BSC in danger of closing

[4Q Basket Case]

The state bailed out Athens State in 1975, but it then took it over. Not likely the solution in the case of BSC...

Agreed. The state already funds UAB, which is literally 15 - 20 blocks away, and I’m not aware that BSC offers any courses of study that UAB doesn‘t. Even if they do, it would have to be niche offerings and nowhere near enough to justify a state takeover and highly duplicative merger into UAB. If UAB wants to expand their offerings, it would be infinitely less expensive to just do it organically.

They might…..maybe…..be able to sell the campus to a community college (Lawson State? Jeff State?). But even then, in that location, I’m not sure what they’d pay for it. Plus, their financial distress has been common knowledge for some years. While I haven’t seen any mention of it, given how long the money problems have been around, I’d be really surprised if there isn’t a bunch of deferred maintenance on campus buildings and infrastructure. Any buyer would have to take that into account.

The situation is a hot mess. So sad that a formerly great small liberal arts college has been mismanaged into the dirt.

 

[Padreruf]

I'd say loosely...

Samford is the same way...they "separated" themselves decades ago and do not accept any money from the Alabama Baptist State Convention unless it is for scholarships...I'm not up on that.

 

[Crimson1967]

I read an article that said BSC had held back on maintenance because of budget issues so there probably are a lot of problems. And with declining enrollment there are likely dorms and classrooms that haven’t been used in a while and have deteriorated just due to being ignored.

 

[Tidewater]

A friend of mine in academia said academia is in a bubble. Billions of government-sponsored student loans, mountains of student debt, non-teaching staff outnumber teaching faculty in academia, etc. He said, when the bubble bursts, it is going to be bad, and it is going to burst from the bottom up (small, especially private liberal arts schools first, before large state universities). The competition for students will be fierce, meaning ever less teachable students will reach for the brass ring of a college degree, including some who have no business in college at all.
I feel bad for BSC, but bad management will eventually do in every institution.

 

[TIDE-HSV]

Samford is the same way...they "separated" themselves decades ago and do not accept any money from the Alabama Baptist State Convention unless it is for scholarships...I'm not up on that.

Well, they used to be more tightly bound to the UMC. My senior year in HS, I took a competitive test sponsored by the Phi Beta Kappa. I had the highest score by far. However, I didn't win the scholarship, which was the prize. Instead it went to the second, by far, scorer, who just happened to be a Methodist minister's son. I was offered a partial, still making it more expensive than Bama. By then, I was more than a little "bent." So, I went to Bama. However, I've had two brothers and a stepdaughter graduate from there...

 

[rolltide_21]

A friend of mine in academia said academia is in a bubble. Billions of government-sponsored student loans, mountains of student debt, non-teaching staff outnumber teaching faculty in academia, etc. He said, when the bubble bursts, it is going to be bad, and it is going to burst from the bottom up (small, especially private liberal arts schools first, before large state universities). The competition for students will be fierce, meaning ever less teachable students will reach for the brass ring of a college degree, including some who have no business in college at all.
I feel bad for BSC, but bad management will eventually do in every institution.

The liberal arts college where I’m an adjunct watched 2 similar schools close their doors recently due to financial reasons. Our leadership paid off all debt by raising funds and making cuts. We’ve adopted an approach similar to College of the Ozarks. As a result we’re thriving. But it took watching those other colleges fold and realizing we were heading the same direction. You’re right when the bubble bursts it will be bad. But the fiscally responsible institutions will survive unlike BSC.

 

[Padreruf]

The liberal arts college where I’m an adjunct watched 2 similar schools close their doors recently due to financial reasons. Our leadership paid off all debt by raising funds and making cuts. We’ve adopted an approach similar to College of the Ozarks. As a result we’re thriving. But it took watching those other colleges fold and realizing we were heading the same direction. You’re right when the bubble bursts it will be bad. But the fiscally responsible institutions will survive unlike BSC.

The college loan program -- for students -- has turned out to be a boondoggle of the worst kind -- a source of money for schools. Schools raised tuition, etc., and students just borrowed like there was no tomorrow. Schools kept spending and students kept borrowing...I took ONE economics course in college and learned one thing: TANSTAAFL -- "there ain't no such thing as a free lunch." If you get something "free" then someone, somewhere has had to pay for it.
I hate it for BSC, but when the bill comes due someone has to pay for it.

 

[Crimson1967]

The word is they will shut down at the end of the semester. That sucks for the seniors. Seems like somehow they could stretch it out for them.

 

[4Q Basket Case]

Late Add: Just did a quick lookup on Daniel Coleman, president of BSC. I erroneously assumed he had an academic background. He's academically smart -- BA from Yale, MBA from University of Chicago, successful career in finance. But BSC is his first job at an institution of higher learning.

Doesn't make his dealings with Boozer any smarter, or his blunder any less telling. Just means that he doesn't have a PhD.

 

[Bodhisattva]

BSC is a private school. If the state bails it out, it's a really slippery slope to having to bail out every private college in the state that encounters financial difficulty. It also removes incentive for private schools that aren't in distress to manage their finances prudently. After all, they effectively have state backing, don't they? I think this is the root of Boozer's position, which is further emboldened by his assessment of BSC's creditworthiness.

Excellent post. I was not familiar with BSC's situation before reading this thread, but I absolutely agree that the government should not be in the bail-out and subsidy business - for individuals or businesses or academia. If one mismanages their finances or has a bad business model why should the taxpayer pay that bill? If a private bank or investment group won't offer a loan or funding, what does that tell you? The government seems all too eager to play financial angel, which just makes the problems worse. I rarely say this, but kudos to the state government for taking a pass on this bad idea.

 

[Bodhisattva]

The college loan program -- for students -- has turned out to be a boondoggle of the worst kind -- a source of money for schools. Schools raised tuition, etc., and students just borrowed like there was no tomorrow. Schools kept spending and students kept borrowing...I took ONE economics course in college and learned one thing: TANSTAAFL -- "there ain't no such thing as a free lunch." If you get something "free" then someone, somewhere has had to pay for it.
I hate it for BSC, but when the bill comes due someone has to pay for it.

Agreed. Government has caused the entire buffet of highly predictable problems - destroying a lot of people's lives in the process. And now those problems are offloaded on the taxpayer and the program that causes the problem is still in place. But, there are plenty of people who keep defending this program, so the carousel of stupidity just keeps turning.

 

[4Q Basket Case]

Agreed. Government has caused the entire buffet of highly predictable problems - destroying a lot of people's lives in the process. And now those problems are offloaded on the taxpayer and the program that causes the problem is still in place. But, there are plenty of people who keep defending this program, so the carousel of stupidity just keeps turning.

Great line! Haven’t seen that one before. I’ll credit you when I use it.

 

[4Q Basket Case]

Update: BSC is enlisting the help of congress (Terri Sewell and Robert Aderhold in a rare point of agreement), and essentially making the argument that they generate more economic value than the loan in question.

Which is a seductive point until you consider the ensuing slippery slope.

As in, if you bail out a struggling private institution of higher learning because it generates economic value beyond the bailout (which calculus is highly subjective and another debate for another time), do you bail out a struggling private company that also generates more economic value than the bailout?

If the decision is based on economic value, why not?

Having done that, where would you draw the line between private institutions — whether for-profit or non-profit — that get the bailout vs. those that don’t? Or do all qualify?

I realize the terminal point of the logic here is absurd — that all institutions of whatever type are entitled to state taxpayer bailouts. But that absurdity is my point.

There are two major issues here. The first is outlined above. The second is an unintended consequence of misplaced mercy.

As in, if all private institutions of higher learning are entitled to state-funded bailouts, what’s the incentive for any of them to manage their finances prudently?

They would in fact be incented to take on projects that are ill-conceived and financially outsized (IOW, swing for the fences with somebody else’s money) precisely because they wouldn’t have to suffer the consequences of either incorrect assumptions or poor execution.

I sympathize with the people (students, faculty, staff and neighbors) who will suffer because of BSC’s past financial blunders.

That doesn’t mean I think we should create a whole system whereby nobody fails.

Side Note: I would also point out that if BSC was actually the sound credit risk it claims to be, there would be banks, other lenders and bond agents lined up to make the loan. The fact that no such line exists is telling.

 

[TIDE-HSV]

Update: BSC is enlisting the help of congress (Terri Sewell and Robert Aderhold in a rare point of agreement), and essentially making the argument that they generate more economic value than the loan in question.

Which is a seductive point until you consider the ensuing slippery slope.

As in, if you bail out a struggling private institution of higher learning because it generates economic value beyond the bailout (which calculus is highly subjective and another debate for another time), do you bail out a struggling private company that also generates more economic value than the bailout?

If the decision is based on economic value, why not?

Having done that, where would you draw the line between private institutions — whether for-profit or non-profit — that get the bailout vs. those that don’t? Or do all qualify?

I realize the terminal point of the logic here is absurd — that all institutions of whatever type are entitled to state taxpayer bailouts. But that absurdity is my point.

There are two major issues here. The first is outlined above. The second is an unintended consequence of misplaced mercy.

As in, if all private institutions of higher learning are entitled to state-funded bailouts, what’s the incentive for any of them to manage their finances prudently?

They would in fact be incented to take on projects that are ill-conceived and financially outsized (IOW, swing for the fences with somebody else’s money) precisely because they wouldn’t have to suffer the consequences of either incorrect assumptions or poor execution.

I sympathize with the people (students, faculty, staff and neighbors) who will suffer because of BSC’s past financial blunders.

That doesn’t mean I think we should create a whole system whereby nobody fails.

Side Note: I would also point out that if BSC was actually the sound credit risk it claims to be, there would be banks, other lenders and bond agents lined up to make the loan. The fact that no such line exists is telling.

Banks learned long ago that a foreclosed church property can remain in inventory a long, long time...

 

[4Q Basket Case]

Banks learned long ago that a foreclosed church property can remain in inventory a long, long time...

Interesting point there. Federal regulation requires that foreclosed property be written down to $0 if it’s been on the books as FP for 5 years.

So yes, the extremely thin market for churches, college campuses and other highly specialized property (especially when there is limited or no alternative use), plays into the evaluation of collateral and therefore the original credit decision.

That’s because if they can’t sell it on to someone else at “highest and best use” value within 5 years, the banks’ shareholders take the full hit.

 

[Crimson1967]

Adderholt is a BSC grad, attended the same time I was there. Don’t really remember anything about him.

 

[Crimson1967]

They pulled the plug today. Last day is May 31.

Birmingham-Southern College closing May 31 as loan bill fails to gain support: ‘This is a tragic day’

Officials initially asked for $30 million in funding from the state legislature, and another $7.5 million from the city and county government.

www.al.com

 

[BamaMoon]

They pulled the plug today. Last day is May 31.

Birmingham-Southern College closing May 31 as loan bill fails to gain support: ‘This is a tragic day’

Officials initially asked for $30 million in funding from the state legislature, and another $7.5 million from the city and county government.

www.al.com

That's sad. Another loss for B'ham.

 

[4Q Basket Case]

It is sad, and I truly wish BSC hadn't driven itself off a cliff.

All small liberal arts colleges face a major challenge -- public institutions offering similar academic programs at much lower cost. Most, however, don't dig their own graves, which BSC did.

This has been coming for a long time, dating back to the combination of a Field of Dreams approach to long term capital allocation and an unrelated massive accounting error.

I can't tell you how I know, but I know: Krulak didn't really right the ship. There's no shame there. The problems were so deep that I don't think anyone could. He bought time by using pressure, threats, and some influential BSC alumni to stave off collection efforts.

If not for that, BSC would have closed a while back.

I'm reminded of one banking adage and one quote from someone involved in the decision to fire Mike Shula.

Bankers will tell you that, "Better days to come" is not an acceptable source of repayment.

Regarding the firing of Mike Shula, the UA official told me that, "It was a sad decision…..but it wasn't a hard one."

For a lot of reasons, I truly hate that it came to this. But for once in history, the Alabama State Legislature did the right thing.

 

[Padreruf]

Wow -- so sad for all concerned. This was an excellent academic institution back in the 60's to the 80's...which is the end of my knowledge. Samford can now get a Phi Beta Kappa chapter which BSU had blocked for decades....