A San Francisco Chronicle story published Aug. 6 might have created confusion about a University of California transaction with the state of California that facilitated completion of voter-approved building projects.
To clarify, the state of California had stopped funding vital capital projects at eight UC campuses, facilities essential to the UC education, research and public service mission. The University of California raised $199.8 million through the sale of short-term commercial paper and purchased a state of California general obligation bond, enabling the state to resume funding of the voter-approved projects.
The University of California was able to pursue this approach because of its high credit ratings, a reflection of fiscal prudence. UC would not issue commercial paper - borrow money - to cover costs without a repayment source. To use this method to avoid furloughs, in effect, would create indebtedness to pay operating expenses without a means to repay it.
Without the transaction with the state, completed during the first week of August, permits and contracts were in danger of expiring, and campuses would be unable to obtain equipment needed to make existing buildings functional. In addition, high-priority medical education and telemedicine projects that would improve the delivery of medical services throughout the state could not be completed without this transaction.
While the transaction benefits the university by providing a means to complete some of the stalled projects, it also benefits the state by providing needed employment in the construction industry.
The state is obligated to repay the money to UC, with 3.2 percent interest, within three years. Interest rates on the commercial paper issued by UC are lower today than the interest to be paid to UC by the state.
Read another perspective from Nature.com:
A creative fix for the University of California's budget woes