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Education

Cal State Has A $1.5B Surplus, And Fullerton Wants Some Of It Back

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Students return to campus on the first Monday of classes of the Fall 2016 semester. (Stock photo by Matthew Gush/Courtesy of CSU Fullerton/Flickr Creative Commons)
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Back in the late '80s, the city of Fullerton put up $7 million in bond funds and its own money to build athletic fields at Cal State Fullerton. The city was supposed to be paid back through income from a hotel built on campus.

The original 1987 agreement projected that the city would recoup its investment in 30 to 35 years -- meaning right around now. But revenues from the hotel haven't kept up with projections. With principal and interest, Fullerton says it's now owed $14 million.

No one says the terms of agreement have been broken -- but after a recent state audit revealed that the Cal State system has a $1.5 billion surplus, city officials are pressing the university to accelerate the repayment plan.

Fullerton Mayor Jesus Silva says the money would help address urgent needs.

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"Hey, if they've got a surplus, there is some funds that Cal State Fullerton owes the city -- perhaps we can tap into those, too, [in order] to have them meet their obligation to us," he said.

But according to a document detailing the original agreement, the university still has many years left to repay the city.

WHAT THE AGREEMENT SAYS, AND HOW IT WORKS

In 1987, Cal State Fullerton agreed to lease three acres of its property to the city -- for $1. The city then sublet the land to Marriott Corp. to build a 200-room hotel on the property. In return, Fullerton provided about $7 million in cash and bond funds for the construction of athletic fields on the campus.

The plan was to have the city get paid back in yearly installments from hotel revenues during the life of the 70-year agreement. Those payments were predicted to range between $750,000 and $1 million per year. The hotel becomes property of Cal State Fullerton at the end of the agreement.

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Mayor Silva and Fullerton City Manager Kenneth Domer say the university owes the city $14 million, based on an interest rate of 7 percent. The university doesn't see it that way.

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California State University, Fullerton Chief Financial Officer Danny Kim (Adolfo Guzman-Lopez)

"This project was not for the sole benefit of Cal State Fullerton," said the university's chief financial officer, Danny Kim.

"If you read the lease document, it pretty much spells out the reason for this, which is to benefit both the university as well as a city and the community, so that they can have access to our facilities," he said.

The document also specifies that repayment shall come solely from the lease income from the hotel, he said.

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"Unfortunately, the document does not address what happens in the event of shortage," Kim said.

An Oct. 1, 1986 memo to the Cal State Fullerton Academic Senate says there's no requirement for the university to immediately make up for any deficit between the hotel's revenue and the yearly bond repayment.

FULLERTON WANTS THE MONEY NOW

Still, the city says its financial needs are urgent and hopes to reach a new agreement to get some of the principal and interest back from CSU's $1.5 billion reserves.

"We can use any extra funding that we can get right now... to maybe even address our homeless situation a bit more. We can do some road repairs that we've been lagging on," Mayor Silva said.

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Staff at both institutions who negotiated the agreements decades ago have since moved on, so there's no one with the institutional memory to explain the intent of the agreement. That's led Silva to ask Fullerton's city manager to audit the documents related to the deal. Both sides say they're ready to sit down and talk about ways to pay the city back.

For now, the California State University Chancellor's office is not involved in the back and forth. A CSU spokeswoman said the chancellor's office was not aware of Fullerton's move to tap into Cal State reserve funds. CSU, she added, hasn't received any requests like that for the funds.

The state audit, sent to Gov. Gavin Newsom and legislative leaders on June 20, says that the $1.5 billion surplus "is available for CSU to spend at its discretion to support instruction and other operating costs."

When the audit was released, Fullerton Assemblywoman Sharon Quirk-Silva said the university did not reveal the surplus to her or other members of the Assembly Higher Education Committee and that the money could have been used for urgent needs like student hunger, homelessness, or a moratorium on tuition increases.

Cal State administrators say that money should only be used in emergencies.

"It is necessary for universities as a public institution to have rainy day funds," Kim said.

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