Financial links between colleges, nonprofits draw scrutiny

Free-speech groups are trying to force the state’s public universities to disclose financial relationships worth more than $6.25 billion. At issue are scores of nonprofit foundations linked to the schools. The University of California and the California State University say unveiling the finances would cost millions of dollars in staff time.

The quest for details of the nonprofits’ money – where the money comes from and how it is spent – follows a series of disputed financial transactions at schools across the state.

For example, the Sonoma State University Academic Foundation’s $1.25 million loan to former board member Clem Carinalli has come under scrutiny.  Also last month, Philip Day Jr., former chancellor of City College of San Francisco, faced eight felony counts and one misdemeanor count related to the misappropriation of $150,000 of public money.

University officials estimate that enactment of legislation that would force disclosure would cost $6.6 million and force a commensurate reduction in funds for campus programs and services.

The cost stems from the amount of time that the staff would spend responding to requests submitted under the Public Records Act (PRA), as well as any necessary legal action that they say would cost a minimum of $50,000 per court case.  

But one of the Legislature’s foremost critics of UC’s governance is not convinced. Sen. Leland Yee, D-San Francisco, has authored legislation, SB 218, that would force the universities and their nonprofits to disclose their finances.

At stake is big money.

Currently, CSU has 89 auxiliaries or foundations with net operating revenues of $1.25 billion. UC’s annual reports show around $5.01 billion spread throughout 10 primary foundations on each campus and around 250 support groups.

Jim Ewert, legal counsel for the California Newspaper Publisher’s Association and a proponent of the bill, said that the Legislature does not know the details of how that money is being used. “When they’re making determinations as to what should be cut at the CSU or the UC, this is hidden money. They’re not able to make an informed decision.”

Universities and colleges argue that PRA provisions will not make available any new information to the public.

“It is an exercise in futility,” said Geoff O’Neill, assistant vice president of institutional advancement at the UC. “The concern is that it will stifle the ability to discuss issues of great importance to the university due to fear that there’s going to be a PRA report on notes related to the discussion.”

O’Neill said the objective of the bill is unclear since there is no financial information that is not public. In addition to filing yearly tax returns, which are publicly available, all UC foundations have annual audits conducted by an international accounting firm, PriceWaterhouseCoopers. He added that he is unaware of any instance where information requested, related to university activities, has not been provided.

The CSU too said that revenues and expenditures of their auxiliaries are public under current state and federal law. The Humboldt State University Advancement Foundation, for example, post annual financial reports on its website.

“What we’re doing is opening up a whole Pandora’s box of requests without anything really of substance that would be added to the public’s knowledge of what the university is doing,” said O’Neill.

The disclosure problem arises in part when the foundations hold money in between disbursing scholarships. “They are acting like a bank,” said Alice Sunshine, communications director at the California Faculty Association.

In some cases, the foundations are responsible for determining appropriate investment methods for money collected from donations until it is ready to use for their non-profit purpose. Giving out personal loans, Sunshine said does not fit the category. “Outstanding loans from the 90s for a scholarship fund? It’s starting to look really ugly, that’s a favor for a buddy.”

Sunshine said that the lack of openness leaves bad situations brewing until they are circumstantially discovered.

Too many disputes, including Sacramento State University  President Alexander Gonzalez’s low-interest loan in 2007, come to the forefront coincidentally.

In one instance, a reporter following a different money trail at the county tax assessor’s office found links to a university loan. In another, the discovery in a lawsuit brought by a rival cinema complex suing the university found an implicated trustee, and a student reporter following an assignment for class in a library records discovered Gonzalez.

“This isn’t right and we’ve only got a peak under the rug. You take very little public oversight and a billion dollars and put it together and you know it’s just the recipe for things to happen,” Sunshine said.

“We have seen too many incidents of sweetheart contracts and sweetheart deals. Enough is enough. We’ve got to clean this entire system up,” added Yee.  

In the 2001 CSU Fresno v. Superior Court case, the court concluded that a nongovernmental auxiliary was not a “state agency.” However, the court said its conclusion was in “direct conflict with the express purposes of the CPRA (California Public Records Act),” to safeguard government accountability, and suggested that the Legislature close the loophole in existing law.

Although the addition of Prop 59 in 2004 set up a framework to analyze ambiguities in public access cases, the argument remains over whether preemptive measures should be taken.

The 2001 Fresno State case surrounding the basketball arena serves as an example of abuse, contends Ewert. Being used for noneducational purposes such as concerts, the arena was assessed at a higher rate. The same association that argued to be exempt from the PRA, then argued that as a public building operated by a public entity, the arena should be exempt from higher prices.

O’Neill said that it is difficult to argue against the concepts of transparency and accountability that surround the bill, especially when the university embraces those values as well. Compensating UC individuals from any of the organizations is however strictly prohibited under UC guidelines, something that would remain unaffected by the bill.

The CSU and UC say they are concerned that the bill stands as a potential barrier to attracting and retaining important volunteers and donors.

Rather than determining whether the clause actually address all concerns, O’Neill said that individuals would be more inclined to donate to a private institution where they do not have to worry about their anonymity. “You just don’t have the assurance that you would if this wasn’t the situation at all.”

The bill was passed in the Senate 35 to 1 and received no opposition in the Assembly.

“Whenever you’re’ taking on the UC and CSU you know you’re taking on a rather powerful lobbying institution,” said Yee referring to the institutions influence in the legislature. “Unfortunately, sometimes their power does in fact outweigh the public interest.”