When a South Carolina state agency has both general-fund appropriations and federal funds for the same program, which money has to be spent first?
Plain-English summary
The Director of the South Carolina Department on Aging asked whether there were any circumstances in which state general-fund money could be spent ahead of federal money on the same program. The Solicitor General Emeritus, responding for AG Alan Wilson, said the rule is set by S.C. Code Ann. § 11-9-125, and the answer is generally no.
The statute orders state agencies to draw down and expend federal and other funds before spending state general-fund appropriations "whenever possible." Excess balances from matching-fund programs go back to the state general fund. Federal or other funds generated by spending state funds (including refunds from prior-year general-fund expenditures) also go back to the general fund unless a specific federal or state requirement directs otherwise. Research grants and student aid grants are explicitly exempt.
The opinion read both the leading sentence ("must be expended before") and subsection (1) ("whenever possible") together: the rule is a federal-first rule, with a narrow practical safety valve when federal money simply is not available or cannot be drawn down. In that case, state general funds can be used. The agency-level requirements for separate accounting, reconciliation, and federal financial reporting are designed to make the federal-first sequence auditable.
What this means for you
State agency finance staff
If your agency runs a program with both general-fund appropriations and a federal grant, your default cash flow has to spend the federal grant first. Make sure your accounting system tags expenditures by funding source from the moment they hit the ledger. The statute's bullet list (subsections (1) through (4)) gives the structure: separate accounting per grant, year-end reconciliation, federal financial reports to the grantor. Build year-end procedures that surface any leftover balances in matching-fund accounts so you can remit them to the general fund as the statute requires.
If you genuinely cannot draw down federal funds for a particular expenditure (the federal grant has not yet been obligated, the federal program has timing constraints that don't match the state fiscal year, or the federal source legitimately doesn't cover the line item), document why in real time. The statute's "whenever possible" language is your authorization, but only with a record showing why federal funds were not possible.
State agency directors and CFOs
Build the federal-first rule into routine internal controls, not just year-end true-up. Auditors will look for it. The statute also creates an appeal route through ORS 2-65-30 and 2-65-40 (sic, S.C. Code) if your agency thinks money was misclassified as the kind that has to be remitted, do not skip the formal appeal in favor of an internal workaround.
Legislative budget staff and oversight committees
The Comptroller General has to report the amount of money credited to the general fund under § 11-9-125 with each official state revenue forecast, sent to the Executive Budget Office, the Revenue and Fiscal Affairs Office, the Senate Finance Committee, and the House Ways and Means Committee. Watch this report when assessing how aggressively state agencies are using federal funds.
Federal grantor agency staff
A South Carolina sub-recipient that draws down federal money first is responding to a state legal requirement, not just preference. If your federal grant terms have specific timing or sequencing requirements that conflict with this state rule, raise that with the state agency early so the conflict can be resolved at the program level.
Common questions
Q: What does "whenever possible" mean in S.C. Code § 11-9-125(1)?
A: The opinion treats it as a narrow practical exception: if there are federal or other funds available, they must be spent before state general funds. State general funds can be used only when federal or other funds are not available or cannot be drawn down for the specific expenditure.
Q: What about matching-fund programs?
A: Excess balances from matching-fund accounts must be remitted to the state general fund. The state's match is not a slush fund the agency can keep.
Q: Are research and student aid grants subject to this rule?
A: No. The statute expressly exempts research grants and student aid grants, including indirect cost recoveries.
Q: What happens if an agency thinks money was wrongly classified as having to be remitted?
A: The statute provides an appeal process through S.C. Code §§ 2-65-30 and 2-65-40.
Q: Who reports on amounts credited under this section?
A: The Comptroller General, at the time of each official state revenue forecast. The report goes to the Executive Budget Office, the Revenue and Fiscal Affairs Office, the Senate Finance Committee, and the House Ways and Means Committee.
Q: Does this rule apply to non-federal "other" funds?
A: Yes. The statute references "[f]ederal and other funds." Other restricted funding sources have to be drawn down before state general fund appropriations, subject to the same "whenever possible" qualifier.
Q: What audit-trail requirements does the statute impose?
A: Three: (1) maintain separate accounting records for each grant covering cash, revenues, and expenditures; (2) reconcile federal and other fund accounts at the end of each state fiscal year; and (3) submit federal financial reports to the grantor agency as required.
Background and statutory framework
S.C. Code Ann. § 11-9-125 is the controlling provision and dates back at least to 2011 (Rev. 2011 & Supp. 2025). The statute pursues two policies at once: maximize federal dollars flowing into the state, and preserve state general-fund cash for things federal money does not cover.
The accounting requirements in subsections (1) through (4) operationalize the policy: agencies have to know, at the line-item level, which fund a particular dollar came from, so the federal-first rule can actually be audited. Subsection's tail ("State agencies shall remit to the general fund of the State any funds found to exist in agency accounts") gives the cleanup authority. The appeal process in §§ 2-65-30 and 2-65-40 is the agency's procedural backstop when there is a dispute.
This opinion was issued by Solicitor General Emeritus Robert D. Cook on behalf of AG Alan Wilson in October 2025, responding to the Department on Aging's request. The Department on Aging often runs programs funded by federal Older Americans Act dollars layered on top of state general-fund appropriations, which is the typical fact pattern this rule applies to.
Citations and references
Statutes:
- S.C. Code Ann. § 11-9-125 (Rev. 2011 & Supp. 2025)
- S.C. Code Ann. § 11-9-125(1)
- S.C. Code Ann. §§ 2-65-30, 2-65-40 (appeal process)
Source
- Landing page: https://www.scag.gov/opinions/opinions-archive/opinion-regarding-the-order-in-which-state-and-federal-funds-must-be-expended/
- Original PDF: https://www.scag.gov/media/w5emshkd/munnc-os-11072-final-opinion-10-15-2025.pdf
Original opinion text
Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.
ALAN WILSON
ATTORNEY GENERAL
October 15, 2025
Connie D. Munn, MSW
Director
Department on Aging
1301 Gervais Street
Suite 350
Columbia, SC 29201
Dear Director Munn:
Attorney General Alan Wilson referred your letter to the Opinions section for a response. You seek an opinion on whether there are circumstances under which state general funds may be expended prior to federal funds, particularly when both funding sources are designated for the same programs and objectives.
South Carolina Code Ann. § 11-9-125 governs the order of use for funds when there are both appropriations from the state general fund and a federal source which may be expended by a state entity. It reads:
Federal and other funds must be expended before funds appropriated from the general fund of the State, to the extent possible, and any excess balances in accounts resulting from matching fund programs must be remitted to the general fund of the State. Federal or other funds generated by the expenditure of state funds, including refunds from prior year general fund expenditures, must be remitted to the general fund of the State if there is no federal or state requirement governing the specific use of the funds. In order to permit identification of these funds, state agencies shall:
(1) draw down and expend federal and other funds before spending state general fund appropriations whenever possible;
(2) maintain separate accounting records for each grant for cash, revenues, and expenditures to insure a proper audit trail;
(3) reconcile federal and other fund accounts at the end of each state fiscal year and maintain those records for audit purposes;
(4) submit federal financial reports to the grantor agency as required.
State agencies shall remit to the general fund of the State any funds found to exist in agency accounts. If an agency believes funds have been inappropriately identified as the funds defined in this section, the agency may appeal through the process provided in Sections 2-65-30 and 2-65-40. A report of the amount of funds credited to the general fund of the State pursuant to this section must be made by the Comptroller General at the time of each official state revenue forecast. This report must be provided to the Executive Budget Office and the Revenue and Fiscal Affairs Office, the Senate Finance Committee, and the House Ways and Means Committee. Research and student aid grants, including indirect cost recoveries, are exempt from this provision.
S.C. Code Ann. § 11-9-125 (Rev. 2011 & Supp. 2025) (emphasis added).
The first sentence of § 11-9-125 provides that federal and other funds must be expended before state general fund appropriations. Id. Additionally, subsection (1) specifies that federal and other funds must be drawn down and expended before spending state general fund appropriations whenever possible. Id. § 11-9-125(1). Thus, if there are federal or other funds available, they must be expended prior to using state general fund appropriations. Notably, these clauses do not restrict funding to only federal sources, so if there are no federal or other funds available, state general funds may be used.
Sincerely,
Robert D. Cook
Solicitor General Emeritus