Report 2018-127 Recommendation 2 Responses

Report 2018-127: California State University: It Failed to Fully Disclose Its $1.5 Billion Surplus, and It Has Not Adequately Invested in Alternatives to Costly Parking Facilities (Release Date: June 2019)

Recommendation #2 To: University, California State

To improve CSU's financial transparency with students and other stakeholders, the Chancellor's Office, with the approval of the trustees, should revise CSU policy by October 2019 to require that it publish information about CSU's discretionary surplus. At a minimum, the Chancellor's Office should do the following:

- Identify the full amount of discretionary surplus that CSU has accumulated to date in its outside investment account that is attributable to its operating fund or other funds that hold tuition revenue, an estimate of the portion of the surplus amounts that came from tuition, and the dollar amount to date that CSU is obligated to spend to pay for goods and services it has already received or expenses that are tied to existing contracts.

- Report this information to the trustees when it presents them with a summary of CSU's reserves, at least annually.

- Ensure that this information is easily accessible on CSU's website and publicly available to all stakeholders, along with the information CSU provides about tuition rates and policies.

6-Month Agency Response

At the September 24-25, 2019 Board of Trustees meeting, the trustees were presented with information on the operating fund designated balances and reserves, which included a breakdown of total amounts related to short term obligations, capital, and operating activities. The information was presented again at the November 19-20, 2019 meeting, and estimated the portion of reserves that came from tuition by stating that the designated balances and reserves were accumulated primarily from tuition. Because state statutes require that we spend the general fund appropriation throughout the year, any designated balances or reserves available on June 30 of each year are derived primarily from tuition and fee revenue. The information presented also noted that the reserve policy was revised. The revised policy requires that the designated balances and reserve information be shared with the trustees at least annually and included on the CSU's transparency portal so it is publicly available to stakeholders. Further, included in the 2020-2021 Tuition Proposal Prepared for the California State Student Association is a discussion about the use of operating fund designated balances and reserves as one of the alternatives for addressing a potential operating budget shortfall. This discussion further demonstrates the California State University's commitment to financial transparency.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

During CSU's September 2019 Committee on Finance meeting, the Chancellor's Office provided the trustees with information about its operating fund designated reserves, including a breakdown of amounts set aside for short-term obligations, capital projects, and designated reserves for operations. The Chancellor's Office has included information about the designated balances and reserves in its 2020-21 Operating Budget, which the trustees reviewed and approved in November 2019. During the November 2019 Committee on Finance meeting, the Chancellor's Office also presented information to the trustees stating that if funding is not secured for the operating budget request through state general fund or new tuition resources, campuses would have to redirect funding from designated balances and reserves, among other things. It has also included information about the designated balances and reserves in its online Financial Transparency Portal. Further, the Chancellor's Office revised its reserve policy in November 2019 to specify that the Chancellor's Office will annually share information about designated balance and reserve levels with trustees and other stakeholders.

60-Day Agency Response

The Chancellor's Office is drafting policy updates to implement the recommendation. We anticipate being able to update our policy and website by October 2019 and make a report to the trustees at the November 2019 meeting.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2018-127

Agency responses received are posted verbatim.