Fiscal lesson: The state university system has more to learn

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The State System of Higher Education learned a lesson from the risky construction financing moves that unraveled at California University of Pennsylvania shortly before the ouster of the school's president. However, the system hasn't yet mastered Fiscal Management 101.

The state system, made up of 14 universities including California, announced last week that campuses will have to put their own share of funding into system-controlled accounts before they begin work on projects financed with system-backed bonds. This measure is akin to requiring a home buyer to put some cash into a purchase before acquiring a mortgage, and it just makes sense.

Unfortunately, scant oversight meant common-sense measures were not followed when California was planning its $59 million convocation center. A Post-Gazette investigation showed that, in 2008, a year before groundbreaking, CalU submitted a document to the state system listing $6.8 million in cash on hand plus $5.5 million in donations as funding sources for the project. However, by 2011 and with the center nearly completed, CalU submitted a revised statement listing zero cash on hand and only $4,000 in donations.

The upshot was that the system covered the shortfall with an extra $15 million in bond debt, on top of original financing of $23 million and another $19 million in state grants -- essentially rewarding CalU for playing fast and loose with the numbers.

According to rules on its books, universities were supposed to be placing funds for construction projects into a state system-controlled account. Since that didn't happen, the system now has tightened the constraints for academic, recreation and all other construction projects.

Ronald G. Henry, who recently became chairman of the system board's committee on finance, administration and facilities, correctly stated that careful oversight is necessary if the system is "going to be prudent stewards of public dollars."

The system has taken a good first step, but it has never explained how CalU was able to so easily circumvent the system's own operating manual. In addition, with a debt load approaching $1 billion, the system needs to do more to demonstrate that it is proficient in managing public resources.



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