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Community college bond debts will trip up more schools

I’ve spent the last couple of days writing about Lakeland Community College in Kirtland, OH. The State Auditor of Ohio has determined that LKCC is on the verge of a financial disaster. I actually wrote about Lakeland Community College last fall, when the school announced that it would lay off 10% of its staff in an effort to shore up its budget.

At that time, I wrote that the fault for LKCC’s circumstances traced back to its trustees. I still believe that – and believe it for any community college in financial trouble. In LKCC’s case, in the Auditor’s report, the trustees there claim that they had no idea that the school was in deep financial trouble.

I realize that in Ohio, the Governor appoints trustees to community college boards. I also realize that not all of the trustees serve for long periods as part of the institution’s governing body. But there is no excuse for not knowing the financial condition of the institution whose board you sit on. The institution’s financial health is the very reason it has a Board of Trustees.

The job is not about making policy as much as it is about making sure the money is being spent appropriately. It is more about directing the institution’s financial health and representing the interests of the taxpayers than it is about anything else. Every decision a community college trustee ever makes traces back to finances, purchasing, expenses, hiring and firing, contracts, budgeting, setting tuition and fees, tax collections, state appropriations, and every other aspect of the college’s money.

As long as community college trustees are doing their jobs, there is no way a Board of Trustees does not know the financial condition of the school it oversees.

OH community college closure likely first of many

LKCC Board of Trustees’ statement doesn’t inspire a lot of confidence in their ability to provide oversight. When multiple LKCC trustees say that they do not know the financial condition of Lakeland Community College, that makes me wonder why the Governor appointed them to the board in the first place.

Recently, community college trustees have seemingly over-exercised their ability to issue general obligation bonds. They secure bonds without voter approval using the college’s general fund, or money generated through the operation of certain revenue-producing facilities. (e.g., the campus fitness center, parking, campus housing, leasing space in a university center, etc.) These bonds do not need voter approval, but the voters are on a very long hook if the college collapses because of gross financial mismanagement.

Tapping the general fund takes away money from instruction and campus operation. It reduces the college’s ability to create new academic programs, perform necessary maintenance and renovations, and attract highly qualified teachers. Stagnant academic programs reduce enrollment.

Many other community colleges are in Lakeland’s position, but I don’t recall seeing a community college with six active bond issues. The number of bond issues alone should shine light on LKCC’s financial position. Issuing bonds is borrowing money. When you open up six different lines of credit at the same time, it’s most likely because you’re having financial problems.

It’s apparent that community colleges will suffer the largest losses in enrollments in the next few years. More community colleges will enter states of financial exigency in part because of their bond debts.

Taxpayers and local governments must start paying close attention to their community colleges’ general obligation bonds because financial failures may force their community colleges to close their doors, leaving millions of dollars in bond debt behind.

Photo Credit: Lukey, via Flickr