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An Analysis of University Cash Management Issues


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An Analysis of University Reserves

November 10, 2020 - The coronavirus disease 2019 (COVID-19) pandemic, the shift to campuses operating re-motely, the economic downturn, and state funding reductions have created fiscal challenges for the California State University (CSU) and the University of California (UC). To help address these challenges, the 2020-21 Budget Act signaled the Legislature’s intent that the universities begin drawing down their core reserves for academic programs. Prior to the pandemic, the most recent data available showed that core reserves totaled $1.7 billion at CSU and $1.2 billion at UC. CSU and UC also plan to use their noncore reserves to maintain their self-supporting pro-grams (such as housing and parking), which have lost revenue due to remote operations. Importantly, though the state viewed the universities’ reserves as a budget tool for mitigating funding reductions this year, state law is silent on the level of reserves CSU and UC are to carry, the purposes of those reserves, and the interaction of those reserves with the state’s reserves. We encourage the Legislature to set clearer expectations regarding the state’s and the segments’ responsibilities for building reserves for future economic uncertainties. Developing a specific policy in this area would benefit from further analysis, as the reserve levels required to respond to any future situation would depend upon many factors (including the magnitude of a future economic downturn and the likelihood the state reduces funding for the universities).

Updated 12/10/20: This post has been updated to reflect new reserve levels at UC Santa Barbara.

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Managing California’s Cash

September 3, 2019 - Similar to the state’s budget situation, the state’s cash situation is now very positive. However, this has not always been—nor will it always be—the case. This report includes a history of the state's cash management situation, in particular emphasizing why the state’s cash position has improved so much. This report goes on to describe some recent and novel actions to borrow from the state's cash resources and offers policymakers a framework to evaluate any future borrowing of this nature, should a proposal to do so arise. Given that the state's cash position will inevitably change in the future, we suggest the Legislature be cautious about approving additional proposals to make loans from the state's cash resources. Assessing a proposed loan using the criteria in this report may help determine whether its benefits exceed its costs.

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2009-10 Budget Analysis Series: California's Cash Flow Crisis

January 14, 2009 - Balancing the budget—by increasing state revenues and decreasing expenditures—is the most important way that the Legislature can shorten the duration and severity of the state’s cash flow crisis. Absent prompt action to begin addressing the state’s colossal budget gap and other measures discussed in this report specifically to help the state’s cash flows, state operations and payments will have to be delayed more and more over time. In the event that the Legislature and the Governor are unable to reach agreement to balance the budget by the summer of 2009, major categories of services and payments funded by the state may grind to a halt. This could seriously erode the confidence of the public—and investors—in our state government. To avoid this, it is urgent that the Legislature and the Governor act immediately to address the budgetary and cash crises that have put the state on the edge of fiscal disaster.

Hearing Handout

[PDF] The 2021-22 Budget: Overview of Higher Education Budget

February 1, 2021 - Assembly Budget Subcommittee No. 2 on Education Finance.

Hearing Handout

[PDF] Administration's Cash Management Proposals

June 11, 2009 - Presented to Budget Conference Committee

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California’s Cash Flow Crisis: May 2009 Update

May 7, 2009 - In part because state revenue collections have been weaker than expected since passage of the February budget package, major cash flow difficulties loom for California in the summer and fall of 2009. Without significant budget-balancing and cash management actions by the Legislature or unprecedented borrowing from the short-term credit markets, the state will not be able to pay many of its bills on time for much of 2009-10. Returning the budget to balance will be important to resolving the state's cash flow challenges. We recommend that the Legislature act quickly to address these challenges—by late June or early July at the latest. We also note that the state should be cautious about accepting additional federal assistance for the state's cash flow problems, especially given the strings that may be attached to such aid. (Five-minute video summary)

See also: May 22, 2009, Conference Committee Update: California's Cash Flow Crisis

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An Update on California’s Cash Management Situation

August 31, 2020 - Provides an update on California’s cash management situation, including recent developments in spring 2020 and the outlook for 2020-21.

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The Quiet Transformation in California’s Cash Management

August 29, 2019 - In this Fiscal Perspective, Legislative Analyst Gabriel Petek writes about how the building of large budget reserve balances has quietly transformed California’s cash management in recent years.

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[PDF] The 2021-22 Budget: Analysis of the Major University Proposals

February 1, 2021 - This report analyzes the Governor’s major budget proposals for the universities, covering base funding, enrollment, students’ basic needs, faculty professional development, and deferred maintenance.

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California Community Colleges—Managing Cash in a Time of State Payment Deferrals

December 18, 2020 - To help address the state’s large budget deficit as estimated in June 2020, the 2020-21 budget package deferred a substantial amount of General Fund payments to schools and the California Community Colleges (CCC). In this post, we (1) provide background on community college cash flow and cash management, (2) describe the community college deferrals included in the state’s 2020-21 budget package, (3) explain how the CCC Chancellor’s Office is implementing these deferrals, (4) discuss how community college districts are responding, and (5) present options for the Legislature to consider, particularly given the improved budget outlook.

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The 2017-18 Budget: Governor’s CalPERS Borrowing Proposal

May 16, 2017 -

As part of his May Revision, the Governor proposes the state borrow $6 billion from the Pooled Money Investment Account (PMIA) to make a one-time payment to reduce state pension liabilities at CalPERS. The Governor proposes that the state and General Fund and special funds repay this loan with interest over a period of about eight years.

As we discuss in this brief, we think the plan would probably save the state money over the long run, although uncertainties remain about the likelihood and magnitude of this benefit. However, the administration is asking the Legislature to approve a large commitment of public resources with insufficient consideration. The administration has provided few of the legal or quantitative analyses that the Legislature should expect when receiving a request of this magnitude and complexity. Moreover, the administration has introduced this proposal as part of the May Revision—with only weeks before the constitutional deadline for the Legislature to approve the budget. We doubt all of the issues we raise in the brief can be reviewed by the June 15 deadline. However, there is no reason that the Legislature must make a decision before June 15. We recommend the Legislature wait to act on this plan until after the administration has submitted more analysis. At that point, the Legislature could decide whether or not to approve the proposal.

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[PDF] Perspectives on the Economy 1997-98

February 19, 1997 - Perspectives on the Economy 1997-98