ATLANTA -- South Carolina's legislative watchdog agency issued a scathing report last week on an infrastructure bond program managed by the state Resources Authority.
In its report, the Legislative Audit Council said the South Carolina Resources Authority failed to. properly monitor the program, for which it issued $50.7 million of bonds between 1989 and 1991. Proceeds were used to buy $48.4 million of wastewater revenue debt sold by 34 local governments.
The study also held the authority at least partly accountable for the default of bonds sold by New Ellenton, S.C., and problems that two other participants, Turbeville and Ridgeland, have had covering debt service. The three cities' participation in the bond program has so far cost the state $1.2 million.
The 43-page study was especially critical of SouthCarolina's Jobs and Economic Development Authority, which provided the Resources Authority with staff to run the bond program.
"The [development authority] did not perform an independent analysis of revenue projections, which was vital to ensuring that bond debts could be paid," the report said. "The [authority] did not properly evaluate the economic environment and other factors relevant to the borrowers' financial position, and did not adequately document the application process."
The council also criticized the state's Water Resources Coordinating Council, which screened applicants and approved participants in the program.
In addition. the report charged that the bond program failed to emphasize funding for rural and underdeveloped areas. as intended by law.
State Sen. W. Greg Ryberg, RAiken, one of five lawmakers who sought the report, said it indicates the need for improved oversight of bonds sold by South Carolina's issuing agencies.
"We are going to take legislative action to deal with this," he said.
Ryberg said that the legislature should impose specific credit standards for participants in state infrastructure bond programs, as well as guidelines for monitoring debt service coverage after issuance. Guidelines establishing which local governments should be given priority for bond funding should also be set, he said.
A nine-page written response prepared by the economic development authority disputed the council's charges.
The authority "believes that the [council] has misconstrued [its] role and responsibilities under the [South Carolina Resources Authority] Act and never grasped the true accomplishments of the authority and the [Water Resources Coordinating Council] under the program," wrote Elliott Franks 3d, the development authority's executive director.
Franks said the authority's credit analysis was "always thorough" and insisted that the legislature had set up the infrastructure program to "foster economic growth" as well as bolster water programs in rural areas.
The state official also argued that the authority should not be blamed for the default of New Ellenton's bonds, which he attributed to the embezzlement of sewer bond funds by the city's former Mayor Randy Shaw. In August, Shaw pleaded guilty to federal mail fraud and money laundering charges.
The development authority "firmly believes that no amount of due diligence. investigation, or evaluation can prevent or deter a public official from perpetrating a crime," he wrote. "Even the most experienced lenders sometimes fall prey to fraud and embezzlement."
According to the report. New Ellenton defaulted on its bond issue because of faulty revenue projections for a new sewer system built with proceeds as well as illegal diversion of bond funds by Shaw.
The town is currently under a consent order to deposit all sewer revenues with its trustee. NationsBank, which permits it to draw down funds for operation and maintenance. According to the report. however, the city still had a shortfall of $131,000 for its last debt service payment, due in July. The state has so far set aside $425.000 to cover debt service shortfalls.
The council report said the state appropriated $802,077 to help Ridgeland and Turbeville avoid default on bonds issued to expand water and sewer systems to serve two prisons planned by the state. The town has had trouble covering debt service because the prisons have not yet opened.
Ryberg noted that South Carolina's legislature in June passed legislation establishing a new agency, the South Carolina Infrastructure Facilities Authority, to supersede the resources authority. Earlier this month. Gov. Carroll A. Campbell signed the bill into law.
However, the new agency will not necessarily cure the problems discussed in the audit council's report. Ryberg said.
He said he was concerned about the lack of specific credit criteria for participants in the infrastructure authority's programs. Ryberg also said he is worried that the new authority -- which can sell bonds for solid waste as well as water projects will put even less emphasis on rural areas than its predecessor.
Like the resources authority, the infrastructure authority is overseen by the state's budget and control board. The board is composed of the governor, state Treasurer Grady Patterson. Comptroller Earle Morris. Senate finance committee chairman John Drummond. D-Columbia. and House ways and means committee chairman William D. Boan, D-Heath Springs.
None of these officials was available for comment yesterday.
