Alabama Distressed Institutions of Higher Education Revolving Loan Program

The Alabama Distressed Institutions of Higher Education Revolving Loan Program was a public loan offer briefly instituted by state law, but never used.

The legislation was motivated by the financial distress of Birmingham-Southern College. In 2023 college president Daniel Coleman appealed to local governments and to the state for emergency loans that would allow the institution to operate while it worked toward securing $200 million in private donations toward its permanent endowment. As it happened, the request came during a year that the Alabama education budget had a surplus of more than $2.7 billion, largely due to an influx of federal funds relating to the COVID-19 pandemic and economic stimulus from the American Rescue Plan Act of 2021.

2023 law

During the 2023 Alabama legislative session, State Senators Jabo Waggoner (R-District 16) and Rodger Smitherman (D-District 18) co-sponsored Senate Bill 278, creating a loan program which would be available to any eligible college before it expired on January 18, 2027. According to the law, the program would be administered by the Alabama State Treasurer.

It was introduced in the Senate on May 2 and referred to the Senate Finance and Taxation Education Committee. It earned a favorable report the next day and passed the Senate by a 33-0 vote on May 4. The House of Representatives forwarded the bill to the House Ways and Means Education Committee the same day. On May 24 the bill was returned to the full chamber with a favorable report. Three minor amendments were adopted on the floor before it was passed on May 25. The Senate affirmed the changes to the bill that day and it was enrolled for the Governor's signature.

On June 1 Ivey wrote to the legislature requesting several changes to the bill, that she claimed would "enhance the integrity of the loan program". In the letter's conclusion, she added, "I have previously said that taxpayers' public funds should not be used to bail out a private college, and I remain concerned about the wisdom and propriety of this program."

Ivey's suggested executive amendments were adopted by both chambers on June 6, the final day of the regular session. By that point, Birmingham-Southern reported having secured $46 million in pledged donations toward its endowment campaign. She signed the bill on June 16 and it was enrolled as Act of Alabama 2023-560.

Treasurer's denial

In October 2023, BSC president Coleman made public that Alabama State Treasurer Young Boozer III had rejected the college's application for an emergency loan of $27 million under the Distressed Institutions of Higher Education Revolving Loan Program. He also announced that the college would file a suit in Montgomery County Circuit Court seeking to compel the loan's approval.

In the suit, Birmingham-Southern claimed that Boozer attempted to stop the legislation before it passed, lobbied for the executive amendments, and sought an interpretation from the Attorney General of Alabama prior to creating the program. The suit also alleged that Boozer harbored a personal grudge against officials of ServisFirst Bank, which held the college's existing loans. Montgomery County Circuit Court Judge James Anderson dismissed the college's suit on October 25, finding that Boozer had been given the legal authority to act as he did.

In December, BSC submitted a revised application to Boozer's office, offering collateral with terms more favorable to the state. Boozer rejected the revised offer, as well.

2024 bill

The college and its supporters called on the state legislature to change the law during the 2024 sesssion. In his 2024 State of the City address Birmingham mayor Randall Woodfin suggested that changing a single word, so that the law directed that the Treasurer "shall" instead of "may" approve the loan, would change the outcome. Boozer made public statements in opposition to changing the law to require the loan be approved, insisting that it was too high a risk.

Waggoner and Smitherman were joined by 19 other co-sponsors when Senate Bill 31 was introduced on February 6, the first day of the session. The new bill moved the authority to approve loans from the State Treasurer to the executive director of the Alabama Commission on Higher Education (ACHE). It added language saying that if the college furnishes a letter from a state-licensed bank that its offered collateral is sufficient to secure the loan, that it "shall be deemed sufficient". It also stipulated the same rate of interest and 20-year term used by the Clean Water State Revolving Fund and Drinking Water State Revolving Fund already operated by the state, and required the ACHE director to make a determination within 30 days of receiving an application.

The 2024 bill was approved by the Senate committee on Finance and Taxation Education on February 28. It passed the Senate by a 23-5 vote on March 5. It was introduced to the House of Representatives the following day. During debate in the House Ways and Means Education Committee Rep. Jamie Kiel (R-District 18) added a set of requirements for colleges applying for loans, including average annual enrollment growth of at least 10% per year and an average, and an average annual deficit reduction of 15% per year over the first 5 years of the loan. Failure to meet those requirements would constitute a default and the state would demand immediate repayment of the full amount of principal and interest. Furthermore, collateral for any amount of such a loan in excess of $15 million would have to be U.S. Treasuries. Rep. David Faulkner (R-District 46) added another amendment barring any institution from seeking more than one loan under the program. Rep. Cynthia Lee Almond (R-District 63) added an amendment requiring any applicant to have secured approval of local funds from the city and/or county where the institution is located in the amount of at least 15% of the loan amount. Representative Terri Collins (R-District 8) increased the required age of an applicant institution from 50 to 100 years.

The House Ways and Means Education Committee had held a public hearing on the bill on March 19, detailing those amendments, which were compiled into a substitute bill drafted by Waggoner and David Faulkner (R-). Though there was opposition expressed during the hearing, the substitute bill was given a favorable report by the committee and returned to the full House on March 20. Leaders soon determined that the bill lacked enough support to pass the full House of Representatives. Once informed of that situation, Birmingham-Southern's board of trustees held an emergency meeting and voted unanimously to close the college as of May 31.

Repeal

Following the defeat of the 2024 replacement bill, one of its sponsors, Juandalynn Givan, filed House Bill 415 which would repeal the 2023 law and return the $30 million earmarked to it to the Education Trust Fund. Half of that $30 million had already been included in the new state budget as an allocation to the "K-12 Capital Grant Program", a source of discretionary funds approved by individual legislators and coordinated by the Lieutenant Governor of Alabama.

References

• Cason, Mike (February 23, 2023) "Alabama faces decisions about how to use $2.7 billion in unexpected education funds." AL.com
• Ivey, Kay (June 1, 2023) "Message from the Governor"
• Thrailkill, Laurel (June 6, 2023) "Lifeline for BSC: Bill approved that could provide bailout." Birmingham Business Journal
• Griesbach, Rebecca (October 18, 2023) "Architect of Birmingham-Southern bailout ‘disgusted’ by state’s denial of funding." AL.com
• O'Leary, A. J. (October 19, 2023) "BSC lawsuit against state treasurer says grudge harmful to college." Birmingham Business Journal
• Moody, Josh (October 19, 2023) "Birmingham-Southern College Denied State Loan." Inside Higher Ed
• Cason, Mike (October 20, 2023) "Why State Treasurer Young Boozer said he turned down Birmingham-Southern’s loan request." AL.com
• Cason, Mike (October 25, 2023) "Judge dismisses Birmingham-Southern’s lawsuit seeking $30 million state loan." AL.com
• Cason, Mike (December 10, 2023) "Birmingham-Southern makes another request to State Treasurer Young Boozer for $30 million state loan." AL.com
• Cason, Mike (March 20, 2024) "Birmingham-Southern loan bill changed, advances in Alabama Legislature." AL.com
• O'Leary, A. J. (March 26, 2024) "Birmingham-Southern College is closing." Birmingham Business Journal
• Stephenson, Jemma (April 17, 2024) "Alabama House committee OKs repeal of Birmingham-Southern College loan program." Alabama Reflector
• Cason, Mike (April 25, 2024) "Alabama House votes to repeal loan program that could not save Birmingham-Southern." AL.com

External links

• Act of Alabama 2023-560 at arc-sos.state.al.us
• SB-31 (2024) as engrossed at legislature.state.al.us