A creative fix for the University of California's budget woes - August 07, 2009
The University of California has agreed to lend the Golden State nearly $200 million for the state to give back to the university at a premium.
Confused? Read on.
California is in quite a state. The spiraling budget crisis has forced the state government to make huge cuts, including hacking $2 billion in funding to the campuses of the University of California (UC), California State University, and community colleges. The UC — the best public higher education system in the world, according to rankings by China's Shanghai Jiao Tong University — alone took a $813 million hit. To plug the gap, the cash-strapped university raised tuition fees, slashed enrollment, reduced course options, and introduced mandatory unpaid furlough days for its employees.
But as bad as things are, they could be worse. Just ask Governor Arnold Schwarzenegger. Unable to borrow money by selling bonds, his government's credit rating has plummeted well below that of the UC's. So the university plans to borrow $199.8-million that it will then offer the California taxpayers for the state to lend back at 3.2% interest over the next three years. This will allow the universities to restart stalled building projects at eight of its 10 campuses and the state to get its money at a better rate than it would on the open market, the San Francisco Chronicle reports.
And I thought collateralized debt obligations, credit default swaps, and other complex financial arrangements were hard to understand! To quote the OC theme song: California here we come, right back where we started from.
The UC is not the first to use such creative financing. Recently, other agencies with solid credit ratings, including the Bay Area Toll Authority and Solano County, have also employed loop-d-loop lending to pay for other voter-approved infrastructure projects.
The cash infusion is earmarked for improved medical classrooms at UC San Francisco, a new $64.4 million biomedical sciences facility at UC Santa Cruz, and a $35.1 million four-story telemedicine resource center at UC Davis, among other ventures. (SF Chronicle)
