State Agencies Cry Poverty While Amassing Large Surpluses

November 8, 2011

Investigative Reports

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The NerveSouth Carolina’s 33 public colleges and universities collectively amassed nearly $900 million in “unrestricted” assets – generally surplus money that can be spent on anything – as of June 30, according to year-end financial statements reviewed by The Nerve.

In addition, S.C. comptroller general records reviewed byThe Nerve show a total year-end balance of nearly $1.7 billion in fiscal year 2011 for another 80 state agencies, divisions, programs and separate funds.

Contacted by The Nerve, college and university representatives contend that they need their multimillion-dollar reserves to handle unexpected expenses and cover fluctuations in revenue, while spokespersons at several other large state agencies listed in a comptroller general’s report disputed their agency’s figures in the report.

As state agencies begin their annual ritual of asking the S.C. General Assembly for more money for the upcoming fiscal year, which starts July 1, what usually isn’t discussed publicly is how much agencies have in reserves and what is the best use of those funds.

When it comes to excess revenues, refunding money to taxpayers typically isn’t on the table for discussion.

The Nerve in September reported that nearly $71 million in general funds was carried over into this fiscal year by state agencies, which didn’t include an “unobligated” state surplus in 2010-11 of about $123 million, according to a year-end public report by S.C. Comptroller General Richard Eckstrom.

Because Eckstrom’s report dealt only with general funds, the carry-over amounts listed in the report didn’t include federal and “other” funds, which include such things as proceeds from the state lottery and 1 cent of the state sales tax, college tuition, the state gasoline tax and various fees charged by state agencies.

Federal and other funds collectively make up about 73 percent of the state’s total $22.3 billion budget for this fiscal year.

Upon request, Eckstrom’s office recently provided The Nerve with an unpublicized report listing balances as of June 30 by agency for all sources of funds. The Nerve’s analysis of that report determined the total year-balance for the listed agencies was $1.688 billion.

But that report didn’t include general, federal or other fund expenditures for colleges and universities. Asked why, Eckstrom told The Nerve last week that colleges and universities haven’t been part of the state’s automated accounting system for some 25 years.

“The higher eds have a tremendously effective lobby,” he said. “They just didn’t want to sacrifice control, and they felt that giving up details like that was sacrificing control.”

State law requires state agencies to submit itemized budget requests to the governor by Nov. 1 each year, and the comptroller general to give the governor an itemized estimate of the state’s “financial needs” by Dec. 1 each year.

The Nerve asked Eckstrom how his office could comply with the law given that colleges and universities aren’t on the state’s automated accounting system. Eckstrom responded that his office provides the Office of State Budget, which assists the governor in preparing a proposed executive budget, with required information for those agencies on the automated accounting system, while colleges and universities separately provide their own budget information to that office.

“That area of the statute came about back in the (19)50s when the state started pulling together manual reports for the first time,” Eckstrom said. “We have a very imperfect system statewide, and even the code (of laws) is imperfect.

“You may think there’s a lot of law-breaking going on, but there’s not a lot of diligence in revising the code.”

Higher-Ed Piggy Banks

Eckstrom’s office last week provided The Nerve upon request with fiscal 2011 year-end financial statements for the state’s 33 public four-year and two-year colleges and universities, which includes the University of South Carolina’s seven branch campuses.

All of the statements or reports listed unrestricted net assets, typically defined as those assets, including cash, accounts and pledges receivable, and inventories, that are not earmarked for a specific use or purpose.

Following is a list of the 10 colleges and universities with the largest unrestricted net assets as of June 30:

  •  USC – $361.5 million;
  • Clemson University – $121.14 million;
  • Medical University of South Carolina – $71.7 million;
  • Coastal Carolina University – $43.6 million;
  • College of Charleston – $43.1 million;
  • Horry-Georgetown Technical College – $36.2 million;
  • The Citadel – $29.3 million;
  • Trident Technical College – $25 million;
  • Greenville Technical College – $24.5 million; and
  • York Technical College – $22.2 million.

The large balances apparently didn’t translate into financial relief for students. Of the 10 colleges and universities listed above, only the College of Charleston didn’t raise tuition and required fees this school year for full-time, in-state undergraduate students, according to state Commission on Higher Education (CHE) records.

The tuition and fee increases at the other nine institutions ranged from 2 percent at Trident Technical College to 3.9 percent at USC’s main campus and Coastal Carolina, CHE records show.

Garrison Walters, the CHE’s executive director, wrote in a letter to Gov. Nikki Haley, post-dated last Thursday, that public colleges lost $346 million in state funds since 2008; and that the agency’s first budget priority for the 2012-13 fiscal year was restoring budget cuts, according to an Associated Press article.

Despite general fund cuts to colleges and universities, though, the unrestricted net assets for those institutions as of June 30 collectively were more than 2.5 times the total amount of state funds cut since 2008 as cited by Walters.

The total amount of unrestricted net assets for the state’s public colleges and universities was $898,495,450 as of June 30, according to The Nerve’s review of year-end financial statements by the colleges and universities.

USC spokeswoman Margaret Lamb in a written response last week to The Nerve said that “we at USC strive to keep a reserve equal to 5-7% of budget.”

“The University’s finances are cyclical and operating capital on hand fluctuates widely from month to month,” she said. “USC executes millions of dollars in transactions in a typical month. The USC fund balance is usually enough to cover about two months of operating expenditures, and we strive to keep enough cash to finance our accounts receivable.”

“To allow the average balance to drop significantly below two months of operating expenditures,” she added, “would be unwise given anticipated outlays and the uncertain economic environment.”

Representatives at other S.C. colleges and universities gave similar responses when contacted last week by The Nerve.

“Bear in mind that ‘unrestricted’ is an accounting term that refers to the source of funds,” Clemson spokeswoman Cathy Sams said in a written reply. “It doesn’t mean these funds are uncommitted.

“In Clemson’s case, about two-thirds is in the capital plant fund committed to facilities projects. Other planned uses include a new student information system, faculty start-up packages and deferred maintenance.”

MUSC spokeswoman Heather Woolwine in a written response said the university’s unrestricted net assets are “committed for forthcoming expenses” this fiscal year. She provided The Nerve with a list of commitments, including $27 million for “compensated absences,” $16.2 million in accounts payable and $8.5 million in bond and other capital payments.

She also said there are “timing issues with the expenses between the two fiscal years.”

At the College of Charleston, “we have cash-flow issues, ups and down” particularly during the summer months when there typically are fewer enrolled students and less tuition coming in, said Steve Osborne, the college’s executive vice president for business affairs and chief financial officer.

“I would like to think we have $43 million to carry over to the next year, but we don’t,” Osborne said about the college’s unrestricted net assets as of June 30, adding that besides covering cash-flow problems, extra funds also are used for capital projects and deferred maintenance.

After accounting for various expenses, the college carried over $6.9 million into this fiscal year, Osborne said.

Other Big Balances

Other state agencies ended fiscal year 2011 with large balances when other and federal funds were factored in, according to the comptroller general’s report provided to The Nerve.

Following is a list of the 10 agencies or divisions with the largest total year-end balances, which, according to the comptroller general’s report, was the difference between adjusted appropriations and expenditures:

  • Department of Health and Human Services – $334.8 million;
  • Transportation Infrastructure Bank – $239.2 million;
  • Department of Transportation – $131.9 million;
  • Department of Health and Environmental Control – $127.8 million;
  • Department of Social Services – $124.2 million;
  • Department of Employment and Workforce – $76.2 million;
  • Budget and Control Board – $74.5 million;
  • Department of Education – $73.1 million;
  • Office of Regulatory Staff – $54.2 million; and
  • Adjutant General’s Office – $43.4 million.

The total remaining balance as of June 30 for 80 agencies, divisions, programs and separate funds listed in the comptroller general’s report was $1,688,148,932, The Nerve’s review found.

Contacted last week, Health and Human Services spokesman Jeff Stensland disputed the listed balance for his agency, saying in a written response that the total $6.2 billion appropriated last fiscal year for HHS is “what we have the authority to spend according to the Appropriations Act, not what we actually end up spending.”

“We have to have the actual cash in order to spend up to that level, which, of course, we did not last year,” Stensland said.

Still, Stensland said the agency carried over about $66 million into this fiscal year, though he noted that money is earmarked for hospitals that treat indigent patients and for other Medicaid programs.

“Bottom line is all of it was already designated for use this FY – not a pot of money we could use at our discretion,” he said.

DHEC spokesman Adam Myrick said the listed $127.8 million balance in the comptroller general’s report for his agency was misleading, contending it was “excess authorization” and “should not be confused with cash.”

Myrick said his agency records show that the “earned fund cash balance” at the end of fiscal year 2011 was $39.8 million, though he added that those funds are for various DHEC services, contracts and programs and “must be used for their intended use.”

Contacted initially last week about DOT’s $131.9 million listed balance as of June 30, agency spokesman Pete Poore referred The Nerve to the department’s year-end financial statement filed with state auditor’s office. That statement listed year-end net assets of $159.9 million – $28 million more than the listed balance in the comptroller general’s report – which, according to the statement, was the difference between total revenues and total expenses.

The financial statement also noted that of an ending fund balance of $50.9 million for the state highway fund, $27.3 million, or 53 percent, was “available for spending in the coming year.”

The Nerve reported in August, citing Office of State Budget records, that DOT’s year-end surpluses had plummeted about $217 million, or 91 percent, since fiscal year 2008, raising questions that its cash-flow problems were longer running that what had been previously publicized. DOT said it needed a nearly $53 million advance from the federal government in the summer to help cover past-due bills, including payments to contractors.

Poore late Monday afternoon provided The Nerve with another set of figures showing a positive balance of $1, 449,000 between actual revenues and expenditures for fiscal year 2011.

The Nerve’s review of year-end balances of state agencies listed in the comptroller general’s report found that only one state agency ended fiscal year 2011 with a zero balance.

Ironically, that agency was the Legislative Audit Council, an investigative arm of the General Assembly that reports on waste and abuse in state agencies.

Research assistant Courtney Ruble contributed to this story. Reach Brundrett at (803) 254-4411 or rick@thenerve.org.