WASHINGTON — South Carolina Gov. Mark Sanford on Friday rejected $700 million of the $2.8 billion of federal stimulus funds the state was to receive after Obama administration officials said he could not use the money to pay off state education bonds and other debt.

Sanford said he would not accept the $700 million from the stimulus law’s State Fiscal Stabilization Fund because the Obama administration rejected his request to use $577 million of that amount to pay off $579 million of education general obligation bonds, he said in a press release.

The state, however, may still accept 75% of the $2.8 billion it is supposed to receive from the American Recovery and Reinvestment Act of 2009, Sanford suggested.

Peter R. Orszag, director of the Office of Management and Budget, told Sanford in a letter earlier on Friday that the stimulus law “does not support your proposed use of the State Fiscal Stabilization Fund monies to pay down the state’s debt.”

A major a critic of the stimulus law, Sanford has been looking for ways to relieve the state’s debt burden with stimulus aid. He initially asked the Obama Administration for a waiver to use money from the State Fiscal Stabilization Fund to pay down unfunded liabilities of the state’s retirement pension plans.

Orszag rejected that proposal last Monday, saying the executive branch does not have authority to grant waivers to the law. Stanford responded by requesting that most of the money be used to repay the education bonds. Orszag’s Friday letter was more definitive, saying the Education and Justice Departments agreed with his office that the law does not authorize funds for Sanford’s proposal.

The stimulus law allows state legislatures to accept federal aid if the governor rejects it. South Carolina’s House passed a budget on March 11 that assumes the state will receive the stimulus aid. On Friday, Sanford called on the legislature to use the stimulus aid for debt repayment “so that the state does not dig itself further into a budget hole.”

Sanford joins a growing list of governors who have rejected a portion of stimulus aid. Alaska Gov. Sarah Palin said last Thursday she would reject 31% of the state’s $930 million of federal funds. Texas Gov. Rick Perry and Louisiana Gov. Bobby Jindal, as well as Sanford, have said they would reject funds that would expand unemployment benefits.



Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.