South Carolina Office of the State Auditor ......South Carolina extends from the Atlantic Ocean westward to theBlue Ridge Mountains,containing over 30,000square miles. Fortieth in

STATE OF SOUTH CAROLINA

COMPREHENSIVE ANNUAL

FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED JUNE 30,

2018

Prepared by the Comptroller General’s Office

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State of South Carolina

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CONTENTS INTRODUCTORY SECTION

Page Letter of Transmittal ........................................................................................................................................................... 6 Certificate of Achievement for Excellence in Financial Reporting .................................................................................. 13 Principal State Officials .................................................................................................................................................... 14 Organizational Chart......................................................................................................................................................... 15

FINANCIAL SECTION

INDEPENDENT AUDITORS’ REPORT .................................................................................................................... 18

MANAGEMENT’S DISCUSSION AND ANALYSIS—REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED)..................................................................................... 23

BASIC FINANCIAL STATEMENTS .......................................................................................................................... 37 Government-wide Financial Statements ................................................................................................................... 38

Exhibit A-1: Statement of Net Position ............................................................................................................... 38 Exhibit A-2: Statement of Activities ................................................................................................................... 40

Fund Financial Statements......................................................................................................................................... 42 Exhibit B-1: Balance Sheet—Governmental Funds ............................................................................................ 42 Exhibit B-1a: Reconciliation of the Governmental Funds Balance Sheet to the

Exhibit B-2a: Reconciliation of the Statement of Revenues, Expenditures, and Changes in

Statement of Net Position ............................................................................................................... 44 Exhibit B-2: Statement of Revenues, Expenditures, and Changes in Fund

Balances—Governmental Funds .................................................................................................... 46

Fund Balances of Governmental Funds to the Statement of Activities .......................................... 48 Exhibit B-3: Statement of Net Position—Proprietary Funds ............................................................................... 50 Exhibit B-4: Statement of Revenues, Expenses, and Changes in

Fund Net Position—Proprietary Funds........................................................................................... 53 Exhibit B-5: Statement of Cash Flows—Proprietary Funds ................................................................................ 54 Exhibit B-6: Statement of Fiduciary Net Position—Fiduciary Funds ................................................................. 58 Exhibit B-7: Statement of Changes in Fiduciary Net Position—Fiduciary Funds .............................................. 59

Component Unit Financial Statements ..................................................................................................................... 60 Exhibit C-1: Statement of Net Position—Discretely Presented Component Units ............................................. 60 Exhibit C-2: Statement of Activities—Discretely Presented Component Units.................................................. 62

Notes to the Financial Statements.............................................................................................................................. 64

REQUIRED SUPPLEMENTARY INFORMATION—OTHER THAN MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) ............................................... 183 Budgetary Comparison Schedule (Non-GAAP Budgetary Basis)—Budgetary General Fund ............................... 184 Budgetary Comparison Schedule (Non-GAAP Budgetary Basis)—Other Budgeted Funds ................................... 186 Notes to the Required Supplementary Information—Budgetary ............................................................................. 188 Net Pension Liabilities ............................................................................................................................................ 192 Net Other Post-Employment Benefits Other Than Pensions Liabilities .................................................................. 208

SUPPLEMENTARY INFORMATION...................................................................................................................... 217 Governmental Funds ................................................................................................................................................ 218

Exhibit D-1: Combining Balance Sheet—Nonmajor Governmental Funds ...................................................... 220 Exhibit D-2: Combining Statement of Revenues, Expenditures, and Changes in

Fund Balances—Nonmajor Governmental Funds ........................................................................ 222 Exhibit D-3: General Reserve Fund Activity—Budgetary General Fund ......................................................... 224

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State of South Carolina CONTENTS (Continued)

Page Proprietary Funds ..................................................................................................................................................... 226

Exhibit E-1: Combining Statement of Net Position—Nonmajor Enterprise Funds .......................................... 228 Exhibit E-2: Combining Statement of Revenues, Expenses, and Changes in Fund

Net Position—Nonmajor Enterprise Funds .................................................................................. 232 Exhibit E-3: Combining Statement of Cash Flows—Nonmajor Enterprise Funds ........................................... 234 Exhibit E-4: Combining Statement of Net Position—Internal Service Funds .................................................. 238 Exhibit E-5: Combining Statement of Revenues, Expenses, and Changes in Fund

Net Position—Internal Service Funds .......................................................................................... 242 Exhibit E-6: Combining Statement of Cash Flows—Internal Service Funds ................................................... 244

Fiduciary Funds ...................................................................................................................................................... 249 Exhibit F-1: Combining Statement of Plan Net Position—Pension and

Other Post-Employment Benefit Trust Funds ............................................................................... 250 Exhibit F-2: Combining Statement of Changes in Plan Net Position—Pension and Other

Post-Employment Benefit Trust Funds ......................................................................................... 252 Exhibit F-3: Combining Statement of Fiduciary Net Position—Private-Purpose Trust Funds ......................... 254 Exhibit F-4: Combining Statement of Changes in Fiduciary Net

Position—Private-Purpose Trust Funds ........................................................................................ 255 Exhibit F-5: Combining Statement of Changes in Assets and Liabilities—Agency Funds .............................. 256

Nonmajor Discretely Presented Component Units ................................................................................................ 257 Exhibit G-1: Combining Statement of Net Position—Nonmajor Discretely Presented Component Units ....... 258 Exhibit G-2: Combining Statement of Activities—Nonmajor Discretely Presented Component Units ............ 262

STATISTICAL SECTION (UNAUDITED)

Table 1: Net Position by Component ................................................................................................................... 268 Table 2: Changes in Net Position ........................................................................................................................ 270 Table 3: Fund Balances—Governmental Funds .................................................................................................. 274 Table 4: Changes in Fund Balances—Governmental Funds ............................................................................... 276 Table 5: Personal Income by Industry ................................................................................................................. 278 Table 6: Taxable Sales by Industry ...................................................................................................................... 280 Table 7: Percent Distribution of Taxable Sales by Industry ................................................................................ 280 Table 8: Personal Income Tax Rates ................................................................................................................... 282 Table 9: Personal Income Tax Filers and Liability by Income Level .................................................................. 283 Table 10: Ratios of Outstanding Debt by Type ..................................................................................................... 284 Table 11: Ratios of General Bonded Debt Outstanding......................................................................................... 286 Table 12: Computation of Legal Debt Margin....................................................................................................... 288 Table 13: Legal Debt Margin Information ............................................................................................................. 290 Table 14: Pledged Revenue Coverage ................................................................................................................... 292 Table 15: Demographic Statistics .......................................................................................................................... 293 Table 16: Employment by Industry ....................................................................................................................... 294 Table 17: Ten Largest Employers .......................................................................................................................... 295 Table 18: Government Employees by Function .................................................................................................... 296 Table 19: Operating Indicators by Function .......................................................................................................... 298 Table 20: Capital Assets by Function .................................................................................................................... 300

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Introductory Section

Letter of Transmittal Certificate of Achievement

Principal State Officials Organizational Chart

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Office of Comptroller General 1200 Senate Street

305 Wade Hampton Office Building Columbia, South Carolina 29201

RICHARD ECKSTROM, CPA COMPTROLLER GENERAL

Telephone: (803) 734-2121 Fax: (803) 734-2064

E-Mail: [email protected] WILLIAM E. GUNNCHIEF OF STAFF

November 15, 2018

To the Citizens, Governor and Members of the South Carolina General Assembly

I am pleased to present to the citizens of South Carolina this Comprehensive Annual Financial Report for the State of South Carolina for the fiscal year ended June 30, 2018. The report provides financial information about the State’s operations during the year and describes its financial position at the end of the year.

Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal controls that was established for this purpose. Because the cost of internal controls should not exceed the anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements.

The State Auditor and CliftonLarsonAllen LLP, an independent certified public accounting firm, jointly performed an independent audit of the State’s basic financial statements for the fiscal year ended June 30, 2018. The auditors have issued an unmodified opinion, the most favorable outcome of the audit process.

This letter of transmittal is designed to complement management’s discussion and analysis that immediately follows the report of the independent auditors.

PROFILE OF THE GOVERNMENT South Carolina extends from the Atlantic Ocean westward to the Blue Ridge Mountains, containing over

30,000 square miles. Fortieth in geographic area among the fifty states, South Carolina ranks twenty-third in population with approximately 5.0 million citizens. According to the U.S. Census Bureau, the State’s rate of population growth is presently the tenth fastest in the nation.

As shown in the organizational chart on page 15, State government is divided into three separate branches: legislative, executive, and judicial. The State’s citizens elect the legislative and executive branch officials. The General Assembly elects certain members of the judicial branch, including the Supreme Court. The principal State officials currently in office are listed on page 14.

State government provides a full range of services to South Carolina’s citizens including educational, health, social/human, transportation, public safety, regulatory, and conservation/natural resources services. In addition, the State provides funds, grants, and loans to assist local governments, including school districts.

The State’s reporting entity includes the primary government and its component units. The primary government includes all funds, departments, and agencies. The State’s component units are legally separate organizations for which the State is accountable for purposes of financial reporting. The Management’s Discussion and Analysis (MD&A) and the Basic Financial Statements focus on the activities of the primary government.

Additional information on the State’s component units can be found in the notes to the accompanying financial statements and in the separately issued financial statements of those component units.

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South Carolina’s annual Appropriations Act includes legally adopted budgets by agency for the Budgetary General Fund and for Total Funds. After the budget year begins, the Executive Budget Office (EBO), may order spending cuts if revenue collections fall short of predicted levels. A department or agency may request transfers of appropriations between programs if its transfer request does not exceed 20% of its program budget. The EBO has the authority to approve additional requested transfers of appropriations between personal services and other operating expenditure accounts. For additional information, see the notes to the required supplementary information - budgetary.

STATE ECONOMY South Carolina has a diversified economic base, including manufacturing, trade, healthcare, services, and

leisure/hospitality. Businesses have relocated here from all over the world taking advantage of the State’s skilled labor force, competitive wages, lower-priced land, excellent port facilities and accessibility to markets, and, in recent years, substantial tax and other economic incentives.

Businesses continue to choose South Carolina as a place to locate or expand, and the State of South Carolina is committed to working with employers to meet their workforce needs through state-supported workforce development initiatives.

During the year ended June 30, 2018, total non-farm employment in the state increased by 41,400 to 2,125,700. Industry sectors reflecting gains were Leisure and Hospitality (+16,600); Mining, Logging, Information, and Other Services (+7,400); Education and Health Services (+6,900); Trade, Transportation, and Utilities (+4,900); Professional and Business Services (+3,300); Government (+2,600); and Financial Activities (+1,200). The Construction sector remained unchanged and declines were experienced in the Manufacturing sector (-1,500).

South Carolina’s unemployment rate was 3.8% in June 2018, which was below the June 2017 rate of 3.9%. It improved to 3.3% in September 2018. In comparison, the U.S. unemployment rate in June 2018 was 4.0% and 3.9% in September 2018.

The South Carolina Leading Index (SCLI) increased by 0.08 points from June 2017 to June 2018 to 102.55. Above the 100 mark, the SCLI forecasts improving economic conditions for South Carolina over the upcoming three to six months. The SCLI closed the month of September 2018 at 102.58, the most current month available.

The number of real estate closings remained virtually the same when comparing June 2018 and June 2017. But, with the declining number of foreclosures in the state, down 2.9 percent in June 2018 compared to June 2017, the supply of available homes on the market remains low. As inventory tightens, real estate values in South Carolina have gained ground. In addition, residential building permits compared to a year ago are up 10.5 percent in volume and 9.0 percent in valuation.

The South Carolina housing market continued to improve, with the Charleston, Florence, and Columbia housing markets experiencing strong home sales in the first half of calendar year 2018. This growth was also complemented by median home prices of homes sold increasing 6.6 percent when comparing June 2018 to June 2017.

Also, see the following for a comparison of South Carolina, the southeastern United States, and the entire United States in per capita personal income growth over the last five years.

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0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2013 2014 2015 2016 2017

Gro

wth

Per Capita Personal Income Growth

South Carolina Southeast US

LONG-TERM FINANCIAL PLANNING State law requires agencies that receive 1.0% or more of the total annual General Fund appropriations to

provide an estimate of their projected General Fund expenditures for the next three fiscal years. The Executive Budget Office combines these expenditure estimates with long-term revenue estimates made by the State’s Board of Economic Advisors (BEA) to create a three-year financial plan. The three-year financial plan assists the State in strategically assessing its future financial commitments. The plan is updated annually and provided to the Governor, the Speaker of the House of Representatives, and the President Pro Tempore of the Senate during the second quarter of each fiscal year.

Significant financial challenges facing state government include anticipated future spending increases for Medicaid, State retirement and post-retirement health benefits, and elementary and secondary education.

The State’s long-term financial management practices include a five–year comprehensive permanent improvement plan that requires funding to be in place before beginning construction on any capital improvement projects.

RELEVANT FINANCIAL POLICIES The State’s legislature is required to adopt a balanced budget annually based on revenue projections

provided by the BEA. State law requires the BEA to meet at least quarterly to compare actual revenue collections with its earlier projections and to adjust its projections if necessary. The State legislature and EBO are responsible for taking appropriate action to keep the State’s budget in balance. If at the end of the first, second, or third quarter of any fiscal year the BEA reduces revenue by more than three percent below the amount projected for the fiscal year, the President Pro Tempore of the Senate and the Speaker of the House of Representatives may call each respective house into session to take action to avoid a year-end deficit. If the houses do not come into session within twenty days of the BEA determination, the Director of the EBO must reduce most agency appropriations evenly across-the-board to avoid a year-end deficit. The State is also required to maintain a General Reserve Fund amounting to 5.0% of total General Fund revenues for the latest completed fiscal year that can be used only for eliminating a year-end operating deficit. Additionally, the State is required to annually fund a 2% Capital Reserve to be used for capital improvements, debt retirement, or other nonrecurring purposes appropriated by the General Assembly.

Legislation also exists directing that in closing the books each year the Comptroller General shall suspend, to the extent necessary, any budgetary surplus appropriations in a general or supplemental act or Capital Reserve Fund appropriations if the State’s General Fund has a negative unrestricted, unassigned fund balance when reported on a Generally Accepted Accounting Principles-basis.

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The State ended fiscal year 2018 with a positive budgetary General Fund balance after reservation of $1.187 billion, which was made up of legislatively approved agency carryover appropriations of $484.487 million, the General Reserve of $363.552 million, the Capital Reserve of $145.421 million, and unassigned surplus of $193.714 million. See the Required Supplementary Information – Other than Management’s Discussion and Analysis (Unaudited) section for further information.

MAJOR INITIATIVES The State continues to fund programs related to job creation. In calendar year 2017 the State committed

$20.0 million to the South Carolina Coordinating Council on Economic Development’s Set-Aside Fund, which is dedicated to improving the economic well-being of the State by providing funds to local government to develop the infrastructure necessary for new and expanding business. Programs like this helped to attract Samsung to Newberry County and Stanley Black & Decker to York County in fiscal year 2018. Stanley Black & Decker is expected to create 500 jobs in the coming years. Additionally, Zeus Industrial Products, Inc. announced that it will expand its facilities in Calhoun County in fiscal year 2018, which will create an additional 350 jobs in the coming years as well.

South Carolina’s job creation and capital investment from manufacturers have experienced steady growth since the end of the 2007 - 2009 Recession. In 2017 alone, the state attracted more than $5.24 billion in new capital investment from manufacturing companies, which resulted in the creation of more than 18,445 jobs.

Area Development Magazine recently ranked South Carolina fourth in its 2018 “Top States for Business” analysis. Area Development Magazine also ranked South Carolina first in business incentive programs and second in cooperative and responsive state government within the analysis.

South Carolina’s Growing Economic Environment

Over the last several years, South Carolina has continued to demonstrate its ability to attract expanded economic opportunities for citizens. Manufacturing has grown substantially. South Carolina has also experienced a state-wide decrease in its unemployment rate, which has shown that even in the midst of challenging national economic conditions our state’s business-friendly climate and committed workforce continue to attract investment that creates well-paying jobs.

We have seen an emerging trend of companies investing and expanding in South Carolina. Many of South Carolina’s major employers have expanded and created high-quality jobs within the state. In 2012, the State established an Aerospace Task Force to position the state for future growth. The task force is focused on growing the aerospace supply chain for companies like Boeing and GE Turbine and supporting initiatives to assure that South Carolina has a workforce ready for the aerospace industry.

South Carolina’s exports reached record levels again in 2017 with exports increasing by 2.9% to $32.2 billion from 2016 to 2017. In 2017, South Carolina ranked 16th in the United States in exports. These export figures were bolstered by the fact that the State is the nation’s top exporter of completed passenger vehicles and tires, in which the State accounted for approximately 16% of the entire U.S. passenger vehicles market and approximately 31% of the total U.S. tire export market. The State also recently established a Transportation, Distribution and Logistics (TDL) Council that includes strong private sector participation. Part of the mission of this council is to prepare South Carolina for the Panama Canal expansion, providing South Carolina with a world-class port that will have the capacity to support the expected increase in merchant shipping. The Port of Charleston is deepening its shipping channel from forty-five to fifty-two feet. Once the project is completed by the end of the decade, Charleston will be the deepest port on the east coast.

Due in part to the State’s economic outreach initiatives, South Carolina’s total economic output or gross domestic product (GDP) was $219.093 billion in 2017. Between 2016 and 2017, our real GDP grew 2.3%, which compares to the southeast states average growth of 2.0%.

With our cost of living 3.7% below the national average, South Carolina offers exceptionally productive employees at one of the lowest labor costs in the nation. South Carolina is a right-to-work state and in 2017 had the lowest unionization rate in the nation, at 2.6% of the workforce. As a result of this, Kiplinger recently highlighted South Carolina as tied with Texas at eleventh in states that have gained the most jobs in 2017 with an employment increase of 1.8%.

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AWARDS AND ACKNOWLEDGMENTS

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the State of South Carolina for its Comprehensive Annual Financial Report (CAFR) for the fiscal year that ended June 30, 2017. This was the thirtieth consecutive year that the State of South Carolina achieved this recognition. In order to be awarded a Certificate of Achievement, a government must publish a timely, easily readable, and efficiently organized CAFR. The CAFR must comply with both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements, and we are submitting it to GFOA to determine its eligibility to be awarded a Certificate of Achievement.

Production of the CAFR was made possible only by the support of all State agencies and component units that supplied financial data to our office on a timely basis. I extend special appreciation for the members of my staff who devoted many of their nights and weekends over the past few months working as a team to produce this comprehensive document. I also express special appreciation for the generous sacrifices made by their families who endured the many extra hours they devoted to successfully complete this project.

Sincerely,

Richard Eckstrom, CPA Comptroller General

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C E R T I F I C A T E O F A C H I E V E M E N T

F O R E X C E L L E N C E I N F I N A N C I A L R E P O R T I N G

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Government Finance Officers Association

Certificate of Achievement for Excellence

in Financial Reporting

Presented to


For its Comprehensive Annual Financial Report

for the Fiscal Year Ended

June 30, 2017

Executive Director/CEO

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Principal State Officials

LEGISLATIVE—THE GENERAL ASSEMBLY Kevin L. Bryant, President of the Senate and Lieutenant Governor Hugh K. Leatherman, Sr., President Pro Tempore of the Senate James H. Lucas, Speaker, House of Representatives

EXECUTIVE STATE FISCAL ACCOUNTABILITY AUTHORITY Henry D. McMaster, Chairman, Governor Curtis M. Loftis, State Treasurer Richard Eckstrom, Comptroller General Hugh K. Leatherman, Sr., Chairman, Senate Finance Committee W. Brian White, Chairman, House Ways and Means Committee

Kevin L. Bryant, President of the Senate and Lieutenant Governor Mark Hammond, Secretary of State Alan Wilson, Attorney General Molly Spearman, State Superintendent of Education Major General Robert E. Livingston, Jr, Adjutant General Hugh E. Weathers, Commissioner of Agriculture

JUDICIAL Donald W. Beatty, Chief Justice, Supreme Court

The State’s citizens elect the legislative and executive branch officials named above. The General Assembly elects certain members of the judicial branch, including the Supreme Court.

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Organizational Chart

State Fiscal Accountability Authority

Governor (Chairman); State Treasurer; Comptroller General; Chairman, Senate Finance Committee; Chairman, House Ways and Means Committee

State Auditor Legislative Branch

Governor

Lieutenant Governor

Adjutant General

Attorney General

Secretary of State

Superintendent of Education

Commissioner of Agriculture

State Treasurer

Comptroller General

General Assembly

Senate House of Representatives

Department of Education

Board of Education

(1)

Department of Agriculture

Agriculture Commission (1)

Governor's Executive Departments

Public Safety

SC Law Enforcement Division

Social Services

Juvenile Justice

Health and Human Services

Insurance

Alcohol and Other Drug Abuse Services

Probation, Parole, and Pardon Services

Labor, Licensing, and Regulation

Commerce

Parks, Recreation, and Tourism

Corrections

Revenue

Motor Vehicles

Employment and Workforce

Transportation

Administration (1)

Other Executive Agencies

Executive and Administrative Agencies

Regulatory Agencies

Health Agencies

Conservation, Natural Resources, and

Development Agencies

Social Rehabilitation Agencies

Educational Agencies

Ports Authority

Public Service Authority

Housing Authority

Public Employee Benefit Authority

Retirement System Investment Commission

Lottery Commission

Revenue and Fiscal Affairs

Governor Appointed

Citizens Boards

University and College Boards (component units)

Legislative Agencies

Other Non-Executive

Agencies

Executive Branch Judicial Branch

Supreme Court

Court of Appeals

Circuit Courts

Family Courts

(1) Board of Education and Agriculture Commission are comprised of 16 members elected by the legislative delegation of each judicial district, one member at large appointed by the Governor and the Superintendent of Education or Commissioner of Agriculture, respectively.

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Financial Section

Independent Auditors’ Report Management’s Discussion and Analysis (Unaudited)

Basic Financial Statements Required Supplementary Information (Unaudited)

Supplementary Information

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INDEPENDENT AUDITORS’ REPORT

The Honorable Henry D. McMaster, Governor and

Members of the General Assembly State of South Carolina Columbia, South Carolina

Report on the Financial Statements We have jointly audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the State of South Carolina (the State), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the State’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility Our responsibility is to jointly express opinions on these financial statements based on our audit.

We did not jointly audit the financial statements of certain agencies and component units of the State, which represent the indicated percent of total assets and deferred outflows of resources and total revenues as presented in the table below. Those financial statements were audited by other auditors, including CliftonLarsonAllen, LLP acting separately, whose reports thereon have been furnished to us, and our opinion, insofar as it related to the amounts included for those agencies and component units, is based solely on the reports of the other auditors.

Percentage Audited by CliftonLarsonAllen LLP

Separately

Total Assets and Deferred Outflows of Resources Total Revenue

Percentage Audited by Other Auditors

Total Assets and Deferred Outflows of Resources Total Revenue

Government-wide Governmental activities 2% 11% 60% 11% Business-type activities - - 82% 82% Component units - - 99% 96%

Fund Statements Governmental Funds - - 23% 11% Enterprise Funds - - 82% 82% Internal Service Funds 38% 90% 52% 6% Fiduciary Funds 76% 30% 23% 70%

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We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the State Ports Authority, Connector 2000 Association, Inc., South Carolina Research Authority, InvestSC, Inc. and South Carolina Medical Malpractice Liability Joint Underwriting Association, were not audited in accordance with Government Auditing Standards, issued by the Comptroller General of the United States.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the State as of June 30, 2018, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter Correction of Errors and Change in Accounting Principle As described in Note 15 to the financial statements, the State restated beginning balances resulting from the correction of accounting errors that occurred in the prior period and the implementation of Governmental Accounting Standards Board Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Our opinion is not modified with respect to these matters.

Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison schedules, and net pension liability schedules, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We and the other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the State’s basic financial statements. The introductory section, supplementary information and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements.

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The supplementary information, as listed in the table of contents, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion based on our audit, the procedures performed as described above, and the report of the other auditors, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole.

The introductory section and the statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 15, 2018, on our consideration of the State’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the State’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the State’s internal control over financial reporting and compliance.

Columbia, South Carolina November 15, 2018

a Baltimore, Maryland November 15, 2018

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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S —

R e q u i r e d S u p p l e m e n t a r y I n f o r m a t i o n ( U n a u d i t e d )

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Management’s Discussion and Analysis In this section of the State of South Carolina’s annual report, we provide a narrative overview and analysis of the State’s

financial performance for its accounting year (fiscal year) that ended June 30, 2018. Please read it in conjunction with the Comptroller’s Letter of Transmittal at the front of this report and the financial statements that follow this section.

Overview of the Financial Statements This discussion and analysis provides an introduction to the State of South Carolina’s basic financial statements, which

include the following parts: (1) government-wide financial statements, (2) fund financial statements, (3) component unit financial statements, and (4) notes to the financial statements. This annual report also contains certain required supplementary information and other supplementary information to aid in understanding the operations of the State.

Government-wide Financial Statements

The government-wide statements present a long-term view of the State’s finances as a whole, using accrual-basis accounting—the same accounting basis that most businesses use. The basic government-wide financial statements are presented on pages 38 through 41 of this report.

There are two government-wide financial statements: Statement of net position: This statement presents information on all of the State’s assets, liabilities, and deferred

inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in the State’s net position may serve as a useful indicator of whether its financial position is improving or deteriorating. However, the statement of net position does not tell the whole story. To assess the State’s overall financial health, other factors need to be considered such as the State’s economy and the condition of its capital assets such as its buildings and infrastructure (roads and bridges).

Statement of activities: This statement presents information showing how the State’s overall net position changed during the year. The State reports a change in its net position as soon as an underlying event occurs that causes a change. The statement of activities accounts for all current-year revenues and expenses, regardless of when the State received or paid cash. Although governments compile the statement of activities using accounting methods similar to businesses, the format of this statement is quite different from the format of a business’s profit and loss statement. The statement of activities helps to show how much it costs for the State to provide various services. It also indicates the extent to which each government function covers its own costs through user fees, charges, or grants. The net revenues (expenses) column on the far right of this statement on page 40 shows how much a particular function relies on taxes and other general revenues as opposed to program revenues to support its programs.

The government-wide statements present three different kinds of activities: Governmental activities: Most of the State’s basic services are included here, such as general government, education,

health and environment, social services, administration of justice, and transportation. Taxes (primarily income and sales taxes) and federal grants provide resources to support most of these services.

Business-type activities: These activities usually recover all, or a significant portion, of the costs of their services or goods by charging fees to customers. The Unemployment Compensation Benefits Fund and Second Injury Fund are the most significant of South Carolina’s business-type activities.

Component units: Although component units are legally separate from the State, the State’s elected officials are financially accountable for them. The Public Service Authority (Santee-Cooper, an electric utility company), the State Ports Authority, the State Housing Authority, the State Lottery Commission, Clemson University, the Medical University of South Carolina, and the University of South Carolina are the State’s major component units. Some financial information for these component units is included in this report. Complete financial statements for these component units can also be obtained from their respective administrative offices (see Note 1a of the notes to the financial statements on page 67).

Fund Financial Statements

The fund financial statements on pages 42 through 59 of this report provide detailed information about the State’s most significant funds—not the State as a whole. Funds are accounting designations that the State uses to track specific funding sources and spending for particular purposes. South Carolina, like other governments, uses fund accounting to ensure and demonstrate compliance with financial related legal requirements.

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The State reports three types of funds:

Governmental funds: The State reports most of its basic services in governmental funds. Governmental funds account for activities that the State reports as governmental activities in its government-wide statements. These funds focus on short-term inflows and outflows of expendable resources. The balances remaining at the end of the year help determine whether a fund has more or less financial resources available to spend in the near future. Because the governmental fund statements lack the additional long-term focus of the government-wide statements, a reconciliation that explains the relationship (or differences) between the two kinds of statements is provided. By comparing the two kinds of statements and examining the reconciliation, a better understanding of the long-term impact of the State’s near-term funding decisions is available.

The basic governmental fund statements are on pages 42 through 49 of this report. Proprietary funds: Proprietary funds charge customers for the services they provide—whether they are provided to outside

customers (enterprise funds) or other State agencies and other governments (internal service funds). Proprietary funds use the accrual basis of accounting like businesses use. The State reports all of its enterprise funds as business-type activities in the government-wide statements. However, because the internal service fund operations primarily benefit other State agencies or other governments, these proprietary funds are included as governmental activities in the government-wide financial statements.

The basic proprietary fund statements are on pages 50 through 56 of this report. Fiduciary funds: The State is the trustee, or fiduciary, for its employees’ retirement and other post-employment benefit

plans. The State also is responsible for other assets that, because of a trust agreement, it is to use only for trust beneficiaries such as an investment pool operated on behalf of local governments. These activities are excluded from the State’s government-wide financial statements because the State is not to use these assets to benefit its operations. The State has an obligation to ensure that the net position it reports in fiduciary funds are used for the intended purposes.

The basic fiduciary fund statements are on pages 58 and 59 of this report.

Component Unit Financial Statements

The Government-wide Financial Statements section on the preceding page identifies the State’s major component units under the Component units subheading. More detailed financial statements which include these component units are on pages 60 through 63 of this report.

Notes to the Financial Statements

Immediately following the financial statements are notes that provide additional and pertinent information to the financial statement amounts. The notes on pages 64 through 181 are necessary to fully understand the financial statements.

Required Supplementary Information

This section addresses budgetary matters and provides certain required reporting information that supplements the basic financial statements. Included in this section is a schedule that compares the State’s legally adopted General Fund budget with actual revenues collected and expenditures paid for the year. Note 5 on page 190 to the required supplementary information is a reconciliation that provides and explains differences between the changes in fund balance of certain funds when presented on the budgetary-basis and the changes in fund balance of these funds when presented on the GAAP-basis as reported in the governmental fund statements. Additionally, the required supplementary information section includes information on the State’s five pension programs: The South Carolina Retirement System, the Police Officers’ Retirement System, the General Assembly Retirement System, the Judges’ and Solicitors’ Retirement System, and the National Guard Retirement System. This required supplementary information is on pages 183 through 215 of this report.

Supplementary Information

Nonmajor governmental funds, nonmajor enterprise funds, internal service funds, fiduciary funds, and nonmajor discretely presented component units are presented immediately following the required supplementary information. Combining and individual fund statements and a schedule of General Reserve Activity are found on pages 217 through 263 of this report.

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Government-wide Financial Analysis Exhibits 1 and 2 summarize the State’s overall financial position and results of operations for the past two years based on

information included in the government-wide financial statements. Exhibit 1

Government-wide Net Position As of June 30, 2018

(Expressed in Thousands)

Governmental Activities

2018 2017

(as restated)

Business-type Activities

2018 2017

(as restated)

Totals— Primary Government

2018 2017

(as restated)

Total Percent Change

2018-2017

Assets Current and other assets.......................... $ 13,017,399 $ 11,856,925 $ 1, 318,890 $ 1,123,234 $ 14,336,289 $ 12,980,159 10.4% Capital assets............................................. 17,521,033 16,761,453 281,212 256,215 17,802,245 17,017,668 4.6%

Total assets............................................. 30,538,432 28,618,378 1,600,102 1,379,449 32,138,534 29,997,827 7.1%

Deferred Outflows of Resources 989,170 862,866 3,836 3,791 993,006 866,657 14.6%

Liabilities Long-term liabilities.................................. 10,247,203 10,430,759 302,037 322,703 10,549,240 10,753,462 (1.9%) Other liabilities........................................... 3,310,805 3,064,462 135,624 145,427 3,446,429 3,209,889 7.4%

Total liabilities....................................... 13,558,008 13,495,221 437,661 468,130 13,995,669 13,963,351 0.2%

Deferred Inflows of Resources 400,609 93,175 509 115 401,118 93,290 330.0%

Net Position Net investment in capital assets............. 15,079,318 14,133,938 218,157 216,697 15,297,475 14,350,635 6.6% Restricted................................................... 6,068,437 8,204,123 1,023,083 792,899 7,091,520 8,997,022 (21.2%) Unrestricted............................................... (3,578,770) (6,445,213) (75,472) (94,601) (3,654,242) (6,539,814) 44.1%

Total net position................................... $ 17,568,985 $ 15,892,848 $ 1,165,768 $ 914,995 $ 18,734,753 $ 16,807,843 11.5%

Net Position

The comparison of net position to liabilities may serve, over time, as a useful indicator of the State’s financial strength. At the end of the 2018 fiscal year, the State’s net position totaled $18.735 billion.

The largest portion of the State’s net position reflects its net investment in capital assets (for example, buildings, roads, and bridges) less any related debt used to acquire those assets that is still outstanding. The State uses capital assets to provide services to citizens; consequently, they are not available for future spending. Further, the State cannot sell the capital assets to repay the related debt because it needs the assets for its operations; so it must find other resources to repay the debt.

Restricted net position generally is available for future spending but is subject to external restrictions, such as bond covenants, federal government grant restrictions, or restrictions imposed by enabling State legislation or through State constitutional provisions. The State’s largest restricted balances include capital improvement bond proceeds (restricted for various capital projects) and debt service.

Unrestricted net position—resources normally available for future spending without restrictions—reported a deficit balance of ($3.654) billion at June 30, 2018. This represents an increase in the deficit net position of $2.886 billion over the prior year. The primary government’s unrestricted deficit net position partially consists of the $3.963 billion net pension liability and the $2.838 billion other post-employment benefits other than pensions (OPEB) liability, which are required to be recognized by GASB 68 (see Note 7 starting on page 104) and GASB 75 (see Note 8 starting on page 113), respectively. It should be noted that the deficit unrestricted net position was also offset by increases in restricted net position and net investment in capital assets, resulting in overall increases in the net positions of the State’s governmental activities and business-type activities.

The State’s business-type activities reported a $75.472 million deficit unrestricted net position. This balance was mostly comprised of a $41.217 million deficit unrestricted net position in the State-run Patients’ Compensation Fund and a $36.065 million deficit unrestricted net position in the State-run college Tuition Prepayment Program. The negative unrestricted net position in the Patient Compensation Fund and the Tuition Prepayment Program was the result of the full amount of claims exceeding assets on hand on June 30, 2018.

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Exhibit 2 Government-wide Changes in Net Position For the Fiscal Year Ended June 30, 2018

(Expressed in Thousands)


2018 (as restated)

2017


2018 (as restated)

2017

Totals— Primary Government

2018 (as restated)

2017

Total Percentage

Change

2018-2017 Revenues Program revenues:

Charges for services................................................. 3,727,978 $ 3,406,090 $ 458,601 $ 497,012 $ 4,186,579 $ 3,903,102 $ 7.3% Operating grants and contributions...................... 9,253,825 9,127,975 5,660 22,708 9,259,485 9,150,683 1.2% Capital grants and contributions............................ 977,834 813,622 — 18,998 977,834 832,620 17.4% General revenues:

Individual income tax............................................... 4,408,772 4,143,217 — — 4,408,772 4,143,217 6.4% Retail sales and use tax............................................ 4,688,789 4,436,958 — — 4,688,789 4,436,958 5.7% Other tax..................................................................... 2,652,027 2,322,000 — — 2,652,027 2,322,000 14.2% Unrestricted grants and contributions.................. 38 — — — 38 — 100.0% Unrestricted investment income............................. 160,636 191,486 34,132 22,777 194,768 214,263 (9.1%) Tobacco legal settlement......................................... 81,605 73,533 — — 81,605 73,533 11.0% Other........................................................................... 150,635 154,778 4,545 1,802 155,180 156,580 (0.9%) Total revenues........................................................ 26,102,139 24,669,659 502,938 563,297 26,605,077 25,232,956 5.4%

Expenses Governmental activities:

General government................................................. 6,819,685 5,507,990 — — 6,819,685 5,507,990 23.8% Education................................................................... 4,745,126 4,991,282 — — 4,745,126 4,991,282 (4.9%) Health and environment.......................................... 8,156,138 8,156,599 — — 8,156,138 8,156,599 (0.0%) Social services........................................................... 1,695,379 1,766,719 — — 1,695,379 1,766,719 (4.0%) Administration of justice......................................... 986,839 938,748 — — 986,839 938,748 5.1% Resources and economic development................. 393,575 484,902 — — 393,575 484,902 (18.8%) Transportation.......................................................... 1,620,126 1,481,762 — — 1,620,126 1,481,762 9.3% Other........................................................................... 18,335 25,865 — — 18,335 25,865 (29.1%) Business-type activities:

Unemployment compensation benefits................. — — 182,537 199,409 182,537 199,409 (8.5%) Second Injury Fund.................................................. — — 285 600 285 600 (52.5%) Other........................................................................... — — 60,142 52,900 60,142 52,900 13.7% Total expenses........................................................ 24,435,203 23,353,867 242,964 252,909 24,678,167 23,606,776 4.5%

Excess before transfers.............................................. 1,666,936 1,315,792 259,974 310,388 1,926,910 1,626,180 18.5%

Net transfers.................................................................. 9,201 2,559 (9,201) (2,559) — — — Increase in net position............................................... 1,676,137 1,318,351 250,773 307,829 1,926,910 1,626,180 18.5% Net position at beginning of year……………… 15,892,848 17,522,068 914,995 610,902 16,807,843 18,132,970 (7.3%) Restatements a …………………………………. — (2,947,571) — (3,736) — (2,951,307) Net position at beginning of year, restated a ….. 15,892,848 14,574,497 914,995 607,166 16,807,843 15,181,663 10.7% Net position, end of year.............................................. $ 17,568,985 $ 15,892,848 $ 1,165,768 914,995 $ $ 18,734,753 $ 16,807,843 11.5%

a - See Note 15, Fund Equity Reclassifications and Restatements, on pages 145 - 146 of the financial statements.

Changes in Net Position

The State’s total net position increased by $1.927 billion, or 11.5%, over the prior year’s net position as a result of its governmental activities and its business-type activities. The overall improvement in the financial position of the State was experienced primarily through increased tax and program revenues of the State’s governmental activities.


The net position of the State’s governmental activities increased by $1.676 billion, or 10.5%. Revenue increased from last year by $1.432 billion, or 5.8%, which was comprised of an increase of $820.530 million, or 7.2%, in general revenue and an increase of $611.950 million, or 4.6%, in program revenue. Revenues that support governmental activities are derived mostly from taxes; grants and contributions, including federal aid; and charges for goods and services. Exhibit 3 illustrates the sources of revenues that support governmental activities.

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Charges for services 14%

Expenses associated with governmental activities increased by $1.081 billion, or 4.6%, for the fiscal year ended June 30, 2018. These expenses were mostly associated with services provided for health and environment, education, general government, social services, and transportation. Exhibit 4 compares the cost of these services with their program revenues— revenues derived directly from the program itself or from parties outside the State’s taxpayers or citizenry. The difference between the two represents the net cost of these services that taxes and other general revenues financed. For the fiscal year ended June 30, 2018, the State used $10.476 billion in tax and other general revenues to offset the net cost of all services that the State’s governmental activities provided. Governmental activities reported $9.201 million in net transfers from the State’s business-type activities.

The following paragraphs highlight the most significant changes in revenues and expenses for governmental activities during the 2018 fiscal year:

Individual income tax revenues increased by $265.555 million, or 6.4%, retail sales and use tax revenues increased by $251.831 million, or 5.7%, and other taxes revenues increased by $330.027 million, or 14.2%. Overall tax collections increased during fiscal year 2018 due to increased enforcement and improvements in consumer spending within the state and national economies.

Capital grants and contributions increased by $164.212 million or 20.2% from last year. This was primarily a result of contributions from the State Infrastructure Bank and federal grants related to infrastructure for transportation.

General government expenses increased by $1.312 billion, or 23.8%, from last year. This was attributable to the implementation of GASB 75 and the recognition of the net OPEB liability within the State and the increase in the State’s net pension liability.

Transportation expenses increased by $138.364 million, or 9.3%, from last year. The increase is primarily the result of increased expenditures related to the gas tax increase for road maintenance as well as the storms that South Carolina has experienced over the last three years. These storms did major damage to bridges and roads. As the State of South Carolina recovers from such damage, these expenditures can span a number of years as the infrastructure is rebuilt and repaired. In the 2018 fiscal year, the State incurred $60.4 million related to the 2016 storm and $115.7 million related to the 2015 storm. FEMA reimbursed $123.0 million of these costs as of June 30, 2018.

Exhibit 3 Sources of Revenues Supporting Governmental Activities

For the Fiscal Year Ended June 30, 2018

Other revenues 2%

Other taxes 10%

Grants and contributions

39% Individual income tax

17%

Sales and use tax 18%

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Exhibit 4 Governmental Activities - Net Cost of Services

For the Fiscal Year Ended June 30, 2018 (In Millions)

$9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000

$-General

Government Education Health and

Environment Social

Services Transportation Other

Revenues $4,295 $1,026 $5,571 $1,446 $1,324 $298 Expenses $6,820 $4,745 $8,156 $1,695 $1,620 $1,399 Net Cost $2,525 $3,719 $2,585 $249 $296 $1,101


The net position of the State’s business-type activities increased by $250.773 million, or 27.4%. Most business-type activities are self-supporting. The Unemployment Compensation Fund accounts for the State’s

unemployment compensation benefits in which federal grants and assessments on employers pay for the services that the Unemployment Compensation Fund provides. The Unemployment Compensation Fund’s net position as of June 30, 2018 was $976.977 million, which was an increase of $184.078 million, or 23.2%. The Second Injury Fund serves as a claims processor for insurance carriers, self-insurers, and State Accident Fund. The Second Injury Fund’s net position as of June 30, 2018 was $46.106 million, which was an increase of $61.792 million, or 393.9%.

Operating revenues of the Unemployment Compensation Fund decreased by $40.993 million, or 10.1%, and operating expenses for the payment of unemployment compensation benefits decreased by $16.872 million, or 8.5%, during the 2018 fiscal year. The decreases in operating revenues and expenses resulted from the general decline in unemployment rates throughout the country. Additionally, operating revenues for the Second Injury Fund have increased by $101 thousand, or 0.2%, but operating expenses for the payment of Second Injury Fund claims remained at a low level during the 2018 fiscal year due to only a minimal $185 thousand adjustment to the Second Injury Fund’s claims liability.

Financial Analysis of the State’s Funds The State of South Carolina uses fund accounting to ensure and demonstrate compliance with financial related legal

requirements. Within the fund financial statements, the focus is on reporting major funds.

Governmental Funds Exhibit 5 shows the components of fund balance for the State’s various governmental funds as of June 30, 2018.

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Exhibit 5 Governmental Fund Balances

As of June 30, 2018 (Expressed in Thousands)

General Fund

Departmental Program Services

Local Government

Infrastructure

Department of Transportation

Special Revenue

Nonmajor Governmental

Funds

Total Governmental

Funds Nonspendable......................... $ 128,937 $ 14,550 $ — $ 7,982 $ 11,235 $ 162,704 Restricted................................. 1,134,704 1,071,734 2,123,074 334,280 723,998 5,387,790 Committed................................ 505,425 19,784 — 419,976 56,360 1,001,545 Assigned................................. 252,357 18,354 — — 4,218 274,929 Unassigned............................. 2,186,155 (678,731) — — — 1,507,424 Totals.................................... $ 4,207,578 $ 445,691 $ 2,123,074 $ 762,238 $ 795,811 $ 8,334,392

Change from prior year........ $ 465,511 $ 38,955 $ 39,197 $ 247,090 $ 41,495 $ 832,248 Percentage change............. 12.4% 9.6% 1.9% 48.0% 5.5% 11.1%

At June 30, 2018, total ending fund balance for the State’s governmental funds was $8.334 billion, which represents an increase of $832.248 million, or 11.1%, from the prior year. This total contains an unassigned fund balance of $1.507 billion. The total also includes $2.186 billion reported by the General Fund as unrestricted, unassigned and available with no constraints for spending in the coming year. In addition, governmental funds that are restricted by external parties or enabling legislation which includes creation through state law or constitutional provision constitute 64.6% of the total fund balance. The majority of remaining fund balance is non-spendable, committed, or assigned and is not available for future appropriation because it is not in a spendable form or is accessible only for specific purposes.

The General Fund is the State’s operating fund. This fund includes resources, such as taxes, that pay for the services that the State traditionally has provided to its citizens. Activity is accounted for in the General Fund unless constraints established by State law or external parties require them to be accounted for in another fund. Increases in the current fiscal year were experienced in individual income tax of $266.435 million, 6.5%; retail sales and use tax of $108.769 million, 3.0%; corporate income tax of $63.837 million,18.8%; insurance tax of $20.005 million, 11.8%; other taxes $54.001 million, 10.1%; and $129.309 million, 71.5%, in other revenues from the prior year. General Fund expenditures, which increased by $335.602 million, 3.3%, were also below the total General Fund revenues indicating a continued controlling of costs and spending reductions previously mandated by State officials.

The Departmental Program Services is a major special revenue fund in which agencies account for primarily restricted resources used to fund program services. These resources provide a supplement for the payment of the services that the State traditionally has provided to its citizens thus expanding services when possible. During the 2018 fiscal year, the total fund balance increased by $38.955 million, or 9.6%, from the prior year. The primary source of revenue for the fund is federal revenues which account for $7.876 billion or 91.5% of the total revenue reported. These grants are reimbursement-based, thereby creating a higher negative unassigned fund balance until the funds are received.

The Local Government Infrastructure Fund accounts for grants, loans and other financial assistance to local governments for infrastructure projects. Certain motor fuel taxes, federal funds, and bond proceeds are the fund’s primary resources. The fund balance increased by $39.197 million, or 1.9% during the 2018 fiscal year leaving a balance of $2.123 billion at the end of the fiscal year. The increase in fund balance was a result of decreased project expenditures.

The Department of Transportation (DOT) Special Revenue Fund accounts for various gasoline taxes, fees, fines, and federal grant resources. The DOT uses these resources to pay for its general operations, which include maintenance, regulation, and construction of public highways and bridges. The fund balance increased by $247.090 million, or 48.0%, during the 2018 fiscal year leaving a balance of $762.238 million at the end of the fiscal year. The increase in fund balance was primarily a result of the 2-cent gas tax increase for road projects and maintenance.

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Proprietary Funds Exhibit 6 shows the components of the net position for the State’s various proprietary funds at June 30, 2018.

Exhibit 6 Proprietary Fund Net Position

As of June 30, 2018 (Expressed in Thousands)

Fund Net Position Unemployment Compensation

Second Injury

Nonmajor Enterprise

Total Enterprise

Internal Service Funds

Net investment in capital assets.......................... $ — $ — $ 218,157 $ 218,157 $ 91,551

Restricted, expendable............. 976,977 46,106 — 1,023,083 508,628 Unrestricted............................... — — (75,472) (75,472) 17,035

Totals....................................... $ 976,977 $ 46,106 $ 142,685 $ 1,165,768 $ 617,214

Change from prior year.......... $ 184,078 $ 61,792 $ 4,903 $ 250,773 $ 22,970 Percentage change................ 23.2% 393.9% 3.6% 27.4% 3.9%

The State has two kinds of proprietary funds: enterprise funds and internal service funds. Enterprise funds are reported as business-type activities in the government-wide financial statements. Enterprise funds

sell goods or services primarily to parties outside of State government. The net position of the Unemployment Compensation Benefits Fund, a major enterprise fund, increased by $184.078

million, or 23.2%, over the prior year. Decreases in the number of individuals eligible for and claiming State unemployment insurance benefits resulted in the improved net position and enabled the Fund to operate without obtaining additional advances from the Federal government since May 2011.

The net position of the Second Injury Fund, a major enterprise fund, increased by $61.792 million, or 393.9%, over the prior year. The increase was largely attributed to current year claims and changes in estimates remaining materially unchanged and assessment revenues increasing slightly over the previous fiscal year.

The net position of the State’s nonmajor enterprise funds increased by $4.903 million, or 3.6%, over the prior year. The increase in the State’s nonmajor enterprise funds’ net position was primarily due to an increase of $2.088 million in charges for services and an increase of $2.728 million within other nonoperating revenues within the Palmetto Railways Fund.

South Carolina’s internal service funds provide certain services (including maintenance, insurance, printing, information technology, and motor pool services) to other State funds but sometimes to local governments as well. These funds experienced an increased net position of $22.970 million, or 3.9%, in the 2018 fiscal year. The objective of an internal service fund is to charge its customers for the costs of the services or goods that it provides. Because internal service funds primarily benefit State government, South Carolina reports them as governmental activities in the government-wide financial statements.

Budgetary General Fund Highlights

Estimated revenues for the 2018 fiscal year were $7.951 billion. Actual revenues at June 30, 2018, were $173.551 million, or 2.2%, over the estimated revenue used in the fiscal year 2018 budget appropriations act and which also represented an increase in collections over the prior year of $541.795 million, or 7.1%. Individual income and sales tax collections are the fund’s major revenue sources. Individual income tax collections ended the year over the adjusted estimate by $103.026 million and sales tax collections ended the year under the adjusted estimate by $6.792 million.

Actual expenditures were $229.201 million less than actual revenues. Also, expenditures were kept $486.240 million under fiscal year 2018 adjusted appropriations. In addition, $1.784 million of unbudgeted spending was allowed through “open-ended” appropriations.

Based on the above results of operations, fiscal year 2018 ended with a budgetary surplus. The State ended the year with a budgetary General Fund balance after reservation of $1.187 billion.

See the Required Supplementary Information section on pages 183 through 190 of this report for a detailed budgetary comparison schedule.

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Capital Assets and Debt Administration

Capital Assets

At the end of the 2018 fiscal year, the State had $17.802 billion invested in capital assets, net of depreciation. This represented a net increase (including additions and deductions) of $784.577 million, or 4.6%, over the previous accounting year (see Exhibit 7).

Exhibit 7 Capital Assets, Net of Depreciation

As of June 30 for the Years Indicated (Expressed in Thousands)


2018 2017


2018 2017 Totals—Primary Government

2018 2017

Total Percentage

Change 2018-2017

Land and improvements......................... $ 2,158,958 $ 2,101,349 $ 177,050 $ 171,280 $ 2,336,008 $ 2,272,629 2.8% Infrastructure............................................ 10,466,504 10,410,358 — — 10,466,504 10,410,358 0.5% Buildings and improvements................. 1,092,507 1,057,699 10,915 16,322 1,103,422 1,074,021 2.7% Vehicles..................................................... 228,442 177,232 475 626 228,917 177,858 28.7% Machinery and equipment..................... 184,469 168,967 3,385 4,294 187,854 173,261 8.4% Works of art and historical treasures... 9,519 8,243 — — 9,519 8,243 15.5% Construction in progress........................ 3,320,255 2,805,901 88,470 62,658 3,408,725 2,868,559 18.8% Intangible assets...................................... 60,379 31,704 917 1,035 61,296 32,739 87.2% Total......................................................... $ 17,521,033 $ 16,761,453 $ 281,212 $ 256,215 $ 17,802,245 $ 17,017,668 4.6%

Growth in capital asset investment occurred mostly in infrastructure. The construction in progress growth primarily relates to new and on-going infrastructure (roads and bridges) projects within the Department of Transportation Special Revenue Fund. The Department of Transportation recognized $759.412 million in capital expenditures related to infrastructure and $205.772 million in depreciation charges for infrastructure to net an increase of $553.640 million, excluding any current year retirements of infrastructure.

See Note 6 in the notes to the financial statements on page 102 of this report for additional information on the State’s capital assets.

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Debt Outstanding

At June 30, 2018, the State had $2.452 billion in bonds and notes outstanding—a decrease of $229.350 million, or a 8.6% decline from the previous year (see Exhibit 8).

Exhibit 8 Outstanding Bonds and Notes

As of June 30 for the Years Indicated (Expressed in Thousands)


2018 (as restated) (as restated)

2017


2018 2017

Totals—Primary Government

2018 2017

Total Percentage

Change

2018-2017 Backed by the State:

General obligation bonds........... $ 564,811 $ 756,172 $ — $ — $ 564,811 $ 756,172 (25.3%) Backed by Specific Revenues:

Revenue bonds and notes......... 146,154 131,241 12,055 5,730 158,209 136,971 15.5% Infrastructure Bank bonds......... 1,729,005 1,788,232 — — 1,729,005 1,788,232 (3.3%) Total............................................. $2,439,970 $ 2,675,645 $ 12,055 $ 5,730 $2,452,025 $ 2,681,375 (8.6% )

The reduction of principal on outstanding debt exceeded the issuance of debt resulting in a decrease in debt outstanding for governmental activities of $235.675 million, or 8.8%. Activity in the debt reported by the governmental activities included the issuance of $27.954 million in notes payable and there was also a $6.500 million issuance of notes in business-type activities.

Three bond rating services assign ratings to bonds that the State backs with its own taxing authority (general obligation bonds). Fitch Ratings rated these bonds as “AAA” and Moody’s Investors Service rated them as “Aaa” during the fiscal year ended June 30, 2018, the highest rating that these services assign. The State’s bond rating from Standard & Poor’s was “AA+” during the same period, its second highest rating.

The State limits the amount of annual payments for principal and interest (or annual debt service) on general obligation bonds and notes rather than directly limiting the amount of those bonds and notes that the State may have outstanding. At June 30, 2018, the State legally could issue additional bonds as long as the new debt would not increase the State’s annual principal and interest payments by more than the following amounts: $52.408 million for highway bonds, $401.349 million for general obligation bonds (excluding institution and highway bonds), $33.368 million for economic development bonds, and $18.482 million for research university infrastructure bonds.

See Note 12 in the notes to the financial statements on page 136 of this report for additional information about the State’s long-term debt.

Economic Factors and Next Year’s Budget

The “Rainy Day Account”

At June 30, 2018, the General Reserve Fund, sometimes called the rainy day account, had a balance of $363.552 million which increased from the prior year by $15.533 million appropriated by the 2017-2018 Appropriations Act. The balance is fully funded in accordance with the State’s Constitution. The State’s Constitution requires restoration of the reserve to full funding within three fiscal years after a withdrawal. For the fiscal year 2018, State law defines full funding for the reserve as 5.0% of the Budgetary General Fund’s revenues of the prior fiscal year.

Budgetary General Fund for the 2018-2019 Accounting Year

For fiscal year 2019, the Board of Economic Advisors estimated General Fund cash basis revenue of $8.221 billion, which is $96.768 million, or 1.2%, more than fiscal year 2018 actual revenue collections. The State’s Board of Economic Advisors November 2018 estimate reflects and additional increase of $232.721 million, or 2.9%, over the original revenue estimate for fiscal year 2019.

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Economic Conditions

Budgetary General Fund revenues for the first four months of fiscal year 2019 were $2.962 billion, an increase of $210.874 million, or 7.7%, over the same period for fiscal year 2018. Total individual income taxes collected have increased by $79.310 million, or 6.1%, over the same period in the prior year. Sales taxes have also increased by $30.076 million, or 6.0%, from the first four months of fiscal year 2018.

Individual Income Taxes

$300

$250

$200

$150

$100

$50

$0

2019 2018 2017 2016

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

$700

$600

$500

$400

$300

$200

$100

$0

($100)

($200)

($300)

Expressed in Millions

2019 2018 2017 2016

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Sales Tax (Expressed in Millions)

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Requests for Information

The primary purpose of this financial report is to provide South Carolina’s citizens, taxpayers, customers, investors, and creditors with a general overview of the State’s finances and to demonstrate the State’s accountability for the money it receives. Please address any questions concerning information in this report to:

Office of the Comptroller General ATTN: Chief of Staff 1200 Senate Street 305 Wade Hampton Office Building Columbia, South Carolina 29201

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B A S I C F I N A N C I A L S T A T E M E N T S

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Statement of Net Position June 30, 2018 (Expressed in Thousands)


PRIMARY GOVERNMENT Business-type

Activities Totals COMPONENT

UNITS ASSETS Cash and cash equivalents.................................................... $ 3,852,520 $ 948,262 $ 4,800,782 $ 3,428,040 Investments............................................................................ 4,359,114 291,340 4,650,454 1,848,103 Invested securities lending collateral...................................... 102,620 225 102,845 1,202Receivables, net:

Accounts............................................................................... 591,041 12,054 603,095 445,598 Contributions........................................................................ 73 — 73 125,653 Participants........................................................................... — 915 915 — Accrued interest.................................................................... 67,943 1,485 69,428 11,078 Income taxes........................................................................ 599,075 — 599,075 — Sales and other taxes........................................................... 748,978 — 748,978 — Student accounts.................................................................. 175 — 175 57,815 Patient accounts................................................................... 16,860 — 16,860 261,706 Loans and notes................................................................... 713,298 — 713,298 93,034 Assessments........................................................................ — 115,623 115,623 — Due from Federal government and other grantors................. 818,631 — 818,631 160,171 Internal balances.................................................................... 53,954 (53,954) — — Due from component units..................................................... 43,327 — 43,327 — Due from primary government................................................ — — — 55,315 Inventories.............................................................................. 47,621 2,131 49,752 602,835Restricted assets:

Cash and cash equivalents.................................................. 802,341 273 802,614 1,145,612 Investments.......................................................................... — — — 2,073,283 Accounts receivable............................................................. 95,301 — 95,301 493 Loans receivable.................................................................. — — — 634,080 Other..................................................................................... 64,800 — 64,800 19,430 Prepaid items......................................................................... 39,305 536 39,841 84,685 Other assets........................................................................... 422 — 422 463,215 Regulatory assets................................................................... — — — 4,248,478 Other assets- asset retirement obligation............................... — — — 923,912 Investment in joint venture.....................................

Documents

South Carolina Office of the State Auditor ......South Carolina extends from the Atlantic Ocean westward to theBlue Ridge Mountains,containing over 30,000square miles. Fortieth in