Slide 29 of 84

Our constitution provides the power for two types of borrowing. Both types are general obligation borrowing whereby the undedicated resources of the state of Michigan are pledged to the borrower for repayment. What this means is the general fund-general purpose revenues of the state are available on a first call to pay back the loans that the state takes. The first type of general obligation or G.O. borrowing is for short term for cash management. Each year the state may borrow during the course of the year by selling general obligation notes. These borrowed funds assist managing through the peaks and troughs in the cash flow of the state. The state pays out approximately 85% of its total general and school aid fund appropriations in the first nine months of the year and it only takes in around 75% of the resources. Cash is borrowed short term to help manage through that period of cash shortage. These borrowed funds must be repaid by the end of the fiscal year, so it is not possible to use short term borrowing to cover a budget deficit.