Hidden costs: How state agencies quietly spend above their budgets

By RICK BRUNDRETT

The adopted state budget for the current fiscal year that ends June 30 totaled more than $42 billion, though a low-key state office quietly approved an additional $858 million in collective “other” or federal fund spending requests after the fiscal year started, records show.

And since the beginning of fiscal year 2024 through mid-March of this fiscal year, approved mid-year spending increases of other or federal funds have totaled nearly $1.6 billion, according to records recently provided to The Nerve by the S.C. Department of Administration under the state Freedom of Information Act.

The fiscal year starts July 1 and runs through June 30 of the following year.

Under a little-known state law, S.C. agencies can spend more other or federal funds than what lawmakers appropriated in a fiscal year upon approval by the Executive Budget Office, which is part of the Department of Administration.

To do that, agencies submit their requests on a standard form outlining the additional requested spending amounts, the funding source or sources, and what expenses would be paid with the extra money.

State law prohibits agencies from using surplus money to “expand programs without legislative approval,” and that funds earmarked for specific purposes in the state budget or by federal law or regulation “must be used for the same purpose.”

Besides state law, an annually renewed state budget proviso authorizes the Executive Budget Office (EBO) to approve agency requests for other and federal fund “authorization adjustments.”

"Other" funds include such things as college tuition, lottery proceeds, state gasoline taxes, part of the state sales tax earmarked for K-12 education, and court fees and fines. Agencies typically don’t spend all of their other fund appropriations by the Legislature in a fiscal year and generally are allowed to carry those surpluses into the next fiscal year.

In a story last month, The Nerve revealed that 101 agencies or major divisions, plus a major state fund for county road projects, carried a total of more than $8.6 billion in other fund surpluses into this fiscal year, which represented about $1,600 for every S.C. resident.

The Nerve’s latest review found that since July 1, 2023 – the start of fiscal year 2024 – through March 13 of this fiscal year, the EBO approved 138 mid-year requests from 40 state agencies to spend an additional total $1.59 billion – $858.3 million so far this fiscal year and $738.9 million in fiscal year 2024.

The request forms, known as “BD-100s,” include boxes to be checked off by the EBO, labeled “Approve” or “Disapprove.” In 72 of the 138 requests, no box was checked, though in virtually all of those cases, the forms were signed either by EBO Acting Director Kevin Etheridge or an analyst in his office.

In a written response to The Nerve, Department of Administration spokeswoman Brooke Bailey said all of the additional spending requests were approved. The EBO last fiscal year approved five other-fund spending requests totaling $28 million for the Department of Administration itself, records show.

Asked how the EBO can approve spending increase requests by its parent agency, Bailey replied that the proviso in the state budget giving the EBO the authority to review agency requests also covers “Admin, which operates a separate Finance division.”

The request forms also allow the governor’s Cabinet agencies to specify whether their respective requests were reviewed separately by the Governor’s Office. Of the 138 total requests, 30 were from Cabinet agencies, eight of which noted a review by the Governor’s Office.

The Governor’s Office didn’t respond to The Nerve’s recent written questions.

Last year, The Nerve revealed that a special joint legislative panel that had been recommending whether to approve mid-year, spending increases by state agencies was discontinued about four years earlier after 10 years in existence.

Big spenders

The following nine state agencies and one major fund for county road projects had the highest total mid-year other or federal fund spending increases since July 1, 2023, according to The Nerve’s latest review of Department of Administration records:

*split up this fiscal year into the departments of Environmental Services and Public Health

The Nerve sent written questions recently to the departments of Health and Human Services, Transportation and Education about their respective mid-year, spending increase requests.

Health and Human Services (HHS), which administers the state’s Medicaid program, is the largest S.C. agency with a total appropriation this fiscal year of $11.7 billion, including $7.8 billion in federal funds and $1.69 billion in other funds.

In its mid-year, other-fund spending request on Jan. 7 of this year, the agency received approval from the EBO to spend an additional $400 million out of state hospital tax assessments as part of a federally approved program aimed at reducing S.C. hospitals’ unreimbursed costs for Medicaid and uninsured patients.

Hospital tax assessments are determined based on a formula that determines an individual hospital’s expenses as a percentage of the total expenses for all hospitals, then applies that percentage to the total assessment amount to be collected, according to the S.C. Department of Revenue (DOR).

Anticipated hospital tax assessments for this fiscal year total $984 million, HHS spokesman Jeff Leieritz said in a written response to The Nerve, adding that nearly $737 million was collected as of April 29.

“The purpose of the BD-100 request was to obtain the necessary authorization to expend that amount ($400 million) of the revenue,” he said.

For fiscal years 2022, 2023 and 2024, paid tax assessments totaled $266.5 million, $266.2 million and $918.5 million, respectively, according to information from the DOR, which noted in a written reply that a state budget proviso increased the collection amount beginning with fiscal year 2024.

The federal Centers for Medicare and Medicaid Services authorized a total of $2.5 billion in payments for this fiscal year to S.C. hospitals participating in the state’s Health Access, Workforce and Quality (HAWQ) program, which HHS announced in September 2023 that the federal government had approved. The HHS' BD-100 form noted, in response to a standard question about why the additional $400 million was not requested during the previous state budget cycle, that the HAWQ program was implemented after the "final budget request was submitted" for this fiscal year.

Leieritz said the approved $400 million is part of a required overall $761 million, non-federal match for the HAWQ program for this fiscal year, with $1.75 billion as the federal match. While the primary revenue source of the state match comes from hospital tax assessments, other funding sources include cigarette tax revenue, tobacco settlement funds and intergovernmental transfers, he said.

A list provided by HHS to The Nerve shows a total of $2.5 billion in authorized HAWQ payments for this fiscal year to 56 hospitals statewide, ranging from $2 million to Edgefield County Healthcare to nearly $401 million to MUSC’s Medical University Hospital. Leieritz said $1.9 billion of the total approved HAWQ funding has been disbursed so far to S.C. hospitals.

Federal law requires states to make supplemental “Disproportionate Share Hospital” (DSH) payments to hospitals serving a high percentage of low-income patients to offset low base Medicaid payment rates, with the federal government reimbursing states a portion of DSH expenses. Leieritz said the HAWQ program is a “separate reimbursement” from the DSH program.

“The amounts hospitals receive under the HAWQ program reduce hospitals’ unreimbursed cost for Medicaid and the uninsured population, which in turn reduces or eliminates the amount the hospital is eligible to receive from DSH,” he said.

Asked about reportedly planned reductions in the DSH program nationwide, Leieritz replied that possible cuts were “delayed until September 2025 as part of the last continuing resolution passed by Congress.”

Pricey school buses

The Nerve’s review also found that the S.C. Department of Education – the state’s second-largest agency with a total budget this fiscal year of $8.27 billion, including $2.68 billion in federal funds and $1.32 billion in other funds – had the highest total number of mid-year, spending-increase requests (19) since July 1, 2023.

Of the $137 million in collective requests that the EBO approved for the department over the period, two requests last year totaling $77.3 million were designated for 221 electric school buses with federal money under the Environmental Protection Agency’s “Clean School Bus Program,” department spokesman Jason Raven said in a written response to The Nerve.

“The (federal) rebates are issued on a lottery basis and (are) not a grant,” Raven said. “We utilize the rebate funds in ‘other funds’ as needed until they are fully expended.”

The department’s first spending request in January 2024 was for 112 electric buses at a cost of $333,480 each; the second request last August covered 109 buses at $366,000 each, according to the department’s BD-100 forms. As of late last month, 188 buses were purchased, 168 of which have been delivered, according to information provided by Raven.

The department has no fully electric buses in its fleet outside of the federal program, he said, noting that 86.3% of the fleet is diesel fueled and 10.2% propane.

Asked where the electric buses are operating, Raven listed three school districts with “infrastructures completed” – Anderson 3, Orangeburg and Chester – and 14 other districts with “infrastructures in progress.”

Most of the buses were manufactured by the Thomas Built company, Raven said. The Nerve in November 2023 reported the department had ordered 160 electric buses at a total cost of $59.5 million from hybrid- and electric-bus assembler Proterra in Greenville, though the company had filed for bankruptcy in August that year.

The department at the time told The Nerve that Proterra’s announced bankruptcy wouldn’t affect the “production or delivery of the buses.” The department didn't provide answers to The Nerve's latest questions about Proterra, which California-based Phoenix Motor Inc. acquired in January 2024, by publication of this story.

‘Difficult to forecast’

In its BD-100 request last June to the Executive Budget Office, the state Department of Transportation sought approval for $225 million in additional fiscal year spending for construction projects statewide.

The funds were to be drawn from three cash balances at the time: $1.49 billion in the Infrastructure Maintenance Trust Fund (IMTF), which was created under a 2017 law raising the state gasoline tax 12 cents per gallon over six years; $383 million in the Highway Fund; and $23 million in the Non-Federal Aid Fund, according to the request.

The Nerve over the years repeatedly has pointed out large surpluses in the IMTF compared to the relatively slow pace of repairing the state’s bad roads and bridges. In last month’s story, The Nerve revealed that DOT started this fiscal year with the largest other-fund reserves ($2 billion), including the IMTF balance, among the overall $8.6 billion surplus for state agencies and a major fund for county road projects.

“Road & Bridge contracts are difficult to forecast project expenditures in regard to amounts and timing,” according the department’s June 26,2024, $225 million spending request to the EBO.

The department in three other requests in 2023 and 2024 received approval to spend an additional collective $303 million for County Transportation Committees (CTCs), which use 3.99 cents of the state gasoline tax for county road projects.

The BD-100 forms noted that the requested amounts, which were state appropriations, needed to be transferred to “restricted” accounts to process payments to the “self-administered counties.” Under state law, those CTCs take on administrative duties that otherwise would be handled by DOT.

A DOT spokeswoman didn’t respond to recent written questions from The Nerve on the mid-year DOT and CTC spending-increase requests.

The department’s total budget for this fiscal year is $3.1 billion, including $2.6 billion in other funds.

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-394-8273 or [email protected]. Follow The Nerve on Facebook, Instagram and X (formerlyTwitter) @thenervesc.

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