Chancellor's Office response to state audit

June 20, 2019

The California State Auditor's Office issued an audit today concerning transparency of California State University discretionary reserve funds and the effectiveness of a CSU parking program. California State University Chancellor Timothy P. White issued the following statement in response to this report:

“The California State University is transparent in its financial operations, and detailed information about monies held by the university is readily available for review by Californians and our state’s lawmakers. We have gone to great lengths to publicly report information about investment balances, net assets and reserves.

We are disappointed that the audit report misrepresents CSU practices, concerned that it might mislead the public, and are perplexed that the report’s recommendations are so disconnected from the language used in the headline.

The report’s incorrect claim that the CSU failed to fully inform its stakeholders about fund balances overlooks dozens of presentations of publicly available reports that included information about these funds.

To be clear, the auditors did find that the CSU has established appropriate practices to safeguard the university’s outside accounts and in fact suggests that the CSU “should establish minimum sufficient level of reserve levels for economic uncertainty.” Additionally, campuses are spending parking fines and revenue appropriately, and the earnings from parking revenue investments was disbursed appropriately.

However, the audit report’s reference to a “discretionary surplus” mischaracterizes the essential role that these reserve funds play. 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. 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.

The CSU is an exceptional steward of the financial resources entrusted to us by the state and will continue to provide the public, lawmakers and all stakeholders with important information about our financial operations.”

CSU’s reserve policy encourages campuses to build operating reserves to deal with cyclical state recessions and to support year-to-year operations. The reserve policy target for economic uncertainties is five to six months of operating costs. Bond rating agencies Moody's, Standard & Poor's and Fitch periodically assess reserves when evaluating CSU’s debt program. Operating reserves also improve the university’s debt-to-equity ratio, which is one of the key measures of financial viability, and contribute to CSU’s relatively high bond ratings resulting in lower borrowing costs.

The Public Policy Institute of California also lauded the CSU for its transparency and efforts to build designated reserves in an update titled CSU’s Prudent Saving Strategy. The PPIC update states, “The California State University system is taking significant steps to improve its financial position and increase transparency with a new public, online Financial Transparency Portal.”

Regarding the CSU’s designated reserves, the report states, “The growth in capital reserves is promising and helps to safeguard CSU’s ability to meet the needs of its future students. Similarly, building operating reserves is key to preserving access and maintaining strong student outcomes during the next recession.”

The CSU routinely presents detailed information about investment balances and net assets and makes that information available to stakeholders and the public."

For additional information, visit the CSU website at: https://www2.calstate.edu/csu-system/new

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Paul Gullixson