State agency supports $3M in credit for HSU

A $3 million line of credit to cover a potential temporary gap between expenses and income at Henderson State University is economically feasible, the Arkansas Division of Higher Education determined.

The Arkansas Higher Education Coordinating Board approved the feasibility report Friday, clearing the way for the university to actually obtain it.

Chuck Welch, president of the Arkansas State University System, with which Henderson State is attempting to merge, said the university plans to go to its bank and ask for it.

The line of credit is specifically to make payroll, in the event the university’s monthly check from the state arrives after payday, which would only be a few days’ difference, Welch said. He said Henderson State hopes to never need to access it.

“We are absolutely not interested at all in any new long-term debt at the institution,” Welch said, but noted that cash flow is still one of the university’s biggest challenges.

Henderson State trustees approved seeking the line of credit Dec. 19. It’s one among several measures taken to help the university after revenue shortfalls related to overspending and allowing students in deep debt to the university to continue to register for courses, which led to the accrual of more debt.

The university cut about $3.3 million in expenses in the fall. About $1.1 million of those cuts were 3% salary reductions for 300 of its 399 employees and a drop in the university’s match to employees’ retirement from 10% to 6%. The salary reductions were effective Jan. 1, slightly reducing the university’s payroll during a period of low cash balance.

Payroll is about $3 million, Welch told the board.

Even after accessing a line of credit, the university would remain below the 25% maximum percentage of net tuition and fee revenue that may be pledged to educational and general debt service, the Higher Education Division wrote in its recommendation to the board to declare the line of credit economically feasible. Existing debt service is only $1.5 million, compared with the maximum allowed of $7.3 million.

Coordinating Board members did not express concern about the line of credit. One thanked Welch for the financial advice that the ASU System gave Henderson State last fall.

Board member Al Brodell asked Welch what percentage Henderson State had so far collected of debt owed by students to the institution.

Total debt was about $10 million last fall, Welch said, but that figure includes debts going back to 1986.

The university has collected about $1 million so far, Welch said, and total debt from fiscal 2019 was more than $4 million.

For students who owe higher amounts, the university is allowing them to slowly pay off those debts, Welch said. They can continue to register for courses only if they pay in full for the new semester.

The university had been allowing students with up to $4,800 in debt to continue registering for courses and making exemptions for students with even higher debt. Some owed as much as $20,000, Welch said.

“If you’re saying, ‘You’re going to have to pay $10,000 by this date’… they’re going to walk away,” Welch said.

University leaders believe the school was $6 million short on revenue last year.

Last July, the university asked for and accepted a $6 million advance from the state, which will be deducted from its monthly deposit from the state beginning this month. The university used that money to cover deficits related to student accounts receivable and other things.

It hasn’t come up with enough money to cut from its budget to accommodate the loss in state money, and Welch has said the university will not be able to cover for that loss in state funding this year and leaders will need to work with state government on a plan to repay the money. The line of credit would not be used for anything other than payroll, he has said.

If the university cannot obtain a line of credit, officials will “go into extreme measures of prioritizing,” Rita Fleming, vice president for finance and administration, told trustees in December. Payroll and debts to vendors are at the top of the list. Employees would be paid, and vendors would be asked how much they absolutely need to be paid in a given month. That could mean the university would make partial payments. Instead of once a month, it may make two, depending on when cash flows in and is available to flow back out.

The university is under new leadership this year, with interim President Elaine Kneebone and Fleming taking on the new chief financial officer position.

State lawmakers will subpoena for a hearing this month former President Glen Jones Jr.; Brett Powell, the former vice president of finance and administration; and the university’s current board of trustees chairman, Johnny Hudson.

The decision came after the committee reviewed an audit of the university’s finances and grew frustrated that no one who was in charge of the university last year was there to answer questions about what went wrong.