More on the closing

Sorting through a box of old papers yesterday, I found an old Christmas card. It comes from before my time at SJC and I no longer remember where I got it. It shows a scene that no longer exists and is perhaps a good way to start a post on the big changes happening now.

Every nonprofit organization in the US must file a Form 990 with the IRS and these forms are available to the public. Most of them can be found on the Internet. A quick search shows that three are available for Saint Joseph's College, reporting on years 2012, 2013, and 2014. The forms are 50+ pages, but many of those pages have no information. A quick snapshot of the finances can be found on the first page, which has data for the current and previous year.

In 2011 SJC had a surplus of $1,132,563. It was the last good year. The deficits for the next three years were $1,101,705 in 2012, $2,539,238 in 2013, and $2,496,119 in 2014.  We know from other sources that years 2015 and 2016 also had big deficits. 

At the end of 2014 SJC reported assets of more than $134 million and liabilities of almost $35 million, so net assets were just a bit under $100 million. That makes it sound as if the institution was in very good financial shape. However, digging deeper into the form to page 24 we see $84 million of the assets is from the value of land (and presumably most of that is the Waugh lands that SJC cannot sell). The value of buildings and equipment (mostly the campus) is almost $22 million. The buildings are valued at cost less depreciation and that value is probably much more than market value (what it could be sold for).

The College had two informational meetings on Monday, one in the afternoon for faculty and staff and the other in the evening for students. The evening session was webcast on Facebook and lasted three hours. It was my first experience with a live webcast. There was a steady stream of comments with it and they came with such speed that it was hard to read them all. In addition someone produced an 11,000 word summary of the two meetings as a form of minutes.

The main speaker at both events was the board chairman. He stated that the reason for the cessation of activities at the end of the semester is that the College is running out of money. The College has been financing deficits by selling assets and borrowing. It no longer has collateral against which to borrow and it has almost exhausted the financial assets that it can sell. The College has tried to raise more money from donors but could not get amounts needed to fill the gap. He stated that his goal and the goal of much of the Board had been to keep the Saint Joe's experience the same as what he and other alumni had experienced and in that they had had a soft heart. He noted that the so-called discount rate was about 65%. That means that although the listed tuition is $31K (or $32K with fees), the average amount of tuition per student was about $11K. (From the point of view of economics the whole discussion of discount rates obscures what is actually happening in the pricing of college. Maybe I will pick up on the topic in some future post.) In the student meeting, one student objected to his mention of the discount rate, saying that it suggested that he was blaming the students for the problem.

The College will be downsizing in the next few months and how and when it will do this was of great concern to the staff. Some of that downsizing will begin almost immediately but almost everyone will be out of a job in May. There is some money left in endowment that perhaps can be released to pay severance but whether that can be done has to be determined by the Indiana Attorney General. Someone asked why the College did not let the alumni know that it desperately needed money and I thought the answer to that was poor. I would have replied that when an institution announces that it has serious financial problems, lots of bad things can happen. In the case of a college, it becomes very difficult to attract students.

It is no surprise that there are at least 12 schools that will reach out to attract the freshmen, sophomore, and juniors. For them it is an cheap way to add students. If you watch Shark Tank, you often hear about customer acquisition costs--the cost of getting a new customer. There are substantial student acquisition costs, and getting transfer students from SJC will be cheaper than attracting additional freshmen.

In both meetings there was emphasis that SJC would rise again in a new and financially stable form. I do not know if the Board really believes this but many of the faculty do not. It is much more difficult to start a new college than the continue an old one, and if the administration and Board were not able to make the old one work financially, how can they be expected to plan a new one that will? Perhaps they are thinking of going more on-line, but they have no experience with that and the time to do that was fifteen or twenty years ago. When Virginia Intermount went out of business a few years ago, a Chinese group bought the campus. Perhaps the Board is thinking that some kind of arrangement can be reached with a foreign group. 

A question that was never asked is how the College can pay off its external debt. The College seems to have about $30 million in secured mortgages and notes payable to unrelated third parties. Any plans for a new Saint Joseph's College to rise again will need to figure out how the existing debt will be resolved.

Experience is the best teacher. I suspect that the lessons that students will learn from events this semester (and I am not sure what those lessons will be) will endure long after what they learn from books is forgotten.