The state of California has asked the Cal State University system for a $250 million loan for the end of February.
California’s cash flow is expected to run low around the beginning of March due to insufficient tax revenue from the previous year, according to an article from the Daily Californian. In order for the state to cover the shortage, the state will be taking out a hefty loan from the CSU.
The loan will be repaid by the end of April with a 2 percent annual interest rate, which would yield approximately $830,000 for the CSU system.
It is not uncommon for the CSU to save their allocations in low-risk accounts and investments at the beginning of the year, CSU spokesman Erik Fallis said.
“We save and invest our money throughout the year, so we can pay our bills at the end of the year,” Fallis said. “We depend on that investment.”
Fallis said the safety of this loan is no different than any other investment the CSU would typically make.
“We don’t invest in anything that’s risky,” Fallis said. “The state’s making a firm commitment to return the funds.”
The irony of the situation, however, is that the CSU could be facing $200 million in budget cuts if two tax increases are voted down in November.
Fallis said that the loan would have no effect on education cuts in Gov. Jerry Brown’s budget proposal.
“It’s not really going to have an impact on students or student services,” Fallis said. “Unfortunately, the only sort of benefit we get out of this is a slightly higher interest rate.”
It is not a rare occurrence for states to borrow outside the bank from one source to pay off another, according to Wade Martin, a CSULB economics professor.
The main concern for students, in this case, would be if the money being lent to California were being taken from an account with a higher interest rate. This will not be the case in this loan.
“Those reserves are invested somewhere,” Martin said. “And you need to understand the return you’re currently getting, compared to the return from the state.”
Fallis said that the state’s educational budget cuts are an entirely different issue.
“The problem is that the state has pulled out its share, so students have increasingly shouldered the burden,” Fallis said. “We are working really closely with student government to pressure California to reinvest in CSU student success.”
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