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City Council April 23

Could City recover more from Danny Malony's assets?
To join battle with travel agencies in tax dispute
Marc Knapp

Two items dominated last night's meeting of City Council. The first related to the recovery of funds from the assets of Mr. Daniel Malony. The second was a possible suit against internet travel agencies for the recovery of taxes that the City claims it is owed. Both items were added to the agenda at the last minute, and there were no documents available for perusal by the public.

Where was the outrage?
Listening to the discussion last night, it was hard to believe that Mr. Daniel Malony was serving a 30-month jail sentence for embezzling funds from the City. The City attorney, who was describing the steps taken to recover funds, referred to Mr. Malony always as Danny. This habit was taken up by other Council members. Council member Shirley, who was acting Chairman of the Ways and Means committee, described Mr. Malony as a member of a family very close to the Mayor. It was hard to discern any measure of outrage as to what Mr. Malony had done. Most members of Council thought that it would be good to get the matter behind it and to move on.

Family trust makes offer to City
Councilmember Fishburne was not in such a hurry. At issue was the recovery of funds from a property held in trust for the Malony family and in which Mr. Malony had a 1/7 interest. According to the City attorney, the court determined some time ago that the City could recover $635,000 from Mr. Malony to make up for some of the funds embezzled. So far, approximately $230,000 had been recovered in relation to this amount. To make up part of the balance, the City looked to the 1/7 interest in this family trust. The Isle of Palms property which the trust owns was appraised by the County in its last revaluation at $1.4 million. On this basis, the 1/7 interest would be worth $200,000. The trustees have offered to pay the City $165,000, roughly a discount of 20% to the appraised value.

The City attorney, subsequently supported by the Mayor, suggested that it would be best to accept this offer. She was unsure as to whether the City could force the trustees to liquidate the property to enable full recovery. There were also the consideration of legal and realtor fees, and the burden of property taxes during the possible liquidation process.

Council member Fishburne questions the appraised value
Council member Fishburne, seemingly the only council member without tears in his eyes, raised a legitimate question. Property values had moved up sharply in the Isle of Palms in recent years, and the appraised value by the County Council was not an accurate measure of the market value. He also pointed out that the valuation by the County was done to 2 years ago. He thought the property could be worth about $2 million, not $1.4 million, with the implication of course that the City was "short-changing" itself.

The attorney responded with the same arguments she had first used, but also added that negotiations had begun 2 years or so ago and the stated values were then appropriate.

The Council sided with her and voted to accept the amount. It did not need persuading but Council member Shirley noted the drastic impact that the actions of Mr. Malony had had on the Malony family. "Danny" was now in jail and will have to live with the consequences of his action "until the day he dies". And he also declared that the Council was not "sweeping anything under the rug".

Funds likely to be recovered from sales of house
The City is likely to recover more funds from the assets of Mr. Malony but the total will still be well short of what it is owed. The attorney indicated that the City is likely to recover $130,000 from the sale of a house jointly owned by Mr. Malony and his wife. The house is to be sold on the market but the repayment of mortgages will whittle down the City's share of the proceeds.

Joins law suit to claim extra taxes
We wonder about the other important item discussed last night. It was the intention of the City to join a number of others cities throughout the US to recover taxes that are allegedly owed by some Internet travel agencies on hotel bookings. However, as the lawyers will be acting for the City on a 25% contingency basis, the cost to the City if the suit fails will be negligible. We are not holding our breath.

What the hotel agencies were doing is best explained by an example. Say a normal room rate was $150 per night; an hotel would offer the room to the agency at $50 a night. And if the agency found a customer, $50 would be the amount the hotel received. The agency would also pay taxes, in particular, accommodation taxes that related to the $50 amount. At issue is that the customer was charged $100 for the room. The travel agencies claim that the $50 difference between what it received and what it paid to the hotels was a management and marketing charge. No taxes were payable on this extra $50. The City of Charleston will claim that taxes should have been paid on $100.

Other Cities are making claims
The Mayor and others went at length last night to say that hotels were not the target of the suit and would be unaffected. A spokesman for the attorney acting for the City said that he was approaching other municipalities of the County to ask as to whether they would join the suit. He also noted that a number of other major cities in the US had filed suit against the internet agencies and included Philadelphia, Los Angeles, San Diego and Chicago. The Statute of Limitation relating to tax matters confined the claim period to 3 years, the attorney said. It was noted that the practice had been going on for a longer period.

Sensing that nothing would be lost, Council voted to join the suit. The agencies include Expedia Inc., Priceline.com, Cheap tickets Inc., Orbitz Inc., Travelocity.com, and some other big names. Clearly there will be no shortage of funds to fight the suit brought by the cities.

I have to wonder what the Mayor was trying to accomplish with adding the Maloney case and the internet travel agencies lawsuit to the agenda at the last minute? Both stories were in the Post & Courier on Tuesday morning and they seemd like a "done deal". What makes these items even more suspect was the fact that the Mayor made it sound like he was breaking with normal protocol. He was going well beyond the public's right to know by not going into "executive session' on these two items. The puiblic are excluded from these sessions. How naive does the Mayor think we are? Everything that was discussed or presented had already been reported in the paper that morning.

Drainage issues with lot in Wegener Terrace
Most of the other items before Council were essentially of housekeeping nature. There were some budget adjustments, and of course, the usual plethora of zoning changes. One change that generated some heat related to a plot owned by SCE&G on the corner of Piedmont Avenue and Simon Street in the Wagener Terrace area. This plot previously was classified as Conservation. The utility now planned on selling and sought a rezoning. The Planning Commission recommended that the single-family residential (SR-2) classification be adopted. This was supported by the Clement, Crawford and Thornhill agency which represented the utility. Some local residents protested and claimed that development of the lot would lead to drainage problems of the area. All speakers pointed to the considerable drainage problems that presently exist and the representative from Clement agency suggested that they related more to the general area and not specifically to the lot. One speaker suggested that it would be a nice gesture if SCE&G donated property to the City to enable retention as green space.

The decision was deferred to allow more discussion between residents and the utility.

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