By Jessica Holdman
SCDailyGazette.com
COLUMBIA — The breakup of South Carolina’s public health and environmental agency and creation of a health campus happens July 1 by law. But the actual split and move of thousands of state health employees out of downtown Columbia isn’t likely to start until January at the earliest.
Legislators have approved the rental agreement, but they still need to officially pay for it through the state budget that’s weeks away from being finalized. Only after the budget takes effect July 1 can renovations to employees’ new office home begin.
The process will start with South Carolina taxpayers shelling out $30 million for a year’s worth of rent and building improvements for a former utility company office complex in Cayce.
The expansive, renovated campus will eventually house workers from four health-related agencies.
But they won’t occupy the space until six months or more into the first year of a 20-year contract being inked between the state and a Columbia-area real estate developer who’s also a political mega-donor.
The idea of splitting the state Department of Health and Environment Control and rearranging other public health services has been batted around for years in the Legislature.
Supporters argued the dual-purpose agency, with its roughly 3,000 employees, had grown too large and experienced a revolving door of leaders who couldn’t adequately handle its mission.
The agency has wide-ranging responsibilities that include tracking and preventing the spread of infectious diseases, permitting hospital expansions, inspecting health facilities and restaurants, as well as inspecting dams and monitoring air and water quality.
Last year, the effort succeeded, with Gov. Henry McMaster signing into law the bill separating the agency into the Department of Public Health and Department of Environmental Services.
At the same time, the state commissioned a study on its litany of other health-related agencies, laying the groundwork for future department mergers.
Uncertainty
Still, the massive overhaul has hit roadblocks, creating uncertainty for thousands of state workers.
An ultra-conservative faction within the state House pushed back and, on the last day of the regular session, succeeded in blocking part of the plans — at least temporarily.
With the clock ticking down to the mandated 5 p.m. cutoff May 9, members of the House Freedom Caucus blocked a vote, killing a bill that would have combined six health-related agencies into one Executive Office of Health and Policy, to be overseen by a director who answered directly to the governor.
The new mega-agency would have become South Carolina’s largest, with more than 6,300 employees.
It would combine agencies overseeing services for the elderly, mental health issues, disabilities, patients covered by Medicaid, and those addicted to drugs and alcohol, plus an estimated 1,140 workers brought over after the health and environmental agency breakup.
The idea was studied for more than two years by a private consultant hired by the state, who concluded in a report that “South Carolina is the most fragmented structure for health and human services delivery in the country.”
One of the architects of the bill still hopes to resurrect it in the Legislature’s extended session in June.
Legislators could take the unusual step of amending the temporary law that governs what they can tackle in the limited, extended session. But adding the health care merger to the agenda requires supermajority approval of both chambers. The chances are likely slim.
Confusion has ensued.
Columbia commercial real estate brokers say two of the agencies that are part of the proposed merger but not part of original plans to move — agencies that oversee Medicaid and services for the elderly — have switched to a month-to-month lease. They’re hesitant to sign new long-term leases in case they end up with a new boss.
Major moves
With the DHEC split underway, legislators last year decided the time was right to seek new offices for the divided agencies, as well as others located along Columbia’s redeveloping Bull Street corridor, House Ways and Means Chairman Bruce Bannister previously told the S.C. Daily Gazette.
The state Cabinet agency that serves as a clearinghouse for all state property was charged with finding buildings to rent. What it recommended was two locations: a campus for four of the state’s health agencies and a separate space for environmental regulators.
The estimated cost: $496 million over two decades.
That’s $335 million more than it would cost in operations and maintenance over 20 years to simply keep the agencies where they are, according to the state Department of Administration.
Specifically, the state agencies that provide services for people with disabilities, mental health issues, and alcohol and drug addictions, as well as the public health side of the divided DHEC, would move to the office complex of Dominion Energy in Cayce.
The environmental agency had been slated to move to the Columbia-area headquarters of the Colonial Life insurance company, which can hold almost 1,000 workers. But mere days after members of a legislative fiscal oversight board signed off on the office rentals, that deal fell through.
Realtors representing Colonial Life insurance company told the state it was unable to relocate an existing tenant and wouldn’t have space.
The beneficiary of what remains of that massive deal is Bill Stern.
The Columbia developer is a political mega-donor, giving mostly to the state’s ruling Republicans but also to Democratic incumbents. He is also chairman of the state Ports Authority’s governing board.
Stern retains the option to buy the Dominion property but has yet to close on the sale. The purchase price is unknown. Dominion has already relocated its employees to one of its other office buildings, according to area real estate professionals.
The entire deal depended on the Legislature funding it in the state budget that starts July 1 — a date that coincides with DHEC’s split, as per last year’s law. Legislators obliged, with both the House and the Senate setting aside $30 million:
- $11 million in lease payments (a rate which will go up 3% annually);
- $5.5 million to renovate the space to fit agency needs;
- Roughly $3 million for estimated annual property tax and utility payments; and
- $10.5 million on moving costs and the rent and utility bills to maintain agencies’ current offices while the new one is renovated, plus potential repairs to the new space. (The contract calls for the state to cover all repairs under $100,000.)
That doesn’t include yet-to-be-found space for the environmental agency and the Department of Social Services.
So far, the Department of Administration has been unsuccessful in its search for their new homes.
On Tuesday, the Legislature’s fiscal oversight panel told agency Director Marcia Adams to keep looking.
A better deal?
Though they ultimately failed, Freedom Caucus members also sought to kill the health care campus deal in the final days of the session, with one member questioning whether the Dominion Energy property was the best spending choice.
Administration faced a tough deadline and tight parameters, according to Rep. Jordan Pace, who works as a commercial real estate broker in the Lowcountry.
Given more time and flexibility, he argued, the state likely would have received better offers.
“Let’s at least do a favor for our constituents to not pay sticker price for something that we rushed into,” the Berkeley County Republican said. “We have other options if we take the time to look.”
The S.C. Daily Gazette reviewed the eight bids submitted to the Department of Administration for consideration.
Five of the properties were much smaller. They could house just one or two of the smaller agencies, though at a fraction of the cost.
Only three properties had enough space for a multi-agency complex.
The Department of Administration ruled one of them out quickly in the process — the former Blythewood headquarters of DXC Technologies — even though it would have cost taxpayers roughly $113 million less than the Dominion property over the next 20 years.
It’s unclear why. The vacant building along Interstate 77 had enough space for four of the health agencies, plus it had a fitness center, cafeteria, auditorium and lots of parking.
According to Administration, four properties were rejected for issues including noncompliance with the Americans for Disabilities Act, insufficient parking, ongoing construction, availability of amenities, and availability timeframe. But the agency didn’t specify which properties were passed over for which of those reasons.
If the state had been willing to wait until 2029, Colonial Life also claimed it could house all 4,000 state employees working at the five state agencies currently located along Bull Street at cheaper rates.
The add-on costs are what make the rental of the former Dominion offices so expensive.
Seven of the eight properties offered all-inclusive leases, with repairs and utility costs part of the rental rate.
Only Stern sought a so-called triple-net lease, leaving the state responsible for utilities, taxes and maintenance costs.
The deal also required the state to take on the whole campus, which is 118,000 square feet more than needed for the four agencies it will house but not large enough to accommodate DSS or the environmental agency.
And because maintenance is not included in the lease, the state must hire a property manager for the new campus. So far, it has been unsuccessful in finding one.
The other properties also offered several months of free rent, which would have saved the state money while it prepares the agencies to move. And the other property owners were willing to chip in to cover a portion or all of the alterations that the state needed, instead of leaving that cost to taxpayers.
But ultimately, if lawmakers were set on a 2025 move of multiple agencies and creation on a health care campus, only the Dominion property fit the bill.
Administration spokeswoman Brooke Bailey said the department is studying the potential for moving other agencies to the campus — though the small Department of Aging is likely the only other one that could fit in the leftover space.
What’s next
The Department of Administration will list for sale the Department of Mental Health, the only Bull Street area building to be fully vacated at this time.
As a major redevelopment project in Columbia’s Bull Street District takes shape, the land the building sits on has become more valuable.
One other financial task still remains to make the environmental and health split happen.
House and Senate budget negotiators must decide whether to approve $20 million in one-time spending that agency officials say they need to have two separate information technology offices, with costs including a second set of software licenses.
So far, the two agencies have already spent $1.5 million for IT-related costs. Environmental Services also has spent $55,000 with a pair of companies — Chernoff Newman for marketing services and A3 Communications for a new secure ID badge system.
All in, the split and move is expected to cost taxpayers upwards of $60 million dollars in the first year and at least $13 million to $20 million annually for the next two decades.
Jessica Holdman writes about the economy, workforce and higher education. Before joining the S.C. Daily Gazette, she was a business reporter for The Post and Courier.
S.C. Daily Gazette is part of States Newsroom, the nation’s largest state-focused nonprofit news organization.
