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Surprise $20M deficit shadows Ohio university

Baldwin Wallace University (BW) is a small, liberal arts college in Berea, OH that people recognize primarily for its music programs. Earlier this fall, BW’s new Chief Financial Officer discovered that the school had a previously unknown financial problem. BW’s administration thought it had a $3M budget deficit. Upon further review, it appears as though the financial shortfall is more like $20M. When the school submitted an updated financial report to the Higher Learning Commission, the HLC promptly flagged it for closer inspection.

BW had an undergraduate enrollment of about 3,000 students in 2022, and a graduate enrollment of about 450 students. Most students attend on a full-time basis, averaging nearly 28 credit hours per undergraduate last year. BW also has a comprehensive athletic program. Despite being a NCAA Division III school, one of its graduates, Anthony Kendall, cracked the roster of the NFL’s Tennessee Titans as a cornerback.

Ordinarily, a $3M deficit in a higher education institution should set off alarm bells. While the $20M figure might have been a surprise to some administrators, it appears that at least someone knew the kitchen was on fire. University records show that someone transferred funds from the university’s endowment and other accounts to make sure money was in the right places at the right time.

In September, The Exponent, BW’s school newspaper, began writing about the institution’s apparent financial problems. It was the first indication of trouble for most BW students and staff. The administration has since issued assurances that however the school chooses to fix its books, the repair will not affect the students.

On its face, that’s a ridiculous statement, since virtually all operations at a school (except maybe a health and fitness center that was built with a different clientele in mind) affect its students.

Deficit results when school ignores published tuition rate

BW is like every other higher education institution in that it hires an outside firm to audit its books. In this case, the outside auditor for the previous few fiscal years was KPMG. Following the discovery of the deficit, the school has hired Ernst & Young to re-audit the books for the previous four fiscal years to determine the source(s) of the problem.

One area that requires closer examination is the school’s spending in the most recent fiscal year. These expenditures will not yet have been scrutinized by the school’s outside auditors. An additional possibility is that the school did not properly account for federal COVID-19 relief funds, or that it over-spent based on COVID-19 funds, which have now expired.

Another likely problem is the fact that BW’s enrollment has declined by more than 22% in the last 10 years. Additionally, BW bills students for only about 60% of the published tuition rate, making up the remainder with university grants, federal financial aid, and other grants. In recent years, the amount of university grants has vastly increased. Which means that the school’s published tuition rate growing less relevant each year.

The published tuition rate means something. It is not an arbitrary number; it represents how much it costs the institution to educate a student. A private institution needs to track its costs carefully because it doesn’t get supplemental funding from the local or state government. It can’t afford to ignore the published tuition rate. Most private institutions have endowments that provide at least some funding for scholarships, but if the school is going to reduce tuition for a student, there has to be another source of income that makes up for it.

Trustees should end online education subsidies for non-resident students

WCC is making a financial mistake by lowering the tuition rate for out-of-district online students. The administration has created a subsidy for non-resident students that the Washtenaw County taxpayer is obligated to pay, for no particular reason, and with no particular benefit to the taxpayers or residents of our county.

It is very easy to spend someone else’s money, and this administration has demonstrated time and time again that it has no interest in protecting our investment in WCC. It is time for our elected Trustees to see this subsidy for what it is and put a hard stop to it. We have no legal or moral obligation to educate people from other places, who do not live here, do not work here, and will never come here.

Photo Credit: Jonathan Cutrer , via Flickr