CSU faculty criticizes Carinalli loans

The association that represents California State University faculty said Thursday that the Sonoma State University Foundation “betrayed the public’s trust” by making loans to Clem Carinalli, a former board member who said he is now unable to make payments on a $1.25 million loan.

“We’re outraged by the betrayal of the trust that has been put in the foundation and its board,” said Alice Sunshine, a spokeswoman for the California Faculty Association, which represents 23,000 faculty statewide, including 500 at Sonoma State University.

“They are wasting money that was supposed to be used by students,” she said.

The foundation’s board of executives held a closed-door meeting Thursday to discuss the Carinalli loans. Patricia McNeill, president of the foundation board and vice president for development at SSU, would say only that she had attended the meeting when contacted at her home Thursday evening.

She declined comment on the critical statements issued by the California Faculty Association.

The private loans also drew sharp criticism from state Sen. Leland Yee, a San Francisco Democrat who is a proponent of transparency at university foundations. He called the incident a “scandal” and renewed his calls to require university foundations to comply with the same public meeting laws that govern state agencies and universities.

SSU President Ruben Armiñana, who is also an officer on the foundation’s board, for the second day refused comment through a spokeswoman.

The loans came to light Tuesday at a closed-door meeting held by Carinalli to update lenders on his troubled finances, which have forced him to cease making payments on some loans.

The foundation could lose hundreds of thousands of dollars in unpaid interest on a 1997 loan, and significantly more if Carinalli is unable to repay the $1.25 million principal.

On Thursday, university officials said they were still researching details of the loan transactions and could not provide further information until after the holiday weekend.

“We take this very seriously and hope to work with you closely to get the facts on these important issues,” said SSU spokeswoman Jean Wasp.

Nick Curry, a student representative on the foundation’s board, said that if Carinalli defaults on the loan, it will hurt students.

The foundation, established in 1974, receives and invests donations made to the university. Its $31 million endowment funds programs ranging from scholarships to campus activities.

“It’s unfortunate how the chain of events in the economic downturn hurts everybody, everyone from a multimillionaire businessman to students,” Curry said.

Like other board members, Curry said the loans appeared appropriate and defended Carinalli’s role in the transactions.

“I don’t think it’s a conflict of interest,” said Curry, a finance major who was apprised of the situation at the last board meeting in June. “I think at the time it was a good investment. They knew him. They believed in him.”

The university declined to provide the minutes to that June board meeting.

Carinalli is Sonoma County’s largest individual landowner, with properties valued at $65 million, according to county tax records. He is working to avoid bankruptcy after the real estate downturn left him unable to make payments to some of his lenders, saying he hopes to make good on the loans in three to four years.

Carinalli received six of the 18 university loans arranged by his company. Two of those loans are still outstanding. He has notified the foundation that he will stop making interest payments on a $1.25 million loan, which could lead to the loss of between $262,500 and $350,000 in interest payments. The second loan, for $232,500, is still being paid, according to the foundation.

Board member Jim Perez, a certified public accountant with Pisenti & Brinker in Santa Rosa, said Thursday that board members would never have approved an unethical deal.

“These people would never put their reputations on the line to do something that was either unethical or not in the best interest of the university,” he said.

Perez, who was not on the board at the time of the loans, stressed that the board is made up of university professors, students and alumni. “We are all there for the school. I am a graduate of Sonoma State,” he said. “The foundation goes through extraordinary measures to make sure everything it does is prudent and aboveboard.”

Yee has authored a bill that would update the California Public Records Act to include state university auxiliary organizations that receive public funds or perform government functions. The bill, SB 218, is scheduled for a vote Tuesday in the Assembly Higher Education Committee.

“Taxpayers and students deserve to know how their public universities are run,” Yee said in a statement. “SB 218 will ensure that our public higher education systems operate in the light of day and are held accountable.”

You can reach Staff Writer Nathan Halverson at 521-5494

or nathan.halverson@pressdemocrat.com.