Chapter 6, Part 3 – Fall 1973 – 1974 Financial Free-fall
By fall 1973, the college was in financial free-fall. There was no possibility the college would be able to pay off its million-dollar obligation by February 1974. The picture was no rosier for the default option if the million-dollar obligation was not paid in full. The financial agreement between WSCC and the Sisters of St. Dominic stipulated that if the million dollars was not paid in full by February, the college would pay a third installment of $50,000 plus the first of five annual payments of $200,000.
It helped that with the fall enrollment the total student population ballooned to 165. However, tuition dollars alone would never be enough to underwrite the financial burden assumed in the purchase of the new campus. Despite the robust enrollment numbers, the board decided to raise tuition for 1974-75. In part, this decision was precipitated by a 1972-73 budget year deficit.
The college had run out of options. In a matter of a few months the college administration would have to inform the Sisters of St. Dominic Convent that it was unable to make the mortgage payment. Surprisingly, it was the Sisters that offered the college a potential lifeline; they proposed to buy back or lease the annex building (the current administration building.) The campus was reappraised for $1,120,000, including a valuation of $333,000 for the annex. If the college sold the annex for its appraised value, it would be able to pay the $250,000 due in February, with money to spare.
Unfortunately, two months of negotiations failed to produce a mutually agreeable arrangement and the Sisters subsequently withdrew their offer. The college faced the same dismal financial circumstances it had just two months earlier. The college had incurred a $13,000 budget deficit, it was cash-poor and efforts to find external funding sources were unsuccessful. It was almost certain the college would default on its mortgage payment. In desperation, the college lowered its asking price on the old campus to $60,000. Even if it sold immediately, it would not change the predictable outcome.
Late in the fall, the college’s fundraising committee implemented an aggressive annual-giving plan, which relied on 75 chiropractors contributing $1,000 each; 75 chiropractors contributing $500 each, and 100 chiropractors contributing $200 each. If successful, the college would raise $132,000, but it would still not be enough to meet the looming $250,000 obligation. The board chair and Dr. Elliot met with representatives from an area bank to see what assistance they could provide. They were informed by the bank that a loan on one million dollars would require monthly payments of $12,000 for a 15-to 20-year period, another impossible financial obligation for the college to meet.
An interesting historical footnote: the last piece of official college business conducted in 1973 pertained to the boiler that heated the entire campus. A specialist hired to evaluate the campus heating and cooling system informed the college the boiler would not last much longer. Unable to purchase a new boiler, the college purchased an insurance policy for $83 per year to protect itself from a catastrophic failure of the boiler. The boiler was still operating in 2012.
In early February 1974, legal counsel for the college acknowledged fundraising receipts of $179,000 in cash contributions, pledges, checks, notes and promises. It was short of what was needed, but still an impressive showing of support for the college. Dr. Elliot was directed by the board to secure a loan for up to $200,000 in order to make the $250,000 payment to the Sisters. Further, he was authorized to mortgage the old campus if necessary. Dr. Elliot asked the ACA for a loan of $50,000, for which he would sign two $25,000 promissory notes. By mid-month, legal counsel had $105,000 in cash and approximately $133,000 in pledges and promissory notes. With this in hand, the college was able to secure a short-term bank loan for $145,000, the amount necessary to make the $250,000 payment. However, the payment was not made to the Sisters.
It was apparent to the board and college administration that generating $105,000 in cash contributions and $133,000 in pledges every year for the next four years would be impossible. Recognizing this, the college decided, at the very last minute, to an agreement with the Sisters of St. Dominic that would allow for a longer payment period and smaller monthly mortgage payments. The agreement was negotiated by Continental Securities Corporation (CSC), an independent insurance agency willing to invest in the college. Agreement details set forth by Continental Securities Corp
The Sisters agreed to accept $125,000 immediately and the other $125,000 within six months. CSC agreed to loan the college the $20,000 difference between what the college had in cash ($105,000) and the $125,000 owed. CSC would hold the $133,000 in pledges as collateral. This agreement significantly lessened the anxiety of the college community, at least temporarily.
In March 1974, the WSCC board received an alarming letter from college legal counsel notifying them the agreement negotiated by Continental Securities Corporation was not exactly what had been presented to the college. Legal counsel was concerned with how CSC was defining “pledges” and how CSC intended to use them as collateral.
College legal counsel’s interpretation was that pledges “…were referring to promises of our supporters to give money.” CSC’s interpretation was that pledges “…were, in fact, an agreement to buy insurance…” from CSC. Further, Continental Securities had already mailed two letters to the pledging chiropractors promoting the sale of insurance policies; one letter was directed at chiropractors and the other letter was directed at the chiropractors’ patients. In essence, the letter inferred the chiropractor’s “pledge” obliged him/her to purchase a CSC life insurance policy and promote life insurance policies to his/her patients. Legal counsel advised the college to not use any money from CSC until this misunderstanding could be straightened out.
The agreement with Continental Securities Corporation was not what the college thought it had agreed to, but in carefully rereading what it had signed, it became clear that CSC’s interpretation of “pledges” was likely to prevail in court. This was a galling situation for the college. It is clear from correspondence between the college and legal counsel that the college considered legal counsel responsible and negligent for not thoroughly reviewing the CSC agreement before allowing the college to sign it. Nevertheless, the college had signed the agreement and the college was responsible for its content.
Dr. Elliot quickly realized the college was in a desperate situation and needed someone to champion fundraising on its behalf. To that end, Dr. Elliot invited Dr. David McFadden to serve as the college’s dean of development. If Dr. McFadden hadn’t joined the college when he did, the college may not have survived another year.
Less than a month after the CSC agreement was signed in 1974, an accreditation site team arrived on campus in response to the application for accreditation the college had submitted in January. The team spent three days on campus evaluating college compliance with written Standards of the Commission on Accreditation. At the conclusion of their visit, the site team shared a number of concerns with the administration:
- more laboratory experience was needed
- faculty teaching loads were excessive
- administrative record-keeping was inadequate
- the chemistry department was lacking appropriately qualified faculty
Were it not for the shenanigans of the Continental Securities Corporation, these concerns could have been resolved in a matter of a few months.
In April 1974, more unwelcome news came from the ACA: they were denying the college’s request for a $50,000 loan. Funding would have to found elsewhere. The college was, nevertheless, beginning to see signs of improvement in its financial situation. In July, the college administration sent a letter to the student body explaining how the purchase of the new campus had placed the college in a difficult financial position.
The letter contained two options from which the students could choose: 1) a $125 increase in tuition or, 2) the purchase of an insurance policy through Continental Securities Corporation.
In August, the college reported a budget surplus of $2,899 for 1973-74 and was projecting an $11,810 surplus for 1974-75.
Finance report with 1974-75 projections
The WSCC Reporter, official newsletter May 1974
The WSCC Reporter, official newsletter July 1974
The WSCC Reporter, official newsletter August 1974
The WSCC Reporter, official newsletter September 1974
May 1974 Commencement Exercise Program