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EGCC Dissolution Can’t Dissolve Debts

Eastern Gateway Community College District will likely cease to exist June 30, 2024, if the district does not secure sufficient operating capital by May 31, 2024.

The administration has delivered non-renewal notices to all EGCC faculty members. They will summarily discharge non-contract staff as part of the college’s dissolution procedure in the coming weeks. But that’s not the end of the road. EGCC will live on – in an uncomfortable way – for Jefferson County residents.

The EGCC Board of Trustees authorized a $12.9M bond issue in 2020, which achieves final maturity in 2050. On December 1 of each year between 2020 and 2035, EGCC promised to make bond payments. Additionally, EGCC promised to make bond payments in 2040, 2045, and 2050. Those bonds, which had (and still have) an AA1 Moody’s rating, will not go away. The school also owes on bonds it issued in 2014. At the time of the last audit, the 2014 bonds had a remaining balance of about $1M. EGCC guaranteed repayment of all this debt through its operating revenues.

EGCC Outstanding Bond Debts

Here’s a look at the bonds from the 2020 issue that are still outstanding:

Maturity Date Face Value Coupon Rate CUSIP #
12/01/2024 $255,000.00 3.000% 276482AD8
12/01/2025 $265,000.00 4.000% 276482AE6
12/01/2026 $275,000.00 4.000% 276482AF3
12/01/2027 $285,000.00 3.000% 276482AG1
12/01/2028 $295,000.00 4.000% 276482AH9
12/01/2029 $305,000.00 3.000% 276482AJ5
12/01/2030 $320,000.00 4.000% 276482AK2
12/01/2031 $330,000.00 4.000% 276482AL0
12/01/2032 $345,000.00 4.000% 276482AM8
12/01/2033 $360,000.00 4.000% 276482AN6
12/01/2034 $375,000.00 4.000% 276482AP1
12/01/2035 $390,000.00 4.000% 276482AQ9
12/01/2040 $2,195,000.00 4.000% 276482AR7
12/01/2045 $2,680,000.00 4.000% 276482AS5
12/01/2050 $3,185,000.00 4.000% 276482AT3

Bonds 101

If you’re not up on your bond terminology, the table shows a series of individual bonds. Each bond represents an amount of money the college borrowed from one or more investors. The maturity date is the date on which the bond must be repaid in full. Every December 1, the college pays off one bond of the series in full.

The face value of the bond is the amount EGCC borrowed from whomever purchased the bond. Note the size of the last three bonds. It’s likely the Trustees intended to refinance these bonds at some point. Unfortunately, municipal bond return rates are higher in 2024 than they have been since 2011. Now is not likely the time to find a good refinancing deal. Until the bonds can be refinanced, they will continue to rack up a lot of interest.

The coupon rate is the annual interest rate for each bond. EGCC’s bonds pay interest semi-annually in June and December. For the bond that matures, the college makes the final interest payment in addition to paying the face value of the bond.

The Committee on Uniform Securities Identification Procedures (CUSIP) number is a unique financial transaction number. One can use the CUSIP number to find the terms of the bond.

These bonds are continuously callable, which means the investors can ask for repayment in full at any time. The last three bonds are special for a couple of reasons. First, they’re big. Second, although there are five years between the maturity dates of these bonds, principal payments must be made in the interim. So, for example, the investors of 2040 bond expect to receive partial principal payments in 2036, 2037, 2038, 2039, and the payoff payment in 2040. The same is true of the 2045 and 2050 bonds.

Who gets the bill?

Ohio state law provides the mechanism by which these bonds will continue to be paid in the event that the community college is dissolved. From Section 3354.17 of the Ohio Laws and Administrative Rules:

“In the event of any such dissolution, or in the event of any failure on the part of the officers of any district to qualify and act, or in the event of any resignations or vacancies in office which prevent action by said district or by its proper officers, the county auditor and all other officers charged in any manner with the duty of levying and collecting taxes for public purposes in any county in which such property is situated shall perform all acts which are necessary to the levying and collecting of any taxes which are necessary to pay the principal and interest of such bonds or notes. Any holder of any bonds or notes issued pursuant to sections 3354.01 to 3354.18, inclusive, of the Revised Code, or any person or officer who is a party in interest may, either by suit, action, or mandamus, enforce and compel performance of the duties required by such sections of any of the officers or persons mentioned in such sections.”

In plain language, Jefferson County taxpayers are on the hook for EGCC’s bonds, and the State of Ohio will allow the investors to compel repayment of the bonds and any outstanding Tax Anticipation Notes (TAN) by way of a special tax assessment.

The current EGCC millage – which restricts the money to Jefferson County students AT EASTERN GATEWAY COMMUNITY COLLEGE – may go away, but Jefferson County residents are likely to encounter a new assessment to pay EGCC’s debts. Those debts probably include the school’s pension liabilities and possibly any long-term service contracts for things like the Oracle ERP.

Jefferson County residents should be asking a lot of questions

In my view (which is worth exactly what you’ve paid for it), shopping this responsibility off on Jefferson County residents is a crock, since the Jefferson County voters did not elect the EGCC Trustees. The Governor appointed the EGCC Trustees; they are accountable to the Governor; the Trustees had the sole authority (which came from the Governor and the Legislature) to issue the bonds and TANs; and they had the sole authority to approve the Free College Benefit agreement. Since the authority stems from the Governor’s appointment, the responsibility for cleaning up his appointees’ mess should rest with the Governor’s Office. The EGCC Trustees are his hand-picked people.

But that’s not the way this is going to work.

The dissolution process will undoubtedly evaluate EGCC’s debts. Based on its 2023 audited financial statements, these liabilities were in the neighborhood of $70M. Currently, Jefferson County has about 27,000 households, a poverty rate of nearly 19%, and a labor force participation of about 20,000. That’s a lot of liability to spread out over a relatively slim number of people. Technically, the college’s assets could be used to offset the debts, but right now EGCC can’t even make payroll without state assistance. So, the value of its assets is an open question.

If I lived in Jefferson County, I would be asking a lot of very pointed questions of my representative(s) right now. I would also be looking at the legal remedies that could be applied to the people responsible for whipping up this mess.

Photo Credit: David Grant, via Flickr