DALLAS -- South Carolina lawmakers should restructure its highway funding system by merging the state transportation infrastructure bank into the transportation department, legislative auditors said Thursday.
The infrastructure bank has funded transportation projects that didn't submit applications and has no formal policies for awarding grants and loans, according to a report to lawmakers by the Legislative Audit Council.
The South Carolina State Transportation Infrastructure Bank (SCSTIB) has financed almost $5 billion of transportation projects through loans and grants since it was created in 1997 to help local governments fund projects of more than $100 million. The total includes $3.8 billion of grants and $1 billion of loans.
"During our review, we found no function performed by SCTIB that could not also be performed by discontinuing the SCTIB and transferring its funds to SCDOT," the auditors said.
The report recommends that the General Assembly either dissolve the SCSTIB and give the highway department authority for managing the entire statewide road inventory or retain the bank's oversight board while making it a unit within SCDOT.
With either option, the auditors said it would be necessary to change state laws to modify the type of debt that can be issued to finance state highway projects or amend the state constitution to increase the debt service cap on SCDOT highway bonds currently set at 5% of annual state revenues.
"SCDOT is not authorized to incur general obligation bonded debt other than highway bonds, nor is it authorized to incur revenue bonded debt unrelated to toll projects," the report said.
The state constitution bans the use of tax collections to support highway revenue bonds, the auditors said.
To comply with that provision, the General Assembly each year appropriates specific tax revenues to SCDOT and then the department transfers an identical amount of its non-tax funds to the infrastructure bank for debt service.
Lawmakers must address the use of transfers for debt service whether the infrastructure bank remains independent or is combined with SCDOT, the auditors said.
"Although the state of South Carolina may not have pledged or obligated state tax dollars to repay revenue bonds, it is nonetheless using state taxes as an indirect source of funds for the repayment of revenue bonds," the auditors said. "Our conclusion is that there is uncertainty regarding the constitutionality of this practice."
The infrastructure bank had $1.92 billion of revenue bonds and $42 million of GO bonds outstanding at the end of fiscal 2015. The highway department's GO road bond debt totaled $311 million.
Debt service accounted for $158.1 million of the bank's $220 million budget in 2015, the auditors said.
The bank's revenue bonds are rated A1 by Moody's Investors Service and A by Fitch. The state's GO bonds are rated triple-A.
Gov. Nikki Haley has been a frequent critic of the infrastructure bank, contending that it funds projects based on politics rather than transportation needs.
"Today's audit is another reminder we must permanently reform the DOT and end the political horse trading of our roads by prioritizing funding based on traffic needs, safety and economic development in all areas of our state," Haley spokeswoman Chaney Adams said.
Consolidating the agencies would be difficult, said Mike Wooten, chairman of the South Carolina Transportation Commission and a member of the infrastructure bank board.
"Merging the two would have consequences on debt," Wooten said. "It's hard to get the toothpaste back in the tube."
