Owing $26 million to the USDA, Iowa Wesleyan University announces closure

After 181 years of operation, Iowa Wesleyan University in Mount Pleasant announced Tuesday that it will close at the end of this academic year.

The school currently owes $26 million to taxpayers through a mortgage and loan guarantees provided by the U.S. Department of Agriculture in 2016.

The university said the decision to close was based on a combination of financial challenges, including Gov. Kim Reynolds’ recent rejection of the school’s request for $12 million in financial assistance.

In early February, Iowa Wesleyan submitted a formal proposal to the governor’s office, asking for $12 million in assistance in the form of federal American Rescue Plan Act funds intended to help Iowa recover from the financial effects of the pandemic. The school argued that such assistance would be in keeping with Reynolds’ Empower Rural Iowa Initiative.

University President Christine Plunkett said Tuesday it was the school’s understanding the federal government had loosened the restrictions on the use of such money and so the request to the governor’s office wasn’t out of line.

Reynolds rejected the request, which led to the university trustees’ decision Tuesday morning to close the school. “As a higher education institution that serves rural Iowa, we are disappointed in the lack of state support for this effort,” said Robert Miller, chairman of the university’s board of trustees.

In a written statement, Reynolds said her office endeavors “not to spend one-time federal dollars on ongoing expenses.” She said that to better understand Iowa Wesleyan’s financial health, her office engaged an independent, third-party accounting firm that found the school’s $26 million loan from the USDA “could be recalled in full as early as November 2023.”

In addition, Reynolds said, Iowa Wesleyan’s own auditors had expressed “substantial doubt” as to the school’s ability to stay afloat and had pointed out that while enrollment had grown over the past three years, the school’s financial health continued to deteriorate.

“If the state would have provided the federal funding as requested and it was used to finance debt or other impermissible uses according to U.S. Treasury guidelines, the state and taxpayers could have been liable for potential repayment,” Reynolds said.

The school’s decision to blame the governor didn’t sit well with Gary Steinke, president of the Iowa Association of Independent Colleges and Universities.

“To blame the governor is absolutely, 100 percent preposterous,” Steinke said. “That makes me angry. In fact, to blame the governor is stupid.”

Steinke said Iowa Wesleyan’s proposal that the governor draw the requested $12 million from federal COVID-19 relief funds demonstrates a lack of understanding as to how such funds can be legally used. He noted that the university’s financial problems date back to at least 2018, when the school reported it was on the brink of closing. That was long before the pandemic and long before Reynolds was approached for financial help, Steinke said.

“And yet the only person they blame is the governor,” he said. “I mean, there is no blame assigned to the trustees, to the administration, to the officials of the university – no, there’s none of that. No, they say this is all because the governor didn’t give them $12 million. Let me tell you something: That was an unbelievably dumb request. The governor was never going to provide $12 million in COVID money to a private, not-for-profit college that was on the verge of collapse.”

Iowa Wesleyan is the oldest co-ed, independent university in the state of Iowa, having been founded even before Iowa was established as a state. The school traces its origins to 1841, when it was founded as the Mount Pleasant Literary Institute. The school soon evolved into Mount Pleasant Collegiate Institute and then, in 1855, it was renamed Iowa Wesleyan University. In 1912, it was christened Iowa Wesleyan College, before reverting to Iowa Wesleyan University in 2015.

The school is affiliated with the United Methodist Church and currently has a total enrollment of 878 students, including 701 traditional, on-campus undergraduate students. Iowa Wesleyan employs 110 people on a full-time basis, including 35 faculty members.

Other factors in shut-down

In addition to Reynolds’ rejection of the $12 million request, Iowa Wesleyan said the planned closing was also triggered by increased operating costs due to inflationary pressures, changing enrollment trends and a significant drop in philanthropic giving.

In a press release, the university said the decision to close coincides with recent, positive changes at the school, including “unprecedented enrollment growth, improvements in student retention, and success with efforts to address economic and workforce development challenges throughout Southeast Iowa.”

The university said that while overall enrollment had increased post-pandemic, the growth was not enough for Iowa Wesleyan to achieve financial stability.

Plunkett said the decision to close the school after 181 years as an “educational pillar” in the community was “heartbreaking” for the board of trustees. “Our focus is now on assuring our over 850 students have a smooth transition to another educational opportunity,” she said.

Iowa Wesleyan has secured four agreements with William Penn University, Upper Iowa University, the University of Dubuque, and Culver-Stockton College so students can complete their education and earn their degrees on time and for a cost that’s comparable to Iowa Wesleyan.

In 2014, Plunkett announced she was resigning as president of Vermont’s Burlington College while a group of protesting students surrounded her car. Her resignation followed revelations of financial difficulties at the college and votes of no confidence from students, faculty and staff. In 2016, Burlington College closed, with officials there blaming the “crushing weight of debt.”

School owes $26 million to USDA

When the Iowa Wesleyan closes on May 31, the physical campus will become the responsibility of the U.S. Department of Agriculture, which provided Iowa Wesleyan with financial assistance in the form of a mortgage in 2016. Plunkett said that mortgage helped the university consolidate its debt and reduce the amount of interest it was obligated to pay to lenders.

In 2016, former Iowa Gov. Tom Vilsack, who is from Mount Pleasant, was completing his first stint as the U.S. secretary of agriculture. Vilsack’s wife, Christie, is a former Iowa Wesleyan instructor and, according to Iowa Wesleyan’s tax returns, she was on the school’s board of trustees in 2016 — and she remains on the board today.

USDA will assist with some aspects of the shut-down, Plunkett said, adding that the school’s outstanding debt to the federal agency is currently $26 million.

“That includes $5 million owed to Two Rivers Bank, which is guaranteed by the USDA, and then $21 million owed to the USDA,” she said.

A USDA spokesperson who declined to be named said because Tom Vilsack’s wife sits on Iowa Wesleyan’s board of directors, he has recused himself from personal involvement in matters relating to Iowa Wesleyan University.

All matters involving the university and the USDA have been delegated to the USDA Rural Development Mission Area and to the deputy secretary’s office, without any involvement from Vilsack, the spokesperson said.

Three other schools asked for $12 million each

Iowa Wesleyan’s funding request was only one element of an 11-page “white paper” given to the governor’s staff last month by the presidents of four private universities, each of whom asked Reynolds for $12 million in cash assistance.

In addition to Iowa Wesleyan, the white paper included funding requests for these universities:

Graceland University, Lamoni: Sought $12 million as “an infusion of capital to provide time and runway to grow 21st century programs for our students while at the same time maintaining affordability for them and addressing deferred maintenance.”

Upper Iowa University, Fayette: Sought $12 million to “strengthen our ability to remain a vibrant and positive partner in Iowa’s effort to empower rural Iowa.” The school said the $12 million would be used specifically to “enhance our ability to create awareness for growth,” and provide students with a quality education.

William Penn University, Oskaloosa: Sought $12 million to help pay for unspecified capital improvements on the campus. “State investment of $12 million will allow us to continue to make progress, aid our community in workforce development, and be a driver of economic growth in Iowa,” the university told the governor’s office.