University of California Office of the President                                                 December 7, 2009
Peter J. Taylor, Executive Vice President - Chief Financial Officer

Dr. Charles Schwartz, Professor Emeritus
Physics, 392 LeConte Hall
University of California, Berkeley

Dear Charlie:

I am responding to your letter of November 1, 2009; my apologies for the delay.

Your letter asked two questions, which I will address in order:

A. Since The Regents created the General Revenue arrangement in 2003, has there been any occasion when a particular capital project was unable to meet its scheduled debt service obligations from the originally specified revenue source and thus funds were needed to be used from the General Revenue pool?  If the answer is Yes, please provide details.

To the best of our knowledge, since the Regents created the GRB credit vehicle in 2003, there has never been an occasion when an individual project was unable to meet its scheduled debt service obligations, thereby necessitating a process of obtaining permission to use other funds.  Charlie, if I am not mistaken, I think youir concern focuses on the use of the educational fee as the revenue source for debt service. Again, I am not aware of a situation where a campus has utilized the educational fee to repay debt obligations.

B. If such a situation were to occur in the future, what is the established process by which this substitution of funds would be managed and what reporting mechanism, within the University, would be entailed?

Charlie, it's hard to speculate about a speculative question. Suffice it to say that we would work with the individual campus in question to identify where the shortfall exists, in the exact amount, and then lead a process to rectify the situation including if necessary  identifying a specific replacement source of repayment. One can create all kinds of imagined situations where bad things like this might happen, but ultimately the bond market functions on the basis that people of good faith borrow money and will then implement their financial plans in a way consistent with their commitment to repay the money they've borowed,  On this basis the tax-exempt bond maket facilitates over $400 billion of borrowings each and every year.

We adhere to the same trust here at UC, and insist our campuses and medical centers understand the legal and moral imperatives of financial management that allows for the timely repayment of debt. And, ultimately, our ratings and commentary from the rating analysts illustrate their comfort with our commitment to abiding by this obligation.

Even in these painful economic and budgetary times, I remain very comfortable that our campuses and medical centers will continue to pay debt service on time and in full from identified repayment sources.  Indeed, of the many things about UC that keep me up at night worrying, this is not one of them.

Sincerely,

Peter

Peter J. Taylor
Chief Financial Officer

cc: Sandra Kim, Director, External Finance