BCB Fund Raid Illegal, Clyburn Says

July 28, 2010

Investigative Reports

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The NerveFor the past four fiscal years, more than $13 million in state tax dollars have quietly flowed into a little-known account controlled by the S.C. Budget and Control Board, though no money has been spent from the fund.

Now, however, the BCB – with Gov. Mark Sanford’s blessing – says it plans to raid the account, known as “Subfund 3482,” or the “Rural Infrastructure Bank Trust Fund,” to keep the 1,000-employee agency running for at least the next three months.

Sanford last month vetoed the agency’s entire $25.2 million general fund budget, which was sustained by the state House of Representatives.

But Rep. Bill Clyburn, D-Aiken,  contends the approximate $13.3 million in Subfund 3482 belongs to a newly created state agency called the “South Carolina Rural Infrastructure Authority,” aimed at bringing businesses to South Carolina’s rural counties, which historically have suffered from high unemployment and poverty.

Clyburn told The Nerve on Friday that it might take a lawsuit to stop the BCB from draining the account.

“It’s obvious because it’s the law,” Clyburn said. “I don’t know how they (the BCB) got around it.”

Contacted Friday, BCB spokesman Mike Sponhour declined to comment on Clyburn’s statements, saying only in a written response, “We don’t have anything to add concerning this issue beyond the statement on our website.”

In its prepared statement, posted July 2, the board announced that Gov. Mark Sanford and Frank Fusco, the BCB director, had “endorsed” the transfer of the entire $13.3 million from Subfund 3482 for “payroll and essential operating costs for the first quarter of the fiscal year.”

In its statement, the BCB cited two flexibility spending provisos (89.87 and 80A.38) in this fiscal year’s budget for its authority to raid the account.

Contacted Friday, Sanford spokesman Ben Fox declined comment on a possible lawsuit, though he disputed Clyburn’s claim that the money belongs to the Rural Infrastructure Authority.

“As staff of the (BCB) pointed out in the most recent meeting, this fund (Subfund 3482) is not officially designated as restricted and not a by-law trust fund,” Fox said in a written response. “In fact, this specific fund and the flexibility provisions applicative to this fund were explicitly discussed at the meeting by board staff and others around the table.”

Fox in an earlier written statement said the $13.3 million will “provide operational funds for the board’s first quarter, and indeed most of the second quarter.”

“We’re continuing to regularly meet with board staff in the intervening time to identify efficiencies and other savings,” Fox said.

New Government Agency

The S.C. Rural Infrastructure Authority was created under a bill (H. 4511) that Clyburn authored this year and which became law – over Sanford’s veto – on May 26. Under the law, a seven-member board, which, according to Clyburn, has not yet been appointed, can make grants and loans to local municipalities that apply for rural infrastructure projects, which include such things as the purchase of land and buildings for economic development.

“Traditional infrastructure financing methods in South Carolina cannot generate the resources necessary to fund the cost of rural infrastructure which are required for economic development,” the law reads.

The law identifies state general fund appropriations, federal funds, private and public donations, and “other lawful sources as determined by the board” as possible revenue sources for the authority, though it doesn’t specifically cite Subfund 3482. The General Assembly made no specific appropriations to the authority in this fiscal year’s general fund budget.

The authority’s funding is supposed to be spent primarily in “distressed” or “least developed” counties as defined by state law, which, according to S.C. Department of Commerce records, currently includes 21 rural counties across the state, including Edgefield County, located in Clyburn’s district.

The law, however, also allows financing of projects in any county with a “project that otherwise meets the requirements” of the law.

“It allows the people from those (affected) areas to decide,” Clyburn told The Nerve. “They would submit the proposals. … This would benefit the locals.”

In vetoing Clyburn’s bill, Sanford said in his May 12 written message that it “creates a new state government entity to perform functions the Department of Commerce currently performs.” The S.C. Coordinating Council for Economic Development, which is staffed by the Department of Commerce, approved more than $35 million in Rural Infrastructure Fund grants to counties from 2006 through last year, according to records reviewed by The Nerve.

“In fact,” Sanford wrote, “Commerce’s Rural Infrastructure Fund supported projects in counties represented by 11 of the bill’s sponsors, representing over $20.45 million in grants in the last five years for local projects including road construction, bridge maintenance, industrial park development and business site preparation.”

“Ultimately, we cannot support H. 4511 because it duplicates what we already do,” Sanford continued. “It would create yet another government agency and spread already state resources even thinner.”

Both the House and Senate, though, overrode Sanford’s veto. Under state law, a veto can be overridden only by a two-thirds vote in each chamber.

In his veto of Clyburn’s bill, Sanford suggested that Subfund 3482 “be consolidated with Commerce’s efforts.” Fox in his response last week said that in contrast to the “dormant and unused fund” controlled by the BCB, the Department of Commerce has had “success creating jobs and spurring investment in rural South Carolina,” noting that 28 percent of 20,000 jobs created in South Carolina last year were in rural counties.

Still, though, the June unemployment figures from the S.C. Department of Employment and Workforce paint a pretty bleak economic picture of the state’s rural counties. In fact, the counties with the 10 highest unemployment rates are all considered rural:

  • Marion – 19.3 percent
  • Allendale – 19 percent
  • Marlboro – 18.2 percent
  • Union – 17.7 percent
  • Chester – 17.5 percent
  • Barnwell – 16.6 percent
  • Bamberg – 15.7 percent
  • Lancaster – 15.6 percent
  • Dillon – 15 percent
  • Orangeburg – 14.9 percent

Ironically, Clyburn’s bill gives Sanford the authority to appoint two board members to the Rural Infrastructure Authority. Four other members would be appointed by Senate President Pro Tempore Glenn McConnell, R-Charleston; Senate Finance Committee Chairman Hugh Leatherman, R-Florence; House Speaker Bobby Harrell, R-Charleston; and Dan Cooper, R-Anderson, the House Ways and Means Committee chairman. S.C. Commerce Secretary Joe Taylor, who was appointed by Sanford, would serve as the board chairman.

Clyburn in 2007 tried to set up the authority, but his bill, though it passed the House, died in Leatherman’s finance committee.

A group of senators, led by Sen. John Matthews, D-Orangeburg, and which included Leatherman, tried to establish a similar state agency, known as the “I-95 Corridor Authority,” this year, but it stalled in the House Ways and Means Committee. Matthews told The Nerve last month that he will try again next year to get his bill passed.

Two Funds, Same Money

The source of money for both the Rural Infrastructure Bank Trust Fund controlled by the BCB and Rural Infrastructure Fund controlled by the Coordinating Council for Economic Development is based on a percentage of employee state income tax withholdings in more affluent counties.

State budget provisos since fiscal year 2006 have directed that the first $12 million in eligible funds go to the Coordinating Council, and that amounts more than $12 million up to $17 million be transferred by the Department of Revenue to the BCB account. Any amounts over $17 million go back to the Coordinating Council.

Clyburn told The Nerve that he didn’t know who authored the original proviso. Sponhour, the BCB spokesman, and Commerce spokeswoman Kara Borie also couldn’t provide any answers.

Not one cent of the $13.3 million in the BCB’s account had been spent in the past four fiscal years, according to state records reviewed last week by The Nerve. Clyburn was surprised when informed of that finding.

“I knew they funded it (the BCB account), but I thought those funds were being allocated,” he said.

Asked why none of that account had been spent previously, Sponhour said in a written response to The Nerve, “There was no system or criteria that directed how the money was to be spent, so it was not spent.”

The Budget and Control Board manages a variety of functions in state government with about 1,000 employees, including such things as overseeing the state retirement system and Insurance Reserve Fund for state agencies, managing many state buildings, and making general fund revenue forecasts used by lawmakers during the budget process. The agency – the only one of its kind in the nation – is controlled by a five-member board made up of Sanford, Leatherman, Cooper, state Comptroller General Richard Eckstrom and S.C. Treasurer Converse Chellis.

The agency didn’t have to pay much attention to Subfund 3482 until Sanford on June 9 vetoed the agency’s entire $25.2 million general fund budget for the fiscal year that started July 1. In his written veto message, Sanford contended that the agency could live off about $60 million in “unrestricted” accounts under its control.

The House on June 16 sustained Sanford’s veto, which theoretically meant that the agency had to scramble to find a new revenue source to keep making its payroll with the start of the new fiscal year. The Budget and Control Board at a later meeting instructed BCB director Fusco to work with Sanford to find an alternative funding source, which led to their July 2 agreement to withdraw the entire $13.3 million from the Rural Infrastructure Bank Trust Fund.

As of Friday, though, no money had been withdrawn from the account, state records showed.

Reach Brundrett at (803) 254-4411 or rick@scpolicycouncil.com.