WASHINGTON — President Barack Obama on Friday rejected Gov. Mark Sanford's request to use part of South Carolina's economic stimulus money to pay down state debt, saying Congress didn't authorize such payments in the law it passed last month.
After getting Obama's response, Sanford reiterated his rejection of stimulus funds and said he would ask the South Carolina General Assembly to offset stimulus-based spending with debt payments.
"If our General Assembly chooses to make use of this federal money, we'd ask them to use existing state resources to begin paying down our state's sizable liabilities," Sanford said.
That notion prompted reactions bordering on disbelief from Republican leaders of the General Assembly.
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"In a time of record shortfalls and budget cuts, the governor wasn't able to find the money to pay off the debt in his budget," said Senate President Pro Tempore Glenn McConnell, a Charleston Republican. "How in the world does he expect us to find it? There's a real disconnect here."
S.C. Senate Finance Committee chairman Hugh Leatherman delivered a sharp rebuke.
"The governor's request that the legislature pay off state debt if we receive the stimulus money is a foolish request," said Leatherman, a Florence Republican. "Our budget has been cut by $1.1 billion in the last year. There is no money."
Aides to S.C. House Speaker Bobby Harrell noted that Sanford's proposed fiscal 2009-10 budget contains no debt payments.
"Washington has made it clear that the stimulus money the state legislature has control over can only be used to restore cuts made to education and healthcare," said Harrell, a Charleston Republican. "Governor Sanford knows that. Since the governor's budget was $254 million higher than existing revenues and he didn't pay down the debt, this is obviously about something other than the state budget."
Harrell appeared to be referring to Sanford's national political ambitions. His repeated criticism of using federal deficit spending to boost the economy has raised his profile among conservatives and fed speculation that he's eyeing a 2012 presidential run.
At 10.4 percent, South Carolina has the nation's second-highest unemployment rate behind Michigan, and revenue shortfalls have forced more than $1 billion in state budget cuts this year.
U.S. House Majority Whip Jim Clyburn, who crafted a provision enabling state legislatures to obtain stimulus money if their governors reject it, ridiculed Sanford's effort to reduce the state deficit with federal funds intended to jolt the economy.
"We ought to get the economy stood up first," Clyburn said. "When things get stabilized, then we look to deficit reduction and debt retirement."
Sanford last week became the first governor to say he would reject some of the stimulus money. Fellow Republican Govs. Rick Perry of Texas and Sarah Palin of Alaska have followed suit in recent days.
It was the second time in four days that Obama, through his budget director, spurned Sanford's bid to divert funds intended to preserve or create jobs for teachers, police and other public employees.
The second letter from White House budget director Peter Orszag was more pointed than the one he sent Sanford on Monday.
Orszag began by noting that Obama had asked him to respond to Sanford's second letter on the president's behalf, which indicated that the rejection came directly from Obama.
Orszag then spelled out in detail the prescribed uses of the State Fiscal Stabilization Fund, which distributes $700 million for South Carolina, one of the largest pots of money in the $8 billion the state is slated to get overall, including $2.5 billion in tax cuts.
"You have proposed using the Stabilization Fund moneys for 'paying down (your) state's sizable debt,'" Orszag wrote. "However, the (recovery) Act does not authorize the Department of Education to award Stabilization Fund money to a state for that purpose."
Orszag added later in the letter: "Although payment of public debt obligations is a necessary governmental expenditure, the Department of Education, in consultation with the Department of Justice and my office, has concluded that the paying down of past debt does not constitute the use of federal funds for 'government services' under the plain meaning of those words in the Act."
Sanford expressed disappointment with the White House decision and again said he won't seek South Carolina's share of the $787 billion stimulus plan.
Sanford cited a new Congressional Budget Office projection of a $1.8 trillion federal deficit this year, and its forecast that Obama's proposed budget could produce a $9.3 trillion deficit over the next decade.
The governor also pointed to a recent study by the American Legislative Exchange Council, which ranked South Carolina No. 4 in the nation in the percentage of its annual revenue required to pay federal and state debts.
"If the legislature decides to take these funds, we stand ready to work with them ... in finding ways to accelerate our state's repayment of debt so that we can free up dollars for other purposes," Sanford said.
Sanford said the state could save $162 million in interest payments over the next two years if it applies the $700 million in stimulus funds to lower the debt.
(John O'Connor of The State contributed.)