As a private institution, Birmingham-Southern College is not subject to the kinds of open records and open meetings laws that city, county and state governments must abide by. Administrators can meet behind closed doors. The college need not show its budget to anyone it doesn’t want to see it. It’s records belong to it and it alone.
Except for one.
As a non-profit organization, BSC must file a Form 990 with the IRS. That form must include important details about the college’s finances, including breakdowns of revenues, expenses and assets. A non-profit’s 990 forms are public records and available to anyone with Internet access through several organizations that curate them.
The figures reported in BSC’s 990 forms show ballooning expenses, stagnant revenues and uncontrolled deficits that stretch over the last several years. Further, these forms call into question the college administration’s story that its financial woes were a recent discovery.
If the college’s tax forms reflect its true financial condition, between 2004 and 2009 BSC amassed a $68.4 million total shortfall. More than $40 million of that red ink came in the last two reporting periods, fiscal years 2008 and 2009.
The college has not filed a Form 990 for the most recent fiscal year, 2010, when administrators have said its financial woes first came to light, but further damage to the college’s financial standing seems likely. The college cut its expenses only within the last month, and any possible improvement in its revenues is not likely to have closed the gap in its budget.
According to the narrative given by BSC officials to the media, the liberal arts school discovered only as recently as this spring the severity of its financial problems. The faculty at the college got the same story and was told as recently as February that instructors would be getting raises this year. Instead, in the last two weeks the college announced draconian austerity measures, laying off 29 faculty members and 51 staff members — about 20 percent of all employees. BSC also cut five programs from its course offerings and reduced remaining employees’ pay and benefits.
When tracked over time, the college’s tax records show an institution that has been redlining for many years. In addition to the tuition and fees it collects from students, the college has depended on direct giving from alumni to close large gaps in its budgets. When direct giving has not closed the gap, the college has dipped into its endowment to make up the difference.
But beginning in 2004, tuition, fees and alumni giving were not enough to cover the college’s expenses. Some of this is likely attributable to a transition at BSC to a new college president. In one year, the college’s alumni giving fell by more than 50 percent.
For the next two years after that, alumni donations slowly recovered, but soon after, the Great Recession negated that improvement. At the start of the decade, anything less than $15 million had been an off year for alumni donations. In fiscal year 2009, direct public support had fallen to $6.3 million.
But alumni donations had never been the problem. Rather, they had always mitigated and underlying cause of the college’s financial woes — tuition and fees were not enough to cover expenses. When the college’s new president, David Pollick, arrived in 2004, he undertook an ambitious plan of expansion and growth that would ostensibly cure that problem.
The plan called for increasing the size of the student body from slightly less than 1,200 students to at least 1,500. The new revenue from the additional students would allow the college to hire more faculty and offer new majors. One of Pollick’s pet projects has been a lightning rod for ridicule and second-guessing — the construction of a large pond and fountain near the dorm quad. The college undertook other expensive capital projects, including a new welcome center, a new dorm and new athletic facilities.
As part of this transition, Pollick’s administration made a controversial decision to move the college from NCAA Division I to Division III athletics. The argument for this made sense to faculty and trustees, even if it riled students. Division I was expensive. The college was spending heavily on athletic scholarships while it offered only one full-ride academic scholarship. The infrastructure and staff were expensive, too. The consensus, even among sports commentators, was that Division I was a luxury BSC could not afford.
The shift to Division III was supposed to save the college money. If that in fact happened, there was no corresponding dip in the college’s expenses. Either Division III has cost just as much money as Division I, or the college has spent any savings on other things.
As BSC’s total revenue remained stagnant or even in decline, the college’s expenses increased steadily at about 10 percent per year. A gap formed between the two numbers and it widened. This course was unsustainable. If it were not stopped, it would have destroyed the college, and even now, after severe spending cuts, the college’s fate remains uncertain.
Initially, the college attributed its problems to an accounting snafu related to how the college awards financial aid. However, BSC’s tax statements call into serious question any assertion that the college administration did not know until recently that the school was in financial trouble. No matter how it happened, the college was clearly telling one story the IRS and another to everyone else.
Which narrows down the condition of the college to only a few possibilities:
- The college knew it was in financial trouble and is now creating a false narrative about accounting problems to obfuscate the truth;
- Finance officials who filed the college’s 990s knew the truth and reported it to the IRS but did not tell higher-ups;
- The college administration is telling the truth and BSC’s financial condition could be even worse than what’s reflected in its tax forms, in which case, the college cannot safely vouch for its own numbers.
Regardless of which is true, BSC has a new problem that’s potentially more corrosive than its financial problems. The new crisis is one of trust and confidence.
Disclosure: The author is an alumnus of Birmingham-Southern College.