California’s Higher Education Needs Transparency

Gov. Arnold Schwarzenegger has until Oct. 11 to sign or veto SB 218.

This is a bill introduced by State Senator Leland Yee, D-Calif., following questions raised about the business practices of foundations on California State University campuses from Fresno to San Francisco, Sonoma to Sacramento.

“Taxpayers and students deserve to know how their public universities are run,” Yee said. He cited several cases where a lack of accountability and transparency has paved the way for abuses by public higher education foundations.

A member of a Fresno State foundation received a no-bid contract connected with building a campus entertainment venue in which he had a financial stake. An executive with the San Francisco City Community College Foundation borrowed money from it for personal consumption. A Sonoma State foundation got stuck with repaying money lent to a former board member unable to make the loan payments.

California’s public universities, in fact, control dozens of nonprofit foundations, with donors big and small. The California State University system, with its 23 campuses, holds $1.3 billion in these same foundations, or 20 percent of CSU’s $6.7 billion budget this year. The public, however, has limited access to information about how that $1.3 billion is spent.

Sen. Yee authored Senate Bill 218 to improve the transparency of the state’s public higher education system. SB 218 would compel foundations that raise and spend money for scholarships in the CSU, University of California and community college systems to conform to the protocol for information requests that state and local agencies must comply with under the California Public Records Act now.

Eight years ago, according to Sen. Yee, “the Fresno Bee newspaper was denied information, specifically concerning the identity of individuals and companies that purchased luxury suites at the Save Mart Center arena at Fresno State. The denial resulted in CSU v. Superior Court (McClatchy Company), in which the Court opined that although it recognized that university auxiliaries ought to be covered by the CPRA and that its ruling was counter to the obvious legislative intent of the CPRA, the rewriting of the statute was a legislative responsibility.”

The California Faculty Association, a labor union which represents a total of 23,000 tenured and tenure-track instructional faculty, lecturers, librarians, coaches and counselors on all 23 CSU campuses, supports SB 218, which passed both houses of the state Legislature unanimously.

Lillian Taiz is the president of the CFA and a history professor at CSU Los Angeles. “In light of the governor‘s public commitment to transparency, we hope he will back up his words with action by signing SB 218 into law,” she said. “The lack of transparency and accountability around these auxiliaries and foundations has led to scandals and waste of taxpayer dollars that were intended to improve the quality of education in the classroom for California’s students on the 23 CSU campuses.”

Most recently at Sacramento State, a non-profit foundation, University Enterprises, Inc. (UEI) reported an estimated $8.79 million shortfall in its projected and actual revenue for the fiscal year ending June 30. UEI operates the campus bookstore, copy and food services, administers contracts, provides grants and acquires and renovates properties, auxiliary services that the CSU is not allowed to, according to Jim Reinhart, the executive director.

It’s worth noting that the taxpayer-supported state general fund provides 51 percent of the current year’s operating budget for the 23-campus CSU system. That public money connects with UEI, which purchased an off-campus CalSTRS building for $35 million in summer 2007. At the same time, the U.S. housing bubble popped. That set off the deepest and longest economic downturn since the 1930s.

Cut to the current budget year. Sacramento State is sending $5.12 million to UEI, $4.8 million of which is for the CalSTRS building to, in part, plug the gap of lease revenue from nonexistent tenants. CSU Chancellor Charles Reed’s office has added $1.5 million for the UEI building this year. The property has an annual mortgage payment of $3 million in 2009-10. That rises to $3.86 million per year through 2038-39.

Crucially, Sacramento State’s long-term financial link to UEI is unclear. What is clear? This transfer of state dollars to UEI is, in effect, a tax on students, professors and Californians generally.

Dustin Hobbs is the spokesman for the California Mortgage Bankers Association. “It’s tough for commercial (office and retail) landlords right now to find and keep viable tenants,” he said, due to the “depressed economy.” Commercial rents are falling. The tenant vacancy rate is rising.

Clara Potes-Fellow is a spokeswoman for the CSU, which opposes Sen. Yee’s bill. “CSU believes that as an unintended result, SB 218 would increase costs to the CSU and its campuses and could reduce non-state revenues,” she said. “Some donors strongly prefer to keep their personal information out of the eyes of the public. Under this law, their personal information could become public when requested under a Public Records Act. So, if the bill is enacted all donors would have to be informed that to remain private they need to send a request for anonymity. It will cost the CSU more than $2 million to inform all of its donors of this new option,” and cost campuses auxiliaries up to $5.6 million to respond to such requests.

Foundation donors could only request anonymity if they did not receive “anything that has more than a nominal value in exchange for the donation,” according to SB 218.

For Potes-Fellow, “all auxiliaries are accountable and transparent” currently. SB 218 “will not provide more information that what is already available and or protected by law, and will divert funds from the university and shift resources and staff time as they respond to information requests. The CSU is very concerned about SB 218’s impact on fundraising especially at this time when state funding is at a historical low.”

In the current moment of state budget austerity, of course, a bad situation can easily worsen. "The big problem comes next year, when the federal stimulus funding is gone and leaves a big hole in CSU’s budget,” said Steve Boilard, director of higher education with the non-partisan state Legislative Analyst’s Office.

It’s now up to Governor Schwarzenegger to sign or veto the bill.

Seth Sandronsky lives and writes in Sacramento. Contact him at ssandronsky.