Private Alabama college seeks bailout, warning it may close

December 17, 2022 GMT

BIRMINGHAM, Ala. (AP) — A private Alabama college is seeking a $37.5 million government bailout after years of deficits and declining enrollment, with state legislators warning that Birmngham-Southern College may close within months without the money

The 1,000-student institution in Birmingham released a statement Saturday calling the request part of a plan “to put the college on a sound financial footing for the long term.”

Jefferson County state lawmakers are scheduled to discuss the proposal on Monday, reported.

“Birmingham-Southern has been operating in financial distress for over a decade. Without support, it will not be able to continue to operate after May 2023,” Sen. Jabo Waggoner and Rep. Jim Carns, both Vestavia Hills Republicans, wrote in a letter to lawmakers first reported by the news outlet. “Without a commitment from the state, the college will need to notify high school students that it will no longer be accepting applications by the middle of January.”

The college didn’t immediately respond to a question Saturday about whether it would close without the money. It has blamed its financial woes on the Great Recession of the late 2000s, significant investment in new buildings and an error in federal financial aid accounting.

The Methodist-affiliated college wants a one-time infusion of $12.5 million in federal COVID-19 relief money and $17.5 million in state education funding. Alabama has broad power to spend the pandemic funding where needed, including on the college, even though the school’s enrollment decline and financial troubles started long before COVID-19 started to spread.

The school also wants $5 million from the city of Birmingham and $2.5 million from Jefferson County.

“We believe Birmingham-Southern College’s contributions to the greater Birmingham area and the state warrant such an investment, which is clearly permissible under state law and for which there is considerable precedent,” the college said.

The school dates to 1856, when Southern University was founded in Greensboro, Alabama. That school merged with Birmingham College in 1918 to become Birmingham-Southern, with a campus west of downtown Birmingham.

The college’s troubles have been clear for years to financial observers. Moody’s Investors Service downgraded the college’s bonds in January, saying the college had spent down $17 million from its endowment to make up for “sustained enrollment and revenue declines driving deep operating deficits.” Institutions are supposed to spend earnings from endowments, but not the fund’s principal.

Moody’s said the college had a “perilously low” 24 days of cash on hand on May 31, 2021, the end of its last budget year, and had defaulted on rules governing some of its bank loans, although the banks waived the default and didn’t foreclose. Birmingham-Southern owed $33 million in debt then.

Enrollment at the undergraduate college has fallen from 1,345 in fall 2015 to 1,058 in fall 2021, according to college financial statements and federal reports. Birmingham-Southern ran a $10 million deficit in 2019 and an $8.2 million deficit in 2018, according to the most recent audited financial statement posted online.

The school slashed tuition in 2018 to try to attract more students, also recognizing that most students were paying nowhere near the sticker price. Small private colleges nationwide are struggling with a decreasing number of traditional college-aged students and competition from larger, richer institutions.

Some are closing, including Alabama’s Judson College, a women’s school that shuttered its campus in Marion in 2021.

The college says it’s trying to raise $200 million by May 2026 to rebuild its endowment. It says President Daniel Coleman has secured more than $45 million in pledges from private givers in the past 18 months.

“The government infusion would enable the fundraising to continue for three more years so that BSC can replace its endowment and continue to operate as an independent college,” the lawmakers’ letter states.