Birmingham-Southern College loan bill sparks sharp debate in House committee

Sen. Jabo Waggoner, R-Vestavia Hills, looks down during a session of the Alabama Senate on Feb. 6, 2024 in Montgomery, Alabama. (Brian Lyman/Alabama Reflector)

The House Ways and Means Education Committee Tuesday heard a sharp debate over a bill intended to throw a financial lifeline to Birmingham-Southern College (BSC).

SB 31, sponsored by Sen. Jabo Waggoner, R-Vestavia Hills, alters the Distressed Institutions of Higher Education Revolving Loan Program, approved by the Legislature last year by requiring the approval of loans to a qualifying college or university facing financial trouble and moving the administration of the program from the state treasurer to the executive director of the Alabama Commission on Higher Education.

The bill was filed after Alabama State Treasurer Young Boozer rejected a loan to BSC last year. Boozer said he had doubts about the long-term financial viability of the college.

“I know it was a tough decision for him but at the end of the day, he refused to administer the loan, so thus here we are again,” said Waggoner. “I Introduced a bill into the Senate a few weeks ago.”

BSC has faced declining enrollment and financial woes stemming from overbuilding; the economic downturn of the Great Recession and the COVID-19 pandemic, which eroded the school’s endowment.

Rep. David Faulkner, R-Mountain Brook, brought a substitute bill to clarify language around the banks involved. The substitute also sets milestones for the institution to maintain the loan, including increasing the student body and addressing a deficit. If the milestones are missed, the loan will go into default. Collateral would be provided by the U.S. Treasury if the debt amount exceeded $15 million.

Faulkner said the collateral includes the U.S. Treasuries and a first priority interest in the campus. He said the main campus has a liquidation value of $22 million.

“Mr. Chairman, members give this college a chance to do what they say they can do, and if they can’t, you have the collateral to allow this to happen,” he said.

The committee is scheduled to vote on the substitute and the amendments on Wednesday. 

Supporters of the legislation said the school is working toward solving its woes.

BSC President Daniel Coleman compared the school’s collateral to closing on a house or buying a company.

“So at the moment of closing anyone who has a lien on our collateral would release it, and we would deliver the collateral to the state in the first position as you would in a closing of a purchase of a house,” he said.

He said he is confident that the school will be turned around by 2027.

Rev. Keith Thompson, chair of the college’s Board of Trustees, said they have been meeting every week to shore up the college. 

“In fact, it was working until we got the announcement from the treasurer’s office that the funding wasn’t coming,” he said.

Opponents expressed concerns about the scope of the bill and BSC’s future. Boozer, who spoke at Tuesday’s meeting, said the school turned to the government after over 20 years of financial mismanagement. 

“Their credit was terrible then, and it’s worse now,” he said.

Boozer said the bill changes it from a loan to a grant program. Boozer said the school was losing money through lost enrollment and said management was unstable. He said the staff was overpaid and there were too many employees.

“My warning to this committee, the public and especially the taxpayers, if you loan it, you will own it,” he said. “It is a falling knife.”

Gordon Stone, executive director of the state’s Higher Education Partnership, they had respect for the college but were concerned about sending public money to private institutions.

“We believe that we need to protect the public dollars for public institutions, the public dollars for public purposes premise because we believe that that is the critical role that we have as a state,” he said.

After the public hearing, Faulkner asked Coleman what the state would receive if the school failed after a $30 million loan. He confirmed the U.S Treasuries and the liquidation value of the main campus.

Coleman said the school had received record numbers of applications until the loan was denied, so the required growth by Faulkner’s amendment would not be extraordinary. 

“The latest drop was directly related to last year and before that we lost a little bit I think during COVID,” he said.

He said the deficit should be going down each year.

In response to a question from Rep. Terri Collins, R-Decatur, Coleman said that ServisFirst would not be the first lien holder anymore. Rep. Brock Colvin, R-Albertville, confirmed that was communicated due to a contrary comment from Boozer.

Boozer has had concerns with that specific bank throughout the process. A message seeking comment was left with ServisFirst.

Rep. Cynthia Almond, R-Tuscaloosa, asked if that had been communicated to Boozer. 

Coleman said that they had. 

Rep. Debbie Wood, R-Valley, said that you do not make a loan because of collateral, you make it because you think they will get paid back.

“Because in my mind, if I’m writing a check, I’m hoping that I’m getting the money back–,” said Wood.

“Sure,” said Coleman.

“–not that I’m getting your buildings,” she said.

The bill is on the agenda for a committee vote on Wednesday.

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