California State University defends reserves following critical state audit

The chancellor of the country's largest system of four-year public universities says a state audit that found the school sat on $1.5 billion in reserves while it raised tuition and cut employees' pay is not untrue, but "profoundly misleading."

California State University Chancellor Timothy White told a panel of state lawmakers on Monday that the more than $1.5 billion in discretionary reserves identified by Auditor Elaine Howle is "anything but discretionary." He said the university had to store the money, which is spread out across the system's 23 schools, so it could give students advances on financial aid, pay for construction projects and act as a cushion in case of a recession.

But California State Auditor Elaine Howle told lawmakers school officials had no restrictions on how it used the money. She said the school did not tell the Legislature about the money. And the school also did not tell the California State Student Association about the money when it notified them about a tuition increase.

Howle said a 2017 tuition increase brought in $78 million for the school. In the same year, the school's reserves increased by $65 million. She recommended the school do a better job of disclosing its finances.

White said the university accepts Howle's recommendations and is already implementing them. But he criticized the audit's "sensationalized language," saying it "was amplified and distorted in extensive statewide media coverage."

"These inflammatory articles and reports misled and confused the public in such a way that risked unfairly tarnishing Californian State University's reputation," he said. "To that I have taken and can take great umbrage."

Howle said the audit report's implication that tuition dollars are being used to disproportionately fund reserves is, "while not untruthful, fundamentally unfair." He said state law governs how the university can spend its money form tuition and state appropriations, and it followed that law.

State lawmakers had tough comments for White and California State University board member Jack McGrory. Assemblywoman Shirley Weber, a Democrat from San Diego, was a professor at San Diego State University during the period the audit covered. She said she and her clerical staff took a 10% pay cut at the time, thinking they were investing in the university's future.

"This is a shameful moment for California," she said.

But McGrory told lawmakers it was essential for the university to maintain adequate reserves, saying other California local governments that did not do that ended up filing for bankruptcy. Republican state Sen. John Moorlach of Costa Mesa agreed, noting the university's increasingly expensive pension and health care costs for its workers.

"Having $1.5 billion on hand is probably a good thing right now with the numbers being reflected in their published financial reports," he said.