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.

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.”

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.

“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 state 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.”

State 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 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.

Under any restructuring plan by Charter, its principal investor, the billionaire Paul G. Allen, will retain control of the company. When the company files for bankruptcy, it will be among the largest to do so this year.

Many bankruptcy experts have said that the bankruptcy boom will lend itself to attractive merger activity as investors swoop in to acquire companies or equity stakes through their debt. For private equity firms, making acquisitions through a company’s debt might prove even cheaper than buying its equity outright.

Analysts have said that while Charter is a sound company in a fairly resilient industry, its debt load proved crippling, and it has exhausted the patience of its creditors. The company was cobbled together through a series of acquisitions over the years, but the debt load it assumed proved too much to bear this year.

When it announced that it had reached a prearranged bankruptcy plan last month, Charter said that it had an agreement in principle with its bondholders in which the company would raise about $3 billion by refinancing existing debt and getting new capital

Weighing the Benefits of Debt Settlement

For a fee, consumers can get help negotiating lower debts

When consumers with mounting debts get desperate, they often turn to what can seem like their last, best hope: debt settlement companies.

Those companies are taking on an increasing number of clients as more consumers find themselves unable to pay their bills. Bankruptcy filings are up 30 percent over last year, and many consumers have so much debt relative to their income that debt settlement companies decline to take them on as clients. (Credit counselors, who focus on financial literacy and rehabilitation rather than negotiating lower payments, often work on those more severe cases.)

 

Do you also help teach clients how to save money?
We don’t give legal advice, but we do tell people how they can save money. We go through their debts and pick which ones they should do first.

Does it hurt a person’s credit score to do that?
It can hurt it temporarily, but in the long run, it’s better to get out of debt. Around 25 percent of clients who get out of debt do it in a year or less. The other 75 percent do it in a two- to three-year time frame. It takes time to build up funds. We call clients every 25 days, whether we need to or not, to check in.

We urge people to keep one credit card [so they can build their credit score back up by making regular payments]. It usually takes six to 12 months before they can start rebuilding their score.

How much does your debt settlement service cost?
We charge 14 percent of unsecured balance you bring in, payable over 11 months, plus a $29 application fee. So for someone with a $10,000 debt, they will pay us $1,400.

Do you ever turn customers away?
When we first talk, we go over their debts and income. If they don’t have enough, we say, “You can’t afford to be in a program like ours. Maybe consumer credit counseling would be better.”