SAN FRANCISCO — The state auditor cleared the University of California of misspending student tuition on bond payments in a report released Thursday.
California auditor Elaine Howle said in the report that during the 15-month audit of the university’s finances, “a concern” was brought to their attention suggesting the school inappropriately used student tuition to back bonds and repay debt on capital projects.
“We found no evidence that the university actually used tuition revenues to repay debt,” said the auditor’s report, which examined five fiscal years of financial information.
The Bureau of Audits noted the university does use general revenues, including student fees, to secure general revenue bonds in an effort to get better rates.
The University of Texas, where University of California president Mark Yudof formerly served as chancellor, also uses a similar formula to back debt, according to the audit.
As an example, the auditor examined the renovation of the Pauley Pavilion on the university’s Los Angeles campus that included $60 million of debt. To pay debt service, the university uses net revenue from the basketball program, not tuition.
The university system has $16 billion of outstanding direct debt, according to Moody’s Investors Service.
The University of California is the largest system of research universities in the world.
However, the state auditor said in the 92-page report that the system could improve its financial transparency. It said the university could provide more information, such as beginning and ending balances of individual funds, and publish consistent information about its auxiliary enterprises.
The report also said the university misused student fees approved by a referendum for different capital projects than outlined in the ballot. The university disputed the finding.
State Sen. Leland Yee, D-San Francisco, requested the audit in February 2010 to help “uncover the extent of the waste, fraud, and abuse within the U.C.”
Yudof said the Legislative Audit Committee, which approves audit requests, should “require those who seek to use the limited audit resources of the state to provide more evidence of malfeasance than innuendo and presupposition behind their requests.”
“We are proud of the fact that we have come through this review with validation of so many of our procedures and policies … but at what cost?” Yudof said in a statement Thursday.
The audit report said the university’s public revenues grew 21% to $11.3 billion in fiscal 2010 from $9.3 billion in fiscal 2006. Public expenses rose 14% to $9.4 billion in fiscal 2010 from $8.2 billion in fiscal 2006.
Earlier this month, Moody’s affirmed an Aa1 rating on the university’s general revenue bonds. Fitch Ratings rates the bonds AA-plus, while Standard & Poor’s rates them AA.
“The high Aa1 rating reflects the university’s ability and willingness to raise revenues, reduce expenditures and create efficiencies in the wake of continued reductions in state funding and uncertainties about federal research funding,” Moody’s said in the report released.
