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The state just slashed $650 million each from the California State University and University of California, but it's now looking to the two systems to loan the state some cash.

A new bill moving through the Legislature with little public notice, Senate Bill 79, would establish a new investment fund for UC, CSU, California Community Colleges and the Judicial Council. Under the proposal, each system could contribute no less than $500 million and earn a return from the state, apparently more than they get elsewhere but less than the state would have to pay Wall Street.

The current plan is for UC to loan the state $1 billion and CSU to loan $700 million, for a total of $1.7 billion in the account, according to Tom Dresslar, spokesman for State Treasurer Bill Lockyer. The money would come from the systems' cash reserves.

Republicans are skeptical of the new fund, which gives the state $1.7 billion in "borrowable resources," meaning that the state could access this cash in the future if necessary. They said on the Assembly floor that the bill was moving too quickly and that they had too little time to review the proposal.

Democrats insisted that the money was only necessary to manage the state's cash payments, rather than to help plug a budgetary hole. The state borrows cash annually from Wall Street early in the fiscal year, only to repay the money in May and June after a flood of tax payments come in the spring. They said the deal does not relieve the university systems of deep spending cuts in the state budget.

With the UC and CSU investment fund in place, the state can tell Wall Street that it has this $1.7 billion cushion as a backstop. That could allow the state to score a lower interest rate or reduce borrowing needs, though it is unclear how much the state would save by the maneuver.

The Assembly passed SB 79 with a 46-25 majority, which lawmakers could do by virtue of tying the proposal to the main budget as a "trailer" bill. Under Proposition 25, which voters passed last year, the Legislature can pass the main budget bill and associated "trailers" with a majority vote. The Senate is expected to take it up Thursday.

The proposal was part of the June budget agreement and was an assumption that Lockyer relied upon when he called the plan "financeable." Republican aides contend that the bill could allow Democrats to avoid "trigger" cuts or reduce a future deficit by borrowing against the fund for budget purposes.


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