In its penultimate year, Birmingham-Southern College quickly burned through what little cash it had left.

The private liberal arts college in west Birmingham started out the tax year in 2022 with a little over $6 million cash in hand. By May 2023, the school had less than $800,000, newly released tax forms show.

“It’s really declined,” said Linda Parsons, an accounting professor at the University of Alabama who specializes in nonprofits. “That tells me they are just burning through their liquid assets.”

But Birmingham-Southern’s financial troubles began at least two decades earlier, according to tax records it’s required to file with the IRS.

Long before this fatal round of financial troubles, Birmingham-Southern had nearly gone broke many times in its 168-year history. The institution operated in the red for six years straight starting in 2004, peaking at a single-year deficit of $22 million during the 2008-09 school year.

The college’s accounting firm, BDO USA, sounded the alarm in a financial audit for 2022 and 2023, writing in bold letters that there was “substantial doubt” about BSC’s ability to continue operating and noting compliance issues in the college’s use of federal programs and ability to prevent accounting inaccuracies

“The College has suffered recurring losses from operations, has appropriated substantial funding from their endowment, and has stated that substantial doubt exists about the College’s ability to continue as a going concern,” reads the audit, which was finalized on March 11.

Two weeks later, the board of trustees voted to close, blaming the state treasurer’s denial of a $30 million bridge loan. The college ceased operations on May 31.

A spokesperson for Birmingham-Southern declined to comment for this article.

A review of 990 tax forms shows the college operated in the red for 16 of the 22 tax years between 2001 and 2022.

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Now that it’s closed, the specifics of Birmingham-Southern’s financial situation aren’t clear, as nonprofits file tax forms a year after the end of the tax year.

Last year, the college reported nearly $36 million in liabilities, and “was not in compliance” with the terms of its loans in 2022 or 2023, per the audit.

Birmingham-Southern has not filed for bankruptcy. And the institution hasn’t otherwise outlined a public plan for paying off its debt and settling its accounts.

“We do not have anyone who can speak to this at this time,” said spokeswoman Virginia Gilbert Loftin in an email to AL.com.

Parsons said the institution has a few options for paying off debt: selling physical assets like buildings and equipment, selling publicly traded securities and asking for any money that it’s owed.

The land, buildings and equipment were valued at nearly $65 million last year, per the audit and tax records.

But Birmingham-Southern owes ServisFirst Bank $16.5 million. The bank has first claim to proceeds from the sale of the campus and can repossess the land if the college can’t make its debt payments. The state treasurer cited those terms in his denial of a loan for Birmingham-Southern, calling it a “terrible credit risk.”

The fate of the 192-acre Bush Hills campus is unclear. But Alabama A&M University officials say they will soon make a second cash offer to buy the campus – after an initial $52 million offer in May. They’ve pledged to eliminate the “entire BSC debt” with the purchase, and rehire its credentialed faculty and staff.

Birmingham TV station WBRC reported that Miles College in Fairfield has also expressed interest in buying the campus.

Tax forms show that as of May 2023 the majority of Birmingham-Southern’s financial assets were tied up with restrictions from donors.

“They’ve got promises to spend it a certain way,” Parsons said. “If I’ve got money to spend on scholarships without any students, then I can’t. I’ll be interested in seeing what happens.”

Years of struggle

Birmingham-Southern’s cash balance seemed steady until about 2017, Parsons said. That fall, the college announced it would reduce the cost of tuition and fees by 50% during the next academic year.

Around that same time, donations also dropped. During the 2017-18 academic year, Birmingham-Southern brought in a little more than $5 million in donations – compared to more than $12 million the year before.

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Donations started to tick back up during the 2019-20 academic year. By May 2023, donations hit $9 million.

The college’s investments dipped by more than half during last year, from about $19 million in publicly traded securities at the start of the year to under $10 million by the end.

“It looks like they’re cashing out investments,” Parsons said.

At the same time, the school was losing students, dipping under 1,000 by the fall of 2022. Last fall, the college reported just 731 students – down nearly 40% since fall 2019.

“I know that they cut revenue that they thought will save our students,” she said, adding that still she thought the decline in the revenue from the loss of students didn’t equate to the depths of its financial turmoil.

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Birmingham-Southern’s endowment fund – typically long-term investments and savings for higher education institutions – had dipped to a historic low, just under $26 million by May 2023, according to the tax forms. It had spent that much of its endowment already over the previous two years, per the audit.

Colleges can tap some of their endowment funds – which are often dedicated for certain uses, such as scholarships for students – to cover emergency gaps in their budgets. But BSC’s endowment wasn’t high enough to sustain itself after an emergency like the Covid pandemic, as fewer students enrolled and those who did needed more financial aid.

During the 2022-23 academic year, the college brought in about $42 million in revenue – the lowest in more than two decades. During that same year, the college reported more than $53 million in expenses — a major cutback from the previous year’s nearly $81 million. But still, it left a $11 million deficit.

The institution’s largest deficit peaked during the tax year that ended May 2022 with a nearly $38 million gap. The last time the gap hit double digits was between 2006 to 2010, during David Pollick’s tenure as president, tax records show.

The college, like other higher education institutions, earned income through student tuition and fees, gifts, grants, and services like housing and meal plans. But that income steadily declined since the 2016-17 academic year. By the 2022-23 academic year, its revenue was nearly cut in half from 2016.

Some of those expenses over the years could come from its assets, like buildings, depreciating in value over time, Parsons pointed out. Typically, nonprofits aren’t doing a lot of spending, she said.

In earlier years, during Pollick’s leadership, the administration initially blamed financial troubles on a miscalculation of Pell Grant funding that resulted in giving too much financial aid. But the college’s deficits ballooned as it also spent money on campus construction and its endowment plunged, impacted by the economic recession’s hit to the market and slower donations.

“That basically says, ‘I sold low, and bought high,’” Parsons said, pointing out that it would be even harder for an institution to recover from the recession if it sells its endowment’s investments when the values were lowest.

As the institution paid more in financial aid, its revenue dipped, and it pulled more from its endowment shortly before Pollick resigned in 2010.

President Daniel Coleman, who took the helm in 2018, sought out millions from the state, county and city to replenish the school’s endowment.

The college also created the Birmingham Southern College Foundation to fundraise for its endowment, which formed as a nonprofit in January 2020, per IRS records. College officials intended to raise $200 million via the foundation.

By February 2024, the college had only fundraised nearly $47 million in pledges, and collected just about $10 million in actual funds, per the audit. Coleman told AL.com that they would seek to raise the rest by 2026.

But that plan didn’t work.

After mid-June, only a handful of employees will be left to assist with the college’s closure, Gilbert Loftin previously told AL.com. The institution is in the process of laying off more than 200 people without severance pay.