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Students walk along Bruin Walk at UCLA. The governor's budget plan withholds some UC funds.

Gov. Jerry Brown wants to hold back $50 million from University of California funding until the university system corrects what a recent state audit has alleged are overspending and financial mismanagement, and he has reversed course and agreed not to reduce Cal Grants for low-income students at private colleges.

The governor announced those changes and others Thursday as he released his proposed revisions to the $183 billion state budget plan. He was influenced, he said, in part by fears that future changes in federal health care funding and economic conditions could wipe out current state revenue surpluses.

Given those long-term cautions, Brown stuck with his plan to phase out the Middle Class Scholarships for students at Cal State and UC and rejected Assembly Democrats’ proposal to vastly increase grants for families at state colleges and universities with annual incomes up to $145,000.

Stepping into the debate about UC administrators’ salaries and what the recent state audit report alleged are undisclosed financial reserves at UC, the governor’s May revision sets aside $50 million from the $3.6 billion in general funds for UC and said that money would be released “only once the Director of Finance certifies that the UC has made progress in implementing these reforms and the Auditor’s recommendations.”

The state auditor’s report last month said it found $175 million in undisclosed UC reserves and said many UC management pay and benefits are far above comparable jobs in other public agencies. It also accused Napolitano’s office of trying to interfere with the audit’s results. In the aftermath, some state legislators have called for a roll-back in a recent tuition increase and for Napolitano’s resignation.

At his press conference in Sacramento, Brown said he thought some UC salaries were too high and said he put that line in his budget “to hold their feet to the fire. We will keep the money until they perform to the auditor’s satisfaction.”

UC president Janet Napolitano has denied that there are any secret reserve funds, but has said UC would accept many of the auditor’s suggestions about transparency and spending controls. On Thursday, UC spokeswoman Dianne Klein said in an email that UC leaders “fully intend to meet the requirements for the release of these funds” and “will continue to demonstrate our commitment to cost containment.”

In a victory for California’s private nonprofit colleges after much lobbying, Brown dropped his January plan to reduce the Cal Grant aid for low-income students who attend those schools. Those maximum Cal Grants should remain at $9,084 a year and avoid the $1,028, or 11 percent, cut that he previously sought as an austerity measure, according to the May revision. The restoration will cost about $8 million a year. In exchange, Brown said he wants those colleges to increase enrollments of low-income students, make it easier to transfer from community colleges and bolster online classes.

About 28,000 California students now use those grants at private colleges across the state, ranging in size from mega-universities such as the University of Southern California to smaller liberal arts colleges such as Whittier College. Officials of independent colleges say it makes economic sense to maintain the Cal Grants at the current level because it would cost taxpayers more in various subsidies and facilities expenses to enroll those students at a CSU or UC.

The Association of Independent California Colleges & Universities issued a statement thanking the governor for the funding and “the recognition of the important role California’s private, nonprofit colleges and universities play in the higher education landscape.” The group’s 69 undergraduate campuses already work on the issues Brown specified but will strive harder, the statement said.

Brown, however, held to his plan to phase out the Middle Class Scholarships. The three-year-old program provided state-funded aid for 46,000 students at California’s public universities this year with family incomes generally between $80,000 and $150,000. Brown proposed that current students can continue the grants through 2020-21, but that no new students would be added. Depending on school and income, those grants could be as much as $3,688 this year for a UC student. His office estimated the move would save the state $116 million over the next four years.

That phase-out may be a big bone of contention with legislative leaders who not only want that plan kept, but are also advocating for a large expansion of aid at state universities for families with incomes up to $145,000. That proposal was estimated to cost California taxpayers as much as $1.6 billion a year when fully implemented.

In arguing against legislators’ ideas on aid, Brown emphasized that the state provides much financial aid through Cal Grants, community college waivers and UC and CSU grants, and that Cal Grants would cover recent tuition increases at UC and CSU. “We are doing quite a lot,” he said. To expand college financial aid significantly would require either large cutbacks in other programs such as child care or much higher taxes, neither of which is an appealing or likely prospect, he said.

“That’s a pretty heavy lift,” he said.

Brown’s May revision retained his proposal to allocate $150 million for “guided pathway” programs at community colleges.  The funds could be used for “academic road maps and transfer pathways that explicitly detail courses students must take to complete a credential or degree on time.” The goals of the pathway programs would be, among other things, to raise college completion rates, reduce the time it takes to earn a degree and reduce students’ debt loads.

In a statement released Thursday, California Community Colleges Chancellor Eloy Ortiz Oakley welcomed the guided pathways money and said it “will integrate student support and instructional programs and lead more students to earn industry-recognized credentials and jobs that strengthen families and communities.”

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