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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

Report Number: 2018-127



The California State University (CSU) is a public university system that serves more than 480,000 students at 23 campuses located throughout the State. CSU’s mission includes advancing and extending knowledge, learning, and culture, especially throughout California, as well as offering baccalaureate and advanced degrees that provide opportunities for individuals to develop intellectually, personally, and professionally. A 25‑member Board of Trustees (trustees) administers CSU and appoints the Chancellor of CSU (chancellor). The chancellor is CSU’s chief executive officer and he has the authority and responsibility to take whatever actions are necessary for the appropriate functioning of the system, including developing and overseeing its budget and issuing executive orders on CSU policy. The chancellor may also delegate authority to others within CSU, such as the campus presidents, who are the chief executive officers of their respective campuses.

As part of this audit, we visited the CSU Office of the Chancellor (Chancellor’s Office) and four campuses: California State University Channel Islands (Channel Islands); California State University, Fullerton (Fullerton); California State University, Sacramento (Sacramento State); and San Diego State University (San Diego State).

CSU Accounts Outside of the State Treasury

Although state law typically requires state entities to deposit money in accounts within the Centralized State Treasury System (state treasury) and allows for the investment of surplus money that is not necessary for immediate use, CSU’s legal authority to use accounts outside the state treasury (outside accounts) to deposit and invest funding it receives from different types of revenue has expanded over time. The purpose of the state treasury is to protect state money while maximizing investment returns, and the State Treasurer’s Office and the State Controller’s Office oversee accounts within it. Before 2006 the state treasury held money from CSU’s two major sources of funding: its General Fund appropriation from the State and student tuition revenue (tuition). CSU collected tuition from students and then remitted it to the State for deposit in a fund within the state treasury. The State then returned the tuition to CSU and also provided additional state money to CSU through a General Fund appropriation. However, state law authorized CSU to deposit money from certain other sources, such as gifts and federal loan money, in outside accounts. As Figure 1 shows, beginning in 2006, the Legislature amended state law to authorize CSU to deposit revenue from tuition and other fees in outside accounts. This change made CSU’s financial management similar to that of the University of California in that tuition is now continuously available for CSU’s general purposes rather than becoming available through the annual budget act.

Figure 1
Over Time, the State Has Expanded CSU’s Authority to Use Outside Accounts

A timeline graphic showing that the State expanded CSU’s authority to use outside accounts over time.

Source: Analysis of Education Code sections 89721 and 89724 through 89726, Government Code section 16430, and CSU banking and investing policies and procedures.

CSU’s investment authority also expanded recently. Until 2016 state law authorized CSU to invest surplus money—money that CSU did not need to cover current expenses—in a limited selection of securities, such as government bonds. Consistent with state law, CSU established a systemwide investment fund trust with three objectives: safeguarding the surplus, ensuring that it was readily available to meet expenses, and earning an acceptable amount of interest. Effective 2017, the Legislature amended state law to expand CSU’s authority to invest funding from other sources, including tuition, in additional types of securities, such as real estate investment trusts, that may provide greater returns, albeit with greater risk.

CSU has established its own central banking and investing system that ensures that it pools and invests surplus money. Campuses and the Chancellor’s Office use individual accounts to make deposits and disburse payments. The accounts are zero‑balance accounts that do not accumulate balances of surplus money. Instead, each day CSU consolidates any money remaining in those accounts into one systemwide checking account (consolidated checking account) that holds money for systemwide needs. If there is a surplus in the consolidated checking account, CSU transfers money from that account to a pooled investment account (investment account).

If there is a shortage in the consolidated checking account, CSU transfers funding from the investment account into its consolidated checking account. The value of the surplus that CSU holds in its investment account changes as CSU transfers money in and out, as well as when the market value of CSU’s investments shifts. As Table 1 shows, CSU had accumulated a surplus worth nearly $4 billion in its investment account as of June 30, 2018. This surplus constituted most of the money CSU had in its outside accounts.

Table 1
CSU Had a Total Surplus of Nearly $4 Billion
As of June 30, 2018

AS OF JUNE 30, 2018
Investment account $3,960,943,228
Consolidated checking account 18,938,887
Escrow accounts 3,801,773
Foreign study program accounts* 337,712
Auxiliary campus payroll account 152,124
Zero-balance accounts  0
Total $3,984,173,724

Source: Analysis of CSU’s Report of Accounts Outside the State Treasury for the fiscal year ended June 30, 2018, state law, and other documentation authorizing CSU’s outside accounts.

* Education Code section 16305.8 authorizes CSU to make deposits in foreign banks to support programs of foreign study that CSU students attend.

California State University, San Bernardino held an auxiliary campus payroll account pursuant to authorization from the Department of Finance.

CSU’s $4 billion surplus comes from two types of funding with significant differences between the two that affect how CSU can use the surplus. About half of CSU’s funding is from revenue sources that are restricted, such as financial aid or student housing fees, meaning that CSU can use that funding only for certain purposes as specified in state law (restricted). The other half—$2 billion—is from revenue sources that CSU has greater discretion to use for the broad purpose of providing services, facilities, or materials (discretionary), such as tuition. As of June 30, 2018, $1.5 billion of the $2 billion discretionary surplus was available for CSU to use for general operations and instruction, as Figure 2 shows. CSU had designated about $400 million of that $1.5 billion discretionary surplus as a reserve for economic uncertainty—money meant to limit the impact of state recessions and support year‑to‑year consistency in university operations. Aside from the $1.5 billion, CSU had some additional surplus money, including about $350 million that it had earmarked for maintaining and improving academic buildings (capital projects) and about $86 million it had designated for funding repairs, maintenance, and capital purchases related to products and services that campuses provide to each other.

Figure 2
Half of CSU’s Surplus as of June 30, 2018 Was Discretionary

A chart showing that half of CSU’s total surplus as of June 30, 2018 was discretionary.

Source: Analysis of CSU’s account data.

The $1.5 billion discretionary surplus that CSU could use for operations and instruction accumulated from revenue in its operating fund. Similar to the State’s General Fund, which is the primary fund the State uses to pay for governmental activities, the operating fund pays for the expenses related to CSU’s operations and instruction, such as academic salaries and benefits. Tuition provided the majority—$23 billion of approximately $27 billion, or 84 percent—of operating fund revenue that CSU deposited in its outside accounts during our 10‑year audit period from fiscal years 2008–09 through 2017–18, and it was the primary source for the fund’s surplus. In this report, we focus our discussion of CSU’s outside accounts on the operating fund.

CSU Campus Responsibilities Related to Parking

Source: CSU parking policy based on CSU Parking Task Force recommendations.

CSU Parking and Transportation

Each CSU campus is responsible for administering its own parking facilities and transportation options through its parking and transportation services office. In 1995 the Chancellor’s Office shifted authority for parking operations to the campus level. The onal accountability for how a school district spends its bond funds. As the text box summarizes the campuses’ primary parking‑related responsibilities. Each campus also has the authority to set parking fees, subject to approval by the campus president, with some exceptions.

Parking Operations

Parking operations at the campuses are self‑supporting: campuses must fund them using parking fees obtained primarily from revenue from the sale of parking permits. Campuses tend to set parking fee prices as needed to cover annual debt payments and operating expenses. Campuses sell parking permits by user type such as semester permits for students, faculty, and staff, as well as students living in on‑campus housing (residential permits). Additionally, campuses sell daily permits. The four campuses we reviewed—Channel Islands, Fullerton, Sacramento State, and San Diego State—do not restrict the number of permits they sell, though two campuses limit residential permits to the number of residential parking spaces. The four campuses allot between 70 percent and 80 percent of their total parking spaces to students, including residential spaces.

Because state law restricts the uses of proceeds from parking revenues—parking fees, as well as parking fines and forfeitures (parking fines)—campuses may spend them for specified purposes only. Campuses must use parking fees first for debt payments on existing parking facilities and then may use them to pay for parking operations, a portion of the cost for a new facility, and alternate transportation. Campuses must use parking fines for campus parking enforcement operations and options for alternate methods of transportation (alternate transportation). From fiscal years 2008–09 through 2017–18, the four campuses we reviewed collected about 90 percent of their total parking revenue from parking fees; about 7 percent from parking fines; and the remainder from other sources, such as investment income.1

Construction of Parking Facilities

Campuses generally finance the construction of parking facilities by taking on annual debt payments, which are associated with the issuance of systemwide revenue bonds (bonds). Figure 3 shows this process. A campus contributes a portion of the cost of a new facility and funds the remainder of the cost using proceeds from the bond’s sale, which it pays back by making annual debt payments over 25 to 30 years.

Figure 3
The Chancellor’s Office Works With Campuses to Approve and Finance New Parking Facilities

A flow chart describing how the Chancellor’s Office works with a campus to approve and finance new parking facilities.

Source: Analysis of CSU policy and bond financing documents.

To take advantage of lower interest rates available to CSU as a system, CSU issues a single bond to finance multiple parking, housing, and student union projects at different campuses. The campuses submit project proposals and financial plans to the Chancellor’s Office, which determines the timing of the bond issuance, with the trustees’ approval. Each campus program only makes debt payments for its own bond‑financed projects. In 1995 CSU repaid all outstanding parking‑related bond debt systemwide. Since then, the four campuses we reviewed have financed 12 parking facilities using bonds, the earliest of which is scheduled to be fully paid off in 2023.

The Key Documents Campuses Must Use When Planning and Implementing Transportation Management Strategies

In response to planned enrollment growth, campuses must take the following steps:

When requesting to build a new parking facility, campuses must submit a project justification statement that includes a parking demand study. This study must contain an analysis showing how implementing the alternate transportation strategies in the transportation management plan has reduced parking demand.

Source: Analysis of CSU policy.

Alternate Transportation

In addition to providing parking, the campuses can improve their students’ and employees’ access to campus by providing alternate transportation. Alternate transportation provides commuters with options—such as shuttles, carpools, and bicycles—other than driving alone and parking on campus. As the text box shows, the Chancellor’s Office requires campuses to use key documents to plan for and implement alternate transportation. When a campus plans to increase enrollment, CSU policy requires it to update its physical master plan—an overview of the campus’s facility needs, which may include plans for proposed new parking facilities—to meet new conditions. CSU policy also requires campuses to review the physical master plan at least every 10 years.

Similarly, each campus must develop a transportation demand management plan (transportation management plan) to comply with state environmental law. A transportation management plan generally presents an overview of the current parking and transportation conditions at a campus, and it documents the campus’s existing transportation management strategies and recommendations for improvement. Transportation management strategies may include providing on‑campus housing, adjusting parking pricing to influence driving behavior, or creating programs for alternate transportation. These programs encourage the use of alternate transportation, including in some cases through subsidized public transit passes or cash incentives. Campuses usually develop these plans as a component of the master planning process because state law requires state entities to identify and mitigate transportation impacts associated with building projects, including those designed to accommodate increases in enrollment. To aid the campuses in the development of their transportation management plans, CSU has a systemwide Transportation Demand Management Manual (transportation manual) that contains goals, objectives, and best practices.

Campuses can demonstrate that they have implemented the strategies in their transportation management plans by performing a parking demand study. CSU policy states that campuses must provide a project justification statement that includes a parking demand study when requesting to use debt financing to build a new parking facility. The policy further states that the parking demand study should include an analysis of reductions in parking demand resulting from the strategies in the transportation management plan that the campus has implemented. According to the policy, this requirement is in accordance with a state law that requires campuses to thoroughly investigate and consider incorporating alternate modes of transportation before they can receive funds to build a new parking facility. State law also requires that each campus must have an alternate transportation committee that consults with students and local government officials in carrying out such an investigation.


1 Table C.1 in Appendix C identifies the campuses’ annual parking revenue and expenses related to parking facilities for fiscal years 2008–09 through 2017–18. Go back to text

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