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California State University The Mandatory Fees Its Campuses Charge Receive Little Oversight Yet They Represent an Increasing Financial Burden to Students Report Number: 2019-114

Audit Results

Campuses Systemwide More Than Doubled the Revenue They Received From Mandatory Fees Over a 10-Year Period

In response to reductions in state funding during California's budget crisis that began in fiscal year 2007–08, the CSU increased tuition significantly. During this time, California entered into a recession, and in response, the Legislature reduced the amount of funding it provided to the CSU system. Between fiscal years 2007–08 and 2011–12, the State decreased its General Fund appropriations to the CSU from $3 billion to a little more than $2 billion at its lowest point. To mitigate decreases in state funding and assist with the continuing budget needs of the CSU, the trustees increased tuition every year from academic years 2007–08 through 2011–12. As a result, undergraduate tuition nearly doubled over this period, from $2,772 to $5,472.

At the same time that the CSU raised tuition, individual CSU campuses increased the amounts of mandatory fees they charged students. In particular, many campuses began to establish student success fees, also citing insufficient state funding as the reason. From fiscal years 2007–08 through 2011–12, seven campuses established student success fees, followed by another five campuses by the end of fiscal year 2013–14. Their implementation of these fees, along with their increases to other mandatory fees, spurred rapid growth in fee revenue for the CSU system. By fiscal year 2014–15, total systemwide campus revenue from mandatory fees totaled $574 million, or almost twice as much as its $306 million in fee revenue during fiscal year 2007–08.

Although this new fee revenue did not fully compensate for the total decrease in state funding, the CSU and its campuses clearly established these fees to help address the shortfalls they faced. Each of the three campuses we reviewed that established a student success fee indicated that the decrease in state funding was a primary reason. For example, during presentations to students in 2012 about its student success fee proposal, Cal Poly stated that although it had already increased existing fees in response to state funding cuts, it needed additional revenue from the new fee to help cover costs. San Diego State indicated that it was developing a new financial model in response to severe reductions in state support when it proposed its student success fee in 2014. Finally, San José State stated in its student success fee materials that the campus was not receiving sufficient funding from the State to cover the costs of providing basic support services on campus.

After adjusting for inflation, the CSU currently receives more funding per student than it did before the budget crisis, but the campuses have not decreased their mandatory fees in response. In fiscal year 2017–18, the State provided General Fund support of $3.5 billion and the CSU collected $2.9 billion in tuition revenue. ⁴ The tuition revenue we report includes the total amount of tuition revenue the CSU collects from students and from third parties, such as the federal government and state governments, in the form of financial aid paid on students' behalf. As a result, in fiscal year 2017–18, the CSU received $15,140 per full-time equivalent student in General Fund support and tuition while in fiscal year 2007–08, the CSU received $14,130 per student in 2017 dollars. Despite this funding increase, campuses have continued to establish and increase mandatory fees other than student success fees, which, as we mention above, no campus has established or increased since the Legislature intervened in 2014. As a result, systemwide revenue from mandatory fees reached $696 million in fiscal year 2017–18. The text box provides the portions of that total revenue each of the four campuses collected. Because campuses are establishing and increasing mandatory fees irrespective of the amount of funding that the Legislature provides, we believe that fee increases will likely continue. As Figure 2 shows, if the mandatory fee revenue trend continues at the rate it has since fiscal year 2007–08, this revenue will total nearly $1 billion annually by fiscal year 2024–25.

Fee increases at the four campuses we reviewed and across the CSU system have made enrolling increasingly expensive for students. For example, Cal Poly—the CSU's most expensive campus—increased its total mandatory fee amount by 72 percent from academic years 2011–12 through 2019–20, to $4,201. Over the same period, the total amount of mandatory fees on average across all 23 CSU campuses increased 56 percent, to $1,633. This continual increase in fees is in contrast to the fact that since fall 2011, the trustees have increased tuition by $270, or 5 percent, in academic year 2017–18—to the current level of $5,742. Because tuition has remained relatively flat and mandatory fees have continued to increase, mandatory fees make up an increasing proportion of students' total enrollment costs—defined as the cost of tuition plus campus-specific mandatory fees. From academic years 2011–2012 through 2019–20, the average proportion of mandatory fees systemwide increased from 16 percent of enrollment costs to 22 percent. At San José State, fees accounted for 20 percent of enrollment costs in academic year 2011–12; by academic year 2019–20, this proportion had increased to 27 percent.

In recent years, the CSU has frozen tuition as part of its budget negotiations with the Legislature, a process that has involved the increases in state funding we discuss above. However, mandatory fees do not receive the same oversight as tuition, which the Legislature and the CSU discuss as part of the annual state budget process. As a result, mandatory fee growth is steadily eroding the Legislature's efforts to control student costs through its current focus on tuition.

Figure 2
Despite the Recovery in Funding to the CSU, Mandatory Fee Revenue Will Reach Nearly $1 Billion in Fiscal Year 2024–25 if Recent Trends Continue

Because Several Financial Aid Programs' Awards Do Not Increase With Rising Mandatory Fees, These Fees May Present a Significant Financial Burden to Some Students

Not only have mandatory fees risen continually compared to tuition since academic year 2011–12, but mandatory fees also often have disproportionately greater financial effects on students than tuition costs. These effects occur because not all financial aid programs—which we define as grants and scholarships—account for rising mandatory fees. For example, the grant program that the CSU administers—the State University Grant—awards grants only up to the cost of tuition. ⁵ Beginning in fall 2019, the Chancellor's Office changed its grant policy to allow students to receive CSU grant funding that totals the cost of tuition plus up to 50 percent of the cost of mandatory fees. However, the policy change did not increase the overall amount of State University Grant funding it will provide; it will simply allow campuses to distribute funds differently. Further, the policy change applies to undergraduate students only. As a result, a student who receives financial aid from one of these programs but does not receive additional grants or scholarships may be able to pay for tuition, but would not have enough aid to pay for mandatory fees. The student will therefore need to take out student loans, pay out of pocket, or find other sources of funding to cover mandatory fee costs or not attend. Campuses sometimes set aside a portion of revenue generated from certain mandatory fees to fund financial aid at the campus level, including offering grants that pay for some students' fee costs. However, the campuses we reviewed varied in terms of the fees for which they offer financial aid and the amounts of aid that students can use toward tuition and fees.

Growth in mandatory fees corresponds with increases in students' actual costs—the amount of fees they must pay through loans or out of pocket. The majority of the students at the campuses we reviewed paid for mandatory fee costs without help from financial aid, using student loans or paying out-of-pocket instead. ⁶ San José State was not able to provide us with data regarding specifically how students paid mandatory fees so we could not perform an equivalent analysis for that campus. Critically, more students used financial aid to pay for tuition than to pay for mandatory fees. For example, 59 percent of all students at Chico State used assistance from financial aid to pay tuition costs in academic year 2018–19 but only 36 percent used financial aid to pay mandatory fees. Our findings were similar at Cal Poly and San Diego State. The campuses told us that some students who pay costs out of pocket or with loans subsequently receive financial aid in the form of refunds from the campus. For example, this may happen when students file their financial aid applications late. In these instances, students may receive enough money in refunds to offset the costs of the mandatory fees they pay. However, although the campuses could not tell us precisely how often this occurs, they confirmed it would not be frequent enough to affect our conclusion that more students use financial aid to pay for tuition than for mandatory fees.

The percentage of students at each of the campuses we reviewed who paid for mandatory fees without financial aid has remained relatively stable over the past five years; however, the average amount that these students paid has increased significantly. For example, San Diego State students who paid for mandatory fees out of pocket paid an average of $1,900 in academic year 2018–19, a 21 percent increase since academic year 2014–15. The amount of loans students used to pay for mandatory fees also increased over this time period. For example, as Figure 3 shows, the average amount Chico State students borrowed to pay for mandatory fees increased 24 percent to $1,400.

Figure 3
Over the Past Five Years, the Mandatory Fee Amounts Students Have Paid Out of Pocket or Using Loans Have Increased

The increasing and disproportionate financial burden that mandatory fees place on students compared to tuition is in conflict with the purposes that many of these fees serve. As we discuss in the next section, campuses frequently use fee revenue to pay for the same core CSU functions for which tuition pays, such as faculty salaries and classroom equipment. Therefore, under the current system, steadily increasing mandatory fees mean that students—particularly those who qualify for financial aid to pay for tuition costs—are paying more and more either out of pocket or through loans for the core components of a CSU education.

Although Campuses Use Some Mandatory Fee Revenue to Help Pay for Their Core Functions, the Legislature Has No Role in Setting Fee Amounts

Although the CSU has established mandatory fees to satisfy a variety of purposes, some of these purposes directly relate to its core functions of providing instruction and academic support to students. The campuses we reviewed used significant amounts of revenue from certain mandatory fees to pay for faculty and staff salaries and benefits, tutoring and counseling services, and software and equipment crucial to educating students. These fees have broad purposes and uses that are consistent with the CSU's purpose to educate and graduate students, most of which is funded by revenue from student tuition and the General Fund. What is not clear is why the CSU system should fund critical instructional functions through mandatory fees that—unlike tuition and state support—are decentralized across 23 campuses, cost students different amounts, are not subject to the same transparency, and do not receive the same oversight.

Campuses Charge Some Mandatory Fees to Support Core University Functions

Because mandatory fees are campus-specific and separate from tuition, we expected campuses to use fee revenue to pay for items distinct from instruction. As we explain in the Introduction, students must pay tuition and mandatory fees to enroll at a CSU campus; however, tuition is controlled centrally by the trustees and is the same amount for all students across the CSU system, whereas mandatory fees are decentralized and campus-specific. The Chancellor's Office specifically references this distinction between mandatory fees and tuition in its fee policy. Therefore, although state law generally places no limit on how campuses can use revenue from mandatory fees, we expected that campuses would use the mandatory fee revenue to pay for activities that are not directly related to the core functions of the CSU system: providing instruction and academic support to students to ensure that they graduate ready to succeed.

Of the seven mandatory fee types, four support programs or services that are clearly distinct from the CSU's core functions. For example, all four campuses charge fees to provide basic health care services to students and to support the costs of building and operating student union buildings and recreation centers. San José State uses its student union fee to operate its student union, which it promotes as a location for its students "to relax, host a meeting, buy textbooks and supplies, study, and grab a bite to eat." San Diego State charges a student union fee in part to help pay for an aquatics facility with amenities including two large outdoor pools, a 20-person spa, and an inflatable obstacle course. These fees provide students with services that are clearly distinct from instruction and academic support.

However, the campuses charge other mandatory fees to support programs and provide services that are consistent with—if not specifically identified as—their core functions of instructing and graduating students. Once it approves a mandatory fee, the Chancellor's Office issues an executive order that generally outlines the amount and purpose of the fee. ⁷ The Chancellor's Office established its first consolidated fee policy in 1996. According to the Chancellor's Office, some campuses' fees had been established before 1996 through statute or executive orders not specific to an individual campus. Therefore, some fees campuses established before 1996 do not have specific executive orders establishing their amounts and purposes. All four campuses charge mandatory fees with official purposes that reference providing instruction, supporting student development, or promoting graduation rates. For example, the executive order establishing Chico State's student learning fee defines its purpose as "to support student learning in the classroom, including funding hardware and software available to students and use of specific labs and facilities." Similarly, the executive order establishing Cal Poly's student success fee states that the fee will "facilitate student enrichment and development, campus diversity and multicultural competence, counseling and advising for students experiencing personal challenges, and academic retention and graduation initiatives."

Further, when campuses have proposed new mandatory fees or increased existing fees, they have emphasized that they needed the fees to continue to meet the basic needs of educating students. For instance, Cal Poly and San Diego State each used the need to graduate students in a timely manner to justify mandatory fees that pay for faculty salaries. When Cal Poly presented its student success fee to students in 2012, it indicated that the fee would provide a clearer and potentially quicker path to graduation through additional courses. Similarly, San Diego State indicated that it would use the student success fee it established in 2014 to increase its number of faculty members and course sections. In other instances, campuses cited core operational concerns as the basis for fees; when we asked about a proposed fee increase at Cal Poly and an approved increase at Chico State, academic administrators from each campus cited a need to increase mandatory fees to ensure that the campuses continued to meet accreditation standards for campus quality and effectiveness. We agree that meeting these standards is crucial for the CSU system to continue to operate as a public university in California and to achieve its mission, but we question the use of mandatory fee revenue to do so.

Campuses Frequently Use Revenue From Some Mandatory Fees to Pay for Instruction and Support Services to Students

The four campuses we reviewed spent significant amounts of revenue from some mandatory fees on costs linked to the core functions of instructing and graduating students. Each campus publishes reports about the activities it supports with some, though not all, of its mandatory fees. We reviewed these reports as well as financial records for mandatory fees from fiscal years 2014–15 through 2018–19 and a selection of expenditures at each campus. As Figure 4 summarizes, we determined that the campuses' use of revenue from some mandatory fees fulfills the same core functions as the CSU system's other primary revenue sources: tuition and General Fund support.

Three of the campuses—Cal Poly, San Diego State, and San José State—used significant amounts of mandatory fee revenue to pay specifically for academic salaries and benefits. For example, Cal Poly's records indicate that in fiscal year 2018–19, it spent nearly $31 million in mandatory fee revenue on academic salaries and benefits. San Diego State spent $14 million of its student success fee revenue on academic salaries and benefits in fiscal year 2018–19—more than 90 percent of its student success fee expenditures for that year. San José State's records show that although it spent only about $220,000 of its student success fee revenue on academic salaries, it spent another $6.8 million on salaries and benefits for academic support staff, including academic advisors and supervisors. Chico State pays for student assistants with its student learning fee—which is part of its campus materials, services, and facilities fee—but does not use the fee to pay academic or support staff salaries.

Figure 4
Campuses Use Some Mandatory Fees to Support the CSU's Core Functions

Source: CSU budget and audited financial statements, campus mandatory fee award notices, and campus expenditure reports.

In addition to faculty costs, the campuses spent mandatory fee revenue to provide students with academic support services related to student retention and academic success, such as counseling, tutoring, and mentorship programs. For example, in May 2017, Cal Poly dedicated an ongoing $258,000 per year for staff in its Veterans Success Center, its Dream Center for undocumented students, and its Disability Resource Center—all centers that the campus also supports with General Fund and tuition revenue. In the same year, Cal Poly also allocated $732,000 in student success fee revenue to hire eight personnel to provide career services to students. For fiscal years 2017–18 through 2018–19, San José State dedicated about $700,000 of its student success fee revenue to create a math-focused, peer-driven tutoring center; $680,000 to implement a peer mentorship program for students transitioning to upper division courses; and $322,000 to provide late-night tutoring in math, physics, and chemistry. Although these services do not directly relate to providing instruction to students, they provide students with the support and assistance they need to succeed, which again are core functions of the CSU.

In addition, campuses have commonly used mandatory fee revenue to pay for instructional supplies and equipment that were crucial to educating students and therefore supported the CSU's core functions. For example, Chico State dedicated student learning fee revenue to purchase equipment such as microscopes, desktop computers, and art drafting tables that were linked to student instruction. In one case, a faculty member at Chico State who received $6,700 for biology supplies acknowledged that those supplies were essential to learning the human body and that their cost should be a regular part of the department's annual budget; however, the faculty member explained that the department was currently reliant on mandatory fee revenue to meet its needs. Similarly, Cal Poly used its student success fee and campus academic fee for lab and IT equipment purchases, respectively, while San José State spent more than $150,000 of its course support fee revenue on lab equipment for three chemistry courses and used hundreds of thousands of dollars of its student success fee revenue to purchase software licenses. Notably, the campus also used revenue from tuition and the General Fund to pay for a portion of the lab equipment for the chemistry courses. Although we did not identify instances of San Diego State using mandatory fee revenue to purchase similar materials specifically for instruction or lab use, it purchased computer equipment, electronic journals, and books with its library use fee. In the documentation related to these types of expenditures, the campuses stated that they were necessary because the campuses were behind other universities technologically or because faculty needed additional resources to teach and conduct research.

Finally, campuses also used mandatory fee revenue to pay for remodeling academic spaces. For example, Cal Poly dedicated $200,000 of its student success fee revenue to pay for remodeling its Disability Resource Center Testing Space, which provides testing accommodations for students with disabilities. In 2019 Chico State dedicated $45,000 in student learning fee revenue to update its environmental engineering laboratory. San Diego State used mandatory fee revenue to remodel its campus library. These operating expenditures are distinct from those related to the actual faculty, staff, and materials needed to teach and counsel students; however, they nonetheless fundamentally support instruction and the CSU's other regular operations.

All Funding That the CSU Uses for Core Instructional Purposes Should Receive the Same Oversight

Although campuses use significant amounts of mandatory fee revenue to support the CSU's core functions, the mandatory fees that students pay to generate that revenue do not receive the same oversight as the CSU's other major revenue sources. State law does not specifically define the purposes that the CSU must support with the tuition students pay or the General Fund appropriations the Legislature provides each year, but the CSU relies primarily on these sources of revenue to pay for its core functions. To the extent that campuses use mandatory fees to pay for these same functions, the revenue they generate plays an equivalent role in the statewide process for funding the CSU system; thus, this revenue should be subject to the same discussion between the Legislature and the trustees about the amount of funding the CSU needs for its operations.

As a part of the annual state budget process, the Legislature evaluates the amount of funding the CSU is requesting from the State to support its operations. This process provides the Legislature the opportunity to adjust the amount of funding it appropriates from the General Fund in order to influence whether the trustees increase tuition. In any given year, the Legislature can decide whether to increase funding to the CSU, the CSU can increase tuition, or both. This process creates transparency for the Legislature—and for Californians—regarding how the trustees determine tuition. For example, in the fiscal year 2012–13 state budget, the Legislature stated that it would increase its General Fund appropriation to the CSU by $125 million in the following year if the CSU did not increase tuition; accordingly, the CSU did not increase tuition.

In contrast, mandatory fees have not been subject to the same transparency and have not received the same oversight as tuition, limiting the Legislature's influence over student costs. We identified multiple instances in which the Legislature specifically considered tuition when determining how much General Fund support to provide the CSU; however, mandatory fees have not been part of that discussion even though some fee revenue supports the CSU's core functions, as we describe above. In a 2014 report from its student success fee working group, the Chancellor's Office acknowledged that campus use of fees for purposes historically covered by tuition and state funding might be cause for concern because of the link between state funding and tuition costs as well as because the trustees set tuition while others—meaning the Chancellor's Office and campus presidents—set mandatory fee amounts. In practice, as we discuss above, campuses have continued to increase mandatory fees even during years when the CSU froze tuition as part of the state budget process.

The Legislature requires the CSU to provide information outside the regular budget process about some mandatory fee revenue, but that information does not sufficiently inform the Legislature about campuses' use of fee revenue for core functions. When the Legislature amended state law regarding student success fees, which became effective in 2016, it required the chancellor to report annually a summary of fees adopted or rescinded in the previous academic year and the uses of student success fees. Although the report provides the amount of student success fee revenue campuses spent in broad categories such as student support activities, student development, and student engagement, it does not define what types of expenditures fall into these categories. The text box includes the reported uses of $132 million in student success fee revenue in academic year 2018–19. The Chancellor's Office does not report to the Legislature about the campuses' uses of other mandatory fees.

For these reasons, transparency as to how much students are actually paying to support the CSU's core functions is lost when the CSU uses mandatory fees for these same functions. Further, because mandatory fee amounts vary widely among campuses, CSU students pay different amounts for instruction and academic support depending on which campus they attend. The Legislature and the public have an interest in ensuring that the CSU provides a core level of services, and the Legislature should directly help determine the cost of those services to students. At a minimum, discussions between the CSU and the Legislature about the amount of the CSU's state appropriation should include all of the revenue that the CSU uses to provide instruction to students.

Determining the Precise Amount of Mandatory Fee Revenue That the CSU Uses to Support Its Core Functions Is Challenging

Quantifying the mandatory fee revenue that supports the CSU's core functions is challenging, in part because it is often not possible to use a fee's name or type to know whether a fee supports core CSU functions because of campuses' broad and overlapping use of fee revenue across the mandatory fee types. For example, the individual campuses have used different fees to pay for the same purposes. Chico State used revenue from both its student learning fee and its consolidated course fee—which the Chancellor's Office categorizes as material, services, and facilities fees—to pay for the same types of software costs in different years. San Diego State has established identical expenditure guidelines for portions of its student success fee and its instructionally related activities fee, and therefore the campus might fund a given need using revenue from either fee. Cal Poly has used the majority of revenue from its student success and campus academic fees to fund academic salaries and benefits, and it plans to use a portion of its recently implemented opportunity fee to fund still more salaries.

Some campuses also transferred revenue or split costs between different mandatory fee accounts, as well as between these accounts and the general campus operating accounts. For example, Chico State annually uses a portion of student learning fee revenue to supplement its consolidated course fee. San José State informed us that it has historically transferred expenditures from its instructionally related activities to the campus's operating accounts to prevent a deficit. Although we did not identify any transfers that were specifically prohibited by state law or by the fee policy, these transfers dispel any idea that the mandatory fees are providing for specific, discrete needs or that their categorization provides meaningful information about their actual purposes.

Finally, although some fee uses clearly fall within core CSU functions, determining whether others are central to instructing and graduating students is more difficult. Specifically, some of the campuses' uses of fee revenue do not explicitly connect to instruction but nonetheless provide educational benefits to students. For instance, the campuses we reviewed used or dedicated mandatory fee revenue to pay for or help support field trips, conferences, competitions, or career fairs. San Diego State dedicated student success fee revenue to pay for tools for students to design and build an experimental remote control aircraft for an international competition. San José State used course support fee revenue to provide catering for a writing conference hosted by its College of Humanities and Arts.

Although these events and activities may not all be necessary for the CSU to educate and graduate students, they provide students opportunities to expand their knowledge outside of the classroom and help them prepare for the workplace. As a result, determining whether they are central to achieving the CSU's educational mission or whether they merely enhance students' experiences is challenging. This distinction is critical to determining which fee-supported activities should be evaluated and funded through the systemwide state budget process and which activities may be reasonable for campuses to continue to support through mandatory fees that vary by campus. We believe there is a need for the Chancellor's Office to compile and report to the Legislature systemwide information on the amounts of mandatory fee revenue campuses spend on specific expenditures—such as faculty, instructional materials, and lab equipment—as well as the amounts of these expenditures that are central to instructing and graduating well-prepared students. With this information about the true costs of these core functions, the Legislature will be better able to fulfill its role in overseeing those costs.

The CSU's Approach to Establishing, Increasing, and Overseeing Mandatory Fees Does Not Ensure Adequate Accountability to Students

As we previously discuss, campuses have raised their mandatory fees an average of 56 percent over the last nine years and have used the resulting revenue from some mandatory fees to help pay for their core functions. Their ability to raise mandatory fees is, in part, the result of vague requirements in the Chancellor's Office fee policy that allow them to impose or increase mandatory fees without justifying specific fee amounts. Because these requirements are vague, campuses do not have to sufficiently quantify their needs when determining and setting their fee amounts, nor do they have to demonstrate that they have no other way to pay for those needs. The fee policy also does not include specific requirements to ensure that campuses adequately consult students about proposed new mandatory fees or fee increases. State law already requires binding student votes before campuses implement or increase student success fees and, in general, student association fees; extending this requirement to all mandatory fees and fee adjustments will address many of the issues we have identified and increase campuses' accountability for the fees they propose.

Campuses Have Not Sufficiently Quantified Their Needs When Determining Mandatory Fee Amounts

Although mandatory fees constitute an increasing proportion of CSU enrollment costs to students, campuses have not always sufficiently justified the proposed dollar amount of mandatory fees that they have established or increased, and the Chancellor's Office has not ensured that such fee amounts are justified. For five of the 13 fee proposals we reviewed—Cal Poly's 2018 increase to its health services fee, San José State's 2018 reallocation of its health services and facilities fees, San José State's 2013 increase to its associated students fee, and Cal Poly and San Diego State's increases to their student union fees—the campuses demonstrated that they arrived at proposed fee amounts by calculating the amounts of fee revenue they needed to meet specific, measurable needs. Notably, these fee proposals were for fees with clear and defined purposes, such as building and operating facilities. However, to varying degrees, the campuses justified the dollar amounts for the remaining eight fees and fee increases we reviewed with flawed rationales, insufficient analyses, or both.

This latter group of fees generally had broadly defined purposes that overlapped with the campuses' core functions. For example, in 2018 Chico State approved an increase to its student learning fee, which it uses largely to pay for instructional materials such as classroom equipment that campus faculty, staff, or students ask for through funding requests. When we asked about the increase, which totaled $80 per year, Chico State's provost indicated that the campus calculated the amount of the increase based on the revenue it would have needed to fund all requests from the previous year. However, the campus had not established that all those requests had merit. Further, the campus did not analyze or document the specific campus needs it would have addressed if it had funded the requests or how the new fee amount would meet its ongoing needs at the lowest cost to students.

Cal Poly used a similarly flawed justification for an increase of $336 per year to the campus academic fee for the campus's College of Liberal Arts in 2014—an increase that the president did not approve following a student vote against it. Students at each of the six individual colleges at Cal Poly—such as the College of Engineering and the College of Science and Mathematics—pay the campus academic fee, and the individual colleges allocate this revenue largely to help pay for their faculty. Cal Poly's College of Liberal Arts students currently pay a campus academic fee of $852, which is $378 lower than the fee at Cal Poly's other colleges. When we asked the associate dean of the College of Liberal Arts the rationale for the proposed 2014 fee increase, her only explanation was that the college wanted to increase its fee to the same amount students in the other colleges paid. Our review confirmed that the college did not perform a formal analysis to define and quantify the need for the proposed increase, much less to demonstrate that the increase would meet the college's needs at the lowest cost to students.

When implementing their student success fees, neither Cal Poly nor San José State calculated the fee amounts—which, by academic year 2019–20, totaled $878 and $669, respectively—based on specific projected expenditures. For example, the letter from Cal Poly's president to the chancellor requesting approval of the student success fee offered no reason or justification for the specific fee amount. To justify San José State's proposed fee amount, its president's request for approval merely noted to the chancellor that it was "within the range" of recent fees established by other CSU campuses. Based on our review of all informational materials for both fee proposals, neither campus explained how it determined the costs of the programs and services the fee would support or how the fee amounts would, by extension, allow it to meet its stated needs. Nonetheless, the chancellor approved both fees. Notably, San José State ultimately implemented only a portion of the planned fee; however, when we asked the campus how it determined that a lower fee amount would be sufficient to meet its needs, staff could provide no explanation.

Weaknesses in the Chancellor's Office fee policy may be responsible for at least some of the campuses' insufficient analyses. We expected the fee policy to require campuses to provide analyses or calculations demonstrating that a proposed fee amount meets a campus's need at the lowest cost to students. However, the fee policy does not include any such requirement. Further, although the fee policy directs campuses to develop two years of projected revenue and expenditures when establishing or increasing fees, the policy does not require a meaningful level of detail from these projections. For example, in its revenue and expenditure information for its student success fee, San José State offered only broad and vaguely worded categories of expenditures, such as "supporting and delivering critical and quality academic systems" or "enhancing learning management." The policy also does not require campuses to demonstrate that they do not have any alternative ways to obtain funds to address their specified needs. None of the campuses we reviewed demonstrated that they could not support these needs through alternative funding options, although some campuses stated that no other options existed. Therefore, although the inadequate justifications we describe throughout this section create serious concerns about whether mandatory fees are as low as possible, the fee policy's permissiveness means that none of the campuses actually violated the policy in these instances.

Further, because the Chancellor's Office does not review fee increases, it is unlikely to identify when campuses that increase fees do not comply with the fee policy by completing even the minimal analyses the policy does require of them. In fact, we found that Cal Poly and Chico State each violated the fee policy by failing to make the required expenditure projections for proposed fee increases, stating instead that student committees would allocate fee revenue after the fact. That the Chancellor's Office's did not intervene in either of these two cases highlights the need for oversight over all fee proposals.

Because the fee policy opens with a statement that the CSU makes every effort to keep student costs to a minimum and that the trustees have delegated authority for establishing and overseeing mandatory fees to the chancellor, we believe that a key element of the fee policy should be to limit mandatory fees to the lowest amounts possible. When we raised some of these concerns with the Chancellor's Office, it responded that the CSU makes every effort to keep student costs to a minimum, but fees, including mandatory fees, increase when public funding is inadequate to meet campus needs. However, as the above examples show, the fee policy does not require campuses to demonstrate that proposed fee amounts meet campus need at the lowest cost to students nor that other funding is inadequate.

The CSU Has Not Ensured That Campuses Adequately Consult With Students When Establishing or Increasing Mandatory Fees

As a result of flaws in the fee policy and gaps in the Chancellor's Office's review of campus fee proposals, campuses have not always adequately consulted with students regarding the mandatory fees the students pay. Although the fee policy states that it is critical that consultation with students be "appropriate and meaningful" and outlines requirements for such consultation, these requirements are so vague that they do little to ensure that campuses obtain adequate and meaningful student feedback. Specifically, as we describe in the Introduction, the fee policy requires campus presidents to decide whether to hold a student vote or to pursue the alternative consultation process. ⁸ State law requires students to approve by vote the establishment of or increase to student success fees and, in general, student association fees. Students must also approve the establishment of student union fees. However, the fee policy does not sufficiently outline key aspects of that alternative consultation process to ensure that it is fair and inclusive.

When we asked the Chancellor's Office for clarification regarding certain terms and processes in the fee policy, its response was that each campus may interpret the requirements in the policy as it sees fit. However, by neglecting to define terms and processes in the policy, the Chancellor's Office does not ensure that campuses meaningfully consult with students to obtain their feedback on new or proposed mandatory fees. For example, the fee policy does not contain timeline requirements, such as how long the consultation process must last or when a campus must present consultation materials to students. The policy also does not specify how many students the campus must consult or require the campus to actually collect student feedback. Further, the policy does not restrict interested parties—such as an administrator in a college or division that will benefit from a proposed fee—from playing a central role in the design and oversight of the consultation process.

In practice, the fee policy has resulted in some campus consultation processes that met the letter of the requirements but still did not ensure that consultations were either appropriate or meaningful. For example, in 2018 Cal Poly increased its health services fee after using the alternative consultation process to consult with students. Although this process generally complied with fee policy requirements, the associated students' board of directors sent a memorandum to the campus president formally stating that it supported the fee increase but opposed the way the process was carried out. Specifically, the board of directors believed the alternative consultation process, which took place over 38 days, left inadequate time for students to provide thoughtful and careful feedback. The board of directors also believed the campus did not sufficiently engage with students before beginning the alternative consultation process.

The fee policy also does not ensure that a campus administration's interest in establishing a fee is balanced against the CFAC's role as an advisory body tasked with providing objective analysis of fee proposals. For example, in 2014 San Diego State's Division of Academic Affairs proposed a student success fee. The associate vice president of this division at the time was a voting member of the campus's CFAC and both presented the fee proposal to the CFAC and recommended using the alternative consultation process instead of a student vote. The CFAC then voted on whether to recommend the alternative consultation process to the campus president; the associate vice president voted for the alternative consultation process, which passed with six votes in favor and five against. Once the campus president approved this approach, the associate vice president helped develop the informational materials for the proposed fee, including the fee pamphlet.

Because the fee policy does not address these types of situations, the process can be undermined by concerns about objectivity. In fact, San Diego State's student newspaper reported that two members of San Diego State's associated students organization later expressed doubts about the alternative consultation process, stating that some students felt the information the campus presented to students was not objective and that the campus would move forward with the fee regardless of student input. Therefore, although San Diego State did not violate the fee policy, the policy's lack of guidance threatens at least the appearance of objectivity in the alternative consultation process.

Although the fee policy "presumes" that campuses will conduct student votes, the campuses used the alternative consultation process in five of the 13 fee proposals we reviewed. When we asked about this inconsistency, the Chancellor's Office's assistant vice chancellor for budget stated that the CSU has no official preference between student vote and alternative consultation. In addition, the campuses that used alternative consultations were unable to offer convincing reasons for not using student votes. Specifically, all four campuses justified using alternative consultation for certain fee proposals by citing the need to help students better understand the proposals. For example, in 2012 San José State's president explained that he opted for alternative consultation because it provided the campus an opportunity to educate students on the full scope and intent of the student success fee while engaging in active dialogue with them. However, the campus could have achieved these goals by engaging in a dialogue before holding a student vote.

In fact, nothing precludes campuses from providing comprehensive information about proposed fees and soliciting feedback while also allowing students to formally vote on fee proposals. For example, when proposing increases to three mandatory fees in 2018, Chico State's president initially selected alternative consultation because she stated that it provided a better way to develop understanding and obtain in-depth feedback from students. However, she ultimately decided to hold advisory student votes in addition to the alternative consultation process.

The campuses provided other justifications for using alternative consultation that also implied problematic limits on student input. For example, when Cal Poly increased its health services fee in 2018, the campus stated that it would be inappropriate to have the entire campus vote for increasing a mandatory fee for a service that only some students used. In another example, when we asked San Diego State's interim associate vice president of financial operations why the campus used alternative consultation when it established its student success fee in 2014, she stated that requiring students to attend presentations as part of the alternative consultation process for more complex fees, such as the student success fee, ensured that students had complete information about how the fee would be used before providing input on the proposed fee. She also stated that if the campus had held a campuswide student vote, students might not have been as educated on the fee proposal before voting. However, because all students must pay mandatory fees, we disagree with both campuses' justifications, which are based on the idea that only a subset of students should be allowed to provide substantive input.

In addition to the questionable alternative consultation processes at some campuses, we identified several instances in which campuses' processes for both student votes and alternative consultation directly violated the fee policy. However, the Chancellor's Office did not intervene to enforce policy requirements in any of these cases, some of which involved new fees that the chancellor approved. For instance, although the fee policy requires a campus's CFAC to consider each fee proposal and make a recommendation to the campus president, Cal Poly's CFAC failed to make a recommendation on any of the five fee proposals we reviewed. Campus administrators acknowledged that it has not been the campus's practice to have the CFAC make these recommendations, a direct violation of the policy.

Three of these five processes involved student votes, the results of which Cal Poly's president honored. The fact that all students were able to vote on these three fees mitigates the missing input from the CFAC. However, in the remaining two cases, the campus president moved forward with the proposed fees after conducting alternative consultation processes. One of these cases involved the 2018 health services fee increase process that raised objections from the associated students organization, as we discuss above. Given that the primary responsibility of a campus CFAC, which includes students as a voting majority, is to consult with the campus president and provide advice regarding fee proposals, Cal Poly's failure to collect and consider its CFAC's recommendations for these fees concerns us.

Similarly, when San José State established its student success fee in 2012, the campus president did not inform its CFAC before initiating an alternative consultation process or work with the CFAC to design the consultation process, both of which are clear violations of the fee policy. In a memorandum to the campus president, the CFAC formally expressed its perspective that the campus's alternative consultation process had not adhered to the fee policy requirements. Although the Chancellor's Office had the opportunity to review the CFAC's concerns and therefore should have known that San José State violated the fee policy, the chancellor authorized the fee. When we asked the Chancellor's Office why it approved the fee despite these issues, the associate vice chancellor for business and finance stated that because a previous chancellor approved the fee, current staff were unable to offer perspective on that decision.

Finally, in 2018 San José State adjusted two mandatory fees without consulting any students outside of those on its CFAC. We discussed with the campus its noncompliance with alternative consultation requirements for the fee adjustment, which involved increasing its health services operations fee and decreasing its health services facilities fee by identical amounts. The campus's senior associate vice president of finance stated that because the fee adjustments offset each other and thus did not constitute a fee increase to students, consulting with the CFAC served the purposes of alternative consultation. However, the fee policy makes no such allowance. Because the Chancellor's Office does not review increases to existing mandatory fees, it does not have the opportunity to identify and correct these kinds of violations of the fee policy. Therefore, expanding the Chancellor's Office's review to all fee proposals and increasing the rigor of this review would help ensure that campuses are complying with fee policy requirements.

Strengthening Existing Law to Require Binding Votes for All Mandatory Fees Would Help Ensure Student Consultation

Although the Legislature acted to increase accountability for student success fees, more must be done to ensure that campuses honor the opinions of the students who ultimately pay mandatory fees. As we discuss in the Introduction, in 2016 the Legislature established requirements that included a binding student vote before a campus implements a new student success fee or increases an existing student success fee. This requirement highlights the Legislature's concern with student oversight for the fees they pay. However, despite the broad overlapping uses of fee revenue that we discuss in this report, there is no such student vote requirement applicable to most of the other mandatory fees. Instead, for these fees, campus presidents have the authority to move ahead with fee proposals even if a majority of students vote against them. Students voted against the proposed fees in five of the eight votes we reviewed, but all five of these votes were only advisory; in fact, only one of the eight student votes we reviewed was binding. Expanding current law to require student votes for all mandatory fees and make them binding would address the concerns with the alternative consultation process we describe above and would ensure that students have the ability to vote on all new and increased fees.

Our review of Chico State's 2018 increases of three separate fees demonstrates one of the problems that occurs when student votes are advisory. When proposing these fee increases, Chico State first proceeded with the alternative consultation process. However, after students expressed concerns at two open forums about whether their voices would be heard in this process, the president decided to hold an advisory student vote. During the process, Chico State presented in its advisory materials and at open forums the fact that critical health services, opportunities for enhanced learning experiences, and the entire campus athletics department would be negatively affected if the campus did not increase mandatory fees. However, even in light of these possible consequences, more than 60 percent of voting students voted against each of the fee increases. Nonetheless, the campus president decided to increase all three fees and stated in a letter to the students that no other viable option existed to fund these programs and services. However, as we explain above, the campus did not provide any analyses to support this claim. Notwithstanding our concerns about how Chico State calculated and demonstrated its needs, the campus president's decision to overrule the voting results ignored students' willingness to leave certain services unfunded in favor of not increasing mandatory fees.

The broad and overlapping nature of some mandatory fees is another reason to expand existing voting requirements. Because campuses use revenue from different fees for similar purposes, they can circumvent the binding vote requirement that the Legislature enacted for student success fees. No CSU campus has implemented or increased a student success fee since this requirement went into effect in 2016, but campuses have continued to impose new fee amounts for similar purposes although for fees with other names. For example, Chico State's student learning fee pays for services that are similar to those that the student success fees pay for at other campuses; therefore, it should be categorized as such. However, because the Chancellor's Office does not define Chico State's student learning fee as a student success fee, the campus was able to treat the student vote as both optional and advisory—circumventing the limits the Legislature put in place to ensure accountability to students. In another example, in 2019 San Diego State's president approved an $80 per year increase to its instructionally related activities fee to help fund its academic success initiatives in several centers on campus, such as its Black Resource Center and its Center for Intercultural Relations. Although this purpose clearly connects to students' success and other campuses fund similar activities with student success fee revenue, San Diego State chose to obtain this funding by increasing a fee that does not require a student vote. Expanding the existing voting requirements to all mandatory fees would ensure student consultation and would close existing loopholes through which campuses can impose or increase other mandatory fees at their discretion.

Without Major Changes to the CSU's Current Fee Structure, the Campuses Are Unlikely to Decrease Their Mandatory Fees

The campuses' uses of mandatory fee revenue, in combination with their high level of autonomy in requesting and increasing fees and lack of incentive to decrease fees, indicates that mandatory fees will continue to increase unless the Legislature makes significant changes to the current system. The campuses have continued to increase their mandatory fees—including those that pay for the core functions of instructing and graduating CSU students—even though the CSU has received growing General Fund support. As we discuss below, the campuses generally tend either to commit their mandatory fee revenue to ongoing costs or to rely on it for funding multiple one‑time projects. Neither of these approaches involves solving a defined problem and thereby eliminating the need for the fee. Further, because the Chancellor's Office does not take a campus's fee revenue into account when allocating tuition and General Fund revenue, the campuses have no incentive to reduce fees.

A key reason that the four campuses we reviewed have not reduced or eliminated mandatory fees is that they budget and spend the resulting revenue on ongoing annual costs. For example, San José State periodically issues notices to campus management requesting proposals for funding from its student success and instructionally related activities fees. After reviewing the proposals and recommendations from the campus CFAC, the president awards ongoing funding. Cal Poly has a similar process through which it dedicates mandatory fee revenue as permanent funding for positions or programs. For example, in fiscal year 2017–18, Cal Poly dedicated ongoing student success fee funding of $625,000 for five tenure‑track faculty positions and funding of $170,000 for coordinator positions for its Veterans Success Center and its Dream Center for undocumented students. Similarly, San Diego State commits 90 percent of its total student success fee revenue to paying for faculty. None of these commitments involve time horizons or other metrics that might result in the fees no longer being necessary.

In addition, all four campuses we reviewed rely on fee revenue to award one-time funding to projects or programs and to meet other needs as they arise. For example, each year, Chico State invites faculty, staff, or students to submit proposals for one-time funding from its student learning fee—one of the campus's materials, services, and facilities fees—and a portion of its instructionally related activities fees. Campus committees review these proposals and recommend those they select to the president for funding. San Diego State awards funding for student proposals through a similar process. For example, it awarded $79,000 in student success fee revenue in fall 2019 to support student participation in a robotic submarine competition. Cal Poly has historically provided instructionally related activities fee revenue to support operations of its equestrian team and debate team, and in 2019 the campus awarded $150,000 in student success fee funding for new marching band uniforms. By setting aside portions of mandatory fee funding to pay for short-term projects, campuses create a flexible pool of money from which faculty, staff, and students can perpetually request funding. In fact, Chico State used the amount of funding requests it had received for one-time funding as justification for increasing its student learning fee in 2018.

Compounding the effects of campuses' reliance on mandatory fees for both ongoing and one-time needs is the fact that the Chancellor's Office does not consider this revenue when allocating tuition and General Fund money to the campuses. Consequently, campuses do not have to decide between fees and state support. Indeed, when we asked San Diego State whether the campus would reduce its student success fee as a result of increased state support, the interim associate vice president stated that state appropriations provide uncertainty in the availability of funding, so it is unlikely that the campus would remove a stable funding source. Cal Poly, Chico State, and San José State indicated that decreasing mandatory fees could negatively affect students because the fees support purposes that are important to student success on their campuses.

Generally, students have no means of compelling campuses to reduce or eliminate existing fees. Fees do not expire, and although students have endorsed or approved some existing mandatory fees by vote, those fees generally do not include any method for students to remove them in the same way. The student success fees are an exception; as we discuss previously, state law allows students to rescind a student success fee that was in place on January 1, 2016, if—among other things—the fee has been in place for at least six years. Even then, however, nothing will prevent the CSU and its campuses from creating new fees or increasing existing mandatory fees to cover the costs the campuses previously supported using student success fees: neither state law nor the Chancellor's Office clearly defines student success fees or how they differ from other mandatory fees that fund campus instruction and support activities.

Intervention from the Legislature is necessary to halt or reverse the trend of increasing mandatory fees. As we discuss previously, mandatory fees constitute a growing portion of total student enrollment costs and thus progressively undermine the Legislature's ability to help control student costs. Even if the Legislature provides additional funding specifically aimed at reducing or eliminating fees, the current system offers no guarantee that the campuses will in turn relieve the financial burden of mandatory fees for students. We asked the Chancellor's Office whether it would require campuses to decrease or eliminate mandatory fees in response to receiving additional state funding specifically for costs they currently support with fee revenue, but it responded that it would not speculate about what it would do in this situation. Therefore, given the concerns we have with the growing fees that campuses use to support core functions and no indication that the CSU will reduce fees on its own, if the Legislature wishes to ensure future stability related to the amounts students must pay to attend the CSU, it must bar campuses from using fee revenue to pay for core CSU functions.

Abolishing mandatory fees that pay for core CSU functions would likely have a detrimental impact if the Legislature does not simultaneously consider alternative ways to fund those functions. In fiscal year 2017–18, the 23 CSU campuses collected $696 million in mandatory fee revenue. Although this amount is relatively small compared to tuition and General Fund revenue—which together totaled $6.4 billion in fiscal year 2017–18—simply eliminating this revenue without identifying new funding would likely negatively affect students who currently receive instruction and other academic support that fee revenue funds. As we discuss earlier in this report, the precise amount of mandatory fee revenue that campuses use to support their core functions is unclear. However, it is possible to establish some parameters around the amount of new funding that campuses would need if they could no longer charge mandatory fees to serve those functions. For example, allowing campuses to continue to charge fees that do not support the core functions of the CSU—student union fees, student association fees, health services fees, and health facilities fees—reduces the potential shortfall to $270 million annually. Further, of the mandatory fee types that do support core CSU functions, campuses can use portions of their instructionally related activities fee revenue to support intercollegiate athletic programs. Allowing campuses to continue to use fee revenue for athletics would further reduce the shortfall. Although the systemwide amount of instructionally related activities fee revenue that supports campus athletics is not in the available systemwide data, our review of the four campuses' financial data indicates that amount is significant; San José State alone used $8 million of its instructionally related activities fee revenue for this purpose in fiscal year 2017–18.

These parameters do not eliminate the need for the CSU to collect more comprehensive information about its uses of fee revenue. However, they do demonstrate an upper limit on what it would take to eliminate the fees that support core CSU functions and instead fund those functions in a way that promotes consistency and oversight—through increased tuition, increased General Fund support, or both. If recent trends continue, systemwide mandatory fee revenue is on track to reach nearly $1 billion by fiscal year 2024–25, making such a change increasingly costly. Acting now presents an opportunity to ensure that mandatory fee costs that support core functions do not continue to rise, to potentially increase student access to financial aid to pay for core CSU functions, and to help control future costs by ensuring that all funding that the CSU uses for its core functions receives legislative oversight during the annual state budget process.

Recommendations

Legislature

To ensure that all funding that students and the Legislature provide to the CSU system to pay for its core functions receives the same oversight, the Legislature should do the following:

• Direct the Chancellor's Office to review mandatory fee expenditures across all 23 campuses and, by December 2020, report to the Legislature how much campuses spent of those fees on faculty and academic support staff, classroom and laboratory improvements, educational equipment and software, student trips and events, instruction-related facility improvements, and athletics in fiscal year 2018–19. The Chancellor's Office should also report the proportions and dollar amounts of these fee expenditures that directly support the CSU's core functions—namely, instructing and graduating students who are prepared to succeed.
• Using this information, determine and implement the most effective centralized way to fund the core functions for which mandatory fees currently pay.
• Upon implementing the new funding approach, prohibit CSU campuses from charging and using revenue from mandatory fees—including student success fees; instructionally related activities fees; and materials, services, and facilitates fees—to pay for any of the identified core functions. This prohibition should also apply to any mandatory fees campuses create in the future.

To ensure that CSU students have a strong voice regarding the mandatory fees they must pay, the Legislature should amend state law to require campuses to hold binding student votes when seeking to establish or increase any mandatory fee. The Legislature should require the Chancellor's Office to verify the results of all student votes before the chancellor approves fee changes.

Chancellor's Office

To ensure that CSU campuses adequately identify the need for their proposed mandatory fee amounts, the Chancellor's Office should do the following:

• Revise its fee policy to require campuses to justify amounts for new or increasing fees by providing supporting documentation demonstrating the need for the fees, how they calculated the fee amounts, and how they determined that no other source of funding could pay for the needed services.
• Extend its review responsibilities to include increases to existing mandatory fees.
• Increase the rigor of its fee proposal review and approval process to better ensure that it detects campuses' violations of the fee policy.

We conducted this performance audit under the authority vested in the California State Auditor by Government Code 8543 et seq. and in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Respectfully submitted,

ELAINE M. HOWLE, CPA
California State Auditor

May 14, 2020

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