Source of eVersity's loan up in air

UA campuses’ reserves looked at for $5M; panel to decide

The University of Arkansas board of trustees unanimously approved a resolution Friday to allow the UA System to pursue a $5 million loan to fund the startup of the system's new online-only college.

Initially, UA System President Donald Bobbitt had prepared a resolution that the $5 million be procured by "inter-institutional borrowing," pulling the amount from the reserves of the individual campuses.

But more than a dozen people -- including two university chancellors and a student-body president -- objected to the way Bobbitt wanted to fund the loan.

In the end, board Chairman Jim von Gremp of Rogers hand-wrote a revised resolution to allow the Audit and Fiscal Responsibility Committee to decide whether the $5 million loan will be taken from the individual campuses or from other financing options -- including a bank loan or a bond issue. The decision must then be approved by the full board.

Throughout the debate, the trustees, Bobbitt and campuses leaders agreed that the University of Arkansas System eVersity was needed and should be supported. There now are about 1,300 out-of-state colleges offering online degrees in Arkansas.

In March, the UA board unanimously approved a resolution to allow the eVersity to be established. At that time, Michael Moore, UA System vice president for academic affairs, told the board that the startup cost for the online-only school would be covered by $2 million already approved by Gov. Mike Beebe and $1 million from the UA System.

When asked after the meeting why the UA System needed the $5 million loan, Moore said officials knew from the beginning that it would take between $7 million and $10 million in the first two years to start the eVersity.

"If you figure in the $2 million last year, the $1 million this spring and now the $5 million loan, that gives us about $8 million to get us off on the right track," Moore said.

Nate Hinkel, UA System spokesman, said after the meeting that the startup costs are substantial and include additional personnel costs, the purchase of the student information system and software to develop courses and track student.

Speaking to the board Friday, G. David Gearhart -- chancellor of the University of Arkansas at Fayetteville -- said he was hesitant to disagree with "the person who signs my paycheck," referring to Bobbitt who, as president, is over the campus chancellors.

But Gearhart said the campus reserves would be compromised if extra money were taken out to pay for the systemwide online college.

Gearhart said that while the reserve account for the Fayetteville campus has about $142 million, all but $14 million is already designated for specific departments, projects and plant expenses.

He said it is "very, very important" to understand that "there's not a lot of money floating around." The Fayetteville campus is underfunded by the state by about $50 million on an annual basis, he added.

"When you look at the spreadsheet, you will find that the College of Engineering has about $7 million in unrestricted but designated funds. Now, if I were going to take money from the College of Engineering, I've got to have some help to do that because you're going to have every department head upset about it," Gearhart said. "If we're going to invade their dollars and use them while funding programs nonrelated to the campus -- I'm not saying it's not your right to do it; I'm saying you got to help me do it."

Trustee Ben Hyneman of Jonesboro pointed out that the Fayetteville campus investment revenue had grown by about $10 million last year.

"Why wouldn't we look at this as an investment? It's not like we're going to start a bonfire with it," Hyneman said, speaking about the 0.11 percent return on the loan for the online college.

Gearhart asked what would happen "if the eVersity doesn't work. Where's the money going to come from?"

Hyneman said it was a risk, but there was a potential for a great benefit as well.

UA Associated Student Government President Daniel McFarland of Keithville, La., said it would be difficult to justify to his constituents on the Fayetteville campus that their tuition would pay for something that is systemwide.

Joel Anderson, chancellor at the University of Arkansas at Little Rock, told the board that taking the money out of reserves for the loan would put his metropolitan campus in further financial jeopardy.

The school's fall enrollment fell by 5.6 percent this year, going from 12,377 students in 2013 to 11,681 this fall. The loss of students caused a $1.7 million reduction in tuition revenue this fall, and, in a September memorandum to UALR employees, Anderson predicted a $5 million shortfall in tuition and fee revenue for the year.

UALR enrollment has dropped by 11.3 percent -- or 1,495 students -- since fall 2010, when 13,176 students were enrolled. Anderson told the board Friday that he expects that downward trend in enrollment to continue for another couple of years.

"What it means is that we are really jealous and concerned about all our resources," Anderson said.

UALR board of visitors Chairman Dr. Dean Kumpuris, who is also a Little Rock city director, urged the trustees to find another funding avenue outside the individual campuses' reserve accounts. "The goal is the right goal. I just think the money source is not the right one," Kumpuris said.

UA board member Dr. Stephen Broughton said the University of Arkansas at Pine Bluff would be in a similarly precarious position if the college was required to lend money from its reserve fund.

"We're going to have to be very judicious," said Broughton, who is from Pine Bluff.

Trustee Reynie Rutledge, who is also the chief executive officer of First Security Bank, asked the board whether a bank loan should be considered.

"I would not be involved at all," added Rutledge, who is from Searcy.

Rutledge also suggested an option of tagging the $5 million on to a bond request from the University of Arkansas for Medical Sciences, which was already doing a bond issue that trustees approved earlier in the meeting.

Board trustee Jane Rogers of Little Rock asked whether a loan from the University of Arkansas Foundation should be considered.

The board's next regular meeting is scheduled for Nov. 13-14 in Fayetteville, but von Gremp said it was "imperative that we move forward in short order" or the fall 2015 start date for the eVersity would be in jeopardy.

A special meeting will most likely be called within the next two weeks, von Gremp said. If the inter-institutional loan option is chosen, the committee will decide exactly how much each college reserve will lend. The loan will be repaid over 10 years at an annual interest rate of 0.11 percent.

Metro on 10/18/2014