Bill Virgin: KPLU saga has many storylines beyond money

The ongoing saga of the proposed sale of Pacific Lutheran University’s radio station to the University of Washington is fascinating because of its multiple story lines.

There’s the radio aspect, as in what future is there for the medium in an increasingly Web-connected world. There’s the angle, always a favorite in these parts, of Tacoma losing to Seattle one more element that makes it distinctive.

And there’s a piece of the story concerning KPLU-FM’s jazz programming, as fans of the music genre fret over UW’s long-term commitment to the format and plans for the station’s frequency.

Looming over all those is the big-picture issue of the state of American higher education these days: what it costs, what it’s producing, and whether the current model and structure are sustainable.

Higher ed is a big business in this country, justly measured in terms of employment, enrollment, research dollars, financial endowments (calculated in the billions) and the load of student debt Americans take on to produce the world’s most highly credentialed population of baristas.

It’s even a big business at the relatively small level of PLU (about 3,300 students, according to the school’s website). According to the university’s IRS Form 990 for the fiscal year ending in May 2014, the school reported revenue of a little more than $150 million — including what it collected from students as well as contributions, grants and investment income. The school reported an operating deficit (revenues minus expenses) of $1.2 million.

While the loss was less than the previous year’s $4.3 million, the two-year trend caught the eye of debt rating agency Standard & Poor’s, which in September cut its grade from BBB to BBB- on two Washington Higher Education Facilities Authority bonds issued for PLU. It also issued an outlook of “negative.”

“The downgrade reflects our view of PLU’s weakened overall financial profile, characterized by continued operating deficits on a generally accepted accounting principle basis, as well as a decrease in financial resource ratios, particularly expendable resources relative to debt,” according to an S&P credit analyst quoted in a release. “The downgrade also reflects several years of enrollment and demand pressure, shown by decreasing head count and freshman applications.”

The university was out of compliance with bond requirements, S&P noted, but has sought a waiver. “If the waiver is not granted, the university has identified adequate potential liquidity sources to meet any acceleration demand” of repayment.

Reference to “potential liquidity sources,” and those financial reports, has some KPLU backers wondering if the sale of the station for $7 million in cash (plus $1 million in other noncash consideration) was intended to plug a hole in the budget.

For the moment, PLU is publicly shrugging off concerns raised in the S&P report. “PLU is in fine financial shape,” says an open letter posted on the school’s website by President Thomas Krise. “Our 2015-’16 total enrollment is above expectations, our graduate student enrollment is at a historic high, we ended the past fiscal year with a substantial surplus, and our endowment is at an all-time high of more than $85 million. Meanwhile, for Fall 2016 admission, undergraduate inquiries, applications, admits — and declines — are at five-year highs, continuing positive trends from last year.”

Krise also said, “PLU’s debt per student is well below that of our peer institutions, including those with stronger debt ratings. Our debt service coverage of 3.96 times total debt last year is far above our debt covenant requirement of 1.1 times (a measure of our ability to cover our annual debt service cost). It is quite common for institutions to have debt as part of their capital structure, especially given current interest rates, and in fact, very few organizations of any kind operate debt-free.”

As for the motivation of the radio station’s sale, a letter from PLU’s Alumni Board (as reported by the TNT’s C.R. Roberts) calls it “a decision that acknowledges the significant difference between licensing and operating a radio station, and educating undergraduate and graduate students.”

But, if that were the case, PLU could easily jettison a host of other activities that have at best only a tangential relation to the supposed underlying mission of higher-education institutions, starting with intercollegiate athletics (disclosure alert: this is not the start of an anti-sports screed, this columnist being himself a graduate of an extremely large Midwestern institution of higher football). Even at PLU’s level, athletics are not cheap and the school could just as easily derive whatever educational or recreational value it sees in sports from classes, intramurals or club teams with limited travel.

But PLU and most other higher-ed organizations do see some value in sports, for student participants, for building stronger social connections and better relations with students, alumni and the rest of the world, as a marketing tool, and as a “community service,” to borrow a phrase that KPLU uses on-air.

That the school announced a deal before even vetting the idea of a sale with the public suggests a certain dearth of imagination. Unless there’s a screaming need for the cash, haste wasn’t an issue. Private-sector companies regularly announce they’re studying possible divestiture of operations to see what ideas or proposals percolate; see Weyerhaeuser and its recent announcement related to its cellulose fiber operations.

Then again, perhaps the school’s leaders figure that imagination and ideas won’t pay the heat and light bills — but $7 million for an asset they’re not interested in anyway will.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

This story was originally published November 25, 2015 at 3:42 PM with the headline "Bill Virgin: KPLU saga has many storylines beyond money."