Central Penn College is asking the county to backstop debt that it plans to issue to convert the institution to a nonprofit, an arrangement that some county officials believe to be excessively risky.
The college presented the arrangement at Monday’s county commissioners’ meeting, with the commissioners agreeing to advertise an authorizing ordinance, although this does not obligate them to actually vote the policy into law if not found prudent.
Central Penn College expects to issue between $16 million and $16.5 million in bonds through the Cumberland County Industrial Development Authority to finance the restructuring of the college, which is a for-profit entity under an Employee Stock Ownership Plan, into a nonprofit.
The industrial development authority, as a state-authorized finance agency, often issues bonds at favorable rates on behalf of entities that present a public good, although those entities retain liability for the repayments.
But the Central Penn College proposal goes a step further: If the college is unable to meet its repayment obligations, funds will be drawn out of a debt reserve account, which the county would be responsible for back-filling.
“Obviously the county accepts a degree of risk in the transaction,” Commissioner Gary Eichelberger said.
In voting for the ordinance advertisement, Commissioner Jean Foschi said the county was not agreeing to accept the risk yet, and would not do so until a risk assessment, currently underway, is completed.
In light of Monday’s vote, county Controller Al Whitcomb sent a memo to the commissioners saying he was “surprised” that they had agreed to advertise the matter at all.
“What is to prevent other private and nonprofit organizations from queuing up at the courthouse doors seeking similar debt backstops using Cumberland County taxpayer monies? How would such requests be equitably responded to?” Whitcomb wrote, according to a draft of the memo shared with The Sentinel.
Central Penn College announced in 2016 that it intended to become a nonprofit. The major benefit would be financial stability outside of tuition charges, college President Linda Fedrizzi-Williams said.
“The main thing it does for us is open new opportunities for resources outside tuition,” Fedrizzi-Williams said Monday.
She said the college has recently introduced additional certificate programs and flexible courses aimed at educating working students and families.
“These are working-class people putting themselves through school,” Fedrizzi-Williams said of her student base.
The lion’s share of the bond issuance would go toward buying out outstanding shares of the ESOP ownership structure, according to Andrew Giorgione, solicitor for the CCIDA. Currently, paying out ESOP values costs the college $1 million to $2 million per year, Fedrizzi-Williams said.
The bond issue would also include $1 million to create a debt reserve, which would cover any shortfall in debt obligations that Central Penn College is unable to meet. The county would be responsible for reimbursing the reserve, if it is tapped into, to create sufficient financial assurance for the college’s lenders.
“If we’re in a position where the debt reserve is being hit, that’s not a good thing,” Giorgione said; the intention is obviously for that to not happen.
But if county taxpayers were to have to pick up the tab, Whitcomb wrote, the tangible public benefit is “not at all obvious.”
“Most importantly, how is this fair and just to Cumberland County taxpayers whose taxes are being promised, under the arrangement as presented, to Central Penn College’s lender should they default?” Whitcomb wrote.
Central Penn College has around 1,000 students with a base annual tuition of around $24,000, Fedrizzi-Williams said.
The college’s graduation rate on the most common federal measure — first-time students enrolled full-time who completed a degree within 150% of the normal course time — was 47% for students who began in 2014, according to U.S. Department of Education Data.
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