Henderson State University will seek a line of credit of up to $3 million, but trustees acknowledged Thursday that may be difficult to find.
At the same time, university leaders don't expect to be able to operate under the university's allotted state contribution for the year. They'll be working with the Arkansas Department of Finance and Administration and Gov. Asa Hutchinson's office to figure out how to proceed as the university attempts to emerge from years of multimillion-dollar deficits.
"I don't see a financial institution loaning us $3 million," Trustee Ross Whipple said during Thursday's board meeting. With the university's existing financial troubles, he said, "this is going to be a problem."
"Certainly it's going to take some effort, Ross," said Chuck Welch, Arkansas State University System president.
Henderson State has agreed to merge into the system, but completion of the merger is pending paperwork and accrediting agency approval.
After lengthy discussion about the university's finances, trustees approved seeking the line of credit, with no audible opposition.
Leaders will begin strategic budget analysis as across-the-board cuts won't be feasible, Rita Fleming, vice president for finance and administration, told trustees. For example, the university can't shrink the supplies budget by 50% because that budget has already been shrunk.
The more than $3 million budget reduction approved in September won't be enough to erase the university's deficits, Fleming said.
Trustees approved seeking a $1 million line of credit in May, but then-President Glen Jones Jr. balked at the plan to obtain it after learning it would need state approval.
If approved by the state and granted by a bank, Henderson State would be the second public university in 10 years to receive a line of credit.
The University of Central Arkansas received three lines of credit for $6 million each in 2008, 2009 and 2010. The Arkansas Division of Higher Education said it was unsure if the money was ever used for the first two but noted the third one was never used. During that same time, UCA received two multimillion-dollar advances from the state.
North Arkansas College is the only other public institution to receive one in the past 15 years, obtaining $675,000 last year over a five-year term. That was related to acquiring new software. It has been drawn from periodically, according to Donald Suggs, the college's vice president of finance and administration.
Arkansas Baptist College and Ecclesia College have received lines of credit in recent years.
$6M ADVANCE FROM STATE
Fleming estimates Henderson State came up $6 million short on revenue last fiscal year. The university asked for and accepted a $6 million advance from the state, which will be deducted from its monthly deposit from the state beginning in February. The university used that money to cover deficits related to student accounts receivable and other things.
It hasn't come up with enough money to cut from its budget to be able to accommodate the loss in state money coming up.
"We're not going to be able to pay back that full $6 million by the end of the year," Welch said. "The governor knows that."
System and university leaders will meet with the Department of Finance and Administration in January to discuss options, Welch said. The governor is "conceptually willing to work with us."
A solution may not be officially reached quickly, Welch said.
"Even if we're able to reach an agreement on an arrangement with [the finance department], it could require some legislative language," Welch said. It could be April before that language is adopted, he said.
As university leaders and trustees want to avoid even further debts, they agreed the line of credit would be used to cover payroll and debts in case of emergencies, not deficits.
If the university cannot obtain a line of credit, officials will "go into extreme measures of prioritizing," Fleming said. Payroll and debts to vendors are at the top of the list, she said.
Employees would be paid, and vendors would be asked how much they absolutely need to be paid in a given month, Fleming said. That could mean the university would make partial payments. Instead of once a month, it may make two, depending on when cash flows in and is available to flow back out.
If obtained and used, the amount of interest the university would have to pay on the line of credit would be only a few days, Fleming said.
In November, the university had to pay its 399 employees before its monthly deposit from the state arrived a couple of days later.
Fleming learned that on her first day on the job in early December.
"My heart just almost stopped and I needed a paper bag to breathe in," she told trustees.
The university had enough money at the time, but it may not if that happened again, she said. Payroll is about $3 million monthly.
Because of improvements in financial aid application processing, Fleming said, she expects the university to have more financial aid coming in next spring and enough to cover university expenses. The $3 million is in case of emergencies, and she said she hopes it's never used.
Henderson State has largely depleted its reserves and operates with seven days or fewer of cash on hand. That's less than half of what it was in fiscal 2018, and 17 times fewer days than the median of institutions with the same Moody's Investor Service credit rating (122 days). Monthly liquidity was less than $2 million in June, according to a recent Moody's report.
The Moody's report concluded the proposed merger with the Arkansas State University System would be beneficial financially for both institutions.
The Division of Higher Education and the state finance department must approve the line of credit. Then the university can make requests for proposals from a financial institution for the line of credit, which trustees noted would be difficult considering the university's existing financial problems.
Henderson State came up $4 million short on student accounts receivable and about $2 million short on other line items last year.
Trustee Creed Spann said there is a "misunderstanding" that the $6 million advance was a real help, more than solving a temporary cash flow problem.
"Really all it is is paying off $6 million incurred in years before," he said. "Those are the real numbers, y'all. We're going to have to have more money, but not in the form of a loan. I absolutely don't think we should have a loan of any kind. We can't pay back the $6 million."
CUTBACKS AT SCHOOL
Trustees approved $3 million in cuts in September, effective Jan. 1. They include slashing salaries by 3% and reducing the university's match to employees' retirement from 10% to 6%, saving the school nearly $1.1 million this fiscal year.
The second-largest cutback was an estimated $900,000 in supplies and travel. Personnel savings, which include the ongoing hiring freeze and leaving extra help unfunded, total a projected $650,000. Downsizing course offerings could result in savings between $250,000 and $500,000. Eliminating an unfilled administrative assistant position in the president's office, along with reducing extra help, could save another $112,000. Miscellaneous operational cuts could save $275,000.
Trustees approved a $69 million budget in May that anticipated a 3.5% growth in enrollment. Preliminary enrollment figures released in September show 4,054 students, only a 2.4% enrollment bump, largely from high school and graduate students.
The university has lost money in recent years, including $6.5 million in fiscal 2018 and $5.8 million in fiscal 2017, determined after recent audits. At first, money loss was because of dropping enrollment, but an increase in enrollment last fall did not offset losses in other areas, including $3.7 million in student accounts receivable incurred during the past fiscal year alone.
The university has reined in its policy on allowing students to register for courses when they owe money to the school to be more in line with typical public universities.
Previously, students who owed $4,800 or less were automatically allowed to continue to register for courses, and students who owed even more were routinely allowed to continue to register for courses. Under the new policy, returning students with debt must pay their balances down to no more than $2,500 to enroll this fall.
That ceiling lowers each semester until January 2021, when the debt must be fully paid.
Metro on 12/20/2019