SACRAMENTO, CA - Legislators here recently learned something that, like most Californians, they didn't know. The University of California, the state's premier public institution of higher education, also functions as a real-estate loan firm, but only for select clients. Business is booming, in ways not envisioned at the outset.

The UC's loan program dates from 1984 and was intended to help new professors from out of state break into up-scale housing markets such as San Diego, Santa Cruz, Santa Barbara, and the Bay Area. According to an investigation by the Sacramento Bee, the $1-billion program now has rather different applications, at rates about half of those in the broader market.

The Bee investigation revealed how UC faculty have used the loans to refinance and remodel homes, build swimming pools and dance studios, and buy out spouses and partners. One Spanish professor at UCLA bought a home for $415,000 using a loan from the UC, and then subsequently refinanced it. Last year he sold the home for $1.45 million, paid off the loan, and bought a BMW, a $1 million condo in Los Angeles, and a mountain home in Idyllwild for $330,000.

The line from UC borrowers is that this program is necessary to retain such illustrious academics as themselves. Without the low-cost loans, they say, they would be forced to seek other jobs. According to those looking into the matter, such as state Sen. Jack Scott, the UC too readily complies with their demands and shows them the money.

The senator, the former president of Pasadena City College, has been looking into a UC pay scandal covered here last year ("Oh Say Can UC?" December 7, 2005).

The UC, while boosting student fees 79 percent over several years, had also doled out $871 million in bonuses and stipends to already highly paid faculty and administrators, some no longer officially on the payroll. The system was not exactly forthcoming about these practices, which were revealed by the San Francisco Chronicle, not legislators, state auditors or UC bosses.

UC president Robert Dynes apologized for the pay practices but was not forthcoming about the loan program, which Senator Scott knew nothing about in February. On May 18, the University of California Board of Regents voted to retain Dynes, with no change in his authority. That (as we noted in 'The University of California Flunks Reform School,'' May 31, 2006), came a month after an audit by PricewaterhouseCoopers revealed more than 90 cases that evaded official UC policy. Seven of the 63 UC executives examined in the audit got stipends of more than 15 percent of their salary, a violation of UC rules. One got the stipend while on sabbatical. Some
were paid for work performed previous to their appointment and enrolled in compensation programs for which they were not qualified. Some benefits were not reported to the UC Regents, the public, or the Internal Revenue Service. A full 20 deals occurred with no written evidence of approval.

Some of the violations occurred before Robert Dynes became UC president, but others occurred after the Chronicle revelations, after the call for an investigation by Assembly Speaker Fabian Nunez, and after promises from UC officials to fix the problem. A May university audit found that UC officials skirted the rules 143 times in order to increase pay and benefits to 113 UC managers.

Now come revelations of the loan program. At the University of California, it seems, nothing exceeds like excess. The legislature should continue investigations and the governor should look for a commitment to accountability and transparency in any new UC regents.

K. Lloyd Billingsley is editorial director at the Pacific Research Institute. He can be reached via email at
lbillingsley@pacificresearch.org.