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California State Auditor Report Number : 2015-107

The University of California
Its Admissions and Financial Decisions Have Disadvantaged California Resident Students

March 29, 2016 2015-107

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the University of California’s (university) enrollment, executive compensation, and budget. This report concludes that over the past several years, the university has undermined its commitment to resident students. Specifically, in response to reduced state funding, the university made substantial efforts to enroll nonresident students who pay significantly more tuition than residents. The university’s efforts resulted in an 82 percent increase in nonresident enrollment from academic years 2010–11 through 2014–15, or 18,000 students, but coincided with a drop in resident enrollment by 1 percent, or 2,200 students, over that same time period.

The university’s decision to increase the enrollment of nonresidents has made it more difficult for California residents to gain admission to the university. According to the Master Plan for Higher Education in California, which proposes the roles for each of the State’s institutions of higher education, the university should only admit nonresidents who possess academic qualifications that are equivalent to those of the upper half of residents who are eligible for admission. However, in 2011 the university relaxed this admission standard to state that nonresidents need only to “compare favorably” to residents. Combined with the university’s desire to enroll more nonresidents because of the additional tuition that they pay, the relaxing of this admission standard had dramatic results. During the three-year period after this change, the university admitted nearly 16,000 nonresidents whose scores fell below the median scores for admitted residents at the same campus on every academic test score and grade point average that we evaluated. At the same time, the university denied admission to an increasing proportion of qualified residents at the campus to which they applied—nearly 11,000 in academic year 2014–15 alone—and instead referred them to an alternate campus. However, only about 2 percent of residents who the university referred actually enrolled. Moreover, increasing numbers of nonresident students have enrolled in the five most popular majors that the university offers at the same time that resident enrollment has generally declined in those same majors.

The university could have taken additional steps to generate savings and revenue internally to mitigate the impact of its admissions and financial decisions on residents. For example, the university’s spending on employee salaries increased in eight of the last nine fiscal years despite the State’s fiscal crisis. By fiscal year 2014–15, its annual salary costs had risen to $13 billion. In addition, even though the university publicly claimed that it redirected $664 million to its academic and research missions through an initiative it developed called Working Smarter, it could not substantiate the asserted savings or revenue amounts or demonstrate how much of this amount directly benefited students.

Moreover, the university’s funding allocation decisions have not completely resolved its unequal distribution of per-student state funding across its campuses, resulting in certain campuses continuing to receive less state funds per student than others. After several reports identified inequity in per‑student funding among the campuses and a lack of transparency in how the university distributes that funding, the university embarked on an effort which it refers to as rebenching. However, we identified several problems with rebenching, including the fact that the university does not base the formula it uses to redistribute funds on the amounts it actually costs to educate different types of students. The university also excluded $886 million in state funds from the amount it distributes to campuses through per‑student funding for fiscal year 2014–15 for programs that do not relate directly to educating students. Further, even though the university asserts that the additional revenue from its increased enrollment of nonresidents allows it to improve education quality and enroll more residents, the university does not give campuses spending guidance or track how they use these funds. Lacking such guidance or oversight, we found campuses spend these funds in an inconsistent manner.

Because of the significant harm to residents and their families resulting from the university’s actions, we believe that legislative intervention, as outlined in the report, is necessary to ensure that a university education once again becomes attainable and affordable for all California residents who are qualified and desire to attend. For example, we recommend that the Legislature consider amending state law to limit the percentage of nonresidents the university can enroll each year and consider basing the university’s annual appropriation upon the university following this requirement.

Respectfully submitted,

State Auditor

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