When investment returns were going gangbusters years ago, most colleges paid little attention to whether they’d have quick access to cash if a severe economic downturn occurred. The pitfalls of that oversight are now clearer than ever, and a major rating agency is asking colleges to produce ever-more detailed reports about their “liquidity” positions.
For months, top administrators at Birmingham-Southern College believed they had weathered the economic downturn reasonably well.
Then, this spring, an audit revealed the truth: years of financial mismanagement and accounting errors had allowed the small college to operate for years while spending millions of dollars more than it actually had in its budget.
This coming academic year, when nearly all of California’s 72 community college districts are either cutting classes or keeping their numbers level despite unprecedented demand, one district is bucking the trend and adding classes. But it is taking a significant risk in doing so with one-time money — without knowing whether it will be able to maintain the funding to make the additions permanent.