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Dive Brief: 

  • Birmingham-Southern College sued Alabama’s state treasurer Wednesday for denying the private institution’s application for a $30 million loan — a lifeline it said it needed to stay open.
  • Earlier this year, Alabama lawmakers set up a loan program for financially distressed higher education institutions, a response to Birmingham-Southern’s lobbying for state assistance. They earmarked $30 million, the amount the college requested from state lawmakers. 
  • However, the program required colleges to apply for the funding. Alabama State Treasurer Young Boozer denied Birmingham-Southern’s application Friday — a “sudden and unwarranted” move, Daniel Coleman, the college’s president, said in a statement. 

Dive Brief: 

Birmingham-Southern’s application denial could threaten its viability. Late last year, state lawmakers said Birmingham-Southern’s need for cash was so dire that it wound’t be able to keep operating beyond a few months without support. 

The lawsuit, filed in the Montgomery County Circuit Court, asks the judge to compel Boozer to issue the requested loan and disburse funding by Oct. 30. Without this relief, the college will likely close, the complaint says. 

The complaint alleges that Boozer lobbied to kill Alabama’s Distressed Institutions of Higher Education Revolving Loan Program earlier this year. Just before a vote on the bill, Boozer spoke to the House Republican and Democratic caucuses, saying the college was a “terrible credit risk,” the lawsuit alleges. 

Republican Gov. Kay Ivey signed the law creating the program in June. 

“The Legislature disagreed with the Treasurer and created this program to save Birmingham-Southern College,” the lawsuit states. “Rather than fulfill his duty, the Treasurer has undermined the Legislature.” 

Birmingham-Southern enrolled students and refilled employee positions based on state lawmakers’ assurances that it would receive the funding, according to a Wednesday announcement. The college has 731 full-time students and 284 employees, according to the lawsuit. 

The complaint contends that Boozer unnecessarily delayed accepting loan applications for months, even though he knew Birmingham-Southern needed the funding to remain open for the current academic year. 

College officials said they received the denial via a letter Wednesday. 

“This followed months of discussions in which the treasurer gave no indication whatsoever that any aspect of BSC’s application was wanting, or that he would not act as the Legislature intended when they wrote and passed the Loan Fund bill,” Coleman, the college president, said. 

Birmingham-Southern asserts that it meets the requirements of the loan program. 

To apply, colleges must have operated in Alabama for 50 years or more, pledge assets as collateral and submit a plan for restructuring their finances. The treasurer determines the terms of the loan, including funding levels and the interest rate. 

Birmingham-Southern meets the first criterion, as it was originally founded as Southern University in 1856. Officials also said they pledged sufficient assets, including its 192-acre campus in West Birmingham. 

In June, Birmingham-Southern provided Boozer with its restructuring plan. Through that document, Boozer learned the college was renegotiating its debt with ServisFirst Bank, and that any ensuing dispute between them “could result in the College terminating operations,” the lawsuit says. 

The restructuring plan says the college’s priorities are “to come to terms with the state and ServisFirst Bank.” 

“If we cannot do this, the college will have to explore bankruptcy which means it will cease to exist by the end of the calendar year,” the restructuring plan said. 

During discussions with Birmingham-Southern officials, Boozer also pressed for the state to have priority over ServisFirst Bank in using the college’s collateral to offset any debts that went unpaid. 

Earlier this month, Boozer told Birmingham Southern’s president he would reject the application, the lawsuit states. It also contends that Boozer implied he would not make a loan to a distressed college, regardless of collateral. He also said the college should ask ServisFirst Bank to bail out the college, according to the complaint.

Alabama’s treasurer office did not immediately respond to a request for comment Wednesday. 

Birmingham-Southern said it had planned to use the state loan as bridge funding for the next three years. During that time, the college was aiming to raise funds to boost its endowment to $200 million. So far, Birmingham-Southern has raised over $45 million toward that goal. 

The college has had financial issues for years. It’s run deficits since 2018, and its enrollment has fallen from about 1,500 students in 2010 to under 750 today.