The state auditor, Elaine Howle, released an audit critical of the California State University (CSU) system’s surplus funds and transportation policies on June 20, taking issue with financial practices that could impact students. CSU Chancellor Timothy White was quick to respond, and in an interview with the Business Journal that day, repeatedly called the auditor’s report “misleading.”

Howle and her office found that the chancellor’s office did not disclose $1.5 billion in available surplus funds to the state legislature when providing information about its financial resources for budgeting purposes, nor did the office disclose the information to students when consulting with them about hiking tuition. “As a result, legislators were unable to evaluate whether CSU’s accumulation of surplus funds was reasonable and to consider whether that surplus should be used to fund certain portions of CSU’s budget requests rather than the state’s general fund appropriations,” Howle’s summary stated.

As a specific example of an instance in which the surplus was not reported, the audit report stated, “In certain budget acts, legislators specifically directed CSU to prepare projections of its available resources for the next three fiscal years. For example, the 2016 state budget act required CSU to submit this information to specified parties, including legislative committees that consider appropriations for CSU. Although the Chancellor’s Office provided the Joint Legislative Budget Committee and other legislative entities with projections of tuition revenue at that time, it did not include information detailing CSU’s accumulated surplus, derived primarily from tuition.” Howle’s report continued, “According to CSU’s assistant vice chancellor for system budget, the academic plan included all of the elements that the state budget act required.”

White said that over the 10-year period assessed in the audit – 2008 to 2018 – CSU issued more than 30 public reports that included information about its surplus. “With respect to not informing the legislature, that is categorically untrue,” he said. Asked if any of these reports were sent directly to the legislature, he said they were.

“We report routinely, quarterly, all of our finances in public meetings to our trustees, [and] annually to the state treasurer, the state controller, the department of finance and to the legislature,” White said. “Those reports were made available to the auditors when they were visiting us, and they chose not to report on them.”

Although the CSU’s total budget surplus is closer to $4 billion, only about $1.5 billion are discretionary. The majority of this amount is sourced from student tuition, according to the auditor’s report.  The remaining amount is sourced from restricted revenues, such as student housing fees, that may only be for certain purposes per state law.

White argued that including this surplus in discussions about ongoing costs is not appropriate, as the surplus really serves as a reserve. “That’s more than just a semantical difference. Surplus sounds like it’s extra money you don’t need and you just do something with, whereas a reserve is essential revenue that we do need and we have a specific purpose for,” he said. “Part of our concern with the words that appear in the audit report is calling it a ‘discretionary surplus.’ It really mischaracterizes the essential role that these reserves actually play for us.”

The $1.5 billion in reserves, as White prefers to refer to them, is only enough to keep the CSU operating for about two-and-a-half months in the event of some type of crisis in which it has no access to other funding. “For the average person, if they went to a banker or a website and said, ‘How much money should I have in my bank account,’ the answer would be, you should have six months of your life’s living expenses in your bank account to pay for your rent and your car payment and your food and your health insurance, et cetera,” White said. “I know it’s a big number, but we have 23 campuses. You can divide that number by 23 and [suddenly] realize it’s actually a very conservative number.”

The audit was also critical of the chancellor’s office practices, or lack thereof, in providing enough parking for CSU campuses and encouraging alternate forms of transportation. State auditors visited four CSU campuses – Fullerton, Channel Islands, Sacramento and San Diego – to assess such practices, and found that though the campuses had raised parking fees to finance new parking facilities, it was of little benefit to the students due to increasing enrollment. The report stated, “Moreover, the Chancellor’s Office has not ensured that campuses have consistently planned for or implemented options for alternate methods of transportation . . . such as shuttles, carpools and bicycles – before requesting to build new parking facilities, as CSU policy requires.”

To these criticisms, White said it was “fair for us to do more on analyzing alternative transportation possibilities when we are analyzing requests for parking facilities.” He added, “I think we have been doing that. We may not report it as well as we should have. We may not have done it on some campuses as deeply as it should have been done. So yeah, we will take that recommendation and do better going forward.”

Gov. Gavin Newsom’s office declined to comment on the audit, but Liet. Gov. Eleni Kounalakis released a brief public statement on the matter. “The State Auditor’s report raises serious questions about transparency in the CSU’s accounting practices. I have requested a full staff presentation, and opportunity for public comment, at the next CSU Board of Trustees meeting on July 23-24. Public trust is crucial to California’s public higher education system,” she stated.