State looks to borrow from UC due to predicted cash flow shortfall

Due to a projected cash flow crisis, the state of California could borrow as much as $200 million from the University of California in March.

Despite consistently cutting the UC’s budget over the past decade, the state will look to the university’s borrowing ability — due to its high credit rating — to relieve a cash flow shortfall predicted by the state controller.

In a Jan. 31 letter to the state Senate, State Controller John Chiang said the state’s cash flow will likely run low by March because of insufficient tax revenue from the past year.

In order to mitigate the situation, the UC and CSU systems would lend money borrowed from outside sources — up to $200 million and $250 million, respectively — to the state, according to Jacob Roper, spokesperson for the state controller’s office.

According to UC spokesperson Dianne Klein, the state approached UC with a “short-term stop-gap plan” to borrow the money on March 2 and repay it in April.

Klein said the UC system would borrow money from outside sources at an interest rate of 0.5 percent, and relend it to the state at a 2 percent interest rate.

“I want to stress that we don’t have a pot of money that we’re just grabbing into,” Klein said. “We have to go out and borrow the money. The university is in a better position (than the state) to do that, frankly because we have a better credit rating. The university is able to secure a better interest rate for that money.”

Roper called the plan a “tentative” one that has been put together by the controller’s office, treasurers and the Department of Finance.

According to a summary analysis from the state controller’s office in January, California ended the last fiscal year with a cash deficit of $8.2 billion, bringing the combined current year deficit total to $21 billion.

“We try to maintain a $2.5 billion cash cushion because of how much money goes out of the system,” Roper said. “(The $200 million) is the tentative number right now. If other factors change, it will not be that much.”

Roper said the cushion money is needed on a “daily basis” for the operation of the state’s general fund, adding that the money would be used in special circumstances — for instance, for the introduction of a large spending bill.

This is not the first time the state has borrowed money from the UC system.  Klein said the state currently owes the UC system $1.7 billion from borrowing in the past, but the additional $200 million will not be added to that debt, as it is set to be repaid by April.

UC spokesperson Steve Montiel said in a 2009 interview that when the UC lent money — which was also borrowed from outside sources — to the state that year for campus-related construction projects, the borrowing would hurt the university’s credit rating.

Mike Uhlenkamp, director of media relations for the California State University system, said he is not worried about the state defaulting on paying back the $250 million it will borrow from CSU, because the state has promised to pay as soon as the money comes in from taxes.

The UC still faces drastic impending cuts from the state if Gov. Jerry Brown’s proposed tax extension plan does not pass in November, however. If the measure does not pass, the university will be hit with a $200 million cut — the same amount that it may lend the state.

“As a show of good faith, we’ve agreed to do this,” Klein said.