The state of California plans to borrow up to $200 million from the UC system for the operation of its general fund following the discovery of an emergency shortfall in its budget.
The funds will not be extracted from the university system’s operating budget but levied from outside sources on the open credit market. Classified as a short-term plan to compensate for a temporary gap, the state requested funding from the UCs, set to be withdrawn on March 2 and repaid in April once the state has generated revenue from income taxes, since it receives more lucrative borrowing opportunities due to its high credit rating.
The final deficit for the last fiscal year ran up to $8.2 billion, bringing the state’s total shortfall to $21 billion.
State Controller Spokesperson Jacob Roper said the crisis prompted an interim plan to compensate for the fiscal gap, as it was not immediately identifiable.
“We noticed a pressure on the cash flow for several months, but it wasn’t until late December that we were able to run the numbers and determine exactly what the problem is,” Roper said. “What we’re doing is temporarily borrowing to maintain a cash credit in that general fund to make sure that in case an emergency happens in California, the state can continue to pay its bills.”
An additional $250 million can be taken from the California State University budget; however, Roper was unable to explain why the state decided to withdraw more money from state colleges.
In a letter sent to the state Senate on Jan. 31, State Controller John Chiang said tax revenue deficits have left the state with a $3.3 billion shortfall stemming from payment delays and borrowing.
“If left unaddressed, the State’s General Fund balance will fall below the $2.5 billion minimum safety cushion by Feb. 29,” Chiang said in the letter. “On the following day, cash will be exhausted and will continue to decline until hitting a low of -$730 million mark on March 8.”
If an initiative for tax extensions on this November’s ballot fails to pass, the UC will suffer a further state cut of $200 million. Neither UC Office of the President Spokesperson Shelly Meron nor Roper were able to comment on the matter.
Currently, the state already holds a $1.7 billion debt to the University. While Roper was unable to comment on the state of these finances, Meron said the outstanding payment has no effect on the UCs’ operating budget.
According to Roper, the finances are necessary to cover the basic operations of public organizations.
“Most of the general fund ends up going to local governments [and] state-mandated programs at the local level,” Roper said. “The general fund is the main bank account for the state.”
The funds will be borrowed from the UCs at a 0.5 percent interest rate but recollected at a rate of 2 percent, generating a revenue for its capital investments sector, which will positively effect construction and expansion but have no impact on educational services.
Meron was unable to comment on the exact sources from which it will solicit funds, the effect of its ability to pledge infinite capacity to raise student fees on its high credit rating or whether the loans will negatively impact its assets.