There are lots of things going on here, some dating back a while. Apologies in advance for the length. There's just so much history and so many moving parts.
When Dr. Witt came to Tuscaloosa and expanded UA’s scholarship fund, thereby attracting a lot of bright students, the then-President of BSC, Dr. Pollack, said that UA needed to stay in its lane and leave the brightest to the best academic schools….like BSC. Didn’t win a lot of friends doing that.
A few years later, under Pollack’s watch, and as OakMtn4Bama said above, they botched their endowment fund badly, awarding far more money in scholarships than the endowment could provide. It was an internal accounting error well into 8 figures and a huge percentage of the endowment. How’s that “best academic schools” thing working out for ya, Pollack? Dr. Pollack wasn't in any way implicated in financial wrongdoing, but he resigned shortly after the accounting error came to light.
Then a subsequent president whose name escapes me borrowed a bunch of money and went on a building spree. Reminiscent of Field of Dreams, it was an “if you build it, they will come,” project designed to increase student enrollment. It didn’t, and they ended up with tons of debt without the revenue to make debt service.
All of those events happened a while back but laid the financial foundation for where they are today.
So BSC is in tough shape. Enrollment is declining, and they can’t pay either debt service or day-to-day operating costs. They appeal to the state. Problem is, BSC is a private school.
As pointed out by Crimson1967, the Alabama legislature passes a law that says the Treasurer may (not shall) fund what amounts to a bailout loan.
The Treasurer, Young Boozer, doesn’t think they’re a good credit risk. When accused of that assessment, he triples down. To paraphrase, he replies, “I didn't say BSC wasn’t a good credit risk…I said they're a terrible credit risk."
BSC says it's offered collateral worth far more than the contemplated loan amount. Problem there is that a big chunk of the collateral (not all of it) is the campus itself. Problem there is that if you're the lender and have foreclosed on the property, who are you going to sell it to? I'd argue that it's not worth a whole lot except maybe to another institution of higher learning -- which is an exceedingly small market of potential buyers.
If there's no interest from that small group, I could make a good case that the campus is worth whatever that many acres of vacant land in a bad part of town is worth....less, of course, what it would cost to bulldoze the buildings and haul off the rubble.
Then BSC's current president, one Daniel Coleman, made a jaw-dropping blunder. He publicly accused Boozer of acting arbitrarily, capriciously, in bad faith, and contrary to the law. Then he strongly and publicly implied that Boozer himself could be sued for any damages BSC might suffer. IOW, he publicly insulted and threatened one of the few people who could actually help BSC. Tough words, and he needs to have the blackletter reading of the law in his favor....which he doesn't.
All that brings us to today's impasse.
The above are facts. What follows is my interpretation of several aspects of the problem.
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.
The legislature could simply have appropriated the funds for the loan and directed Boozer to fund it. They didn't do that. I think they worded the legislation the way they did because they knew that, for several reasons, Boozer was opposed and the loan would never actually get funded.
This lets the legislature off the hook, saying, "Well, we passed a law. Not our fault it didn't happen." Simultaneously gets BSC alumni off their back and doesn't result in a loan that would in all likelihood be difficult to collect on.
So now Coleman is asking the legislature to amend the law such that it directs, rather than allows, the Treasurer to fund the loan.
If Coleman thinks the legislature is going to amend the law and mandate that the Treasurer fund the loan when (1) it would be over the strenuous and very public objections of the Treasurer, (2) Coleman himself has turned all this into a public spitting contest, and (3) it's a slippery slope to bailing out every private institution in the state -- religious, secular, whatever -- he hasn't been paying attention.
And this is where the blunder in dealing with Boozer really comes home to roost. Coleman now needs Boozer to reverse course, immediately and strongly, to have a prayer of getting the needed legislation. By insulting and threatening Boozer, he's done neither himself nor BSC any favors.
Really smart academics people can do some godamighty stupid stuff, and Coleman did. I'll be very surprised if this ends well for BSC.
(Correction: Coleman isn't an academic....he's a veteran of business -- BA from Yale and MBA from University of Chicago. No PhD. Successful career in finance, including at least two spots as a CEO. Still a stupid move, but it wasn't made by an academic.)
www.al.com
