The Faculty That Mortgaged The whole lot

The Faculty That Mortgaged The whole lot


When Timothy Pinnow arrived at Finlandia College as its new president final summer time, he wasn’t naïve about its monetary state of affairs. It was a tiny liberal-arts faculty in a distant a part of the nation, bruised by years of funds cuts and struggling to draw college students. However the board instructed him the establishment had a balanced funds, and Pinnow thought he might assist flip issues round.

Pinnow had a monitor document of growing new packages and discovering new income, having spent greater than a decade at Colorado Mesa College, the place he was most not too long ago senior vp for strategic initiatives. He thought that made Finlandia a superb match. He additionally knew the campus, having been there when he was 16 and 17 for Lutheran summer time teen-leadership camps, an influential time in his life.

When he arrived final summer time, Pinnow found that the “balanced funds” the trustees had instructed him about presumed a 20-percent enrollment development at a college that had been hemorrhaging college students for many years.

Pinnow dug in, began placing collectively partnerships with different schools, and laid the groundwork for a number of new packages that might assist stabilize the establishment’s funds. If every part broke proper, perhaps this small personal college in Michigan’s rural Higher Peninsula might hold going.

Finlandia University president Timothy Pinnow looks over some files remaining in the Hoover Center building on the Hancock, Michigan campus. (Aaron Peterson for The Chronicle)

Aaron Peterson for The Chronicle

Timothy Pinnow was blindsided by the information that the college he’d simply been employed to guide had mortgaged all its property to remain afloat. “There have been zero reserves,” he mentioned. “There have been none. The whole lot was totally leveraged.”

However the brand new concepts wouldn’t be paying off instantly. Within the meantime, the college wanted some money to maintain the doorways open.

Pinnow had choices. The college had a home with some land, a few vacant tons, and a giant hospital-turned-office-building Pinnow might promote. He discovered consumers for the land and a few builders concerned with buying the previous hospital.

Then, simply half a yr into his first presidency, Pinnow bought a wierd name. Finlandia’s real-estate agent shared a bit of devastating information: All that stuff the college’s leaders wished to promote wasn’t truly theirs to promote.

Once I say it’s a large number, I can’t overstate it.

Patrick O’Keefe, Finlandia’s court-appointed receiver

Buried deep in county land data — and unknown to any present Finlandia directors — have been a collection of encumbrances on just about the complete campus that had been signed within the Nineteen Nineties in a profitable effort to maintain it afloat then. In different phrases, the college had already signed over virtually every part as collateral for loans.

That snuffed out any hope of a resurrection. In March, the college introduced it will shut on the finish of the educational yr. As of the tip of Might, all the college and many of the employees had been laid off. College who have been on nine-month contracts being paid over 12 months have been notified that whereas the college hoped to ship the ultimate six paychecks owed them, there have been no ensures it will be capable of. College students who wished to proceed their research have been positioned at a wide range of schools throughout the Midwest. Preparations have been made to retailer scholar data at different universities. The lone personal faculty in Michigan’s Higher Peninsula not existed.

Now, an official appointed by a Michigan court docket is sorting by the rubble to see what could be offered off to complete paying school their salaries and repay a convoluted collection of loans.

“Once I say it’s a large number, I can’t overstate it,” mentioned Patrick O’Keefe, the court-appointed receiver and a former trustee at Michigan State College. “The property are cross-collateralized. It’s a hodgepodge of unhealthy data and monetary mismanagement.”

Pinnow, nonetheless engaged on campus throughout the college’s ultimate days, nonetheless marvels at how the establishment bought so far. “I’ve by no means seen something like this,” he mentioned. “It’s loopy.”

During the late 1800s, Finnish settlers arrived in Hancock, Mich., to work within the space’s lumber and copper industries. The city, positioned on the Keweenaw Peninsula, which juts off the highest of Michigan’s Higher Peninsula into Lake Superior, continued to develop. By the Eighteen Eighties, a neighborhood pastor from the Finnish Evangelical Lutheran Church of America was turning into involved that the Finnish tradition and historical past of the immigrants was being misplaced. He shaped Suomi Faculty and Theological Seminary to assist protect that heritage, educate English, and prepare ministers.

The cornerstone of the primary constructing on campus, Previous Essential, was laid in 1898. The constructing nonetheless stands, one of many properties tied up in mortgages and encumbrances. By the Eighties, Suomi had settled into a distinct segment as a small liberal-arts faculty providing affiliate levels to its roughly 600 college students. (It started providing four-year levels in 1996 and altered its identify to Finlandia College in 2000.)

However then got here 1994. Enrollment plunged by 137 college students, right down to 405. The following yr, the slide continued, with solely 340 college students on campus. Practically three many years later, it’s unclear why.

Regardless of the trigger, the enrollment drop damage funds, which have been already being pressured, a lot that the school was unable to make funds on 4 bonds from the federal Division of Schooling. The bonds, issued in 1963, 1969, 1988, and 1990, have been most certainly used to assist finance buildings, officers mentioned.

The school sought, and bought, a three-year moratorium on principal funds, in line with land paperwork on file with Houghton County.

In trade, the school agreed to not enter into any monetary settlement that may use any of its property or funds as safety on one other mortgage.

The following yr, 1995, the school and the Division of Schooling modified that settlement, permitting members of the Board of Trustees to lend $1.5 million to the school to “present the mandatory money to steadiness” the working funds, paperwork present. In trade for the mortgage, the unnamed board members wished mortgages on “all actual property” of the school. It seems they obtained the mortgages though land data aren’t utterly clear.

This wasn’t the tip of the school’s deal-making with the Division of Schooling. In 1999, the school requested for an additional moratorium on repayments. It bought the deferral and gave up a “first and superior” mortgage on a number of parcels of land.

The Chronicle contacted the Schooling Division with questions concerning the offers; a spokesman acknowledged the message however didn’t present any solutions.

Because the competing claims stacked on prime of one another, it grew to become troublesome if not unattainable to find out who had dibs on what within the occasion of economic collapse. However that didn’t cease the college from making offers.

In 2001, the establishment was positioned on heightened monitoring by the Division of Schooling. It needed to acquire a brand new bond value $587,455, which it secured by as soon as once more placing up unnamed property of the college as collateral, in an effort to hold receiving federal funds, together with student-loan income, paperwork present.

Regardless of enrollment crawling upward within the 2000s, thanks in giant half to Finlandia’s aggressive recruiting of athletes, the school’s monetary difficulties continued.

Money from the federal government wasn’t sufficient. Audited monetary statements present that directors and board members stored making an attempt to maintain the doorways open by pumping in thousands and thousands in loans. That included a personal investor’s mortgage value greater than $3.8 million at 9-percent curiosity. The Mission Funding Fund of the Evangelical Lutheran Church in America had additionally prolonged Finlandia a $1-million line of credit score, which might be paid off over the course of a tutorial yr after which repeated the subsequent yr. This occurred a number of instances throughout the 2010s, monetary paperwork present.

By 2016, a “substantial portion” of the school’s property had been put up as collateral for working loans, in line with the college’s audited monetary statements.

The board itself continued to lend the school cash. Within the fiscal yr ending June 30, 2016, unnamed board members lent the college $650,000 at 5-percent curiosity. The earlier yr, the board members lent $880,000 to the school. Some years, a portion of board-member loans have been paid off, in line with paperwork. Some years, a portion of board-member loans have been forgiven.

It’s widespread for college board members — particularly at personal schools — to financially help the establishment. However that nearly at all times comes within the type of items. It’s uncommon for them to lend cash to the establishments whose funds they oversee.

Uncommon, however not unprecedented. Ohio Valley College borrowed a minimum of $6.5 million from present and former board members and officers within the decade ending in 2019, in addition to from relations and associated firms, a Chronicle evaluation discovered.

Board members’ lending cash is shoddy administration, mentioned Armand Alacbay, chief of employees and senior vp for technique for the American Council of Trustees and Alumni, who works with boards on governance points.

“Self-dealing is a no-no, even whether it is accomplished in good religion,” he mentioned. “It’s usually not a good suggestion to say, ‘In case you take a look at the superb print, it’s OK.’ If it’s important to do this, you’ve missed the purpose. You’ll be able to’t be a fiduciary should you don’t have independence.”

Items for auction and building damage in the Hoover Center of Finlandia University in Hancock, Michigan. (Aaron Peterson for The Chronicle)

Aaron Peterson for The Chronicle

A court-appointed receiver is overseeing the public sale of campus furnishings and different gadgets in hopes of having the ability to cowl lingering payroll obligations.

By the point it closed, Finlandia was right down to solely two loans from the federal authorities. However over twenty years, the college had struggled to maintain up with its funds. Monetary statements for the fiscal yr ending June 30, 2021, present the college missed funds to the Division of Schooling, that means it nonetheless owed a complete of $1.7 million. Curiosity on the loans had been accruing since 2003.

That meant the division might name in Finlandia’s loans at any time, or seize the land if the college couldn’t pay.

Finlandia’s institutional accreditor, the Larger Studying Fee, has been conscious of the college’s monetary difficulties since a minimum of 2012, data present. The company put Finlandia on discover a number of instances and required extra monitoring of its funds.

However in 2021, it knowledgeable the college that it was “not in danger for noncompliance” and was eradicating it from discover. It mentioned the college’s school and employees met the required competency requirements. It additionally mentioned the college “continues to fulfill with considerations” standards that require it to have sufficient sources to help “its present teaching programs and its plans for sustaining and strengthening their high quality sooner or later.”

The accreditor didn’t reply to requests for remark.

Data paint a bleak portrait of the debt amassed over time. By the point it closed, Finlandia owed greater than $10.6 million throughout 12 loans, plus $275,000 extra for gear.

Philip Johnson was president for a lot of that interval. Employed because the campus’s pastor and assistant to the president in 2006 after which employed to guide the college in 2007, Johnson served till 2022, when the board, after a no-confidence vote from the college and different controversy, inspired him to resign. Johnson didn’t reply to messages requesting remark.

The choice by Finlandia directors and board members to successfully signal away the campus for short-term money was a deadly error, O’Keefe, the official appointed to supervise the dissolution, mentioned.

“They simply stored throwing extra money at it,” he mentioned. “I blame the administration for that.”

Boards, he added, “have to be critical” about coping with projected enrollment dips. As extra schools face these looming declines, O’Keefe mentioned, Finlandia “is simply the tip of the iceberg.”

Michael Nakkula, Finlandia’s board chairman, declined to remark or reply questions concerning the college’s closure.

With thousands and thousands of {dollars} owed, Pinnow’s solely hope for salvation was the endowment. However that had been tapped out, leaving the president with no levers to tug.

Inside days, Pinnow and the board reached the arduous conclusion. The varsity was out of cash and unable to get extra.

“There have been zero reserves,” he mentioned. “There have been none. The whole lot was totally leveraged.”

On March 2, the board introduced Finlandia’s closure, blaming “an insufferable debt load.”

Pinnow presided over the breaking of the information with a heavy coronary heart. “Attempting to assist these of us see the tip had arrived was powerful,” he mentioned.

Finlandia University president Timothy Pinnow is seen behind a sign announcing the closing of the Paavo Nurmi sports facility on the university campus in Hancock, Michigan campus. (Aaron Peterson for The Chronicle)

Aaron Peterson for The Chronicle

Pinnow, nonetheless working within the college’s ultimate days, marvels at the way it bought so far. “I’ve needed to make the worst resolution a president could make.”

“I’ve needed to make the worst resolution a president could make,” he added. “I had 10 years of expertise in 10 months. I’d make a superb president now, however I’ll in all probability not get one other one.” There aren’t many presidencies out there for somebody who’s closed a school.

As Carolyn Dekker, an affiliate professor of English who had been on the college since 2015, addressed a group gathering in Might that felt like a funeral service, she reminisced about tight connections made with college students. She additionally identified, with remorse, how tight funds had worsened these college students’ training. She cited water dripping into trash cans from leaks and projector bulbs that took weeks to get changed.

“The renovations have been at all times going to be accomplished subsequent yr,” she mentioned throughout the ceremony.

Folks on campus had lengthy been conscious of the establishment’s monetary precarity. College noticed a collection of reductions, together with in 2020-21 when contributions to their retirement have been taken away and pay cuts imposed: 5 % for assistant professors and 10 % for associates.

“This was completely a management failure,” Dekker instructed The Chronicle. “For years we had inexperienced leaders who made unhealthy selections. This yr we lastly assembled the individuals who might have made a distinction, however they didn’t have the chance.”

Two days after the members of Finlandia’s ultimate graduating class obtained their diplomas, a letter arrived in school and employees mailboxes that destroyed any misconceptions about how bleak the college’s funds have been.

After a few paragraphs reminding the workers to be out of their workplaces by Might 12, O’Keefe, the court-appointed receiver, lower proper to the purpose: Finlandia didn’t have sufficient money to complete paying what was owed to college members.

“We intend to compensate all employees for the work and advantages earned,” the letter from O’Keefe mentioned. Nevertheless, Finlandia was “bancrupt” and any payouts for wage and trip owed to workers would come solely because the defunct college by some means bought funds.

For most school, engaged on nine-month contracts being paid out over 12 months, that meant six paychecks could be missed, or perhaps paid out someplace down the road.

Then got here the kicker: Please don’t sue us for these wages, O’Keefe wrote.

“Whereas the College’s delayed fee could represent a sound wage declare, if workers rent attorneys to pursue these claims it is going to solely make the dissolution dearer, leaving even fewer funds out there to make workers entire,” he wrote. “Civil actions by workers might delay the payouts and cut back the full quantity that the College will pay to workers. Please do not forget that even when varied workers are in a position to acquire judgments ordering the College to pay additional compensation, the price of the litigation can have lowered the full quantity of funds out there to workers, and a judgment in opposition to a company with no funds can’t be enforced.”

O’Keefe hopes he’ll be capable of promote the land and buildings, however he is aware of it’s a tall job.

First, there’s no obvious marketplace for the buildings or the land. Hancock is a city of simply over 4,000. It’s throughout the Keweenaw Waterway from Houghton, which is house to Michigan Technological College and has about 8,000 residents. Michigan Tech and Finlandia have been among the many space’s prime employers. There isn’t a different dominant trade there.

Damage to the stonework over the building known as Old Main on the Finlandia University campus in Hancock, Michigan. (Aaron Peterson for The Chronicle)

Aaron Peterson for The Chronicle

Stonework crumbles on Previous Essential, Finlandia’s unique constructing, which dates to 1898. Campus renovations “have been at all times going to be accomplished subsequent yr,” one school member mentioned at a farewell ceremony.

And even when somebody is , getting the property freed from all the encumbrances goes to be a battle.

“This makes getting into into buy agreements problematic since many properties have debt that exceed their worth and the lender’s curiosity is commonly cross collateralized with one other non performing property,” O’Keefe wrote in an April 30 report back to the court docket. “Virtually all the actual property has debt that exceeds worth.”

Promoting faculty buildings could be arduous. Ohio Valley College’s whole campus was positioned on the market in August 2022. Media reviews confirmed {that a} letter of intent to purchase had been signed in December 2022, however as of the tip of Might the property was nonetheless listed on the market. The campus contains 11 buildings containing greater than 327,000 sq. ft on 255 acres.

There are persevering with conversations with a number of builders for the Ohio Valley property, David E. Levy, managing director of Eager-Summit Capital Companions LLC instructed The Chronicle. Varied nondisclosure agreements restricted his capacity to offer additional particulars, he mentioned.

No worth is included within the itemizing.

It’s not simply college students and workers who’re affected by Finlandia’s closure. At a current Hancock Metropolis Planning Fee assembly, Metropolis Supervisor Mary Babcock mentioned the city was nervous that the federal government’s lien may stay on the land, through which case the receiver may himself be at an deadlock, in line with a media report of the assembly. “And this might all be left within the Division of Ed’s possession.”

In Iowa, the campus of Iowa Wesleyan College, which additionally closed this spring, is now the property of the U.S. Division of Agriculture. The division had lent the personal faculty $26 million in 2016, and the college couldn’t pay it off.

At Finlandia, an internet public sale to dump gadgets smaller than land parcels is underway. Savvy buyers can discover such gadgets as an vintage stand-alone secure, picket picnic tables, and used soccer shoulder pads.

There are additionally a number of autos up for public sale, together with a 2018 Ford Fusion with 51,300 miles. However like most every part related with Finlandia, it too has a lien on it that have to be paid earlier than the customer can take the keys.

Dan Bauman contributed reporting for this text.


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