Audit Report: University of California hid $175 million while seeking tuition hike

University of California President Janet Napolitano could face her roughest week in nearly four years as leader of the state’s flagship college system as lawmakers react sharply to a new audit that says the UC Office of the President hid $175 million in reserve funds while seeking a 2.5 percent tuition hike approved in January. The audit’s second most damaging assertion: Napolitano’s office interfered with auditors’ contacts with officials at individual UC campuses and erased their complaints about the president’s office.

Legislative oversight hearings could be held as soon as Tuesday, according to the San Jose Mercury-News, after state Auditor Elaine Howle’s second damning report in 13 months. Napolitano’s and UC regents’ reaction is far different to the second report than the first, suggesting new dynamics that could put Napolitano’s job at peril or lead to the revival of a 2014 proposal that would ask voters to strip UC of the independent autonomy it enjoys under the California Constitution.

UC regents had backed Napolitano in 2016 in her dismissive response to Howle’s complaint that UC had admitted out-of-state students who paid much more in tuition than nearly 4,300 California students “whose academic scores met or exceeded all of the median scores of nonresidents whom the university admitted to the campus of their choice.” Howle said UC officials did this for nearly a decade in response to the state’s reducing funding during the revenue recession and in lieu of even basic attempts to control costs.

Napolitano could have blamed policies she inherited. Instead, she blasted Howle’s report as inaccurate. Though Napolitano’s defense lacked exculpatory evidence, UC regents largely dismissed Howle’s findings, with Regent John Perez even saying the report reflected an unseemly bias again out-of-state students.

Napolitano, regents change tone from last harsh audit

Napolitano’s reaction to the new Howle report, however, is conciliatory. Her office challenges the assertion that $175 million in reserves was hidden, saying that the funds were committed to various tasks and couldn’t have been used to head off tuition hikes. Otherwise, its official response to the audit thanked Howle for her work and said her recommendations would be implemented.

Some regents and lawmakers expressed disbelief that they as well as the general public weren’t told of the reserves even as Napolitano was lobbying hard for tuition hikes.

“Unbelievable,” said Lt. Gov. Gavin Newsom, according to the Bay Area News Group. Newsom, a regent and an early front-runner in the 2018 governor’s race, said the era in which regents served as “lap dogs” for the Office of the President had to end and that regents should look hard at rescinding the tuition hike.

Perez declined comment.

The University of California enjoys a unique status among state agencies that goes beyond its constitutionally guaranteed autonomy. Taxpayers only directly pay for a little more than one-tenth – about $3.6 billion – of UC’s $32 billion budget. The rest largely comes from tuition, federal grants and reimbursement for services UC does for the federal government, including operating and managing three national scientific laboratories.

But Gov. Jerry Brown and legislative leaders still see UC as an agency using public dollars that needs to be fully accountable. This has led to eight recent audits, many of which – including the latest – depict UC as having few basic financial controls and as being unable to document how and why it divvies up the various funds it receives. Howle’s analyses have consistently shown a UC system with no interest in belt-tightening.

Bad blood remains from 2014 tuition hardball

Where the contretemps goes this week is anyone’s guess. Some coverage has suggested that Howle’s critique goes overboard. But Napolitano doesn’t have a history of strong relationships with state lawmakers, some of whom see her as behaving in imperious fashion, and that could be a stealth factor in how the Legislature responds to Howle’s latest audit.

In late 2014, when the UC president got UC regents to endorse a five-year, 28 percent tuition hike that would go into effect unless the Legislature increased UC funding, Sen. Ricardo Lara, D-Bell Gardens, and Sen. Anthony Cannella, R-Ceres, introduced a Senate constitutional amendment that they hoped would go before voters in 2016. It would have limited UC’s independence by giving the Legislature a veto on tuition hikes and pay raises for top UC executives, among other provisions.

The bill was shelved in 2015 after Brown and Napolitano reached a compromise on state funding. But resentment of Napolitano’s belief that she could push the Legislature around and try to embarrass it to get her way endures.