Agencies Raid Special Funds of $9.3 Million

September 2, 2010

Investigative Reports

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The NerveSix state agencies last fiscal year received approval to transfer about $9.3 million collectively from earmarked or restricted accounts to help cover general fund cuts from the previous year, records show.

Those agencies were allowed to do that because of a state budget proviso at the center of a pending lawsuit challenging the authority of Gov. Mark Sanford and the S.C. Budget and Control Board to transfer $13.3 million from a special BCB account to keep that agency operating temporarily this fiscal year, which started July 1.

The S.C. Supreme Court hasn’t decided yet whether to hear the July 30 petition brought by Timmonsville Mayor Darrick Jackson. It’s unclear whether the five-member court, if it accepts the case and rules in Jackson’s favor, would require the six agencies that requested transfers last fiscal year to reimburse any earmarked or restricted accounts.

Those types of accounts are controlled by agencies but generally can’t be tapped to cover general operations. They typically are funded with various fines and fees, classified in the state budget as “other funds,” which make up about one- third of the approximate $21 billion state budget.

The defendants in Jackson’s lawsuit include Sanford and the other four Budget and Control Board members: Comptroller General Richard Eckstrom; Treasurer Converse Chellis; Senate Finance Committee Chairman Hugh Leatherman, R-Florence; and House Ways and Means Committee Chairman Dan Cooper, R-Anderson.

Senate President Pro Tempore Glenn McConnell, R-Charleston; House Speaker Bobby Harrell, R-Charleston; and BCB Executive Director Frank Fusco also are named as defendants. Jackson is represented by attorney and state Rep. James Smith, D-Richland.

Jackson in his suit contends that the flexibility spending proviso (89.87) in this fiscal year’s budget is unconstitutional because it takes away control of state appropriations from the General Assembly and instead gives that authority to the executive branch. The proviso is virtually identical to the proviso (89.96) in the 2009-10 budget.

Under the proviso, the S.C. Office of State Budget, a division of the Budget and Control Board, must approve the transfers, which, if allowed, have to be reported to the governor and the Senate Finance and House Ways and Means committees.

Following is a breakdown of the $9,279,278 in transfers approved last fiscal year, according to Office of State Budget records provided to The Nerve:

  • $3,000,000 to the S.C. Department of Commerce;
  • $2,945,278 to the S.C. Department of Parks, Recreation and Tourism;
  • $1,984,000 to the S.C. Department of Insurance;
  • $800,000 to the S.C. Department of Agriculture; and
  • $300,000 to the S.C. Department of Natural Resources; and
  • $250,000 to the S.C. Treasurer’s Office.

General fund budgets in all of the above agencies were cut last fiscal year from the 2008-09 fiscal year, though in several cases, their total ratified budgets, which include federal and other funds, increased.

Of the $3 million in transfers in Commerce’s budget, $715,000 was from a Rural Infrastructure subfund, records show. Sanford and Fusco in early July approved, with the BCB’s authorization, the transfer of the $13.3 million from a related subfund that the BCB controls known as the “Rural Infrastructure Bank Trust Fund.”

The Nerve earlier reported that no money previously had been withdrawn from the BCB-controlled fund in the four fiscal years it was collecting state tax dollars, and that the $13.3 million represented the account’s entire balance.

Under state law, the Rural Infrastructure Fund under Commerce’s budget is used to award grants to designated “distressed” or “least developed” counties to offset training costs for economic development projects, and to improve utility systems and transportation facilities. Lawmakers in rural counties, which typically have the highest poverty and unemployment levels in the state, contend that the money is needed to jumpstart their economies.

The Nerve reported earlier that from 2006 through last year, the Coordinating Council for Economic Development, which is staffed by Commerce, had approved more than $35 million in grants for the period, according to Commerce records.

Commerce’s ratified general fund budget for last fiscal year was $5.9 million, a cut of about $8.6 million, or nearly 60 percent, from fiscal 2008-09. The department’s total ratified budget for those years, however, increased slightly to $166 million from $163.7 million.

Commerce officials, including Secretary Joe Taylor, did not respond to several written requests from The Nerve seeking comment on the approved transfers last fiscal year from the Rural Infrastructure Fund and four other agency subfunds.

At the Department of Parks, Recreation and Tourism, the approximate $2.95 million in transfers last fiscal year came from motion picture admission taxes and litter control fines, records show.

PRT spokesman Marion Edmonds couldn’t provide immediate answers to questions about the transfers when contacted recently by The Nerve, saying agency officials with knowledge of that were out of town.

PRT’s ratified general fund budget over the past two fiscal years was reduced by about $7.1 million, or 21 percent, from about $33.3 million in 2008-09 to $26.2 million last fiscal year, though its total ratified budget increased by about 5 percent to $66.5 million.

During the same period, the Department of Insurance’s general fund budget was cut about $2.3 million, or 47 percent, to about $2.6 million from $4.9 million.

Insurance spokeswoman Ann Roberson told The Nerve that the approximate $2 million in transfers from two subfunds earmarked for uninsured motorist programs was necessary to offset a “portion of the net 34.4% budget reductions effected over the past four fiscal years.”

She noted the department is currently operating with 82 full-time employees – 16 fewer positions than authorized.

“We have and continue to operate with limited staff,” she said in a written response. “The transfer was utilized to ensure that the department met is statutory duties as a regulatory agency. The money was expended for operating expenses, personnel and associated fringe benefits.”

DNR spokesman Mike Willis told The Nerve that the $300,000 transferred from his agency’s “Water Recreational Reserve Fund,” was used partly for “maintaining personnel records … and multiple other functions related to the employment, compensation and retention of staff.”

In a written response, Willis also said the money was partly used to fund the department’s hydrology section, which provides “guidance, counsel and data to the state government and the general public for the beneficial use, conservation and management of South Carolina’s water resources.”

DNR’s ratified general fund budget for 2009-10 was about $18.9 million, a drop of about $7.1 million, or 27 percent, from the previous year’s ratified budget.

For the same period, the Department of Agriculture’s general fund budget was cut by about $2 million, or 32 percent, to $4.3 million from $6.3 million, though its total ratified budget increased by nearly 13 percent to about $15.7 million.

Assistant Agriculture Commissioner Larry Boyleston told The Nerve that the $800,000 transferred last fiscal year from the “Renewable Energy Infrastructure Development Fund,” which is used to fund research and demonstration projects related to alternative energy, “probably kept the department from laying off personnel.”

Boyleston also said some of the transferred funds “went into marketing, finance, consumer services and other functions of the department.”

At the S.C. Treasurer’s Office, the agency’s ratified general fund budget dropped about 33 percent over the past two fiscal years, from $3 million to $2 million.

In a recent conference call, deputy state treasurers Frank Rainwater and Scott Malyerck, and Karen Wicker, the senior assistant state treasurer, told The Nerve that the $250,000 transfer was designated from a subfund that normally is used for general operating expenses.

“We didn’t tap into anything special,” said Wicker. “We just increased our authorization to cover additional costs.”

Rainwater said although the $250,000 transfer was approved, his agency actually spent $100,000 of that amount.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.