Blame For Bethune-Cookman Financial Crisis Falls Squarely on Trustees

Two weeks ago, a group of Bethune-Cookman University graduates got together and called for the resignation of 12 members of the school’s board of trustees. At the heart of their demand was growing concern over a 2012 dorm construction deal which may cost the university more than $300 million, more than six times the value of the construction project.

http://www.news-journalonline.com/news/20180107/group-calls-for-12-b-cu-trustees-to-step-down

Last week, Bethune-Cookman University Interim President Hubert Grimes announced that the university has filed a lawsuit against former president Edison Jackson, former Institutional Advancement Vice-President Hakim Lucas, and several parties involved with the damaging deal that gained national attention and preceded Jackson’s August 2017 resignation.

As many of you will recall from the 2012-2013 timeframe, a shortage of student housing – coupled with safety concerns for certain students living off-campus – created the need for a larger dormitory on campus. To address these issues, we set out to find the best options possible, given our financial circumstances and lack of business credit.

An internal committee was formed to analyze prospective bids for the project. This committee’s ultimate recommendation to the Board of Trustees was based upon a set of representations made by one of the bidders, Quantum (including its related entities). Based on the representations and assurances of Quantum, the committee suggested retaining Quantum as the developer of the project. That recommendation was then passed along to the University’s Board of Trustees. However, the information then presented to the Board of Trustees was very different than – and far less favorable than – what was presented to the initial screening committee.

Following a review of the different and conflicting representations made by Quantum and its representatives to the Board of Trustees, the proposed deal was nevertheless approved, and the dormitory was ultimately constructed.

Additionally, the terms of the transaction proved to be incredibly unfavorable to B-CU. According to the construction company that actually built the dormitory, the project cost $59.2 million. However, B-CU paid $85 million for the facility; further, if this deal were to continue through its stated maturity, the cost – including interest and other payments – would reach a staggering $306 million.

Such an arrangement could cripple this institution.  Obviously, something was very wrong.  

The highlighted portions of the excerpt give us all we need to know about this situation, and why Bethune-Cookman may face an unprecedented financial challenge as a result. First, it’s clear that the school had no business building a dorm in the first place. Even in the face of increased enrollment, the school didn’t have the cash or the credit to ensure an affordable bill for a contract spread out over decades.

Despite having evidence from the beginning that something was wrong, including direct opposition from a board member, BCU trustees agreed with near unanimity to proceed with construction and unfavorable repayment terms anyway.

From the Daytona Beach News Journal:

Regarding the dorm project, records show former trustee Johnny McCray Jr. first raised questions about the deal in April 2015. When McCray called for a forensic audit to look into the matter, the board balked and voted against the measure 36-3.

Now, B-CU’s on the hook for the remainder of a 40-year lease — one with increasing monthly payments ranging from $470,000 to a high of about $840,000 — or about $10 million a year.

Win or lose, the math does not work out in Bethune-Cookman’s favor. Getting out of the contract will require the school to pay massive legal fees, to be subject to legal discovery, media leaks and to engage in public court proceedings which, in the best of circumstances, will reveal staggering executive naivete’ or massive corruption in the worst of them.

Staying in the contract and keeping the school open will require students to foot the bill, or to suffer the impact of cuts to academics and personnel in order to meet the monthly payment.

Either scenario could cause alumni to reject supporting the school, donors to back away and students to keep away, putting even more of a financial drain on the campus and its chances for a clean accreditation reaffirmation in 2020.

It all falls at the feet of BCU trustees, who even if they can present a compelling other side of the story, remain the fiduciaries of the university and its business dealings. Even if they were swindled by former administrators and the construction company, it is their job to maintain a membership which can avoid being swindled, can hire a president who isn’t in the business of swindling, and can raise the capital to be able to deal with a worst-case scenario.

Indeed, this is a worst-case scenario because it speaks to many of the stereotypes so many HBCU students, graduates and opponents hold about black college leadership; that our greatest challenge isn’t deficiencies in race relations or resources, but in our own integrity and business acumen.

Even worse, the story and its impact on HBCU stereotype threat extends well past Daytona Beach; Dr. Lucas is the sitting president of Virginia Union University, a school which has in recent years dealt with its own financial hardships and controversies. And while he may not be involved or have knowledge of any wrong doing associated with this fiasco, his name merely being mentioned is enough to stir leaders and stakeholders from Daytona Beach to Richmond over this story.

Too many people believe that our leaders are either stealing money, or don’t know how to make it; and that if they are guilty of either charge, then no one should be eager to sign up for what they are selling.

Today, it should be hard for anyone to believe in Bethune-Cookman University as a worthy source for investment. The same board members who greenlit this destructive construction project appear to remain in authority, and we don’t know who among the board opposes them because they still serve with the offenders. All of them continue to serve in silence.

In recent years, Board Chairman Joe Petrock has rarely missed an opportunity to have his name, his words or his picture integrated fully with the strategic leadership of the university. Now you can hardly find any public appearance from him, or word of explanation on this historically bad transaction.

Even with self-imposed changes on an inept board and financial shifting to pay its bills, the school will now find its permanent presidential search more difficult, its development prospects more complicated, and its public trust eroded.

BCU is a long way from the $1.50 it took Mary McLeod Bethune to establish its foundation. It is amazing to imagine that her leadership and that amount of money may in the future be remembered among the school’s stronger eras of fiscal management.

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