November 16, 2011 – Issue 9 Front Page

GC’s financial responsibility tested

By TORI BACHMAN-JOHNSON and VICTORIA ENGELHARDT
Editor-in-Chief and Features Editor
 

        In recent years, GeorgetownCollege’s financial health has been an issue of concern in the midst of a national economic crisis. Although the College’s financial health is currently stable, an article published last month in The Chronicle of Higher Education listed GC as among 150 private,non-profit colleges that failed the U.S. Department of Education’s financial responsibility test for the 2010 fiscal year.

However, the College’sVice President and Chief Financial Officer James Moak said that this test is just one indicator of financial health, and the College is not in a financial crisis.

The Department of Education calculates financial responsibility scores using audited financial statements from colleges, and the scores fall on a scale from -1.0to 3.0. Schools scoring less than 1.0 are required to post letters of credit equal to at least 10 percent of the federal student aid they received in the most recent year, according to the article. GC earned a perfect score of 3.0 on the test for the 2006-07 fiscal year, the first year data was released,but then fell to 1.7 the following year.

A significant drop occurred between the 2007-08 and 2008-09 fiscal years, when the score fell to 0.5. The drop could be credited to the economic collapse of 2008 and to a decline in enrollment and the value of the College’s investments.This combination resulted in a score that required the College to purchase and post a letter of credit from their bank in order to guarantee payment. The following year, GC received a 1.3 and continued its letter of credit. According to recent calculations, the College should pass the test with a score of over 1.5 for the latest fiscal year.

The Chronicle articlestates that some criticize theDepartment of Education’s financial responsibility test as “inaccurate and misleading”and have pressured the department to redefine the calculation process. Moak mentioned that the department developed this test in the 1990s, and it may not reflect financial structuresof all 21st century colleges.

Dean of Students and Vice President for Student Life Dr. Todd Gambill said that there are many other indicators of financial health besides the Department of Education’s test, including assessment by the Southern Association of Colleges and Schools (SACS).

The College is currently in the midst of the year-long process of reaccreditation by SACS, which occurs every 10 years. “At the end of that process, it should be comforting when SACS reaccredits us, since they are looking at our finances,” said Dr. Gambill. “The College is moving in the right direction in its reaffirmation efforts.”

Both SACS and the Department of Education use their respective assessments to proactively warn schools about the possibility of more serious financial problems that could be looming in the future. However,in assessing the College’s financial health, Moak does not consider the Department of Education or SACS to be the ultimate test.

“One key thing I look at is making sure we can meet our financial obligations…and I care the most about our bank,” said Moak. As the College’s creditor, “their opinion is what counts,” he explained.

Despite short-term financial setbacks (such as the economic collapse of2008), the College has grown its endowment from about $26 million to about $43 million since 2003. “We are much more financially secure today,” said President Bill Crouch. “The value of our assets has gone up $7 million in the last year and we have operated the College with a balanced budget,” he explained.

Looking forward, President Crouch thinks the College will be in even better financial health. “In 20 years, we should be in a much stronger financial position for three reasons:most of our debt will be paid off, our endowment should be significantly higher and we anticipate having a bigger donor base.”

In addition to this, Moak says that the College is focusing on admissions to insure financial health. “We have the structure to handle a lot of new students without a significant increase to cost,” he explained. The College is currently examining their business model and considering ways to reach different types of students and increase admissions.

While some may initially be alarmed at the results of the financial responsibility test, Moak emphasized that the College is known for its“strong budgeting culture”and discipline.

“We’ve done a lot of work to get our finances in order and we’ve tried to be more open,” Moak explained. He encourages people to ask questions if they have concerns about the College’s financial health

To read the article that appeared in The Chronicle of Higher Education, follow this link:  http://chronicle.com/article/150-Private-Nonprofit-Colleges/129356/

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