You may never have heard of Tompkins Cortland Community College before. It’s in Dryden, NY – about 10 miles northeast of Ithaca, and about 40 miles southwest of Syracuse.) TC3, as the locals know it, enrolls about 1,500 students annually. TC3 was one of the first community colleges in New York to provide dormitories on campus.
New York state law prohibits community colleges from owning dormitories directly. Institutions typically shop off the whole ownership issue to a special-purpose non-profit or to the college’s foundation.
In 2013, the TC3 Foundation issued $30M in bonds to build seven dormitories (800+ beds) on campus. (For 1,500 students.) TC3 was certain it could fill the dorms at an average annual campus housing cost of about $12,000. (Side note: more than half of TC3’s students come from households with incomes less than $30,000. And 97% of TC3 students come from the State of New York.)
So, not everything in this plan went according to plan. The TC3 Foundation issued the bonds according to plan at about 5% interest. If you believe Moody’s, in 2013, a 5% interest rate indicated bonds that were awkwardly close to junk. The dorms – all seven of them – were built according to plan.
The dorm rental did not go according to plan. Community college enrollment had already begun to decline, and TC3 had (and still has) a lot of extra residential space. TC3’s foundation was supposed to make bond payments to the tune of $1M or more per year through 2027. At full capacity, the dorms should have generated something close to $10M per year. They made substantially less than that. Within 6 years of issuing the bonds, the TC3 Foundation defaulted.
Dormitories are symptoms of a bigger problem
If this all sounds vaguely familiar, I will direct you to Fulton-Montgomery Community College (FMCC) and the Fulmont College Association (FCA). In brief, the FCA borrowed $10M from the USDA in 2010 to build dormitories on the FMCC campus. FMCC was certain that it could fill the dormitories with international students and everything was just going to work. The plan failed miserably and the FCA defaulted on the loans to the USDA. FCA subsequently got the USDA to agree to allow FCA to sell the dorms for pennies on the dollar to a former FMCC board member. (That also didn’t work.) You can read about that here.
Unlike the FMCC/FCA storyline, the TC3 Foundation didn’t borrow money from the USDA. It sold bonds to private investors who – surprisingly – were not amused that the Foundation defaulted. There is a fine – and not well-understood fine line between TC3 and the TC3 Foundation. The entities are both related and unrelated at the same time. One exists for the sole benefit of the other, yet they are financially separate.
Understandably, some of the investors feel duped because the Foundation built the dorms for TC3 students. TC3 was supposed to fill the dorms and did not. At the same time, this is precisely why the State of New York does not permit community colleges to own dorms. The state does not want the ultimate responsibility for its community colleges’ financial failures.
The state wants some other entity sitting between itself and the ill-advised, half-baked plans that community college trustees invariably come up with.
Community college trustees do not fully understand risk
For some reason, community college trustees never seem to correctly judge the risks involved in business. At the end of the day, community college trustees have one job: to watch the way their institution spends money.
Every community college is fully funded through some combination of appropriations, tax collections, and student tuition and fees. The institution’s administration has no mandate to generate additional revenue; it simply needs to operate within its means. All the trustees need to do is watch the money. That’s it. When the administration and the trustees worry more about making additional money than spending what they have carefully, they jeopardize the entire institution.
Photo Credit: Marcin Wichary , via Flickr