Iowa Wesleyan saw path for ‘continued operations’ last month

MOUNT PLEASANT — A month before Iowa Wesleyan University on Tuesday announced its closing in May after 181 years in operation, an independent audit in February reported trustees and administrators believed they had plans in place to “continue operations into FY24 and beyond.”

That Feb. 24 audit — conducted by Forge Financial & Management Consulting for the budget years ending in May 2022 and 2021 — found Iowa Wesleyan’s ability to stay open and meet its debt obligations hinged on its execution of enrollment growth plans, fundraising efforts, and “favorable loan modifications.”

⧉ Related article: Iowa Wesleyan University closing after 181 years

“The university is currently working with several major donors who have strong attachments to the university and are actively considering gift proposals,” according to the month-old audit. “In addition, the university president is working with three other rural university presidents seeking state funding.”

Iowa Wesleyan’s pending funding requests at that time totaled $17 million.

“The board of trustees and administration believe there is a reasonable possibility of receiving enough funding to continue operations for more than twelve months,” according to the audit.

But the $17 million didn’t materialize after the governor’s office denied Iowa Wesleyan’s request for $12 million in federal American Rescue Plan Act funds — a decision compelled by a separate governor-sought independent assessment this month that found “risk to the state’s funds that the return on investment may not be realized.”

“The results illustrated within this report indicate that Iowa Wesleyan University is in financial decline,” according to the assessment, provided to The Gazette by the Governor’s Office. “Further, the Iowa Wesleyan president indicates in her letter to the Office of the Governor (dated February 17, 2023) that without additional funding, the university faces ‘threat of closure’.”

The governor’s office didn’t immediately provide a copy of the Feb. 17 letter, but its independent risk assessment reported Iowa Wesleyan President Christine Plunkett in that document spelled out planned uses for the $12 million — should her campus get it — including enrollment growth and student retention measures.

“The analysis and trends indicate that although enrollment has increased substantially over the last 3 years … the financial health of IW declined over the same period,” according to the assessment, indicating the university’s increase in discounting student tuition through scholarships could be to blame, “as well as significantly increased costs in student services.”

‘Price discounting’

Mount Pleasant-based Iowa Wesleyan — which, founded in 1842, is older than the state of Iowa — has been struggling to survive for years, as endowment funds struggled, Iowa demographics shifted, and enrollment competition surged, aggravated by COVID complications and inflation-driven expense hikes.

Its own independent audit found the private, liberal arts university lost $1.6 million in net assets in the budget year that ended May 31, 2022 — bringing its value to $4.1 million, down from $5.7 million in 2021. Additionally, since last May, Iowa Wesleyan’s finances have continued to slide into the red — with current liabilities exceeding current assets by $1.1 million, auditors wrote in February.

Five years ago, in 2018, an Iowa Wesleyan audit showed net assets at $12.5 million. Its net assets in 2015 totaled $20.9 million.

Iowa Wesleyan has continued to experience losses despite substantive enrollment growth from 385 in fall 2015 to 820 in fall 2022, in part, because of the “tuition discounts” it has offered.

Although Iowa Wesleyan’s tuition revenue jumped 24 percent from $17 million in 2021 to $21 million in 2022 — or 116 percent from $9.7 million in 2015 — the amount it’s distributed in scholarships also surged to $13 million in 2022 from $10 million in 2021 and $4.3 million in 2015, according to auditors.

The portion of Iowa Wesleyan’s tuition revenue discounted through institutional scholarships has grown from 44 percent in 2015 to 62 percent in 2022, according to the governor’s independent assessment.

“Price discounting can have a big effect on a schools’ viability,” according to the assessment.

Endowments

Like many private institutions regionally and nationally, Wesleyan has looked to sources other than tuition and fees to fund its operations — including philanthropy and endowments. But, despite the university’s efforts to grow those resources, its endowment assets per employee have dropped from $34,004 in 2015 to $24,831.

Its independent audit reported Iowa Wesleyan’s endowment consists of 202 individual funds, including donor-restricted funds — meaning the money must be spent according to donor wishes. Occasionally, according to the audit, the value of endowment funds falls below requirements for “perpetual duration” status.

“Deficiencies of this nature exist in 200 donor-restricted endowment funds,” which together have an original gift value of $13.1 million; a fair value of $10.1 million; and a deficiency of $2.1 as of May 2022.

“These deficiencies resulted from unfavorable market fluctuations and continued appropriation for operations and certain programs that were deemed prudent by the Board of Trustees,” according to the audit.

In its efforts to save the campus, Iowa Wesleyan in 2016 worked out a loan agreement with the U.S. Department of Agriculture totaling more than $26 million — and its balances as of May 2022 still sat at $26.1 million, with interest accruing.

In December, the USDA agreed to reduce Iowa Wesleyan’s monthly interest payments from $24,060 a month to $7,500, “in response to the university’s request for continued flexibility as we strive to grow to a total undergraduate enrollment of 1,000 students,” according to the audit.

The deal was to be reviewed again in November 2023, with expectations monthly interest payments would double in December 2023.

Upon announcing the campus’ closure this week, officials said the USDA will take ownership of the Iowa Wesleyan physical campus — with its land, buildings, and equipment carrying a value of $19.1 million, according to auditors.

President Plunkett told reporters Tuesday the USDA will determine the final disposition of its endowment, working with attorneys to “ensure that each endowed fund is as closely aligned as possible with donor intent.”

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com