MOORLACH UPDATE — CSU versus DMV — August 13, 2019

The Joint Legislative Audit Committee, of which I am a member, along with the Assembly Higher Education Committee, the Senate Education Committee, and the Assembly Budget Subcommittee 2 on Education Finance, held a Joint Legislative Oversight Hearing yesterday evening. We reviewed the State Auditor’s Report Number 2018-127, "California State University: It Failed to Fully Disclose Its $1.5 Billion Surplus, And It Has Not Adequately Invested in Alternatives to Costly Parking Facilities" (see https://www.auditor.ca.gov/reports/2018-127/summary.html).

The California State University System issued its financial statements for the fiscal year ended June 30, 2018. The Unrestricted Net Deficit is $17,796,495,000 (see page 30 of https://www2.calstate.edu/csu-system/transparency-accountability/Financial%20Statements/2017-2018_AudFS.pdf). This amount was much lower for June 30, 2017, showing a deficit of $3,663,710,000 (see page 33 of https://www2.calstate.edu/csu-system/transparency-accountability/Financial%20Statements/2017-2018_AudFS.pdf ). The reason? The requirement to add the Other Post Employment Benefits (OPEBs) on the liability section of the Balance Sheet. That’s what adding another $13,492,637,000 of debt will do to an institution. The Unrestricted Net Deficit ballooned nearly five-fold!

Consequently, having $1.5 billion, or a portion thereof, in reserve funds is not material in the scheme of the system’s massive obligations. CSU only has roughly $459 million available for mitigating potential economic downturns, only 2.8 percent of the system’s negative Unrestricted Net Position. The Associated Press covered the hearing and provided its story in the first piece below.

The Sacramento Bee continues to cover the premature implementation of the motor voter strategy at the DMV in the second piece below. Only voters can hold an elected department head accountable. An appointed department head is the responsibility of the Governor. Blaming the DMV, however, when it has been focused on implementing the federal Real ID law, is a little difficult to comprehend. Unfortunately, the Joint Legislative Audit Committee has voted twice now to not send in the State Auditor to audit the DMV and its interaction with the Secretary of State. The last time being a couple of months ago and over my objections.

The CSU system took massive state budget cuts during the Great Recession. It has responded with good fiscal management and always provided audited financial statements. The system should be applauded for good stewardship and, in the future, should be encouraged to provide more discussion of their money management goals. This is a minor fix.

It’s quite a comparison to an agency that should have put on the brakes when the software was not fully debugged. Dealing with it now is an expensive and major fix.

University defends reserves

following critical state audit

BY ADAM BEAM ASSOCIATED PRESS

http://www.capradio.org/articles/2019/08/13/csu-chancellor-defends-reserves-following-critical-california-state-audit/

The chancellor of the country’s largest system of four-year public universities says a state audit that found the school sat on $1.5 billion in reserves while it raised tuition and cut employees’ pay is not untrue, but "profoundly misleading."

California State University Chancellor Timothy White told a panel of state lawmakers on Monday that the more than $1.5 billion in discretionary reserves identified by Auditor Elaine Howle is "anything but discretionary." He said the university had to store the money, which is spread out across the system’s 23 schools, so it could give students advances on financial aid, pay for construction projects and act as a cushion in case of a recession.

But California State Auditor Elaine Howle told lawmakers school officials had no restrictions on how it used the money. She said the school did not tell the Legislature about the money. And the school also did not tell the California State Student Association about the money when it notified them about a tuition increase.

Howle said a 2017 tuition increase brought in $78 million for the school. In the same year, the school’s reserves increased by $65 million. She recommended the school do a better job of disclosing its finances.

White said the university accepts Howle’s recommendations and is already implementing them. But he criticized the audit’s "sensationalized language," saying it "was amplified and distorted in extensive statewide media coverage."

"These inflammatory articles and reports misled and confused the public in such a way that risked unfairly tarnishing Californian State University’s reputation," he said. "To that I have taken and can take great umbrage."

Howle said the audit report’s implication that tuition dollars are being used to disproportionately fund reserves is, "while not untruthful, fundamentally unfair." He said state law governs how the university can spend its money form tuition and state appropriations, and it followed that law.

State lawmakers had tough comments for White and California State University board member Jack McGrory. Assemblywoman Shirley Weber, a Democrat from San Diego, was a professor at San Diego State University during the period the audit covered. She said she and her clerical staff took a 10% pay cut at the time, thinking they were investing in the university’s future.

"This is a shameful moment for California," she said.

But McGrory told lawmakers it was essential for the university to maintain adequate reserves, saying other California local governments that did not do that ended up filing for bankruptcy. Republican state Sen. John Moorlach of Costa Mesa agreed, noting the university’s increasingly expensive pension and health care costs for its workers.

"Having $1.5 billion on hand is probably a good thing right now with the numbers being reflected in their published financial reports," he said.

Six Californians who shouldn’t have been registered voted last year due to ‘DMV errors’

BY BRYAN ANDERSON

https://www.sacbee.com/news/politics-government/capitol-alert/article233729662.html

Six California residents who were erroneously added onto the voter rolls voted in last year’s midterms, the Secretary of State’s Office confirmed Friday afternoon following a months-long investigation.

According to Secretary of State Alex Padilla’s office, all six individuals voted in the primary and two of them also cast ballots in the 2018 general election. Their records have since been canceled and they are not being charged with a crime.

After a through review, Padilla concluded they were inadvertently registered through the state’s Motor Voter program “due to DMV errors.” The residents live in Sacramento, San Francisco, Los Angeles and San Diego counties.

Padilla’s office said the six people had no prior voting history but it could not determine whether they met registration eligibility requirements. It noted that none of the people were undocumented immigrants applying for AB 60 licenses.

To register to vote in California, you must be a U.S. citizen, a resident of California and 18 years old or older on Election Day.

“The six individuals were inadvertently registered through the California Motor Voter program due to DMV errors and based on state law are not guilty of fraudulently voting or attempting to vote,” Padilla’s office said in a statement. “All of these voter registrations have been canceled.”

The program launched on April 23, 2018 to automatically register eligible voters when they visit the Department of Motor Vehicles.

Data from the Secretary of State’s Office shows nearly 20 million ballots were cast in the 2018 primary and general election. Six votes would not have been enough to affect the outcome of a single race.

State Sen. John Moorlach, R-Costa Mesa, said the names should be disclosed to county district attorneys for further investigation. “If it’s voter fraud, that’s where the investigation should start.”

“We knew there was going to be the potential for mistakes because the Secretary of State insisted on moving forward prematurely,” Moorlach added. “This confirms what a lot of us were suspicious of. Now, the question is how do we correct it.”

Despite warnings from multiple election officials not to go forward with the program’s launch, Padilla proceeded.

In a 2015 hearing, he told lawmakers, “I don’t assume the incompetence of the DMV.”

In the months following the hasty roll-out, the DMV experienced 105,000 registration errors, including some people being inadvertently registered with the wrong party. A March report from the Department of Finance blamed the DMV for having a “reactive culture” when implementing Motor Voter.

DMV Communications Deputy Director Anita Gore said conditions that led to the problems have been addressed.

“Appropriate safeguards and quality assurance processes have been put into place to prevent such issues in the future,” she said in a statement. ”No recent issues have been identified as we continue to process tens of thousands of voter registrations each day.”

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