Washington Week: Student Voices (O)

UC programs receiving IOUs from California
By Kelly Strickland
Daily Californian, UC-Berkeley
July 06, 2009

The UC system may have to dip into its reserves to provide students with their Cal Grants for the fall 2009 semester as the financial aid program may be one of many to receive IOUs from the state.

California State Controller John Chiang began sending out $3.36 billion in IOUs this month in lieu of cash to thousands of creditors that support hundreds of programs in the state.

The California Student Aid Commission, the state agency that administers Cal Grants to colleges and universities to distribute to students, is one of the programs expected to receive IOUs.

If the state gives IOUs to the commission, it could mean that the UC system and California State University system will have to provide money to students to cover whatever awards cannot be covered by the state.

UC officials will consider their options if a state budget is not passed before the fall semester starts, said UC spokesperson Ricardo Vazquez.

"We are concerned for our students because these are funds that many of them depend on to pay for their fees," Vazquez said. "We're also concerned about preserving Cal Grants programs (because) the issue of their proposed elimination hasn't been recalled yet."

The state has regularly targeted the program in its cost-saving attempts.

Gov. Arnold Schwarzenegger proposed in his May budget revision that the state eliminate Cal Grants in an attempt to balance the state's growing deficit, which now stands at $26.3 billion and could double by September if a budget is not finalized.

A budget committee in the state legislature rejected cutting the grants in June. Democratic legislators attempted to retain the program in their budget proposal that failed last week, leaving the financial aid program still at risk.

To pay for the 46,000 UC students who receive Cal Grants, the university may be forced to withdraw money from its reserves, something it had to do last year when the state did not approve a final budget in time, Vazquez said.

Vazquez could not comment on the amount of funds in the UC reserve accounts.

Although it is unclear how much the university would have to pay, Vazquez said the total amount of money UC students receive through Cal Grants is about $350 million.

More than 7,500 UC Berkeley students received Cal Grants for the 2007-08 school year, totaling about $50 million in aid, according to the California Student Aid Commission.

Any time the UC system has tapped into its reserves, it has always done so with the understanding that the state would pay the university back, Vazquez said.

However, with the state facing such a large deficit and IOUs being distributed, it may be difficult to judge when the state of California would have the funds be able to pay back the UC system, he added.

Using money from the UC system's reserves will not likely affect the $800 million deficit, which is forcing UC and campus administrators to consider drastic measures to cut costs, including employee furloughs and salary cuts and additional student fee increases.

"At this point we don't know," said Vazquez. "There could be a budget agreement before then. We will make a decision soon in the next month or so about how to handle that particular situation."

Chiang's decision to delay the payout of Cal Grant awards in February showed that the financial aid program would be in the trouble that it is in now, according to H.D. Palmer, spokesperson for the state's Department of Finance.

"Earlier this year there had been speculation over IOUs, but what (the controller) chose to do was delaying the payment of $3 billion refunds," Palmer said.

Jacob Roper, spokesperson for John Chiang, said no one is happy about the decision to issue IOUs.

"They harm thousands ... and it cost taxpayers millions in interest," Roper said. "It's the only way to make sure protected payments are made at the end of the month."

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