UC System to Loan State $200 Million This Month

The state is expected to fall below its safety cushion of $2.5 billion by the end of the month and in more than a week will fall $730 million in the red, state controller John Chiang said in “California could run out of cash by March, controller warns” in the Jan. 31 Los Angeles Times.
According to the Los Angeles Times, Gov. Jerry Brown signed a bill on Feb. 3 that will allow the state to borrow from special funds, such as those allocated for transportation or scientific research. The bill will make $865 million available. The rest of the funding will be made up from loans from the UC and California State University systems and delaying reimbursements for doctors of state-provided healthcare programs.
“As we all know, the state of California is in a pretty bad financial situation,” UC Office of the President spokesperson Dianne Klein said. “They came to us and Cal State and asked, ‘Can you loan us money so we don’t default?’ As a gesture of good will, we agreed.”
In addition to the UC loan, the CSU system will loan the state up to $250 million, according to the Daily Californian.
California’s revenue is $2.6 billion less than projected, while spending is higher by about the same amount, according to the San Francisco Chronicle.
“We have to go out and borrow this money ourselves, it’s not like we can open a drawer and fling cash about,” Klein said.
According to Klein, the UC system has a better credit rating than the state and will borrow the requested $200 million at an interest rate of 0.5 percent. The UC system will loan the $200 million to the state at an interest rate of 2 percent.
“We don’t want to lose money in the deal,” Klein said.
Klein said the state originally requested the loan by March 2, but recently expedited the loan to Feb. 29. The state is expected to pay back the loan by April 20 of this year.
“We’ve been in talks with the state government for a while to find a long-term funding plan for the UC,” Klein said. “This is part of the process. We understand that they have a cash flow problem, so we’re in a position to help them out. We’re all Californians and we all want the same things. This is not in an adversarial way, and we’re in a position that we can loan this money.”
According to Klein, the state already owes the UC system $1.7 billion.
“It’s not that we want to keep doing this,” Klein said. “For the time being, it’s what we feel is the best thing to do.”