How UC allotted its secret reserves
Cash hidden for projects of Napolitano’s choosing
News that thousands of students at the University of California often go hungry because they can’t afford meals prompted a generous promise last summer from UC President Janet Napolitano: $3.3 million for more food pantries and other ways of feeding the young scholars.
The money, to be spent over two years, would come from the “president’s initiative fund,” a discretionary pool of cash financed by the interest from university investments, UC officials told The Chronicle in July.
It turns out the food allotment is part of the $175 million that California State Auditor Elaine Howle says the president’s office hid in secret funds and did not spend as of June 2016. Howle said in her April 25 audit of spending in the president’s office that Napolitano regularly submitted
inflated budgets and swept unspent money into secret reserves to spend on projects of her choosing — then asked the regents to raise tuition for next fall.
The approved tuition increase is expected to raise $143 million for UC next year — less than the money squirreled away in the central office in Oakland that performs administrative services across the UC system’s 10 campuses, five medical centers and three national laboratories.
The Chronicle took a closer look at the $175 million and met Friday with Napolitano’s chief operating officer, Rachel Nava, and other budget experts to learn more about why their office didn’t disclose the money to the regents or the public as part of the president’s office budget.
In addition to the food program, Napolitano’s office set aside funds to pay for initiatives such as “carbon neutrality,” to help UC become the first university to end its reliance on fossil fuels by 2025; cash to make up for federal financial aid, Pell grants, that have been canceled for summer study; wetlands restoration at UC Merced; and financial aid for immigrant students living here illegally.
The president’s staff insists — contrary to what Howle found — that they were transparent about the funds.
Nava said some were lumped together in the budget presented to the regents under such broad categories as the “president’s endowment initiative.”
But she said individual programs were not necessarily broken out in the budget.
Instead, Napolitano’s staff made separate, periodic presentations about the individual initiatives to the regents, she said. The office also sent press releases out, such as in the case of the $3.3 million food program.
“We don’t believe any of this was hidden,” Nava said.
Discovery of the reserves, a major finding in the auditor’s report, forced the UC president to answer questions from angry lawmakers on May 2. It prompted Napolitano to agree to implement, over three years, all 33 of the auditor’s recommendations for cleaning up the office’s unorthodox budgeting practices. And on Thursday, it led Gov. Jerry Brown to announce that he is withholding $50 million from the university’s annual funding allocation in his proposed budget until UC proves it has made progress on reforms.
“We still have a lot of questions,” said Assemblyman Jose Medina, D-Riverside. Napolitano “never took full responsibility for the issues found in the audit.”
Because the president’s staff didn’t disclose the funds, her office has said its budget was $686 million last year. The auditor says it was actually $747 million.
Howle said the mysterious $175 million was the cumulative amount of undisclosed cash left unspent over four years. Her report says repeatedly that some of the funds should be given to UC’s cash-strapped campuses.
Nava said Friday that the true amount is $170 million, and that the auditor erroneously included $5 million that belonged to campuses.
Howle said her office has had difficulty identifying the amount and source of the reserves, and that Napolitano’s office didn’t know how much was there until auditors pointed it out.
Emails obtained by The Chronicle show that auditors had to repeatedly ask Napolitano’s office to show what the reserves were going to be used for.
“This is a very complex budget,” Nava said Friday. “Some of these things are difficult to explain — not because we don’t know what’s going on, but because of the complexity.”
On Friday, Napolitano’s staff offered more information about funds broken down by Howle into these three groups, with the amounts the auditor said were unspent as of last June:
Restricted funds ($83 million). Napolitano’s staff says the source of each fund prescribes how the money can be spent. The auditor says it is Napolitano herself who is issuing the prescription.
An example is $6.3 million left over from an Enron lawsuit settlement after the energy company went bankrupt amid fraud and corruption.
“That’s restricted for our strategic energy program,” said Eva Goode, the president’s budget director, referring to UC’s “Wholesale Power” program, in which the university is the main energy supplier to five campuses and medical centers, including UCSF.
Asked if the terms of the settlement required UC to spend the money on its own energy program, Nava, the operations officer, said it was more likely that the president’s staff chose to do so because the money had come from energy contracts and investments in the first place.
Howle recommended that UC re-evaluate such restrictions and consider sending the money to campuses to spend on students. Uncommitted funds ($38 million). This money represents savings from unfilled vacancies in the president’s office, interest income from the university’s endowment, and annual fees from campuses that finance most of the budget for the president’s office, according to Nava, Goode and Thera Kalmijn, executive director of operations at the president’s office.
Howle said that $32 million of the unspent $175 million came from the fees paid by campuses, and she recommended that this money go back to them. Discretionary commitments ($54 million). These are projects Napolitano specializes in, her staff said. She has set aside funds for practical purposes, like broken heating systems in UC buildings ($2.5 million); improving cybersecurity ($7.2 million); and fixing the homes of campus chancellors ($250,000).
But she has also started large projects — “multiyear commitments” — of a kind her predecessor, Mark Yudof, never did, said Napolitano’s spokeswoman, Dianne Klein. Napolitano became president in July 2013.
Among them are employee trainings on how to address sexual violence and harassment on campus ($200,000); financial aid and other services for students in the country illegally ($2.5 million); and the food program for hungry students.
Auditors found $5.2 million unspent in the president’s “Global Food Initiative” fund, which includes the $3.3 million announced last summer after a UC-wide survey of nearly 9,000 students found that 1 in 5 skips meals for lack of funds.
A budget for the Global Food Initiative shows that Napolitano started it in 2014. But the budget hasn’t been updated since December and shows no expenditures from the $3.3 million touted by her office last summer in a news release.
It does show, however, that past expenditures ranged from $606,000 on food research; about $430,000 on food projects for kindergartners through 12th-graders, and nearly $1 million on communication about food, obesity and agriculture.
Napolitano’s staff will present a new budget for her office to the regents on Thursday for their approval.
Unlike in past years, Nava said, “there will be a very detailed, lengthy budget presentation.”