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Arkansas Baptist Gets $30M to Repay Debt, Get Back on Track

7 min read

Little Rock’s Arkansas Baptist College recently secured a $30 million funding agreement that has helped calm its troubled financial waters. The proceeds from a Dec. 5 bond issue through the Historically Black Colleges & Universities Capital Loan Financing Program repaid $27.8 million of short-term debt to nine lenders and creditors.

The 30-year loan guaranteed by the U.S. Department of Education brings long-term stability to the institution’s fiscal foundation.

The refinancing also is expected to reduce the college’s debt service costs by $1.5 million annually and help build much needed cash reserves.

The deal is a significant event to restore order at the 130-year-old private college after 18 months of trial and tribulation.

“I’m not Job, but I know what he feels like,” said Fitz Hill, president of Arkansas Baptist College. “I’ve never had such a burden lifted off of me.”

The long-term funding largely consolidated construction loans that backed an aggressive capital improvement campaign and completed a goal Hill set eight years ago.

The financial crisis that arose in 2013 — and the circumstances that caused the cash-flow trauma — were not part of the strategic plan.

Ongoing financial aid re-porting problems at Arkansas Baptist were exacerbated by problems automating its financial aid system to comply with Department of Education requirements.

This led to delayed payments from the DOE for the 2013-14 academic year. The change disrupted the cash-strapped college’s single most important source of revenue for nearly six months.

Frustrated vendors formed a line of lawsuits against Arkansas Baptist to collect on unpaid bills.

Faculty and staff didn’t always receive paychecks on time. Students wanted to know why they weren’t receiving their scheduled financial aid.

“If the banks didn’t work with us, we would’ve been done,” Hill said. “What made it worse — and it was bad — there was no opportunity to plan for this. There were no provisions.

“Families were depending on money from the school. That was the toughest thing for me, not being able to pay people. We didn’t receive any money from the Department of Education until Dec. 16 [2013]. The fact we are still around is a miracle of God.”

The stress of it all sent Hill for a Christmas Eve ambulance ride and overnight stay at Baptist Health Medical Center-Little Rock after he suffered what was diagnosed as a transient ischemic attack, a mini-stroke.

He also endured a temporary bout of partial paralysis on the right side of his body. Hill is chagrined that he allowed the mental strain to escalate to such a point and regrets the distress it caused his family.

Hill is grateful to faculty, staff and supporters, who rode through the storm with the college.

The turmoil generated by the financial strain at Arkansas Baptist and resulting publicity led to heightened scrutiny of its accreditation by the Higher Learning Commission, which noted in March: “The college’s handling of administrative processes and challenges is ineffective.”

New Management Team

The uproar over the inability of Arkansas Baptist to stay current on its financial obligations led a few to publicly advocate for Hill’s ouster. It was a dramatic turn for Hill, who is credited with leading the college back from the precipice and restoring its viability and vitality.

Hill didn’t draw a salary when he came aboard in 2006. But his compensation rose to more than $200,000 as he brought new life to the college and its surrounding neighborhood.

Beth Coulson, chairman of the board of trustees, said the situation at Arkansas Baptist College was grim when she recruited Hill to become president. By her account, the college was on the brink of closing its doors with an enrollment of about 128 students, $2 million of debt, endangered accreditation and facilities badly in need of upgrade.

Under Hill’s leadership, en-rollment grew to more than 1,000, supported by millions of dollars in new buildings and campus improvements.

However, the accompanying growth in revenue, which surpassed $20 million by 2013, critically exposed the college’s capabilities to manage its financial resources and meet federal reporting requirements.

“Most people will look back and say it had to get where it did to get to the end result,” said John Rutledge, a Hill supporter and president of First Security Bank, the largest lender in the Arkansas Baptist building campaign.

That end result is a better organized college staffed with the talent necessary to properly administer a thriving operation.

A new chief financial officer, Charlotte Comer, was hired in June. The veteran accountant came to Arkansas Baptist from Cheyney University of Pennsylvania, where she served as controller.

Founded in 1837, Cheyney is the oldest historically black institution of higher education in the nation with 2014 enrollment of 1,179.

“Coming here allows me to be an accountant, which is something I love, and to combine that with my passion of working with young adults and helping them fulfill their career aspirations,” Comer said.

An executive director of financial aid and scholarships, Phillip Rodgers, was hired in September. Rodgers came from Portland State University in Oregon, where he served as head of financial aid at the 28,241-student campus.

Rodgers is confident that the issues with the Department of Education and Higher Learning Commission will be resolved during 2015.

“They are reviewing everything to make sure we’re in compliance,” he said. “We’re on the path to getting it all straightened out.”

The change in how Arkansas Baptist received its life-flow of student funding was the result of a financial aid audit by the Department of Education.

“Due to the severity” of those findings from the examination of fiscal year 2011-12, the college could only submit one monthly reimbursement request with appropriate documentation in-stead of receiving advance payments.

And if the documentation had too many errors, the payment request was bumped to the next month.

Rodgers and Hill believe the DOE will change its delivery of funds to the college from the once-a-month reimbursements under the heightened cash monitoring method back to the speedier advanced method in the coming months.

Mission

Arkansas Baptist is an open-enrollment college, requiring only a high school diploma or GED for admission. Most of its students require assistance and additional time to complete their college degrees. Many are first-generation college students from low-income families in Arkansas.

The 2014 commencement at Arkansas Baptist produced its largest graduating class ever: 134. Fall enrollment dropped from 1,081 in 2013 to 901 this year.

Keeping its student loan default rate and graduation rate within federal guidelines is especially challenging for colleges such as Arkansas Baptist.

“Because of the nature of the business and their business model and the community they serve, the growing pains are more severe,” Rutledge said.

Hill estimates the optimum enrollment at Arkansas Baptist at 1,150. That would require adding 200 beds of student housing to make the numbers work.

With the bond loan in place, the focus is on lining out the college’s cash flow, amassing $2.5 million-$3 million in cash reserves and building an endowment fund of $10 million-$20 million by 2020.

“Getting this loan through the Department of Education is another confirmation that, despite the noise we’ve heard, the college is on the right track and doing the right things,” said Pete Yuan, president of the Arkansas region of IberiaBank, which provided $10.5 million to finance on-campus construction at Arkansas Baptist.

“If the Department of Education would’ve felt there were fundamental problems, they wouldn’t have made the loan. We made our loan purely based on their own merits and because it made financial sense.

“The mission was great, but at the end of the day, they had to be financially viable, and they are.”

The college continues to tidy up outstanding debts. During the past six months, Arkansas Baptist took care of more than $368,000 owed on unpaid un-employment insurance contributions, interest and penalties.

But some items still linger, such as more than $23,000 in delinquent property taxes. Hill hopes to have any outstanding debts taken care of by the end of January.

“We probably grew too fast,” he said in retrospect. “The school was on life support when I got here. We’re out of ICU, but we’re still in the hospital.”

“Everything isn’t fixed, but it’s getting better.”

Arkansas Baptist College Scores Long-Term Funding Agreement

Payoff First Security Bank loans and lines of credit $15,564,920
Payoff IberiaBank loans $10,172,139
Escrow Fund $1,496,683
Payoff Summit Bank/Bank of the Ozarks loans $695,561
Payoff Arvest Bank loan $609,100
Cost of Bond Issuance $528,879
Payoff Centennial Bank loan $282,258
Payoff Richard N. Massey loan $250,000
Payoff Southwest Contract $157,016
Payoff Delta Trust & Bank loan $105,227
First National Title Co. $38,788
Payoff Turner Development $16,819
Bryant Miller Olive real estate services $10,725
Brooks Surveying $5,600
Total* $29,933,715

*Funded by a Dec. 5 bond issue through the Historically Black Colleges & Universities Capital Loan Financing Program, guaranteed by the U.S. Department of Education. Items in bold are debts owed on short-term loans and outstanding bills to vendors by Arkansas Baptist, and other items are related to the bond issue expenses.

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