DOT Year-End Surpluses Plunge by $217 Million

August 29, 2011

Investigative Reports

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The NerveThe S.C. Department of Transportation’s year-end surpluses have plummeted by about $217 million, or 91 percent, since fiscal year 2008, The Nerve found in a review of state budget records.

The agency responsible for maintaining state roadways and bridges carried over about $21 million in surplus funds into this fiscal year, which started July 1, according to agency figures, about the same time the department reportedly was tens of millions of dollars behind in payments to contractors, vendors and others.

Back at the start of fiscal year 2009, the Transportation Department had $237 million in reserves, Office of State Budget records show.

The dramatic drop in reserves over the past several years suggests that the agency’s cash-flow problems might have been more long-running than what department officials have acknowledged publicly so far.

The Nerve on Friday attempted to obtain an explanation about the several-year decline in reserves, but the department did not respond by publication of this story.

In a written response to The Nerve on Aug. 12, agency spokesman Pete Poore said $16.9 million in “other” funds that were carried over into this fiscal year “is and can be used to pay whatever invoices are out there.”

Poore in a follow-up reply on Friday did not provide specifics on what that money has been used for – though he was asked to do so by The Nerve – saying only in his written response that the amount “represents funds out there that SCDOT has access to for the current year expenditures for supplies, contracts, etc.”

The agency also carried over another $3.9 million in general funds into this fiscal year, state budget records show. Poore in his response on Friday said the S.C. General Assembly earmarked that money for a port access road and lower Richland County road improvements.

The department earlier said it had received a $52.8 million advance on Aug. 18  from the federal government to help cover past-due bills. In addition, on Aug. 15, the agency received a regularly scheduled federal reimbursement of $28.3 million.

Carryover funds generally are the difference between actual revenues and actual expenditures at the end of a fiscal year.

“To put it simply, these funds are the beginning balance in a check book – funds come in and funds are paid out and you have a balance at the end of the month,” Poore said in his Aug. 12 response. “Additional revenues have been deposited (Motor Fuel Revenues, Federal Reimbursements), and checks have been written (purchase order payments, utility bills, contractor payments, etc.).

“SCDOT has used all available sources of the account to meet the needs.”

The Transportation Department’s other funds derive from state gasoline and diesel fuel taxes, as well as federal reimbursements of federal gasoline taxes paid in South Carolina, according to Poore.

The agency’s total budget for this fiscal year, which started July 1, is $1.13 billion, according to the Office of State Budget (OSB). In recent years, federal reimbursements have ranged from about $500 million to $800 million annually, according to DOT records.

The Nerve’s review of detailed base budgets compiled by OSB found that the Transportation Department carried over $231.4 million in other funds into fiscal year 2009, up $78.5 million, or 51 percent, from the previous fiscal year.

But the carried-over surplus had dropped by more than $94 million, or about 41 percent, to $137.1 million by the start of fiscal year 2010; then decreased at the start of last fiscal year another $105.4 million, or about 77 percent, to $31.6 million, OSB records show. The $16.9 million other-fund carryover amount to start this fiscal year, as cited by Poore, was an approximate 47 percent drop from the previous year.

In comparison, beginning-year other fund balances in fiscal years 2007 and 2008 were $83.1 million and $158.7 million, respectively, according to OSB records.

The Transportation Department receives relatively few general funds dollars – just $57,270 budgeted for this fiscal year. But the agency carried over $3.9 million in general funds – more than 68 times its general fund budget – into this fiscal year, according to S.C. Comptroller General Richard Eckstrom’s year-end financial report.

OSB records show that the agency carried over $6.6 million in general funds into fiscal year 2009, nearly $5 million into fiscal year 2010, and $4.4 million into last fiscal year.

DOT’s total fund balances at the start of fiscal years 2009 and 2010 were $237.3 million and $141.1 million, respectively, OSB records show. Beginning fund balances for 2010-11 and this fiscal year were not available last week, though according to OSB and DOT records, the total amount of general and other surplus funds carried over into those fiscal years were $36 million and $20.8 million, respectively.

The total drop in carryover funds at the end of fiscal year 2008 compared to the end of last fiscal year was about $217.2 million, or 91.3 percent.

As a percentage of its total budget, DOT’s beginning-year reserves fell to less than 2 percent this fiscal year (assuming the fund balance is about $21 million) from about 23 percent in fiscal year 2009, records show.

In a press release issued Wednesday, S.C. Treasurer Curtis Loftis said based on information he had been seeking for several weeks from DOT, the agency as of Aug. 15 had $33.3 million in bills that were at least 30 days past due to contractors, consultants, vendors and the S.C. Transportation Infrastructure Bank.

Department officials earlier this month said they had processed payment for all validated invoices 30 days or older, though they didn’t provide specifics.

Loftis contended that this year’s cash-flow problem was much worse than what the agency had let on in the beginning, noting that DOT officials initially told him that $1.2 million was past due.

Contacted Friday, Loftis spokesman Brian DeRoy said his office could not comment on the reserve issue until it could confirm figures provided to it by The Nerve. But in a written response to other questions from The Nerve, Loftis said he would “like to see an increased level of accountability and transparency for the Department of Transportation.”

“Everyone understands that there are dire financial problems at SCDOT,” Loftis said. “Serious steps must be taken to permanently correct these problems.”

Loftis made four recommendations:

  • Change the process by which projects are selected by taking politics out of the equation;
  •  Implement accounting reforms related to cash management and cash-flow projections concerning building projects;
  • Have a written commitment to transparency and accountability through proper public disclosure regarding all financial information; and
  •  Audit SCDOT and empower an entity to follow up and implement needed changes.

The federal government this month advanced $52.8 million in reimbursements to DOT to help cover its unpaid bills, though it is unclear how the agency will cope with not having that money spread over the course of this fiscal year.

In addition, S.C. Transportation Secretary Robert St. Onge announced during an Aug. 18 Transportation Commission meeting that the agency was delaying $24 million in projects through September and instituting other changes to prevent future cash-flow problems.

The day before the meeting, St. Onge told a group of lawmakers and legislative staff that cash-balance averages have been declining over the past year, according to a written outline of his briefing provided by Poore to The Nerve.

“SCDOT typically experiences a decline in the cash on hand during the months of May through September, the height of the construction season for paving and other type of road and bridge work,” St. Onge said in his outline.

“Obviously, in our eagerness to upgrade and repair our highway system, we became overaggressive and thus overcommitted in the short term,” he continued. “We entered into the prime construction and paving season with inadequate cash to pay contractors in the same time frames experienced in the past.”

St. Onge said he wanted to build an average cash balance of $60 million, though his outline didn’t provide specifics on how he planned to do that.

In his response on Friday, Poore said the target $60 million balance will allow the agency to have “enough headroom to cycle through payments, revenue and reimbursements.”

Asked how DOT planned to build up its reserves, Poore replied that the department is “temporarily holding off on some state-funded projects, equipment purchases, capital improvements, etc., to allow us to thoroughly review the expected size and timing of the state and federal revenue streams to accomplish the work planned and the projects in the developmental phase.”

St. Onge, according to his outline, also noted that on Aug. 10, the  Transportation Infrastructure Bank approved a “re-purposing” of $12 million in leftover funds from a 2005 Infrastructure Bank loan to initially “ease cash flow challenges” at DOT. Poore on Friday said the total $94.1 million loan covered the Lake Murray dam project, Charleston bridge demolition and other projects in Beaufort and Horry County.

In the wake of DOT’s cash-flow problems, state Sen. Larry Grooms, R-Berkeley and chairman of the Senate Transportation Committee, announced recently that he would convene a committee meeting, to be held on Sept. 8, to begin to address those issues and other matters affecting the agency.

Last week, Gov. Nikki Haley, who appointed St. Onge earlier this year to head DOT, told the CharlestonPost and Courier that the agency needs to be restructured, though she didn’t offer specifics.

The General Assembly in 2007 overhauled the agency and its governing commission, among other things giving the governor the authority to appoint the transportation secretary and putting the position in the governor’s Cabinet.

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