MOBILE, Ala. (BP)–The University of Mobile sidestepped what officials called “a significant financial problem” when two banks agreed April 30 to expand the school’s lines of credit.
“The expanded line of credit will get us through the summer,” said Robert Maxwell, chairman of the university’s board of trustees. “Admittedly the University of Mobile has some fiscal problems, but we can and we will handle them.
“Thanks to the favorable actions of the banks, the sky is not falling,” he added. “The pressure is off for the moment.”
Rumors about financial problems at the University of Mobile began circulating shortly after President Michael Magnoli mailed a five-page memo to trustees March 25. Maxwell confirmed the concerns in an interview with The Alabama Baptist April 30.
In the memo, Magnoli outlined the financial situation of the university. He reminded trustees that shortfalls had been experienced each of his 13 years as president. Although Magnoli would not tell local reporters exactly how deep the debt was, he had reported in his March memo that the “cash flow situation is much weaker this year than in the past ….” University officials reported the cash flow shortfall could reach $1.5 million by the end of the school’s fiscal year June 30. Additional funds would be needed to sustain the school until students return in August, providing an income stream from tuition and fees. The total shortfall could reach as high as $2.2 million.
Adding to the problem was the university’s lines of credit with two area banks, totaling $2 million. The lines of credit would have been used up before the end of the current fiscal year, necessitating a new source of funding from which to pay bills.
Magnoli said May 1 the situation was “not uncommon in small schools, especially aggressive, growing institutions. The message here is that the University of Mobile is financially stable. We have everything worked out with the banks.”
Magnoli’s March 25 memo summarized several possible steps to address the cash flow problem as well as the long-term financial health of the institution. One possibility mentioned was “an emergency request of the Alabama Baptist State Convention for additional borrowing capacity.” Maxwell, an Atmore, Ala., attorney, said trustees are considering a debt restructure proposal, but he cautioned that long- range plans have not been solidified.
Magnoli explained the restructure proposal is similar to what many families do with a debt consolidation loan. “We have a lot of little loans — land purchases, buildings, short-term loans. This would consolidate them into one and extend the payments.”
Initial figures indicated the university is considering consolidating between $8.5 million and $9 million in indebtedness.
“For a school with a $25 million budget and a $27 million physical plant, those are not bad numbers,” Magnoli insisted. The University of Mobile has about 2,700 students.
A trustee committee is reviewing the school’s financial affairs, Maxwell said. That committee will report its findings to another trustee committee, which will formulate any recommendations about finances and other matters.
The full board of trustees is scheduled to reconvene May 13 to hear reports and consider recommendations from the committees. The trustees recessed their regularly scheduled meeting April 22 in order to secure needed information before making further decisions.
“We must address the long-term debt,” Maxwell said, “but it has not been as urgent as the short term. That has been my life for the last three weeks.”
Magnoli’s memo held out the possibility of program cuts and staff reductions as one way of curbing expenses. However, Maxwell said no plans to cut staff or programs at the university are foreseen.
“We may not be as aggressive in starting new programs that have been on the drawing boards, but we do not plan any cuts in existing programs,” Maxwell emphasized. He said any staff reductions would come through attrition and no employee would be discharged.
Maxwell also reported no dramatic increases in tuition or other charges are anticipated. “We will have only modest increases like other institutions have,” he said. “This is a competitive situation, and to raise our costs would be counterproductive.”
Magnoli said he met with the student recruitment staff to assure them student aid would not be impacted by the recent developments. “We are a stable school,” he said. “No one needs to worry about our being able to serve the Baptists of Alabama.”
What Maxwell called a “significant shortfall” in projected income occurred when student enrollment and student retention did not meet expected levels. Also, fund-raising activities were not nearly as productive as expected.
Nevertheless, the school proceeded with capital expenditures funded out of operations. Magnoli pointed to a nearly completed academic park consisting of a cafeteria-bookstore building and two classroom buildings expected to cost about $3 million. At the 1996 annual meeting of the Alabama Baptist State Convention, approval was given to borrow against pledges to a fund-raising campaign in order to finance the building.
Magnoli said the school has not yet borrowed those funds. University officials would not report how much money in pledges has been received to date for the academic park.
“Capital expenditures contributed significantly to our temporary cash shortfall,” Maxwell added.
He said trustees anticipate making a full report about the university’s financial condition to Alabama Baptists’ State Board of Missions and the state board’s executive committee at their May 15-16 meeting.
“The trustees are sensitive to their responsibility, and we are mindful of the commitment we made to Alabama Baptists in resolving concerns about the Latin American Branch Campus of the University of Mobile,” Maxwell said. “The trustees are devoting a lot of time to resolving this issue.” In 1995, the trustees pledged to messengers attending the state convention they would be responsible for all activities of the university, including those on its Nicaraguan campus. In October 1996, Maxwell led the trustees in exonerating the university in any wrongdoing regarding financial operations of the LABC. At the 1996 annual meeting in November, the convention audit committee expressed “continuing grave concerns” about the financial condition at Mobile, specifically the discrepancies in accounting records between UM and its Nicaraguan campus.
Maxwell praised Magnoli’s wisdom in “punting” the cash flow problem to the trustees. In the memo, Magnoli wrote, “I have not been able to bring to the university the financial stability that I feel is vital for the institution to be properly positioned for the next millennium.” Later in the memo he added, “I no longer have the personal ability to shoulder alone the burdens of income shortfalls.”
“I am not saying that we as trustees have not been involved,” Maxwell explained. “But since receiving that memo, we really picked up the ball and ran with it.”
Magnoli observed, “This is the kind of thing that is typically handled internally. You do not bother 44 board members with it. When you do, the information is disseminated and you expect media attention. I believe that is unfortunate. We are just taking care of business.”