- Associated Press - Thursday, May 26, 2016

COLUMBIA, S.C. (AP) - The South Carolina agency that borrows and doles out money for large highway projects should merge with the Department of Transportation, state auditors recommended Thursday.

Combining the agencies would allow for better coordination and prioritization of highway projects and focus accountability in a single agency, the report by the Legislative Audit Council says.

But the chairman of the state Transportation Infrastructure Bank said the two must remain separate, due to the DOT’s limited ability to borrow money under state law and the state constitution.

“The situation demands it,” said Chairman Vincent Graham.

The Legislature created the bank in 1997 to fund projects that can’t be built on a pay-as-you-go basis, such as the Ravenel Bridge that links Charleston to Mount Pleasant. Since then, it has awarded about $3.8 billion in grants and $1 billion in loans for transportation projects. As of June 2015, the bank still owed about $2 billion to bondholders, according to the report.

It notes that legislators would need to alter state law or the constitution to consolidate the agencies. But that wouldn’t be easy.

“Merging the two would have consequences on debt. It’s hard to get the toothpaste back in the tube,” said Mike Wooten. As chairman of the DOT commission, Wooten also has a seat on the borrowing agency’s board.

The report comes as legislators attempt to finalize a bill changing governance in the two agencies and allowing for $2 billion in borrowing over 10 years, funded by $200 million annually in existing fees and vehicle taxes.

Legislators say that will jumpstart meeting the state’s needs without raising taxes. The DOT has said it needs an additional $1.5 billion yearly over three decades to bring one of the nation’s largest highway systems to good condition.

Opponents of raising the state’s gas tax - unchanged since 1987 at 16 cents per gallon - have blocked any increase, saying the DOT and infrastructure bank must be reformed first. The audit was requested last year by 24 legislators.

Critics, including Gov. Nikki Haley, contend politics, not priorities, determine which highway projects the infrastructure bank funds. Two of the board’s seven members are legislators and two others are appointed by legislators.

“Today’s audit is another reminder we must permanently reform the DOT and end the political horse trading of our roads by prioritizing funding based on traffic needs, safety and economic development in all areas of our state,” said Haley spokeswoman Chaney Adams.

The bill still in negotiations - with three days left in the regular legislative session - would give the DOT commission oversight of the banking board’s decisions. It would also require the infrastructure bank to fund projects based on the DOT’s priority rankings.

Assuming the bill becomes law, the audit’s recommendations are essentially “going into effect anyway,” said Rep. Chip Limehouse, R-Charleston, an infrastructure board member.

The auditors’ report found that the borrowing agency’s application and decision processes lack written policies and consistency. And while the agency requires local governments to share in the expenses, there are no set rules for what percentage of a project’s total cost must be funded locally and what qualifies as a match, the audit said.

The report says the agency doesn’t publicize when money’s available or have a timeline for accepting applications and awarding grants. It has awarded money without an application. And unlike the DOT, the infrastructure bank doesn’t have to follow state law on priority spending.

Graham, whom Haley appointed to the board last fall, said the board is addressing the concerns. Policy changes it approved Thursday include a formal application process and requiring a match to be cash.

He said he’d also like the agency to function more like a real bank.

“I want to shift from a grant-making institution to a bank where we make loans and charge interest and are paid back,” he told a House oversight panel.

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