California State University stashed $1.5 billion in reserves while hiking tuition, audit says

The California State University stashed away $1.5 billion in discretionary reserves while raising tuition and lobbying the Legislature for more funds, according to a report released Thursday by California State Auditor Elaine Howle.

CSU put the money, which came primarily from student tuition, in outside accounts rather than in the state Treasury, the report said.

The investigation mirrors Howle’s 2017 report on the University of California Chancellor’s Office, which charged that top UC brass kept a $175 million slush fund while hiking students’ tuition.

The audit, which was sought by Assemblywoman Sharon Quirk-Silva, D-Fullerton, at the request of the CSU Employees Union, looked at two concerns:

How the CSU held public funds outside the state Treasury.

Oversight and management of its parking program – focusing on its campuses in Sacramento, San Diego, Fullerton and Channel Islands.

The audit aimed to identify any outside accounts held by CSU and determine whether outside accounts were more susceptible to abuse. It also sought to determine whether the parking program complies with state law on how parking revenues are managed and spent.

The audit found that CSU kept legislators, students and the public in the dark about the $1.5 billion surplus, which nearly doubled the cost of tuition from 2008-18. CSU used the money as a discretionary fund to cover costs of instruction or other operations it considered crucial, the audit said.

“By failing to disclose this surplus when consulting with students about tuition increases or when projecting CSU’s resources and needs to the Legislature, the Chancellor’s Office has prevented legislators and students from evaluating CSU’s financial needs in light of its unspent financial resources,” read a statement from Howle.

CSU Chancellor Timothy P. White called the report misleading. He said it incorrectly claims that the CSU failed to inform the public about the funds, and misrepresents CSU practices.

“It is irresponsible to imply that these one-time funds could have been used in lieu of ongoing revenue sources, such as state funding or student tuition, for on-going costs,” White said in a statement. “Reserve funds are like a family savings account or the much acclaimed state of California’s Rainy Day Fund which is built up gradually over time and used to pay for one-time necessary expenses or protect against uncertainties – not ongoing expenses today.”

He said CSU needs such a large reserve for three purposes: To cover short-term obligations such as debt and financial aid, to conduct facility maintenance that until recently was paid for by the state, and to offset economic uncertainty.

He said the university sticks strongly to the notion that the reserve is not a surplus. “It is a strong mischaracterization to call it a surplus when they are absolutely essential funds for us,” he said.

The audit also criticized CSU for building costly parking facilities at four of its 23 campuses: Sacramento, San Diego, Fullerton and Channel Islands. It said CSU had raised student parking permit fees as high as $236 per semester to pay for the new structures, which did little to increase parking capacity.

Sacramento State built three new parking structures since 2002, and a daily parking permit now costs $7.

In a letter submitting the audit to Gov. Gavin Newsom and state Senate and Assembly leaders, Howle said that the CSU Office of the Chancellor “has failed to fully disclose financial resources that it holds in outside accounts, and it has not ensured that campuses fully explore options for alternate methods of transportation ... before investing in expensive parking facilities.”

The report recommended that the CSU Chancellor’s Office disclose its discretionary-spending surplus – “and an estimate of how much tuition contributed to that surplus” – to the Legislature by Nov. 30 each year. It also recommended that CSU report yearly to the Legislature its alternate transportation strategies and how they have reduced parking demand.

To increase transparency, the audit recommended that the Chancellor’s Office publish on its website information about its surplus, including how much of it came from tuition.

Such public disclosures are crucial, said Assemblywoman Quirk-Silva, who requested the audit.

“The money has been put into accounts in a way that are not transparent, and that is certainly a concern,” Quirk-Silva said. “Students are carrying more debt than we have ever seen before, and this is a critical time to know how state funds are being used.”

“The report is more black and white than the universities would like,” Quirk-Silva said.

The CSU Employees Union, which had asked Quirk-Silva to request the audit, noted that CSU had threatened to increase tuition in 2018 if it did not receive additional state funding. At the same time, the CSU Board of Trustees increased pay for the top administrators, including those in the Chancellor’s Office and CSU president, said union legislative director David Balla-Hawkins.

“Multiple state audits since then have confirmed the CSU’s disregard for state oversight and accountability, wasteful spending, and excessive, unnecessary growth in administrative and executive positions and compensation,” Balla-Hawkins said in a written statement.

Union leaders said they hoped the Legislature will take steps to strengthen oversight of the CSU.

“The practice of hiding state funds and ignoring state laws hurts our students and employees,” said Vicki McLeod, chair of the CSU Employees Union legislative committee.

Assemblyman Kevin McCarty, D-Sacramento, chair of the Assembly Budget Subcommittee on Education Finance, called the audit’s conclusions “troubling.”

“Could these funds help meet the demand for increased student enrollment?” he said. “Could these funds help struggling students address basic needs like food insecurity, homelessness and mental health services?”

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Sawsan Morrar covers school accountability and culture for The Sacramento Bee. She grew up in Sacramento and is an alumna of UC Berkeley Graduate School of Journalism. She previously freelanced for various publications including The Washington Post, Vice, KQED and Capital Public Radio.