COLUMBIA, S.C. - State agencies were told Wednesday to spend $43 million less this year as officials tapped a reserve fund to head off budget shortfalls this year and cover a deficit left over from the fiscal year that ended in June.

Agencies must set aside the money, which works out to 1 percent of their budgets, but they may get to spend it later if the state's economy and tax collections improve.

Like five other midyear cuts since May 2001, this one hits schools hard. The Education Department now must set aside $17.6 million. However, most schools built budgets earlier this year expecting cuts, agency spokesman Jim Foster said.

The cuts could have been bigger. Gov. Mark Sanford and Comptroller General Richard Eckstrom wanted to take a deeper cut of about 4 percent to cover a $155 million deficit from the fiscal year that ended in June 2002 and a $22 million deficit from fiscal year that ended last June.

Eckstrom said credit rating agencies he has spoken with recently were worried about the state carrying deficits from two years. A Moody's Investor Services representative told the comptroller that he was "very surprised that last year's deficit hadn't been dealt with by the state and the Legislature," Eckstrom said.

Doing nothing about two years of deficits "would be perceived as a blemish" by Moody's, Eckstrom said. Lowering the state's credit rating would cost taxpayers more in interest payments on state borrowing.

The Budget and Control Board's 3-2 vote to address only the $22 million deficit came after Sanford kept the meeting open to the public while the board received advice on its legal role and obligation in dealing with the deficits.

The governor said he kept the doors open despite worries a secret session was more appropriate "given the sensitivity of what we're dealing with, the magnitude of the kind of cuts that are contemplated here."

Earlier this year, broadcasters and newspapers asked Sanford to keep his Cabinet meetings open after denying reporters access to the first one. He agreed and has since kept Cabinet meetings open.

The board's lawyer, Ed Evans, told members they lacked authority to repay the $155 million deficit. Sanford's lawyer, Henry White, told the panel that taking any action on that deficit "would be very difficult to defend."

"We have to act within the law and the constitution," said House Ways and Means Chairman Bobby Harrell, R-Charleston. If the board broke the law, that could jeopardize the state's credit rating by sending the panel to court to defend its position, Harrell said.

Senate Finance Chairman Hugh Leatherman, R-Florence, said the Legislature has sole authority to deal with the old deficit. The lawmakers sided with Democratic state Treasurer Grady Patterson against taking action on the deficit from the 2002 fiscal year.

Legislators didn't handle the issue this year and could ignore the issue when they return in January to confront a $350 million budget gap, Sanford said. "Why would they do any differently in an election year?" Sanford asked.

Harrell and Leatherman said the board should work with lawmakers to deal with the deficit when they return.