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Moody : Three years after building skyscraper, Roosevelt University plans cuts

10/09/2015 | 08:11am US/Eastern

Oct. 09--The view from some Roosevelt University dorm rooms reveals a vista more commonly associated with condominiums and corner offices. Students sleep, study and socialize in a 32-story South Loop tower, a blue-green glass box that ranks as the second-tallest academic building in the country.

But in the three years since it opened, the $123 million building on South Wabash Avenue has come to seem more like a millstone than a monument to Roosevelt's educational mission. Interest payments on the school's massive construction loan have ballooned, and Roosevelt had to begin paying back the principal this year, adding to the budget pressure.

Tuition revenues have fallen far short of the projections that the private nonprofit school used to justify the tower. In 2009, amid a nationwide economic crisis, Roosevelt finance officials had predicted a $40 million jump in annual tuition dollars by 2014. The actual increase was about $5 million.

Today, analysts expect the university of about 6,000 students to run a deficit for its fifth year in a row. Annual salary increases have been frozen, according to an analyst's report. Debt payments are absorbing 11 percent of Roosevelt's operating budget, nearly double the typical debt burden at financially healthy universities. And enrollment is actually lower than it was the year construction began on the Wabash building.

For Roosevelt, the costly dormitory project marked a shift in focus away from the population the school has historically served: a diverse group, made up mostly of older college students, students transferring from community colleges, and graduate students. Most of them were commuter students who often attended school part time while working jobs or raising families.

The Wabash building was a pet project of 13-year Roosevelt University president Charles Middleton, who retired in June after making headlines for earning more than almost any other university president in the nation. Middleton wanted to attract more traditional college-age students -- a potentially lucrative group that tends to be interested in living in dormitories and attending school full time for four years.

Today Roosevelt has twice as many dormitory beds as it did when Middleton arrived in 2002 and less than half as many part-time students as it did a decade ago.

The task of stabilizing the school's finances now falls to new president Ali Malekzadeh, formerly the business school dean at Kansas State University, who said he will consider reducing spending on administration and in other still-to-be-determined areas.

"We are cutting costs," Malekzadeh said in an interview with the Tribune. "We're looking at every class and every cost that we have to make sure it meets the demand for the future. ... But let me also emphasize, the sky is not falling."

Roosevelt officials had arranged for the Tribune interview to include the chief financial officer, Miroslava Mejia Krug, who oversaw the school's finances at the time of the Wabash project. But the university later declined to make her available.

Middleton, the former president, did not respond to the Tribune's messages. He currently serves as board chair of City Colleges of Chicago, a position to which he was appointed in June by Mayor Rahm Emanuel.

Malekzadeh defended the Wabash building, saying that even in hindsight the project was "absolutely" the right decision. The tower is "a major selling point for any university," he said. "If a 17-year-old walks in and sees that, they obviously want to come here."

Asked if he was comfortable with the university's debt level, the new president said he believes "things will improve significantly."

"I'm very optimistic that within a very short period of time we will have significantly more enrollment," Malekzadeh said.

But Bob Shea, of the National Association of College and University Business Officers, said recovery could be slow for a school with a dropping credit rating, a burdensome annual debt payment and revenues falling far short of projections. He declined to comment on Roosevelt specifically.

"It would take any school a while to dig out of that situation," Shea said.

'A pretty high risk'

Named after Franklin Delano Roosevelt, the university was founded in 1945 by a group of Chicago educators who objected to other schools' use of quotas limiting enrollment of African-Americans and Jews. Many of the first Roosevelt students were returning World War II soldiers, including Harold Washington, who served as Roosevelt student council president before becoming Chicago's first black mayor.

Today, Roosevelt awards not only bachelor's degrees but also master's degrees in areas such as business, education and performing arts, and a few doctoral degrees. It added a pharmacist-training program in 2011. The school's annual budget is about $124 million.

Roosevelt's expansion plans began modestly under Middleton. The university in 2004 opened a downtown residence hall shared with several other schools, and in 2007 Roosevelt embarked on tens of millions of dollars worth of improvements to its downtown and Schaumburg campuses.

That year, university officials told bondholders they expected any additional borrowing over the next three to five years to involve a maximum of $70 million.

But as the nation spiraled into recession, Roosevelt's spending plans became more ambitious. Middleton and other school officials drafted plans for a downtown "vertical campus" with classrooms, offices and more than 600 dormitory beds. In November 2009 the school borrowed $128 million to cover the cost of the project.

Other universities often rely heavily on philanthropy to pay for expansions. But financial records show that at Roosevelt, donations available to support the new Wabash building were limited. Contributions to the university were averaging $5.4 million a year, according to a Moody's report.

To explain how it could afford the new building, Roosevelt laid out aggressive revenue projections, predicting in borrowing documents that soaring enrollment, in combination with higher tuition prices, would push tuition revenue from $90 million to $130 million in five years.

"It seems like a pretty high risk, that 'if you build it, they will come' mentality," said Nick Hillman, an assistant professor who studies higher education policy and finance at the University of Wisconsin at Madison's School of Education.

Sandy Baum, a senior fellow at the Urban Institute and research professor of education policy at George Washington University, called the projected $40 million increase "hugely optimistic." Shea, who is senior fellow for finance and campus management at the National Association of College and University Business Officers, noted that "industrywide, net tuition had been flat for a number of years."

The decision to go forward with the Wabash building prompted two major rating agencies to downgrade the university's debt immediately, with Moody's describing the increase in borrowing as dramatic and the school's financial cushion as "razor-thin."

Over the next two years enrollment remained flat. But university officials continued to predict dramatic increases, telling Moody's in 2011 that it planned to double its student body to 10,000 over the next 10 years.

By the time the building opened in March 2012, university officials were making targeted cuts, according to financial records and Roosevelt officials. For the 2011-2012 school year, Roosevelt decreased its funding of instruction and of academic support, a category that includes resources such as libraries and academic deans. In calendar 2012, Roosevelt employed 47 fewer part-time faculty.

Meanwhile, Middleton took home the fifth-highest pay of any private university president in the country for the 2012-2013 school year, according to a recent survey by The Chronicle of Higher Education. His $1.8 million compensation included a $1.2 million bonus for 10 years of service, as well as a car allowance, a housing allowance and a housekeeping allowance.

Middleton also got an additional perk that year: a new office on the 13th floor of the new Wabash building.

'Tomorrow's college student'

Middleton succeeded in drawing more traditional college students -- partly because Roosevelt was accepting an increased percentage of its applicants. About 270 more freshmen enrolled in fall 2014 than in 2006, bringing the total freshman class to 607 and helping increase the percentage of students aged 18-24 from 46 percent in 2007 to 66 percent in 2014, according to documents filed in connection with the school's bonds.

But that growth was slower than predicted and the university was losing students it had historically served.

Since 2006, the population of undergraduates attending Roosevelt part time has dropped by more than half, to 840 in 2014. The graduate student population is down by more than a quarter.

The school has struggled to find a stable use for its 9-year-old 70-classroom Schaumburg campus, a draw for suburban commuter students. Middleton last year reduced offerings in Schaumburg.

Meanwhile, many of the new full-time undergraduates Middleton had recruited were not thriving. The university has long struggled with its graduation rate for undergraduates, and by 2014 only 30 percent of full-time freshmen who enrolled in 2008 had earned a bachelor's degree.

That is the lowest rate in a decade, according to preliminary data from the National Center for Education Statistics. A Roosevelt spokesman noted that graduation rates are higher for transfer students and graduate students. He also said the school expects its undergraduate rate to increase in 2015, to 37 percent.

"Full-time equivalent" enrollment -- the apples-to-apples measurement that reflects both full-time and part-time students -- is essentially unchanged since the opening of the Wabash building. In 2014, it was 4,814 for undergraduates and graduates combined, higher than it had been in 2006 but lower than in 2009.

Also proving complicated was the plan laid out in Roosevelt's borrowing documents to increase tuition revenue by increasing prices. Total tuition dollars collected increased by 9 percent, but the school ended up giving out so much financial aid that net tuition revenue grew by only 4 percent.

Tuition for a full-time undergraduate -- before aid -- was $26,900 in 2014.

Since 2010, Roosevelt has collected a total of $462 million in net tuition revenues, $98 million less than the school predicted on its 2009 borrowing documents.

On its website, the school is still seeking donations for the Wabash building.

The building did prove to be popular, with 94 percent of beds filled in spring 2014, according to Moody's. But fewer total students have opted for dormitory life than the number the university was prepared to accommodate at its two residence halls. The school is currently using 114 fewer beds at its shared dormitory space, the University Center, than it did in 2011, Moody's said.

Some students balk at the cost of living in Roosevelt's residence halls, where a year's room and board in 2014 cost between $7,780 and $12,528.

"I don't have the money to live in the dorms," said Mary Hadac, 21, a commuter student who transferred to Roosevelt after two years at Harold Washington College. "I'm barely paying for school between grants, loans and scholarships, and I still have a balance that I have to pay off each month. So it's not an option for me at Roosevelt. If I was going to live near campus, I'd live in an apartment."

Malekzadeh said that while he hopes to continue adding traditional college-age students, he also wants to renew Roosevelt's focus on the older population the school has historically served.

He said he wants to regrow Roosevelt's shrinking population of adult students and graduate students -- groups that might not ever set foot in the dormitories. He also wants to reverse Middleton's downsizing of the Schaumburg campus, adding new class offerings and increasing enrollment.

The new president will have to balance those goals with his planned cost cuts, however, as he seeks to stabilize Roosevelt's finances.

Hillman, of the University of Wisconsin, questioned why Roosevelt tried to change the composition of its student body in the first place.

University officials "should have known that the demographic writing was on the wall," he said. "The traditional college student they were trying to market to is becoming a minority. It's becoming yesterday's college student.

"Tomorrow's college student is the one who's working full time, the one who is nonresidential, the one that they (Roosevelt) have been serving for the past 70 years."



(c)2015 the Chicago Tribune

Visit the Chicago Tribune at www.chicagotribune.com

Distributed by Tribune Content Agency, LLC.

© Tribune Content Agency, source Regional News

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