects in select counties, which critics contend was based more on political considerations than on objective criteria.

The state law that created STIB doesn’t specifically say it can directly pay vendors for work on transportation projects. Instead, the enabling language (Section 11-43-120 of the S.C. Code of Laws) is more general:

“The corporate purpose of the bank is to select and assist in financing major qualified projects by providing loans and other financial assistance to government units and private entities for constructing and improving highway and transportation facilities necessary for public purposes including economic development.”

Contacted recently by The Nerve, Tami Reed, an accounting manager with STIB, said in a written response that the STIB law and “the other authority that state agencies have to operate and make expenditures” give STIB the legal authority to pay vendors directly.

“Requests for payments on eligible project costs on approved projects are made pursuant to Draw Request procedures in Intergovernmental Agreements on each project,” Reed said in her response. “This method is preferred and more prudent than giving projects’ sponsors/grantees large sums of money; their making the payments; and then the Bank later determining if it was for an eligible project cost.”

“It also allows the Bank,” she continued, “to directly maintain and access the expenditure records on projects rather than having to ask the project sponsor/grantee for reports on projects.”

But neither Reed nor Debra Rountree, STIB’s director, could cite any specific sections of law granting STIB the authority to directly pay vendors.

Top STIB Payees

The Nerve’s analysis found that the following 12 companies – mainly road construction and engineering firms – received the top total amounts from STIB from Jan. 1, 2010, through March of this year:

  • Flatiron Construction Corp.:  $28.96 million;
  • Gulf Stream Construction:  $26.98 million;
  • Southern Asphalt:  $12.34 million;
  • Bellamy Rutenberg Copeland Epps (The Bellamy Law Firm):  $9.33 million;
  • Safeco Insurance Co. of America:  $7.61 million;
  • C.R. Jackson Inc.:  $6.32 million;
  • CDM Smith:  $4.29 million;
  • ICA Engineering Inc:  $3.64 million;
  • Blythe Construction Inc:  $3.5 million;
  • Transystems Corp:  $2.73 million;
  • Wilbur Smith Associates*: $2.48 million; and
  • Civil Engineering Consulting Services:  $2.48 million

*merged with CDM Smith in 2011.

During the period, a collective $110.71 million was paid to the 12 companies, representing 39.7 percent of the total $278.76 million in all payments made by STIB, The Nerve’s review found. STIB paid a a total of $64.7 million to DOT during the period.

Elizabeth Hudson, spokeswoman for Colorado-based Flatiron Construction Co., told The Nerve when contacted last week that Flatiron is working on the I-85/I-385 interchange project in Greenville County and was awarded the contract to build the new Carolina Bays Parkway between Myrtle Beach and North Myrtle Beach. She declined comment on why STIB directly paid Flatiron, referring The Nerve to state transportation officials.

Contacted Friday, Mark Hylton, vice president of Gulf Stream Construction, based in North Charleston, told The Nerve that STIB payments to his company were for the U.S. 17 North widening project in Mt. Pleasant.

“They just told us that part of the funding for the project would come through the Infrastructure Bank,” he said, adding that the town of Mt. Pleasant also paid his company for its part of the project.

Asked if that project was the only one in which STIB directly paid his company, Hylton replied, “I believe that’s the only one.”

Gulf Stream Construction is a subsidiary of The Beach Co. Charlie Way, former head of the state Department of Commerce, is board chairman of The Beach Co.; his nephew, John Darby, is the company president and CEO.

In her written response, Reed noted that payments to Southern Asphalt, The Bellamy Law Firm, Safeco Insurance Co., C.R. Jackson Inc. and ICA Engineering Inc. involved Florence County projects, though she didn’t give specifics. The Nerve last week left written or phone messages with most of the firms seeking details on their payments, though all but one either didn’t respond or didn’t provide answers by publication of this story.

In a prepared statement issued Saturday to The Nerve, Adrianne Kaufmann, a spokeswoman for Liberty Mutual Insurance, the parent company of Safeco, said, “Any funds received by Safeco Insurance Company of America were as a result of Safeco completing contractual obligations of a defaulted contractor under the applicable surety bond(s).”

Kaufmann declined to reveal the identify of the contractor in question, referring The Nerve to state officials.

Company Connections

Since fiscal 2013, Columbia-based C.R. Jackson Inc., which made the above top-12 STIB list, has been the top recipient of Department of Transportation funding – $90.56 million – among two dozen corporate members of a nonprofit group called the South Carolina Alliance to Fix Our Roads (SCFOR), which is pushing for an increase in the state’s gas tax, as The Nerve reported in March.

The Nerve in March reported that another company making the top-12 STIB list – CDM Smith, a Massachusetts-based global engineering and construction firm – was awarded a nearly $2.4 million contract to produce a report on future transportation needs in South Carolina. That report, which was adopted by the DOT Commission last December, projected more than $70 billion in transportation needs to 2040, including $2.4 billion for the proposed controversial Interstate 73 project, and another $1.2 billion for “bicycle accommodations.”

The Nerve in February reported that in addition to payments from STIB, CDM Smith had received a total of more than $7.6 million from DOT since fiscal 2012.

CDM Smith and two other companies on the top-12 STIB list – ICA Engineering and Civil Engineering Consulting Services (CECS) – have been employment destinations in recent years for top DOT staffers while receiving millions from DOT, The Nerve reported last month. CECS and ICA also were among a group of companies that wined and dined DOT commissioners last year before commission meetings, The Nerve also revealed.

The Nerve last month reported that average annual funding for DOT’s state highway maintenance program dropped by more than $40 million, or  nearly 16 percent – 25 percent when adjusted for inflation – during Haley’s first four years as governor compared to the previous administration.

For next fiscal year, which starts July 1, STIB would receive $255.4 million under state budget versions proposed by both legislative chambers and Haley – an approximately 394 percent hike since fiscal 2012 when adjusted for inflation.

South Carolina Policy Council research intern Danny Morris contributed to this story. Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.