The University of California may loan $200 million to the state of California in March, based on a projection by the state controller’s office released earlier this week.
In a letter to the state legislature, State Controller John Chiang said California might run out of money by next month.
Despite the controller’s projections, the chances the state will actually run out of money are slim, said Jason Sisney, a research analyst at the Legislative Analyst’s Office, in an email statement. But if the projections by the state controller’s office turn out to be accurate and the state is low on cash flow, it will turn to the UC for money.
A loan from the UC would create a necessary cash cushion in case revenues start to drop dramatically, said Jacob Roper, a press secretary for the state controller’s office.
The UC has a higher credit rating than the state, said Dianne Klein, a spokeswoman for the UC.
That means the UC can borrow money at a lower interest rate ““ which is why the state prefers to borrow from the University, Klein said.
“While the University would prefer not to loan the money, in reality I don’t think the University will refuse,” Klein said. “This is a seldom occurrence, but clearly in times such as these when we’ve got budgetary problems it’s become more frequent.”
Because the UC is also strapped for cash, it would need to borrow money temporarily from an outside source at a 0.005 percent interest rate and give the money to the state at a 2 percent interest rate.
The UC would pay off the loan once reimbursed by the state.
But the process of acquiring a loan would also keep university officials from doing other university-related work, Klein said.
“Let’s say you’re working on a term paper, and you’ve got to get it in tomorrow, but suddenly you have a family crisis, and you have to immediately tend to it,” she said. “The UC is in a similar situation.”
The state has agreed to pay back the loan by April 20, Klein said. If the legislature fails to meet this deadline, the UC would lose money, Klein said.
The state already owes the UC $1.7 billion. But this figure could rise if the state controller’s projections are accurate.
“By loaning the state money (again) and risking that they don’t pay (the UC) back on time, we’re putting ourselves on the line,” Klein said.
The UC Board of Regents must first approve the loan before any action can be taken.
The UC’s chief financial officer will take a formal proposal to the chair of the finance committee on the board of regents. The exact date of the vote has not been determined, though it is likely the proposal will pass, Klein said.
But the likelihood that the UC will need to lend money this year is low, according to Sisney. The projection by the state controller is just a precaution to make sure all scheduled payments are made, he said, while keeping aside enough money to deal with unexpected demands on the state treasury.
“The state forecasts revenues and expenditures at the beginning of every fiscal year, but there may be fluctuations in the forecast later on,” said Jerry Nickelsburg, a senior economist at the UCLA Anderson Forecast.
The UC is also currently talking with state officials about more stable long-term funding for the UC, Klein said.
“It’s a show of good faith when the university lends money to the state,” she said. “We’re all on the same page ““ we don’t want to see anyone go under in the short term or long term.”