WASHINGTON - South Carolina Gov. Mark Sanford extended his stimulus spat with President Obama yesterday, asking him to allow the state to use $577 million of federal stimulus aid to pay down about $579 million on general obligation bonds for education.

Sanford made the request in a two-page letter, telling Obama he wants to use the aid from the Recovery and Reinvestment Act to pay down about $579 million of principal for state school facilities bonds and research university infrastructure bonds.

The payment would save $162 million in debt service over the next two years and about $125 million in interest payments during the next 13 years, Sanford said, comparing his proposal to paying off a mortgage early. South Carolina's savings could be directed "towards other educational purposes," he told the president.

Rick Harmon, the state's debt manager, said that $750 million of state school facilities bonds were issued in three tranches between 1999 and 2001 and that about $468 million of them remain outstanding.

He said about $125 million of bonds also remain outstanding from $220 million of research university infrastructure bonds, which were issued in 2006 to increase research funding dollars at the University of South Carolina, Clemson University, and the Medical University of South Carolina.

If the governor is able to proceed, the bonds would likely be redeemed with a cash-funded defeasance, according to Harmon. The debt was issued with borrowing costs at less than 4%, he said.

Sanford was a leading critic among governors against the federal stimulus aid even before it passed into law. He wrote Obama last week asking for a waiver to use $700 million in stimulus aid from the new law's state fiscal stabilization fund to pay down debt for unfunded liabilities, such as the state's retirement fund.

Peter R. Orszag, director of the White House Office of the Management and Budget, responded, telling Sanford that the executive branch does not have the authority to grant exceptions under the stimulus law and that state fiscal stabilization fund spending "must satisfy the statutory requirements."

In yesterday's letter, Sanford shifted his approach to spend federal aid on education while resolving to reduce the state's debt burden. "We trust these alternative proposals fit both the statutory requirements and spirit of the stimulus legislation," he told Obama.

South Carolina is to receive $700 million from the fiscal stabilization fund as part of a total of $2.8 billion in federal stimulus aid. The $577 million Sanford wants to use for debt service represents the 81.8% of the fiscal stabilization fund that must be used for educational purposes.

Sanford suggested the other 18.2%, or $125 million of funds targeted for the state, be used for "paying down other bonded indebtedness at the state level."

He also would like to use these funds to pay down debt related to South Carolina's unemployment compensation trust fund or for retirement liabilities. Governors have more discretion over this portion of the stabilization fund because it can be used for "other government services."

The state House on March 11 passed a fiscal 2010 budget, which includes $189.9 million for GO debt service. The budget that passed assumes the state will receive the federal stimulus aid and spend it on the required purposes. The Senate begins debating the budget this week.

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