Fiscal Mismanagement Continues at SSU—Chronicles XXII 1-2-4

Chronicle XXII: State of the University, 2012.
Part I: Current Budget Crisis
February 24, 2012

Much has changed since we examined the state of Sonoma State University (SSU) this time last year: The
stock market rebounded and along with it the fortunes of the SSU Foundation; SSU hooked a big donor
for the Green Music Center (GMC); construction began on a controversial Student Center. But much has
remained the same: SSU is a beautiful campus (ranked as 34 out of 50 by thebestcolleges.org) with
dedicated, talented faculty; the State once again cut financial support for higher education and the CSU
compensated by raising student tuition; SSU accepted more students, provided fewer classes, and raised
its mandatory student fee.

The story has been the same for many years: with each successive budget cut, Academic Affairs (the
teaching side of SSU) looses a greater share than the Administrative side. This is because of the endless
development plans that began innocently enough but have now spiraled out of control consuming a
greater and greater share of SSU’s total budget each year to pay for debt service and management of
auxiliaries that have no place at a small university in an under-funded system.

Until State appropriations rise and allow for an increase in enrollment, SSU will be in a downward
spiral—over enrolling large classes of freshmen to fill the dorms, then unable to field sufficient classes to
enable 4-year graduation paths, making more students each year with fewer classes. Exhausting local
philanthropic resources, SSU has found a big league donor to forward the GMC. But at what losses,
expectations, and risk? Have we simply sold to the highest bidder?

Chronicle XXII will examine the same ground as last year—the current budget crisis (when was there not
a budget crisis at SSU? certainly not in this century), the Student Center, GMC, and Foundation. As
always, our information comes from public records that are clearly referenced. Due to reader requests, we
are releasing this Chronicle in parts. This edition covers the current budget crisis and SSU’s inability to
adapt due to having pledged all revenues to debt payment.

Current Budget Crisis

SSU consistently hides campus problems behind state budget cuts, deflecting blame to the governor and
legislature for poor decisions made at home. Budget cuts hurt but they hurt even more if you have
committed an unsustainable portion of your assets to debt payment. General Fund allocations supposedly
cannot pay for debt, yet Extended Education’s former share of the GMC now is assessed to University-
wide. General Funds that remain at the end of the year become unrestricted assets that can pay debt; rent
SSU pays to Enterprises also become unrestricted. Any number of avenues exist for General Fund money
to be reclassified and funneled to pay debt service.

CSU Budget Cuts

Budget crises are endemic to SSU for as long as most of us can remember. And, of course, it generally
just gets worse each year for students and faculty. The 2011-12 state budget cut the CSU by $650 million,
of which $146 million was replaced by tuition increases for fall 2011 and an additional $62 million by
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enrolling fewer students (Arminana campus email, 5-20-11). Despite protests, the CSU trustees raised
tuition another 12% in July 2011, making tuition 23.2% more expensive than the previous fall and twice
the cost of 2007 (SF Chronicle, 7-13-11). Due to shortfalls in state revenue, as anticipated, the CSU’s
budget was cut another $100 million in December 2011, for a total of $750 million of which $300 million
had been replaced by student tuition increases (CSU Employee update, 12-14-11). The CSU system had
saved some federal stimulus money and it was used to cover the $100 million mid-year trigger on a one-
time basis.

Meanwhile, in November 2011 at another contested meeting, the CSU trustees narrowly approved another
9% tuition increase of $500 per student per year beginning in fall 2012.

The governor’s proposed budget-plan for next year (12-13) calls for the same level of state support for the
CSU as this year (11-12), providing voters pass a November tax initiative. Thus the $750 million cut
remains minus of course the significant rise in student tuition. Should the tax initiative fail, the CSU
would be cut an additional $200 million (CSU employee update, 1-6-12).

SSU Budget Cuts

What does this mean for SSU? Obviously, it is not good, particularly because we are “highly leveraged
for a campus of our size” (PBAC minutes, 12-13-07) and must pay $7+ million off the top each year for
debt service. Once the Student Center is online, SSU’s debt payments will have nearly tripled since 2007.

SSU is planning for a $7 million budget cut next year (12-13). This includes $2.3 million for this year’s
budget trigger share and next year’s potential mid-year $4.6 million budget trigger share. What this fails
to account for is the increase in student tuition of approximately $3.2 million that goes into effect in fall
of 2012 and offsets cuts to the General Fund. SSU’s General Fund allocation and student tuition actually
will increase next year because the General Fund remained flat and tuition increased. This leaves a
potential budget cut of $3.7 million should the mid-year trigger become necessary. At worst, the budget
cut to SSU will be nearly 4%, yet Schools are being told to prepare for a potential 10% cut to their
budgets. Schools have nothing to cut but classes.

While budget cuts are deep and disturbing, more disturbing is SSU’s steadfast insistence on extravagant
improvements in a time of declining funding (Table 1). The recent troubles began in 2002 with the
issuance of bonds for the GMC parking lot and student housing. Interest (debt) payments increased to
over $4 million in 2002-03, to over $7 million in 2009-10, and will increase to nearly $12 million when
payments begin for the Student Center. These are legal obligations that must be paid first.

Table 1: SSU General Fund, Student Fees, Interest, and Unrestricted Net Assets, 2002-2013

Funding 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-20126 2012-20137
G Fund1 56,441,263 54,845,651 53,403,811 54,732,877 59,607,966 64,714,977 46,273,784 51,787,891 56,137,723 46,300,000 46,300,000
Tuition2 17.302,090 23,990,994 24,378,399 27,342,051 29,373,295 33,497,412 35,202,783 40,600,447 41,928,237 47,800,000 51,000,000
ARRA3 6,134,800 10,300,000 2,300,0005
Total 73,743,353 78,836,645 77,782,210 82,074,928 88,981,261 98,212,389 87,611,367 102,688,338 98,065,960 96,400,000 97,300,000
Interest 4,658,415 4,633,137 4,957,551 4,924,154 4,645,982 4,781,091 4,437,241 7,191,464 7,575,605 7,960,088 11,985,2858
Assets4 7,109,756 16,272,222 18,185,062 21,199,201 28,713,258 31,928,560 21,044,014 37,926,596 43,451,424
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Notes:
2002 to 2012 allocations, interest, and unrestricted net assets taken from SSU Audited Financial Statements 2002-3, 2004-5, 2005-6, 2007-8,
2008-9, 2009-10, 2010-11.
1
General Fund Non-Capital Allocation.
2
Student Fees
e
ARRA: American Recovery and Reinvestment Act.
4
End of the year Unrestricted Net Assets
5
$2.3M mid-year budget trigger paid for by ARRA funds held by the Chancellor’s Office.
6
“The University’s state noncapital appropriations budget enacted for fiscal year 2012 approved by the legislative process is $46.3 million…
In addition, an increase in student fees in fiscal year 2012 is expected to generate $5.9 million during fiscal year 2012 in new revenues, net of
financial aid.” (Audited financial statement 2010-11, pg. 12).
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State allocation for 2012-13 remains the same continuing the prior year cuts. “In November 2011, the Board approved an increase in
student tuition fees for fiscal year 2013 to raise approximately $138 million in new tuition fee revenue after discounting for financial aid.”
(Audited financial statement 2010-11, pg. 12). SSU’s share of cuts appears to be 2.3%. So SSU’s share of this increase should be
approximately $3.2 million.
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Interest payments increase by over $4 million due to the addition of the Student Center.

Additionally, as the CFO reminds us in Budget 101, EO 994 requires the development of reserve funds
for debt payments. Thus, the Unrestricted Net Assets listed on Table 1 are “almost entirely allocated to
cover standing bond debt” (PBAC meeting, 11-17-11). Unrestricted Net Assets accrue from unspent
General Fund allocations, student tuition, and auxiliary revenues. Debt service and debt reserves must be
funded before other campus priorities, like teaching. Table 1 clearly demonstrates the increase in debt
service (interest), debt reserves (assets), and the decline in General Fund allocations. This is a huge
problem and it will only get worse, as unnecessary construction projects dig the debt hole even deeper.

Question: The $43 million held in reserve for debt obligations earns interest. Even invested in the State
Agency Investment Fund (SAIF) at 2%, this would earn $870,000 in a year; student fees and state
appropriations are also invested until they are needed. These earnings should be applied to help
alleviate at least some of the cuts in Academic Affairs. Even before the current budget crisis, CSU
campuses were mandated to be partially self-supporting. Why do only budget cuts accrue to Academic
Affairs and not revenue increases?

Chronicle XXII: State of the University, 2012 Part II:

Student Center Brings More Debt and Over-Enrollment March 2, 2012 Early in the week we posted Part I of Chronicle XXII, which examines the financial state of Sonoma State University (XXU). Released in parts, Chronicle XXII covers the same ground as last year—the current budget crisis, the Student Center, GMC, and Foundation. As always, our information comes from public records that are clearly referenced. Part I examined the current budget crisis and demonstrated that SSU’s wounds are in part self-inflicted due to the increasingly large debt carried by the campus—a debt that will have fallen below the CSU limit once the Student Center is included. In effect, SSU would not have qualified under the rules for an additional loan, as its income and assets were insufficient to cover it. In the real world, this has proven to be the path to default and ruin. Part I established that student fee increases and auxiliary revenues do not go to teaching and learning, being already pledged to debt service and debt reserve. Part I ended with a question regarding allocation of resources: The $43 million held in reserve for debt obligations earns interest. Even invested in the State Agency Investment Fund (SAIF) at 2%, this would earn $870,000 in a year; student fees and state appropriations are also invested until they are needed. These earnings should be applied to help alleviate at least some of the cuts in Academic Affairs. Even before the current budget crisis, CSU campuses were mandated to be partially self-supporting. Why do only budget cuts accrue to Academic Affairs and not revenue increases? Part II continues with an examination of the Student Center and how its approval, orchestrated by SSU’s President, brings not only increased debt but an endless spiral of over-enrollment in these days of enrollment caps, resulting in fewer classes per student and longer graduation paths. Student Center brings Debt and Over-Enrollment On November 16, 2011, the same day that the CSU trustees voted to raise student tuition by $498 in a closed-door session, they approved the Student Center project based on President Arminana’s final decision and raised SSU mandatory fees by $300—an increase for SSU students totaling $800 or nearly 12% from the previous year. Setting aside questions on the fairness and legality of the student referendum to approve the Student Center and the soundness of the subsequent additional consultation, the final decision to build or not build the Student Center always resided with SSU’s President. And he decided to build. At the CSU trustees meeting, President Armiñana “added that the campus has been planning for this project for the last ten years” (BOT Finance Committee minutes, 11-16-11), millions had already been spent and a contractor hired. The decision was always a foregone conclusion; the only question was when the Center would be built. The questions now revolve around how SSU will pay for this extravagant addition designed for a campus of 10,000 FTES that is now constrained to a maximum of only 7450 FTES. The annual debt service on the building alone is $4,227,608 (CSU Agenda Item 6, 11-16-11). Assuming a student headcount of 8500, an additional $1.7 million in revenues will be needed to pay debt service. Housing is the department primarily responsible for the Student Center repayment as well as for much of the debt on campus, including part of the GMC. The same debt service must be paid on empty or full dorms; SSU simply cannot afford empty dorm rooms. As such it is imperative that the dorms are fully occupied, preferably with freshmen who are also required to purchase a full-meal plan. Full dorms and meal plans generate revenue. No one should doubt that at SSU debt drives curriculum. President Arminana recently reported to the Foundation board that SSU had lost 40% of its State support, returning to 1997/98 levels while serving over 1000 more students. “Currently SSU has approximately 8500 students, with the largest ever freshman class of 1800. There are approximately ten applications for every seat available” (Foundation minutes, 9-23-11). Both these statements are only partly true and get to the heart of the problem. SSU reviewed 16,363 applications for fall 2011. Of these 15.8% were incomplete, 10.2% denied admission, 73.8% accepted, and 17.5% enrolled. Systemwide, including duplicate applications to more than one campus, 22.1% of applications were incomplete, 27.9% denied, 50% accepted, and 17.1% enrolled. Of the 12,068 students accepted to SSU for the fall, only 23.7% enrolled (2857); CSU wide 34.2% of the 352,026 accepted students or 120,646 enrolled. So of the President’s 10 applicants, 2 submitted incomplete applications, 1 was denied, 7 were accepted, but less than 2 chose to attend. Ten applications must be processed for every seat filled is a more accurate description of SSU’s admissions record. SSU appears to receive a greater share of freshman applications than the system and SSU certainly enrolls a greater percent. In Fall 2011, 63.4% of SSU’s new enrollees were freshman; systemwide averaged 46.7% freshman (CSU New Student Applications and Admissions, November 30, 2011). SSU does have more students than 1997/98. Spring 2011, in fact, had the highest spring FTES (8072) ever experienced on campus, despite budget cuts and a CSU mandated cap of 7450 FTES. While historically the headcount declines between fall and spring terms due to attrition, last year it increased by 273 to 8668 students (Historical Enrollments, 1961-2011). SSU receives no General Fund money for students in excess of the cap, but it does receive tuition, mandatory campus fees, and student generators of dorm and meal revenue. No wonder, there were fewer classes to go around in the spring than in the fall last year. Over enrollment fills dorms and provides revenue that helps SSU’s Administrative side make debt payments; over enrollment hurts the Academic side that does not receive adequate income from the State to provide classes. It also hurts students by limiting their access to classes and extending graduation paths. Who decides which of the 1200 students in the headcount above the FTES cap do not get to take the full load many expected when they paid their fees? The CSU can assess fines to campuses that exceed their enrollment targets. SSU was 4.5% over target for fall 2011, which could have resulted in a hefty fine. To avoid the fine, SSU limited the number of units students could enroll in for spring 2012 (PBAC minutes, 12-8-11). SSU imposed an enrollment cap and controlled registration by restricting units to nine during first pass and ramping up to 18 units by the add/drop period (all campus email, 2-13-12). Question: The relationship between debt, full-dorms, over-enrollment, and the inability to field sufficient breath and quantity of classes is clear. How can this cycle be broken? Or at least how can we prevent it from getting worse?

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Chronicle XXII: State of the University, 2012
Part IV: Foundation
March 12, 2012

Released in four parts, Chronicle XXII covers the same ground as last year—the current budget crisis, the
Student Center, Green Music Center (GMC), and Foundation. As always, our information comes from
public records that are clearly referenced.

Parts I and II examined the evil twins of budget cuts and debt, the former courtesy of the State of
California, the latter created by SSU’s decision-makers. We ended with two questions: How can this cycle
of debt, over-enrollment, and declining academics be broken? Or at least how can we prevent it from
getting worse? Parking fees will increase to $5 a day (24/7) in July 2012, but this is not the solution we
had in mind (CRC, 12-2-11).

Part III, released last week, revisited the GMC and how what should be a joyous opening has instead
become just another cause for concern. Costs have spiraled out of control with each new addition by
Sandy Weill, the new “benefactor.” Local philanthropists have been pushed aside. Despite the impressive
lineup announced in the Press Democrat (3-10-12) and notably not to the campus community, we
question the relevance and continued sacrifices made by SSU to fulfill this one dream at the cost of untold
thousands of others. Has SSU been sold to the highest bidder to help the elite feel good about themselves?

Part IV, the longest and most detailed in the series, covers the Foundation and exposes how an institution
designed to be an asset for faculty and students has been hijacked. We question the Foundation’s
direction, adherence to mission, and use of funds.

Foundation

The Foundation receives and administers “gifts, endowments, scholarships and planned giving that
enhance and promote Sonoma State University’s educational mission.” The Foundation has no employees,
it is managed by Administration & Finance (A&F); Ruben Arminana serves as Chairman of the Board,
SSU’s VP for Development serves as President, and SSU’s CFO as VP and Chief Operating Officer. In
recent years, the Foundation has become a pass-through for GMC funding. Endowments and direct
donations to scholarships and program provide window-dressing and cover.

We believe that the Foundation’s GMC focus is to the detriment of student learning and an inappropriate
cost to the University for the following reasons, which are documented in detail below:

• The Foundation is managed by A&F employees paid for by the General Fund.
• GMC fundraising is the primary focus of the Development Department, whose $1 million annual
budget comes from the General Fund.
• Increasing GMC costs may have influenced the Foundation’s risky investment strategy in the
quest of increased profits that lead ultimately to nearly $10 million in investment losses.
• As a result of investment losses, other campus revenue that could have gone to teaching was used
instead to backfill endowment distributions for two years.
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• Endowments are assessed a 5% fee on every donation and pay a management fee to the
Foundation.
• Endowment revenue goes into the Foundation General Fund to pay expenses, many of which are
associated with other Foundation projects and problems—like the GMC and the Carinalli loan
lawsuits.
• Since 2002, the first year for which we have records, the vast majority of gifts from the
Foundation to the University have been for the GMC. During this period, the Endowments have
remained stagnant.

Foundation permanent Endowments never increase above their gift value; permanent
Endowments can, however, lose value and this has happened more than once. Over the
decades, hundreds of individuals have donated money to SSU’s Endowments. The Foundation invests
these funds and the returns provide income in perpetuity to scholarships and campus programs per donor
intent. In theory, creating an Endowment is like purchasing a mutual fund. The Endowment increases or
decreases according to the strength of Foundation investments; a share of the profit is paid to the endowed
activity each year. The attraction of endowments for donors is that the gift value increases over the years
from wise investment returns. For example, a $5 million gift to UCB in 1943 is valued at about $90
million today (The Promise of Berkeley 2009:15).

Initially, values of Foundation Endowments increased, but this stopped following the first investment
downturn in the early 2000s. A CSU audit of the Foundation found that “unrealized gains and losses were
not recorded on an individual endowment fund basis” but in aggregate, hence the “true market value of
each individual endowment fund could not be determined” (CSU 2007, audit report 0652). Rather than fix
the problem, the Foundation changed its policy. Now the value of an Endowment remains the “value of
the original gift as of gift date of the donor restricted endowment funds” (Foundation Investment Policy,
3-11).

The value of a Foundation individual Endowment and the permanent Endowment pool only increases
with new donations. Investment income accrues to a “restricted, expendable” category from which
endowment distributions are made. Income above the required distributions is available for spending by
authorized SSU representatives.

The formula by which the income is allocated to the endowed activities has changed over the years, and
the amounts have ranged from zero in 2010 to about 7 percent in the 1990s. While Foundation investment
policy seeks a return of inflation plus 4%, in recent years the Board has pursued an aggressive portfolio
targeting much higher returns. The benefits of this strategy did not accrue to the permanent Endowments
nor were they passed on in Endowment distributions, which averaged about 4%. The proceeds did
become available for spending. We don’t know if or how they were spent, but we do know that the
remaining Endowment reserves were not adequate to cover losses in Endowment principal sustained
during the bad years.

Foundation investments lost $8.2 million in FY 2008-09, following a $1 million loss the year before. The
Foundation’s assets declined dramatically in those two years as the Foundation also gifted over $33
million to SSU for GMC construction. While revenue increases do not accrue to the permanent
Endowment, losses do. The value of the permanent Endowment declined $4.6 million in FY 08-09 or
about 16%. For two years, the Foundation made no distributions to scholarships or programs as the
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endowments were below corpus; these obligations were either not met or covered by other campus
programs (e.g., Enterprises, Revenue Management Plan [RMP]).

While the Foundation’s Endowment Investments Rebounded with the Market, the
Foundation’s 3-year Investment Return Ranks among the CSU’s Lowest. Each January, the
National Association of College and University Business Officers (NACUBO) releases a study of the
performance of university endowments in the United States and Canada. Table 1 shows the performance
of the 23 CSUs plus the Chancellor’s Office endowments. The percent change is not investment return,
but the change in Endowment value, including management fees and expenses, distributions, additions,
and income gains/losses. While in FY 09-10, SSU’s change was next to last within the system at 7.4%,
FY 10-11’s 22.3% change puts SSU about average both within the CSU and within NACUBO
institutions.

Table 1: Three-year Investment Return within the CSU
NACUBO
Rank Institution
3 yr
Average
% Return
2011
Endowment
Value
2010
Endowment
Value
Value
%
change
2009
Endowment
Value
Value
%
change
776 Monterey Bay 9.27 $13,022,000 $9,554,000 36.3 $7,676,000 24.5
572 Pomona 7.60 $49,984,000 $32,699,000 55.5 $27,642,000 18.3
812 Dominquez Hills 7.24 $9,052,000 $7,871,000 15.0 $6,033,000 30.5
811 Chancellor 7.19 $11,181,000 $9,057,000 23.5 $7,913,000 14.5
802 Channel Islands 7.13 $9,890,000 $7,770,000 27.3 $6,242,000 24.5
345 San Diego 6.89 $135,191,000 $109,401,000 23.6 $98,599,000 11.0
743 Los Angeles 6.80 $19,240,000 $15,664,000 22.8 $13,224,000 18.5
295 San Luis Obispo 6.77 $173,419,000 $146,733,000 18.2 $130,937,000 12.1
754 Bakersfield 6.72 $17,887,000 $14,543,000 23.0 $13,013,000 11.7
753 San Marcos 6.50 $17,921,000 $14,610,000 22.7 $12,992,000 12.5
801 East Bay 6.12 $10,023,000 $8,518,000 17.7 $7,745,000 10.0
664 Fullerton 6.04 $32,347,000 $23,987,000 34.9 $18,960,000 26.5
588 Long Beach 6.00 $46,269,000 $36,564,000 26.5 $31,070,000 17.7
751 San Bernardino 5.73 $19,681,000 $16,427,000 19.8 $13,401,000 22.6
833 Maritime 5.69 $3,289,000 $2,268,000 45.0 $1,882,000 20.5
346 Fresno 5.35 $127,293,000 $111,566,000 14.1 $91,426,000 22.0
483 San Jose 5.31 $73,100,000 $55,110,000 32.6 $40,517,000 36.0
508 Northridge 4.73 $68,103,000 $54,882,000 24.1 $48,920,000 12.2
720 Humboldt 3.40 $22,007,000 $18,512,000 18.9 $15,700,000 17.9
606 Chico 3.20 $43,021,000 $38,958,000 10.4 $32,319,000 20.5
680 Sacramento 2.67 $28,820,000 $25,540,000 12.8 $19,712,000 29.6
655 Sonoma 2.53 $34,221,000 $27,974,000 22.3 $26,036,000 7.4
580 San Francisco 1.75 $48,954,000 $49,019,000 -0.11 $43,731,000 12.1
813 Stanislaus -5.49 $10,518,000 $8,873,000 18.5 $8,422,000 5.3
Average 5.21 $42,684,708 $35,254,167 23.6 $30,171,333 18.27

References: NACUBO 2011; 2012. CSU Philanthropic Report 2010-2011.

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Notably, SSU’s investment losses continued to plague Foundation investment returns. SSU’s three-year
average return is the third lowest within the CSU, significantly below the system average (Table 1).

The average “effective spending rate” (the percent of the endowment pool made available
to endowed activities) of NACUBO institutions in SSU’s category was 4.1 in FY 2009-10
and 4.0 in FY 2010-11. SSU‘s rate was zero in both years. This is documented in Foundation
minutes, financial statements, and in notes to CSU Endowment Tables where footnotes read: “Sonoma
distribution to endowed scholarships and programs was funded by other unrestricted funds” (09-10) and
“Sonoma distribution to endowed scholarships and programs was funded from other unrestricted campus
sources in the amount of $1,159,371” (10-11). This is a unique and dubious distinction.

SSU is also unique in single-mindedly fundraising for one project for over a decade. Other
CSU Foundations fundraise for a range of campus programs, recently focusing on
providing income for teaching to compensate for the loss of State funds. Table 2, taken from
the CSU 2010-11 Philanthropic Report, clearly demonstrates the Foundation’s commitment to the GMC.
While the CSU campus average distribution to programs was over 61%, SSU’s approached only 18%, the
lowest of any campus. In contrast, while the CSU campus average distribution for campus improvements
was only 10%, SSU’s was a whopping 74%, the highest of any campus. As a result SSU’s Endowment
also fared poorly, receiving only about a quarter of the average percent share of gifts generated by other
Foundations for their campuses.

The monetary values of the gifts are even more telling. In FY 9-10, SSU’s $1 million Development
Department only generated $175,222 in gift receipts for the Endowment and $1,165,398 for campus
improvements. Endowment receipts were second lowest in the CSU system following only tiny Maritime
Academy. In that year, the Foundation gifted SSU over $1.5 million for the GMC, while making no
distributions to the Endowments. In FY 10-11, the Foundation received just over $400,000 in gifts to the
Endowments and over $5.2 million for campus improvements. Endowment receipts ranked sixth lowest
systemwide. In that year, the Foundation gifted SSU nearly $6.5 million for the GMC and made no
distribution to the Endowments.
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Table 2: Percent CSU Gift Receipts by Purpose 2010-11
Campus Programs Campus
Improvements Endowment Unrestricted Other
Chico 25.4 0.0 58.6 5.8 10.2
East Bay 89.8 0.0 4.1 2.2 4.0
San Diego 77.7 0.0 11.6 0.1 10.6
Dominguez Hills 96.4 0.0 1.4 1.9 0.3
San Jose 46.1 0.0 49.9 2.3 1.8
San Marcos 58.9 0.0 37.9 3.2 0.0
Humboldt 55.8 0.5 8.0 6.9 28.8
Channel Islands 89.0 2.9 2.0 6.1 0.0
Bakersfield 75.1 3.5 20.1 1.3 0.0
Monterey Bay 76.5 3.6 17.8 1.9 0.2
Stanislaus 62.1 5.8 31.7 0.4 0.0
Sacramento 85.1 6.8 5.8 2.1 0.2
San Francisco 75.7 6.8 12.8 4.7 0.0
Maritime 43.0 7.4 33.6 16.0 0.0
Fullerton 60.8 7.9 25.7 1.4 4.2
Fresno 63.6 8.2 26.1 2.2 0.0
Los Angeles 69.4 9.8 8.3 12.5 0.0
San Bernardino 73.6 12.1 13.0 1.3 0.0
Pomona 20.8 14.9 63.7 0.6 0.0
Long Beach 56.0 16.8 15.0 4.7 7.5
San Luis Obispo 55.4 17.8 19.3 3.5 4.0
Northridge 39.1 31.8 27.1 2.0 0.1
Sonoma 17.9 74.0 5.7 1.1 1.3
Average 61.4 10.0 21.7 3.7 3.2

The pooled Endowments clearly provide the revenue used by the Foundation to pursue its
other interests. Gift proceeds are assessed 5% at donation; thus with a presumed 4% return each year,
every gift looses 1% in value in year one. Endowment distributions provide additional revenue to the
Foundation. In FY 11-12, when the Endowment finally recovered sufficiently to make a distribution, just
over $1 million went to endowed activities and $200,000 went to the Foundation General Fund.

While the Carinalli Loan Scandal may have faded into the background, its financial
impact is still being felt within the Foundation and it is still the subject of an active
investigation by the State Attorney General. Between 1994 and 2007, the Foundation entered into
numerous loan agreements totaling $9.6 million with now bankrupt real-estate magnate Clem Carinalli,
the first finalized just two days after he resigned from the Board of Directors. When Mr. Carinalli stopped
making payments to creditors in June 2009, he had two outstanding loan obligations to the Foundation: a
$1.25 million loan on 10-acres of vacant rural land near Windsor and an unsecured $232,500 loan. After
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much unpleasantness, the Foundation settled with Carinalli receiving a mere $22,500 for the unsecured
loan with neither party admitting liability and the Foundation spending large sums in legal costs.

The Foundation foreclosed on the $1.25 million, 10-acre parcel and received a deed in October 2010. In
June 2010, the parcel was valued at $750,000, and June 2011 a mere $475,000. Thus Foundation
Endowments have lost nearly $1 million on these loans, not including legal fees and assuming that the
vacant parcel can be sold.

These inappropriate loans provided fuel for State Senator Leland Yee’s call for passage of various bills to
subject university auxiliaries to the same public disclosure laws as the universities themselves. After
vetoes by Governor Schwarzenegger, Governor Brown signed the legislation that went into law January 1,
2012. In response, SSU moved all of the Foundation Campus Program expense accounts out of the
Foundation and into the University (all-employee email, 12-15-11). This makes it easier for the money to
be spent on other priorities and may facilitate a year-end sweep of remaining funds. Additionally, the
Foundation is moving toward finding an outside trustee for the Charitable Remainder Trusts (CRTs), a
part of the Endowment from which the majority of the Carinalli Loans originated. This will involve
selling the former Carinalli property and liquidating the much larger $4.7 million loan to SSU Enterprises
(Foundation minutes, 6-10-11).

A question: Direct gifts and gifts held for a time as an investment with the Bank of New York were
transferred from the Foundation to SSU to help pay for the GMC. How much additional money from
CRTs and from the pooled Permanent Endowment earnings was transferred to SSU? And how much of
this money ultimately went toward the GMC?

In brief, the Foundation and Endowments, as championed by President Benson and in the early Arminana
years, held great promise as a source of student scholarships and program revenue. Further Endowment
development waned, however, with the all encompassing GMC and now Weill vision. Endowment
earnings are no longer unitized to the individual Endowment funds. The Foundation does not assignment
investment growth to endowment accounts set up by donors to support their intents. The Foundation does
make investment growth available for spending. While donations are spent per donor intent, the earnings
of donor dollars beyond the annual Endowment fund distributions are spent in ways determined by
Foundation officials. This means that donor dollars do not keep up with inflation and the true value of
their donation decreases each year. The Weill Project focus of the Foundation means little fundraising
effort for student scholarships or faculty programs.

References:
Carinalli Bankruptcy
2010 Doc 358 Application to Compromise Controversy, 5-28-10.

http://www.provencherandflatt.com/bankruptcy/carinalli/wp-content/uploads/2010/05/Doc-358-1-Decl.-

of-C.-Carinalli.pdf.

CSU Chancellor’s Office
2007 Auxiliary Organizations. Sonoma State University. Audit Report 06-52.

http://www.calstate.edu/audit/Audit_Reports/auxorg/2006/0652AUXSonoma.pdf.

7
2011 2009-2010 Philanthropic Report.

http://www.calstate.edu/universityadvancement/reports/0910philanthropicsupport/.

2011 2009-2010 Campus Reports.

http://www.calstate.edu/universityadvancement/reports/0910philanthropicsupport/campus/.

2012 2010-2011. Philanthropic Report.

http://www.calstate.edu/universityadvancement/reports/1011philanthropicsupport/.

2012 2010-2011 Campus Highlights.

http://www.calstate.edu/universityadvancement/reports/1011philanthropicsupport/campus/.

NACUBO
2011 U.S. and Canadian Institutions Listed by Fiscal Year 2010 Endowment Market Value and
Percentage Change in Endowment Market Value from FY 2009 to FY 2010.

http://www.nacubo.org/Documents/research/2010NCSE_Public_Tables_Endowment_Market_Values_Fi

nal.pdf.

2012 U.S. and Canadian Institutions Listed by Fiscal Year 2011 Endowment Market Value and
Percentage Change in Endowment Market Value from FY 2010 to FY 2011.

http://www.nacubo.org/Documents/research/2011_NCSE_Public_Tables_Endowment_Market_Values_F

inal_January_17_2012.pdf.

Press Democrat
“SSU Foundation Hit by Carinalli Loans.” Press Democrat, 7-1-09.
“Carinalli Loans were Legal and Ethnical.” Close to Home. Press Democrat, 7-17-09.
“Dubious Loans.” PD Editorial. Press Democrat, 7-19-09.
“Campus Secrets.” PD Editorial. Press Democrat, 7-23-09.
“SSU Foundation’s Private Land Loans.” Press Democrat, 7-25-09.
“SSU’s Foundation’s Stand on Loans is another Risky Strategy.” PD Editorial. Press Democrat, 8-1-09.
Arminana email to campus community, 8-4-09.
“Chilling Veto.” PD Editorial. Press Democrat, 10-14-09.
“Creditors Question Carinalli about Debts.” Press Democrat, 11-6-09.
“Questions over SSU’s Loans to Carinalli.” Press Democrat, 11-13-09.
“Loans Unknown.” PD Editorial. Press Democrat, 11-16-09.
“Attorney General Auditing SSU Loans to Carinalli, Press Democrat, 11-23-09.
“SSU Officials Defend Loans.” Press Democrat, 12-16-09.
“Unraveling Carinalli’s Reversal of Fortune.” Press Democrat, 1-24-10.
“Carinalli Sues SSU over Loan Payment.” Press Democrat, 3-2-10.
“Press Democrat Honored for Coverage of SSU Loans.” Press Democrat, 3-3-10.
“California Public Universities Tap Student Fees for Unintended Projects.” Los Angeles Times, 4-4-10.

Schlereth, Laurence
2010 Financial Update Powerpoint. June 3, 2010.
2009 SSU Academic Foundation Town Hall Loan Remarks. December 16, 2009.

http://www.sonoma.edu/afd/fnd/town_hall-foundation_remarks_12-16-09_final_spoken_version.pdf.

8
Sonoma State University
2011 Financial Statements, June 30, 2010.

http://www.calstate.edu/SFSR/GAAP/financial_statements.shtml.

Sonoma State University Academic Foundation (SSUAF)
2002-11 Financial Statements. http://www.sonoma.edu/afd/audit/.
2009 Tax Return. http://www.sonoma.edu/AFD/transparency/Acad_Foundation/fdn_990_fy09.pdf,
2010 Minutes. http://www.sonoma.edu/afd/fnd/minutes/2009-2010/index.html.

1 Response for “Fiscal Mismanagement Continues at SSU—Chronicles XXII 1-2-4”

  1. […] early Armiñana years, held great promise as a source of student scholarships and program revenue (http://ssufacultyforqualityeducation.org/fiscal-mismanagement-continues-at-ssu%e2%80%94chronicles-xx…). Benson eventually retired in 1992 and was replaced by the current president, Ruben […]

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