As we have noted in past blog posts, in the current fiscal year and the past two years, in common English parlance the general fund of the state has been in rough balance, i.e., inflow = outflow. But prior to that there were big deficits that ultimately left the state with a negative reserve in its general fund.
When the general fund has a negative reserve, borrowing from somewhere must occur. It comes in two flavors: external borrowing from outside financial markets and internal borrowing from funds the state has outside the general fund. There are many such funds. But the biggies are in transportation where the gas tax and other related revenue flows into earmarked funds for roads and other transportation activities.
Essentially, internal borrowing consists of the controller putting an IOU into these other funds and using the money for general fund purposes. However, if you go too far in that direction, you begin to interfere with the functioning of the activities geared to the special funds.
Apart from the fact that we have ended recent fiscal years with negative reserves in the general fund, there are seasonal issues of timing since outflows and inflows from the general fund do not match within the fiscal year. The controller wants the legislature to give him more authority to dip into special funds with IOUs. From the UC perspective, the fact that the controller is having cash management problems is just more evidence that we should not be looking for budgetary salvation from the state any time soon.
You can read his letter at http://www.sco.ca.gov/Files-EO/Controller_letter_01_31_2012.pdf
UPDATE: Just to drive home the point on the UC perspective, consider:
http://www.dailybruin.com/index.php/article/2012/02/uc_may_loan_200_million_to_state
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