South Carolina State pursuing solvency: controversial loan from University of South Carolina part of remedy

Black Issues in Higher Education, August 6, 1998 by Linda Meggett Brown

Controversial loan from University of South Carolina part of remedy

Orangeburg, S.C. -- Four years of operating in the red finally forced South Carolina State University to borrow $2.1 million from another state institution. But it appears the historically Black institution may be able to avoid that problem next year.

SCSU has reorganized and laid-off twenty-six employees. Additionally, almost twenty employees have also been reassigned to other positions at the university. Add an 8 percent increase in student fees to the equation, and the institution possibly could be looking at a financial surplus by the end of next year.

The money to repay the loan is in the 1998-99 budget, which was approved last month by the university's Board of Trustees. The increase in tuition and fees should cost in-state students an additional $250 per semester to attend the 102-year-old institution.

"Based on the university's cost cutting measures, and with the inclusion of additional revenues, the end of the 98-99 fiscal year may show a $400,000 budget surplus," said S.C. State President Leroy Davis Jr. "If so, it will be the first time m four years that S.C. State will end a fiscal year with a balanced budget."

To meet its year-end payroll, SCSU requested the appropriation from the state General Assembly and asked permission to enter into a loan with a local bank. Then in June, the state's Budget and Control Board requested $2.1 million from the University of South Carolina (SCU), a state agency that had a budget surplus.

"It is important to note that never at any time in this process did S.C. State approach or ask USC to provide funds to cover the university's budget deficit," Davis said.

Since the Budget and Control Board negotiated the deal, rumors have swirled that there is a plan to make S.C. State one of USC's satellite campuses. However, officials from both schools deny it.

USC agreed to the loan, but both President John Palms and a number of trustees made it clear they didn't especially like the idea.

"I don't think it's good policy to do this," Palms said the day the trustees approved the deal. "It's only for emergency situations."

Indeed the situation at S.C. State is an anomolous one, according Bracey Campbell, a spokesperson for the Southern Regional Educational Board.

"As far as we know, there are no other schools in our region that have that kind of financial problem. Schools have financial challenges, but none have had to look to sister institutions for help," he said.

How did S.C. State get into this situation?

Last year, responding to new performance-based funding standards handed down by the state, the school made a concerted effort to raise the average SAT score of its incoming class to 1,000 -- a move which cost the campus 200 incoming students and nearly $3 million.

The university's lack of reserve dollars also contributed, in part, to the budget deficit, Davis said.

S.C. State implemented proactive steps to address its budget problems before approaching the state Budget and Control Board -- including reducing travel 20 percent, reducing and delaying some purchases, and hiring only essential personnel.

The school also had a $3.5 million overdraft in the 1996-97 fiscal year and recurring shortfalls in other funds.

All of this resulted in a depletion of the university's cash flow over the past several years, according to Budget and Control Board documents. The $3.5 million overdraft occurred after the school failed to ask the Higher Education Commission to transfer $1.5 million in reserves to its accounts, documents show.

A recent audit showed that four auxiliary budgets that were supposed to be self-supporting were losing money: the athletic department ran a $5.7 million deficit; central supply's deficit totaled $156,181; the student center snack bar lost $95,297; and the Felton Laboratory lunch program came up with a $151,414 deficit.

A 1994 legislative audit report complained that the school didn't make all its students pay tuition, allowed faculty and staff to amass unpaid debts for university services, and failed to collect thousands in bounced checks for tuition and fees.

To ensure there is not a repeat of operating with a shortfall, Davis said he plans to review and revise current administrative structures, policies, and procedures to develop an effective enrollment management plan and forge partnerships to promote philanthropic support.