Skip Repetitive Navigation Links
California State Auditor Report Number : 2015-106

The University of California and the California State University
Several Campuses Recently Acquired Property, but Those Acquisitions Have Not Significantly Reduced Property Tax Revenue for Local Governments


Results in Brief

The University of California (UC) and the California State University (CSU) are the two public university systems in California. The California State Constitution exempts state-owned property and property used exclusively for state colleges and universities from property taxation. Therefore, when a CSU or a UC campus acquires taxable property or leases it exclusively for educational purposes, that property generally no longer generates property tax revenue for the respective county and other local jurisdictions within the county, like cities and school districts. Because property tax revenue is an important source of income for these local governments, large reductions in the amount of property taxes each year could reduce funds available for various programs and services such as an allocation to fire departments for the provision of fire and emergency medical services.

Although all three UC campuses we reviewed acquired properties between January 1, 2010, and June 30, 2015, acquisitions were less common among the five CSU campuses we reviewed.1 We also found that the properties that the campuses acquired had minimal impact on their local governments’ property tax revenue. Specifically, two of the five CSU campuses acquired 10 properties with values totaling nearly $28 million, and the three UC campuses acquired seven properties with values totaling $45.8 million. Eleven of these 17 acquisitions did not affect property taxes because the campuses acquired them from owners that were already exempt from paying taxes or because the properties themselves were already exempt when the campuses purchased them. The relatively low value of another acquisition, along with the fact that the acquiring campus owned the property for just over a month before reselling it, made any tax impact so small that we did not attempt to calculate it. For the other five property acquisitions, the estimated loss of property tax revenue to the respective local governments was considerably less than 1 percent of the amount the local government would have otherwise collected during the time those properties were exempt from taxes.

This minimal financial impact of the campus acquisitions on local governments’ property tax revenue results largely from the state constitutional limit placed on property tax rates and the way that state law requires property taxes to be allocated. Specifically, although one of the CSU campuses and the three UC campuses acquired previously taxable property at acquisition values that ranged from $258,000 to $25.8 million, the loss of property tax revenue to local governments represented a very small portion of their overall property tax revenue. For example, CSU San Diego purchased one property during the period we reviewed at a cost of $25.8 million. Using information we obtained from San Diego County, we estimated that this acquisition resulted in a loss of property tax revenue to the county of at most $533,600 between the time of the acquisition in September 2013 and June 2015. Because the city of San Diego—where the campus is located—receives only part of this revenue, we estimated its specific revenue loss to be $96,900, which is 0.013 percent of the city’s total property tax revenue over the same period. As local governments spend property tax revenue on a wide range of programs and services, the dollar impact on local governments’ fire departments is generally even smaller than the impacts we estimated.

Properties that the reviewed campuses leased from private owners also caused small reductions to property tax revenue, while some campuses that leased their properties to private renters created a small amount of additional revenue for their local governments. Under state law, if a landlord leases otherwise taxable property to certain types of cultural or educational entities—such as a CSU or UC campus—whose use is exempt from property taxes, those entities are entitled to enjoy the benefit of the exemption. Although all three UC campuses and two of the five CSU campuses we reviewed leased between four and 28 properties that were exempt from property taxes during fiscal year 2014–15, the impact of these lease exemptions on property tax revenue was not significant. For example, for the 20 properties that UC Berkeley leased in Alameda County, we estimated a countywide tax loss of about $574,700, or 0.02 percent of property taxes collected for fiscal year 2014–15. Campuses that leased property they own to private entities created a small amount of property tax revenue for local governments because state law generally requires private entities that lease tax-exempt properties to pay possessory interest property taxes while leasing the property. We estimate that these types of leases generated from $98 to about $61,600 in revenue in fiscal year 2014–15 for each of the campuses’ respective local governments.

No formal policies require that CSU and UC campuses engage with local governments to discuss the local governments’ financial concerns when the campuses acquire or construct property. Although state law requires campuses to interact with local governments when campuses plan or undertake certain construction projects, these interactions focus primarily on potential environmental impacts. We reviewed a selection of campus construction projects and determined that the campuses complied with procedural requirements related to disclosing information about the project to the public, including local governments, and responding to concerns.

The lack of formal requirements for campuses to discuss with local governments potential financial impacts on property tax revenue or the provision of local fire and emergency services for the campuses’ expansion activities has not prevented CSU and UC campuses from reaching agreements with local governments as necessary. Systemwide, three CSU campuses and four UC campuses have agreements with local governments related to the provision of fire and emergency services to those campuses. These agreements result, at least in part, from the campuses’ specific circumstances, and most of the agreements provide for some financial support to the local governments providing these services. For example, given its geographic location, CSU Monterey Bay reached agreements with local fire districts and a federal fire department to ensure adequate and timely fire protection response. Further, UC Berkeley reached an agreement with the city of Berkeley to settle a lawsuit the city filed against the campus.

The officials from two local governments that provide fire and emergency services to the campuses we reviewed expressed concerns about increased costs posed by campuses’ demands for services. However, neither local government provided recent information quantifying the increased costs. Officials for Merced County, including its assistant fire chief, expressed concerns about an increased demand for service calls to UC Merced in recent years. Statistics the county provided on fire and emergency medical service calls to the campus show a significant increase over the last five years. UC Merced staff acknowledged the increase and noted that the campus has had an increase in its student population and that the increase directly results in more calls. The assistant fire chief explained that the county only recently began to try to quantify the impact of the campus’s share of services. Therefore, we did not receive any cost estimates. County officials also stated that although they are concerned about the increased demand for fire services and have discussed those concerns with the campus, the officials have thus far prioritized their discussions with the campus on addressing traffic impacts of campus expansion.

Additionally, the city of Berkeley also expressed concerns related to UC Berkeley’s impact on the city. UC Berkeley fire and emergency medical service call data show that although the number of fire responses generally did not change between 2010 and 2014, the number of responses related to emergency medical services increased during this period. The campus staff acknowledged the increase in emergency medical services and speculated that the low number of incidents in earlier years and higher number of incidents in later years were a result of changes in alcohol consumption when the campus closed its football stadium for construction in 2011 and reopened in 2012. However, the city did not provide documentation demonstrating that it recently quantified the costs the campus poses.

The remaining five local governments told us that they are not concerned about any increases in the demand on services from the campuses we reviewed. Further, none of the local governments for areas in which the campuses we reviewed are located has proposed specific tax measures since 2010 to fund fire and emergency services because of any perceived increase in campus service demand.

Agency Comments

Because this report is informational in nature and does not contain recommendations, we did not request responses to the draft report. However, the California State University Office of the Chancellor submitted a response to the audit indicating that the CSU concurs with our finding that acquisitions of properties we reviewed had minimal impact on local government property tax revenue. The response also referred to a systemwide economic impact study from 2010. This is the same study we discuss in Appendix B.

Back to top


1 As the Scope and Methodology section explains, for the audit objectives, we reviewed seven campuses—four CSU campuses and three UC campuses. These seven were the CSU campuses at Dominguez Hills, San Diego, San José, and Stanislaus, and the UC campuses at Berkeley, Merced, and Santa Barbara. For one of the audit objectives, we reviewed the same seven campuses, but we also added CSU Chico to our audit. Go back to text