California State University stashed $1.5 billion in reserves
The claim that California State University has a secret stockpile of surplus funds in outside accounts is a sensationalistic take on common – and responsible – fiscal practices. It is wrong to characterize designated operating reserves as “secretive massive funds.”
The audit verified that CSU follows the technical reporting procedures dictated by the Department of Finance, the State Controller’s Office and the State Treasurer’s Office. Governmental fund reports can be hard to interpret for some people. But information pertaining to CSU’s finances, including money invested by the CSU, has always been accessible by the public, including on our Financial Transparency Portal.
Unfortunately, the recent audit failed to mention that more than 30 public reports published by CSU – during the 10-year audit period – included detailed information about investment balances and net assets, including what the report refers to as “surpluses.”
Moreover, this report failed to include letters to state legislators in 2017 and 2018 that addressed balances in state funds invested outside the state Treasury. CSU is legally required to deposit revenue from tuition and other student fees into bank accounts held in trust – what the auditor calls “outside accounts.”
Information about money CSU invests outside of the state Treasury are reported during CSU Trustees’ meetings. These public meetings are streamed live, and then are archived and accessible on the CSU website. In fact, during a September 2017 CSU Board of Trustees’ meeting, a specific presentation was devoted to the topic of reserves. Gov. Gavin Newsom, other legislative staff, students, faculty and staff leaders were all in attendance at the meeting.
There’s still one key point that was buried by the media headlines: Nowhere did the audit report find that the CSU misused funds or that our strategy to build a prudent reserve was not appropriate.
Ironically, this audit report was made public a week after the non-partisan Public Policy Institute of California (PPIC) issued a report, “CSU’s Prudent Saving Strategy,” concluding that “building operating reserves is key to preserving access and maintaining strong student access during the next recession.” The PPIC also recognized the CSU’s new online Financial Transparency Portal as an important step in “making important information available to public officials and the attentive public” about the allocation of resources and the CSU’s reserve strategy.
Still, the auditor’s report begs the question: Why has CSU been building its operating reserves?
One critical use of operating reserves is to fund capital projects. In 2014-15, the state transferred responsibility for capital projects to CSU and directed that the university use operating funds for those projects. CSU then revised its reserve policy to encourage campuses to build designated reserves explicitly for this purpose.
Reserves are also used to pay a portion of the more than $700 million in Cal Grants and $1 billion in Pell Grants the CSU distributes to students each year. Many payments are made by the CSU and then later reimbursed by the California Student Aid Commission and the federal government. Reserves are also used to pay for purchases and contracts that span a fiscal year.
Perhaps most important, about 30 percent of our reserves are a hedge against economic uncertainty. During the Great Recession a decade ago, CSU’s budget was slashed by nearly $1 billion, leading to cuts in enrollment, programs and services, and required furloughs for employees. Designated reserves are absolutely critical to protect current operations of the university and for when we are confronted by the next recession.
When a student enrolls on a CSU campus, we enter into an implicit agreement to provide the educational programs and support services for that student to graduate, even against the backdrop of a recession. Our designated reserves and policies that lead to those reserves will allow us to deliver on that agreement.