White House Nixes South Carolina Governor's Plan for Stimulus Funds

WASHINGTON - The Obama administration yesterday rejected South Carolina Gov. Mark Sanford's request to use $700 million of federal stimulus aid to pay down the state's debt.

In a one-page letter sent to Sanford, Peter R. Orszag, director of the Office of the Management and Budget, said the new stimulus law does not allow the executive branch to grant exceptions. The federal stimulus aid "must satisfy the statutory requirements" and must be spent on education, government services, and efforts to spur economic activity and job growth, the letter said.

Of the $48.6 billion that states will receive from the stimulus law's State Fiscal Stabilization Fund, 81.8% must spent on education and about 18.2% must be spent on other government services, Orszag told Sanford.

A spokesman for Sanford said yesterday the governor will continue to press the White House for leeway in its use of the funds.

"We're in the process of drafting a response that will go back to the White House tomorrow, which will more narrowly tailor our request to pay off debt in a way consistent with the administration's response," said Joel Sawyer.

The governor must decide whether to accept or reject the federal stimulus aid in early April.

Sanford has been an outspoken critic of the American Recovery and Reinvestment Act. Last Wednesday, he sent a letter to President Obama asking for a waiver to use South Carolina's portion of the fiscal stabilization fund - the aid over which state governors have some discretion - to be spent on paying down state debt, including the state's underfunded pension programs and possibly debt service.

In a separate letter to South Carolina lawmakers, Sanford said that he would reject $700 million of the $2.8 billion of stimulus aid the state is to receive under the new stimulus law if the funds cannot be spent on debt payments.

However, Sanford may not be able to spend the $700 million as he wants even if he wins approval from Washington. Last week, the state House passed a fiscal 2010 budget that assumes the state will receive the federal stimulus aid and spend it on the required purposes.

"The budget is based on the recovery dollars," said Rep. Gilda Cobb-Hunter, D-Orangeburg, who serves on the state's Joint Bond Review Committee. "We struggled with that budget and made all the cuts we could and there is no way I see any support or enough support in the general assembly that [Sanford] would have enough votes for us to go back to the drawing board."

The state Senate begins debating the budget this week. South Carolina is rated Aaa by Moody's Investors Service and AA-plus by Standard & Poor's.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER