Rescuing a College in Cleveland

Investor's bid to bail out a financially ailing business institution in the Ohio city offers hope but also carries risks -- arguably for all involved.
June 12, 2008

For nearly 160 years, Myers University (under various names) has educated the working people of Cleveland, Ohio. Some of those “working people” are household names, like John D. Rockefeller and the former U.S. Sen. Howard Metzenbaum. The vast majority, though, are the sorts of men and women who populate many of the country's career-oriented colleges, some because they can't get in anywhere else, others because they think they get hands-on attention from a group of dedicated faculty members that they won't receive at larger public institutions.

In recent years, though, it has looked as if Cleveland's last chance college might see its own last chance come and go. Driven into the ground by extravagant spending and mismanagement and finding it harder and harder to recruit students in a city whose own economic fortunes have sagged badly, the business college went into a court-sponsored receivership and, as recently as several months ago, verged on closing.

Last month a Cuyahoga County Common Pleas judge approved the $5.25 million sale of Myers to an investor who has committed to rebuilding the institution's hemorrhaging on-ground operation and dramatically expanding its thriving but small online program. The investor, Michael Clifford, and a team of administrators believe they can not only find success locally with its bilateral mission of serving both academically underprepared inner-city students with few other options and providing MBA’s to corporate executives in Cleveland, but can expand it significantly both online and physically to other cities.

So far, the university’s core of dedicated faculty members – most of whom have stuck around long after many others would have bolted – are buying in, even as the new leaders have made clear that they plan to eliminate tenure. And Myers’s accreditor, the Higher Learning Commission of the North Central Association of Colleges and Schools, has seen “enough promise” in the short term to postpone making any decisions about the institution’s longterm accreditation until after “the dust has settled,” says Steven D. Crow, the agency’s president.

In representing the latest in a string of nonprofit colleges and universities to be rescued by for-profit investors, the situation at Myers raises a set of questions of interest not just in Cleveland but beyond: Why would investors fight each other for the privilege of rescuing a badly struggling institution in a struggling city? Will for-profit investors with a more bottom-line orientation sustain the institution's mission of educating low-income, first-generation students? And will the university's dedicated faculty, who've watched Myers almost fold, stick around if, as expected, their tenure and their union disappear?

The Descent

Operating through most of its existence as Dyke College, the institution now known as Myers University grew from its roots in 1848 as Folsom's Mercantile College. Throughout those nearly 160 years, it has offered programs and bachelor's degrees to workers trying to improve their careers, or start one. Like many career-oriented institutions, it offered courses at flexible hours through an extensive night program, and it was an early pioneer in online education.

By remaining small -- enrollment peaked at about 1,400 in the mid-1990s -- it built a reputation for giving more personalized instruction, usually in classes of fewer than 15, to students (many of whom are first-generation students from Cleveland's inner city) than they could receive at local community colleges or four-year public institutions. But the university had another very different student population: middle managers at major Cleveland companies like Eaton Corp. and Quicken Loans seeking M.B.A.'s and other professional education.

That approach worked relatively well for the institution until the early part of this decade, when it "lost focus," says George Kidd, who served as its interim president in 2005-6 and is doing so again now. As has been well-documented in the local news media, Myers administrators got overly ambitious, including by purchasing and refurbishing (in 2002-4) a mansion in the heart of Cleveland's downtown. The university poured an estimated $11 million into the structure, and not always for educational purposes; some of the spending was for an apartment, valued at $2 million, for the university's then-president, Paul Feingold.

Myers began borrowing to pay for its expenditures, and to make the payments on the debt, it wound up starving the educational programs, according to several people familiar with its history. In 2005, after a highly critical report from the university's Board of Trustees, Feingold left and Kidd was brought on as interim president, he says in an interview, "to analyze the institution’s problems and make suggestions as to the way out." His conclusion at the time, he says, was that "the only way to save the institution was to pursue a sale to a for-profit.... It had acquired too much debt, and needed an infusion of capital to improve it and to make it a better place."

Myers's leaders pursued such an approach in 2005 and 2006, but no deal was reached. Instead, the university continued to muddle along, hemorrhaging money and watching its enrollment fall to a few hundred. Myers received a $500,000 loan from Cuyahoga County in 2006 and began missing payments on millions in loans to local officials who helped finance some of its renovations. In 2007, Myers officials twice announced plans to close the institution despite money being poured into the institution by local philanthropists and by a for-profit university called the University of Northern Virginia, which entered a bitter legal fight that led a county judge, Daniel Gaul, to step into the fray.

A Hot Property?

Gaul fired Myers's then-president, Richard Scaldini, and appointed a special master, Mark Dottore, to find a path out of the turmoil for Myers. He staged a bidding process that, perhaps to the surprise of some readers, produced more than a dozen would-be suitors for the college.

Why would so many investors be interested in a near-bankrupt career college in Cleveland? The cynical answer to that is that history shows that some for-profit investors have sought to in recent years to buy the "shells" of college and universities that have regional accreditation and to use the institutions' names and credentials to turn them into a different sort of institution, often online only ones. "There are examples of institutions that have not been successful in their current form, with their current organization and their current resources, and are being repurposed and recapitalized," says Michael B. Goldstein, a lawyer in the higher education practice of the Washington law firm Dow Lohnes.

Certainly some of the bidders seeking to buy Myers were in that vein, says Dottore, the special master. "We had several offers to just buy the online school" at Myers," Dottore says. "But it was important to us to keep the campus for the people of Cleveland. We don't want to lose any more of our heritage," he says, noting the university's long history in the city.

It is also becoming increasingly clear, though, says Goldstein, that state regulators and accrediting agencies are disinclined to grant their approval to institutions that buy one sort of college to turn it into another one entirely. "Folks with oversight are making it pretty clear that if you’re buying a shell, it isn't going to happen," he says. "You have to be building off what is there."

Of the 13 parties that expressed interest in Myers, says Dottore, two stood out. He and other officials working on behalf of Myers negotiated intensely with one of the two parties, an investment firm that has bailed out several other nonprofit colleges, before those discussions collapsed in May in disagreement over terms of the deal.

That's when Michael Clifford and his firm, Significant Partners, stepped in. Although some of those close to Myers say that Clifford's bid was not as strong as was the deal that fell part in May, Dottore says that he became convinced of Clifford's legitimacy at a meeting at which the special master told the potential investor, with Myers facing yet another short-term cash crisis, "If you're serious, get your checkbook out."

"There wasn't any hesitation -- he wrote a significant check, at full risk," Dottore says of Clifford, though he declined to say how much the check was for. "Once he did that, I thought, this guy either knows something I don't know or he's dead serious." Under the arrangement, Clifford and the investors he has assembled have agreed to repay several million dollars toward the institution's $13 million in debt, and he says he will invest another $10 million in marketing Myers.

Clifford has had a hand in numerous deals (and near deals) in for-profit higher education: He played a role in the founding of Bridgepoint Education, which has gone on to transform two nonprofit colleges to for-profit status; facilitated a similar conversion of Arizona's Grand Canyon University, a Christian institution; helped found LA College; and undertook a failed attempt last winter to buy Rio Salado College, part of the Maricopa Community Colleges. Flamboyant tactics like the latter have made him a controversial figure in some quarters.

Clifford says he was drawn to Myers by its dual mission of educating low-income, first-generation students, many of whom are members of minority groups, and of "teaching MBA programs to senior executives in Cleveland," he says. "Some of the bidders wanted to completely change the culture of the organization to fit it into their businesses. That's okay. But what attracted me to Myers was the unique population it serves. To me, it's just absolutely fascinating the dedication of faculty to those two groups."

Staying the Course

Most professors sustained that dedication even as they watched the institution get run into the ground over the last few years, whittling away at their pay, benefits and lesser things like their chalk and other supplies.

"I can’t see why some of these people didn’t walk away two years ago," says Kidd, the former Tiffin University president who is now back for his second stint as Myers's interim chief. "But that’s because they believe in the place and care a lot about the students."

Darius Navran has been a professor of social sciences at Myers since 1992. As president of the faculty association there, he has had a front-row seat with which to view Myers's decline and the effort to save it, sitting in on interviews with potential buyers. During his academic career, he has taught at Cuyahoga Community College and been a dean at a for-profit college. Like many Myers professors, he says he has toyed with leaving during some of the rougher times but stayed "because of the focused education Myers offers ... to first-generation, largely inner city kids who might not be getting that opportunity elsewhere."

"We've been feeling the threats day in and day out, and there's been a lot of uncertainty, going month to month," Navran says. Two or three full-time faculty members have left, he says, but most of the core faculty has stayed. "The rest of us really hung together, and tried to overcome these adversities together, focusing on our mission."

Navran says that he and his colleagues have generally liked what they have heard from the university's new owners so far, noting that Clifford has said all the right things about sustaining the university's traditional mission and investing heavily in marketing the institution better. In addition, he notes, Clifford has vowed to keep the entire faculty and staff on for at least a year.

"My perception, based on what we heard from him at the meeting he had with faculty and staff [late last month], is that he means to do good things, he means to save this school, he means to maintain this historic role that Myers has been playing in northeastern Ohio," Navran says.

Since Navran expressed that optimism, Clifford has informed professors, he says, that under the change of ownership rules, "we are not required to honor either tenure or the union contract," and that Myers plans to create a compensation committee, made up of faculty and staff members, to consider "what we believe are better compensation opportunities for faculty than tenure." Among those options, Clifford says: "stock options, cash bonuses, professional development, sabbaticals."

Navran could not be reached for comment about the prospect that tenure would disappear. But Kidd, the interim president, says he doubts that most professors will be stunned by that development, or moved to object to what they will lose, given what they have been through. "Remember," he says, "this is a faculty that almost had the institution close on them."

Ultimately, the well being of Myers's staff, as well as that of its students (and of its investors, for that matter), will rise and fall with the success of the institution. On that score, they express the expected optimism -- but so, at least to some extent, do more objective observers.

Unlike for-profit investors who might struggle to remake failing nonprofit institutions into something else entirely, the buyers of Myers appear to have something solid to work with, says Goldstein, the lawyer in Washington. "This is not buying a shell; it’s an operating institution that has serious resource deficiencies," he says. "With the right infusion of resources and support, you could take exactly what Myers is doing and make it successful. If you put in the resources and you strengthen programs and market the programs well, somebody who knows what they’re doing can make a decent go of it."


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