‘Dire Financial Straits’: A Portrait of a Desperate University That Made All the Wrong Bets

Since 2015, the leaders of Cincinnati Christian University have made bold moves to try to reverse falling enrollment and flagging finances. The university spent big money on athletics, laid off staff and faculty members to cut costs, and revised its academic mission.

But instead of revitalizing the institution, those decisions are among the many that have pushed Cincinnati Christian toward the brink of financial ruin and put it at risk of losing its accreditation. The university has been hemorrhaging money even as it owes millions in debt it can’t cover. At the same time, an effort to bolster enrollment has failed spectacularly, with double-digit drops in student retention and graduation rates.

The blame for the college’s failures, according to its accreditor, belongs to the institution’s leadership. The trustees have abandoned good governance, the accreditor charges, by naming a fellow trustee — a self-styled turnaround expert who has been fined and penalized by the Securities and Exchange Commission — as president. And that president, Ronald E. Heineman, is putting the interests of the bank that has extended credit to Cincinnati Christian above the interests of the institution itself, the accreditor says.

As a result, the regional accreditor, the Higher Learning Commission, issued a “show cause” order to Cincinnati Christian this month, requiring it to report why its accreditation should not be withdrawn.

A report from the accreditor and related documents provide a cautionary tale for small colleges about the risks of go-for-broke comeback strategies. “There is substantial doubt about whether” Cincinnati Christian “should remain accredited,” the commission wrote in a July 11 letter to the university’s president. Losing accreditation would mean the university could not receive federal student aid, a step that could force it to close.

None of the trustees responded to multiple requests for comment for this article. In an email, Heineman directed all questions to a lawyer representing the university. The lawyer also did not respond to requests for comment.

Despite troubling questions about the university’s mission and governance, the financial situation is the bigger problem, said Paula V. Smith, a professor at Grinnell College and author of a book on risk management in higher education.

“For me the overwhelming impression from the letter is that the university looks like it’s in dire financial straits,” Smith said in an email. “The academic quality is eroding, and it’s difficult to see what anyone could do to turn that around.”

Not a Winning Formula

Cincinnati Christian, founded as a seminary in the late 1920s, has been struggling with its enrollment and finances for far longer than the tenure of the current president. Undergraduate enrollment at the university, according to federal data, fell from nearly 800 in the fall of 2008 to less than 550 in the fall of 2017 — a decline of more than 30 percent.

One solution was supposed to be a big investment in athletics. When a previous president, Ken Tracy, announced in 2015 that the university would field a football team, the news was presented to community members and TV cameras more like a major institutional renewal than a pep rally. In addition to the hiring of an NFL All-Pro and former Cincinnati Bengals star as the team’s first head coach, the university announced plans to build a $5-million sports complex and stadium and a $10-million dormitory.

But a big athletics program was not a winning formula. Tracy resigned just a few months after the announcement. The big-name coach, David Fulcher, was fired after two seasons without winning a game. In the third year, the team remained winless.

Football also has not rescued the university’s finances. Before the team’s first season, CCU spent $1.28 million on 11 men’s and women’s sports, according to disclosures to the U.S. Department of Education. The following year, the university spent the same sum on the football team alone — about 12 percent of its entire revenues for the 2016-17 fiscal year.

The university picked a flawed strategy to grow, because adding athletes also demands many additional expenses, said Joshua Brown, an instructor of leadership, policy, and foundations at the University of Virginia.

By 2015 the college was already spending $350,000 a month more than its revenues, the accreditor noted. It maxed out a $1.7-million line of credit at least once during the past year, and owed $5.8 million in the 2018 fiscal year to Central Bank & Trust in the form of a mortgage secured by all of the university’s assets.

In the most recent fiscal year, the university’s net assets dropped by nearly $2.4 million, according to an audit, as it has spent both from the earnings and principal of its restricted endowment earnings, and it has even borrowed against those funds, the auditor found. Those moves have led the university to run afoul of Ohio law on endowment management, the university’s auditor said.

Not surprisingly, the lack of money has also led to a decline in academic services and support for students. In 2015 the board’s plan led to the elimination of about one-third of CCU’s administrative staff and 10 percent of the faculty.

The university also didn’t anticipate the academic problems that would arise when its enrollment shifted so heavily toward athletes. The number of athletes has increased from 150 in 2015 to more than 400 — 125 of whom were football players. The student-to-faculty ratio has increased by 76 percent in recent years, according to the accreditor’s findings.

Even as the number of students has declined, the university has drastically changed the kind of student it admits, the accrediting commission found. Enrollment standards have been lowered in recent years, the accreditor determined, and student outcomes have also declined.

First-year retention rates fell from 75 percent in 2014 to about half in 2016, according to the accreditor’s figures. The university’s graduation rate was 32 percent in 2017, 10 percentage points lower than it was just two years earlier.

Governance Gaps

At the very heart of the accrediting commission’s concerns is Heineman, who was named the university’s chief executive in March 2018. Heineman is a local businessman who touts a long list of business experience, entrepreneurship, and nonprofit advising. He joined the trustees in the spring of 2015 and was soon placed in charge of the board’s finance committee.

Heineman personally owes more than $300,000 in unpaid state taxes, according to documents and additional reporting by The Chronicle. In addition, he and his businesses have faced a number of lawsuits, as well as a lengthy investigation by the Securities and Exchange Commission, resulting in a $150,000 fine.

The SEC charged that Heineman had made materially false or misleading statements to auditors while serving as the titular head of several affiliated companies that were actually controlled by a convicted felon. Heineman accepted the fine without admitting or denying the commission’s findings, according to a news release issued by the agency.

The accrediting commission’s concerns relate to numerous problems with the institution’s governance, especially the trustees’ lack of independence from the president, who intends to keep his spot as a trustee in the future, and the absence of documentation and transparency regarding the role and responsibilities of leadership.

There are no minutes of the trustees’ vote to name Heineman president, according to the accreditor’s findings, and no job description or performance evaluation.

Of particular interest to the accrediting commission is Heineman’s relationship with the university’s lender, Central Bank & Trust, which appointed him “chief restructuring officer” to oversee the bank’s line of credit to CCU.

“Conflicts of interest are posed by the president’s trio of roles,” the commission wrote, because Heineman “considers the bank’s interests to take precedence over institutional interests.” The university did not provide to the accreditor any documents detailing the bank’s arrangements with the institution or Heineman.

Smith, of Grinnell College, said that it’s clear from the accreditor’s letter and the university’s bylaws that the institution expects its president to give priority to its own interests.

What’s Next?

Recognizing its continued peril, CCU has engaged in a number of other efforts in recent years to remain financially viable. In 2017 it made a nine-year deal to promote Point University’s online offerings in exchange for 20 percent of the tuition of every student who enrolled through CCU.

Cincinnati Christian also explored merging its operations with Kentucky Christian University, to cut costs for both institutions. But the proposed marriage ultimately fell through.

CCU now seems to be putting all its chips on online students. University staff members told site visitors with the Higher Learning Commission that initial plans call for the enrollment of 2,000 students, half of whom will be in online programs. But the accreditor cautioned against that strategy.

“CCU does not have online programs that will attract students, and those it attracts may be part-time enrollees,” the commission wrote in its report.

In the meantime, according to the auditor, Cincinnati Christian will continue to try to persuade donors to release their contributions from narrow spending restrictions. In addition, the university said it planned to restore certain donor-restricted funds to their full value after those accounts were raided to make ends meet. And of course, there are always more cuts to be made.

The university has, at most, a year to prove to the Higher Learning Commission that it should remain accredited. The commission’s board will consider next June whether CCU should remain accredited. Failure to meet any of the accreditor’s deadlines for other required reports before that could also result in a loss of accreditation.

Brown, at the University of Virginia, said CCU’s leaders have some hard decisions ahead. “It is a challenging reality for religious individuals to face the closure of an institution” that has supported their faith mission for nearly 100 years.

“You pray for the organization, for each other,” he said, “but the reality is that sometimes religious institutions have to close.”

Eric Kelderman writes about money and accountability in higher education, including such areas as state policy, accreditation, and legal affairs. You can find him on Twitter @etkeld, or email him at eric.kelderman@chronicle.com. Dan Bauman is a reporter who investigates and writes about all things data in higher education. Tweet him at @danbauman77 or email him at dan.bauman@chronicle.com.