This is a rush transcript from "On the Record ," March 12, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: South Carolina Governor Mark Sanford is in a stand-off with the White House over part of the money his state is set to receive from the $787 billion stimulus package. The governor is threatening to reject $700 million his state is entitled to if the White House does not let him spend the money in a specific way.

South Carolina governor Mark Sanford joins us live. Do I have that right, Governor? Did I set the facts right?

GOV. MARK SANFORD (R), SOUTH CAROLINA: More or less the outline of the facts, in a way. Yes, ma'am. I'll give it to you.

VAN SUSTEREN: All right. Good. All right. So is there really a chance you're going to turn down $700 million?

SANFORD: Yes. What we've said is a little bit more nuanced than that. What we've said is it's not a good idea to spend money that you don't have, whether in your personal life, in the world of business, or for that matter, in the world of politics. At the end of the day, all this stimulus money's about spending money we don't have. We don't think that's a good idea, but that debate was lost.

And now from a governing standpoint, each of the nation's governors and accompanying legislative bodies have got to look at the different proposals and how the stimulus money would impact their state. $2.8 billion might hypothetically come to South Carolina -- 75 percent of it we really don't have control over, but 25 percent we do. And we said of that 25 percent, rather than spending it, let's take it and dedicate it to paying down debts already held by the state of South Carolina, and that will make our finances that much stronger as we go in to this financial storm that I think will last more than just a couple of months but, frankly, a couple of years.

VAN SUSTEREN: Let me ask you this, and this may be why accountants get themselves into trouble or companies have problems playing the shell game, but why don't you take the $700 million that you were going to spend on something else that you already had that's separate and apart from the stimulus, pay down your debt, and take the $700 million from the government and do what they want with it.

That when you get the money, but you have done sort of a switcheroo with the money, and you get your money. It may not seem quite straight up, but at least you are making progress.

SANFORD: Well, I would respectfully disagree with the notion it would be making progress, because what it would involve, what you are describing, is spending the money that we do not have, and that really is the problem.

If we spend this money -- we are already talking about spending $2.1 billion, but if you spend that additional $700 million, what you're really talking about is digging for ourselves a hole which is $1.2 billion in size at the end of 24 months.

And our point is, OK, then, what happens? How do we dig our way out of that hole?

So, from our perspective, we shouldn't be spending all this money for the hole that it digs going forward, and for, frankly, the look at future tax increases that would probably come as a result.

Watch Greta's interview with Gov. Sanford

VAN SUSTEREN: Why does it create a hole? Is it because it then gets you hooked into continuing projects? Why isn't it sort of just a one-time deal? Why does it become a hole?

SANFORD: Correctly, because of what you just said. It would get locked in to programs that would last a lot more than 24 months. I mean, these are recurring needs of our state government. You have built up that much more constituency for those governmental services.

And as what we have seen whether at the federal, state, or local level, is once there is a constituency for that service, it's awfully difficult to then wean yourself from providing that service.

So I think what it would likely mean would be a substantial increase in taxes that we think would make our economy less competitive in the 21st century and less competitive in producing the very jobs that the entire stimulus package is supposedly all about.

VAN SUSTEREN: OK, so, basically, you are taking the longer-term view on this rather than the short-term sort of selfish view of give me my money and let's see what we can do with it? You're taking the longer vision of this, and perhaps more responsible?

SANFORD: We would argue that. And what we also say is think about it in your home life. If you all of a sudden got a windfall that basically equated to half of what you make in an entire year, would you really go and spend all of the money?

And most prudent families wouldn't. They would say, "I think I will pay down the mortgage a little bit. I think I'll set money aside for our kids' college education or for paying down the credit cards." They would some money aside.

And what we're saying is, look, I was against the whole thing. I'm trying to pick a middle ground here -- 75 percent of the money would be spent.

But let's actually put 25 percent aside for a rainy day, because we believe there will be further rainy days to come, and we will have that much more financial flexibility to deal with those rainy days and to strengthen our economy if we do just that.

VAN SUSTEREN: Governor, I hope you come back when you get the word, yes or no, on this $700 million. We'll figure out whether or not they're going to go your way on this money or not. Thank you, governor.

SANFORD: My pleasure. You take care.



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