Staff writer
sbeveridge@observer-reporter.com
CALIFORNIA - The decision to have a student association fund construction of upscale dormitories was seen as a novel approach in 2001 to solving campus housing needs at California University of Pennsylvania.
But to build six new upscale dorms, Student Association Inc. at Cal U. has found itself more than $116 million in debt and with a negative fund balance of $5.9 million at the end of the last fiscal year, federal tax documents indicate.
"That much money. Wow," said state Rep. Peter J. Daley, a Cal U. trustee, when informed about the negative balance.
An extensive review of the association's financial report did not find any indication of misappropriated money. But the university has some of the poshest student housing in the state, which has put a financial burden on the student association.
Because Cal U. led the pack among the 14 state-owned universities to replace its dorms, it now has the distinction of being the most expensive in the system to attend, at $15,317 a year for tuition, room and board. A dorm costs students between $2,717 and $3,963 a semester, depending on the degree of luxury, and that price does not include meals.
There is no evidence in the organization's 2006-07 tax return, known as a Form 990, to suggest theft or immediate alarm, said Peter Swords of New York, an instructor at Columbia University and expert in nonprofit law.
The association's ability to pay down the debt hinges on Cal U.'s ability to attract enough students to fill the beds, association records indicate. With nearly 8,200 students currently attending classes, the dorms are filled, with many students on a waiting list for a room in the fall. And some of them will have to look elsewhere for housing when classes resume in the fall.
The association has no "cash flow" problems, said Kenn Marshall, spokesman for the state System of Higher Education. And the organization's audit indicated that it brought in $2.5 million more in 2007 than it did the previous fiscal year.
The SAI and state system attributed the negative fund balance to the inclusion of depreciation of its properties. Depreciation can be explained as the cost of the dorm construction being spread over 30 years until it disappears and is replaced by building repair costs. Regardless, there was a $1 million shortfall in meeting expenses in the last fiscal year, the tax return shows.
And there is an indication that the association has been mismanaged, Swords said.
By March 2007, the association had failed to make more than $8,000 in unemployment compensation contributions to the state Department of Labor and Industry. As a result, the state placed a lien on the association in Washington County Court in the amount of $8,692, court records show.
Nancy Pinardi, the association's new executive director, said the organization made a mistake by not making the payments to the Labor Department, and that the lien has since been satisfied. Pinardi said the association was working on the paperwork to have the lien removed on courthouse records.
When an organization is running low on funds, the last thing it should do is miss tax payments, Swords said, as the government will not overlook its delinquent accounts.
The student association also was unable to find its application for tax-exempt status and was seeking a copy of the document from the Internal Revenue Service, the association's new financial officer, Leigh Lincoln, stated in an e-mail to the newspaper. That document is supposed to include the reasons why an organization is considered a charity and worthy of being exempt from paying taxes, and be immediately available to the public.
"That's sloppy stuff," Swords said.
Shortly after the association's fiscal year ended June 30, its two top managers, Tim Susick and Barry Niccolai, took other jobs within the university. The senior accountant of student housing, Omar McPherson, left about the same time and relocated to Pasorobles, Calif.
The personnel changes were for "normal and/or routine reasons," Lincoln stated in an e-mail to the Observer-Reporter. "There was no wholesale cleanup of staff," she stated.
Cal U. administrators turned to the student association in 2000 to fund construction of apartments and six new dorms after the state directed the 14 state-owned universities to bring their aging housing into compliance with modern building codes.
The university leased state-owned land to the association, which then used bonds to finance construction.
"It was a public-private ... model that has become quite common across the state," Cal U. spokeswoman Angela Burrows said.
However, the other state universities, with the exception of Bloomsburg, are not using their student associations to manage the mortgages, instead turning to their nonprofit foundations to manage the new dorms, said Marshall, the state system spokesman.
It's possible, Swords said, that the association can improve its bottom line by cutting costs and lowering its profit-sharing payouts to the university.
The association has reduced its payroll from a high of $853,000 in 2005 to $813,000 last term, excluding benefits, its tax returns show. It also cut its travel budget from nearly $98,000 three years ago to $28,000 last term.
Even so, the association was $274,000 short of the money it owed in profit-sharing payments to the university in 2004.
"If there's been a debt to the university, it's been made up," said Charles Keller, the association's solicitor. "It's one of the best student-operated organizations in the country."
Under the terms of the profit-sharing contracts that are spelled out in the 2002-03 tax return, the association agreed to pay the university $1.5 million through 2011 to offset the cost of building an alumni center. The association also agreed to pay Cal U. 75 percent of its net profits from managing the dorms. It further agreed to lease the dorm property from the university for nearly $1.7 million through 2048, the tax document indicates.
As for the profit-sharing agreement: "Everyone is happy with it," Pinardi said.
Burrows said the university also uses the dorm income for student scholarships.
Before the association became involved in building and paying for dorms, it had only three sources of income, Keller said.
Those sources involved money collected in student fees that fund campus clubs and organizations, income from the bookstore operation and revenue from a contract with a soft drink company, Keller said. Now, the university collects board fees, and that money passes through the association to reduce construction debts, he said.
"I've worked with this outfit for 58 years," Keller said. "It has always been a clean operation."