HISTORICALLY BLACK COLLEGE and UNIVERSITY CAPITAL FINANCING PROGRAM

HISTORICALLY BLACK COLLEGE and UNIVERSITY

CAPITAL FINANCING ADVISORY BOARD MEETING MINUTES

CLARK ATLANTA UNIVERSITY

Thomas W. Cole Science Research Center

First Floor Boardroom

223 James P. Brawley Drive

Atlanta, Georgia 30314

Friday - November 30, 2007

10:26 a.m.

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1 BOARD MEMBERS PRESENT:

2 DR. NORMAN FRANCIS, CHAIRMAN

MR. DON WATSON, EXECUTIVE DIRECTOR

3 DR. LEONARD HAYNES

DR. MARVALENE HUGHES

4 DR. ANDREW HUGINE, JR.

DR. HAYWOOD STRICKLAND

5 DR. CAROLYN MYERS

DR. LEZLI BASKERVILLE (Present via telephone)

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1 P R O C E D I N G S

2 DR. STRICKLAND: Thank you for

3 coming.

4 We have a quorum now, and we are expecting

5 Dr. Haywood Strickland here very shortly, so I

6 thought we might get started for those of us

7 who have schedules. We hope to have a very

8 productive meeting here this morning.

9 You have your agenda listed under 1. I

10 have two pages. The second page, it says call

11 to order, which we have done. I\'ve given my

12 welcome introductions.

13 Any introductions we need other than in a

14 minute we\'ll do a roll call? Let\'s do our roll

15 call for the members of the Advisory Committee.

16 Would you do that for us?

17 MR. WATSON: Yes. Dr. Lezli

18 Baskerville.

19 DR. BASKERVILLE: Present. Good

20 morning all.

21 DR. FRANCIS: Good morning.

22 DR. HUGHES: Good morning.

23 DR. HAYNES: Good morning.

24 DR. MYERS: Good morning.

25 DR. HUGINE: Good morning.

4

1 MR. WATSON: Note that

2 Dr. Baskerville is on the phone.

3 DR. FRANCIS: We\'ll ask you to speak

4 loudly, because she has to hear us because

5 she\'s got a lot of good things to say, right,

6 Lezli?

7 DR. BASKERVILLE: Yes, Mr. Chairman.

8 MR. WATSON: Dr. Norman Francis.

9 DR. FRANCIS: Here.

10 MR. WATSON: Dr. Leonard Haynes.

11 DR. HAYNES: Here.

12 MR. WATSON: Dr. Marvalene Hughes.

13 DR. HUGHES: Here.

14 MR. WATSON: Dr. Andrew Hugine, Jr.

15 DR. HUGINE: Here.

16 MR. WATSON: Dr. Michael Lomax.

17 (No response.)

18 MR. WATSON: Dr. Ernest McNealey.

19 (No response.)

20 MR. WATSON: Dr. Carolyn Myers.

21 DR. MYERS: Here.

22 MR. WATSON: Dr. Haywood Strickland.

23 (No response.)

24 MR. WATSON: And Don Watson. I\'m

25 here.

5

1 DR. FRANCIS: You\'re here. Glad.

2 Very happy.

3 We need to approve the minutes. And let

4 me say something before Lezli Baskerville does.

5 We have had the transcript of the record, which

6 you may have had a chance to read, and we have

7 to work out some way \-- and I\'m not so sure how

8 best we do this, Don \-- where we can go through

9 those and pick out either actions that we\'ve

10 taken and/or maybe significant comments, but

11 that\'s all, and then make this a much tighter

12 set of minutes.

13 I don\'t know what the Federal Rules are

14 about this. But if we did that to the best

15 that we could, then we could certify that at

16 least it\'s the substance of what the record is.

17 And the record will always be there apparently

18 for posterity, unless there was some things

19 said in the record that you wanted to correct.

20 I would certainly entertain that now.

21 There may be one or two things. When a

22 reporter does that typing, there are names that

23 may be off here or there, but that\'s okay. We

24 can correct that. But if there are any

25 comments that you want to make that the record

6

1 indicated something you said that may not have

2 been accurate, I\'ll certainly entertain that

3 and promise that the next time around we\'ll cut

4 it down to a much shorter version of the

5 minutes and then we can approve only the

6 actions. Marvalene.

7 DR. HUGHES: Is it possible that we

8 could correct these as minutes, because from my

9 perspective, there was no coherence to what I

10 was reading. And I think we need really

11 coherence, systematic minutes that reflect all

12 of our actions and activities.

13 DR. FRANCIS: Would you help us?

14 DR. BASKERVILLE: I second that

15 sentiment.

16 DR. FRANCIS: Well, I think I\'ve got

17 a committee of two. Lezli Baskerville and

18 Dr. Marvalene Hughes are going to go through

19 those minutes and make them coherent. And then

20 Lezli is going to check it and then see if they

21 agree.

22 I agree with you, but, you know, like I\'m

23 speaking to you right now \--

24 DR. BASKERVILLE: Mr. Chairman \--

25 DR. FRANCIS: \-- the recorder is

7

1 going to have to say it like she thinks I said

2 it.

3 DR. HUGINE: And I concur with your

4 earlier observations. Obviously, I am new, but

5 as I read through this, it was just voluminous.

6 And I really was concerned about getting to

7 what the action items were.

8 And so while we do need coherence, as long

9 as we do that with some degree of brevity, I

10 certainly would concur.

11 DR. HUGHES: Right. Right.

12 DR. FRANCIS: Let\'s try it again so

13 you\'ll know. Most of us are new. This is my

14 second time. And I\'ve read these, and I find

15 that we need to just go through them and pick

16 out were there action items there, put them

17 down. And if there were significant comments

18 that may bear on something for the future, put

19 that down. And we can get it down to four

20 pages at least.

21 DR. HUGHES: Or less.

22 DR. FRANCIS: Or less.

23 DR. HUGINE: Splendid.

24 MR. WATSON: Mr. Chairman, can I make

25 a suggestion?

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1 DR. FRANCIS: Yes. Yes.

2 MR. WATSON: If you turn to page 2,

3 at the last meeting I provided a synopsis for

4 the board. I\'m not sure \-- I believe at the

5 last meeting the synopsis wasn\'t sufficient.

6 And that\'s actually a page and a half. If you

7 actually let me know exactly what it is you

8 want to see, then \--

9 DR. FRANCIS: Well, I must confess, I

10 didn\'t see this. This is in our book for the

11 first \--

12 MR. WATSON: No. It\'s actually from

13 the last meeting. But the last meeting it was

14 suggested that this wasn\'t done right. I need

15 some concrete suggestions how you want me to do

16 it.

17 DR. FRANCIS: Okay. All right. Let

18 me do this. This is the synopsis of our

19 meeting that \-- at least I was not there.

20 MR. WATSON: Right. Right.

21 DR. FRANCIS: What does it say here?

22 Called the meeting, presided \-- Friday,

23 October 27, 2006. Is that the synopsis of

24 these minutes?

25 MR. WATSON: Not these minutes. The

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1 meeting prior to our April 20th meeting.

2 DR. FRANCIS: Okay. Well, who was on

3 the \-- who was on this Advisory Committee when

4 this was done?

5 MR. WATSON: No one. Dr. Baskerville

6 was the only one.

7 DR. FRANCIS: Well, that\'s one vote

8 to pass the synopsis.

9 Lezli \--

10 DR. BASKERVILLE: Yes, sir.

11 DR. FRANCIS: \-- have you seen the

12 synopsis of the minutes of October 27th, 2006?

13 MR. WATSON: It was prepared for our

14 last meeting, our April 20th meeting, so it

15 was \-- everyone had it.

16 DR. FRANCIS: Okay.

17 DR. BASKERVILLE: I don\'t \-- I don\'t

18 have it in front of me. I\'m sure I had it. I

19 can quickly get that notebook.

20 DR. FRANCIS: Well, no. Let me get

21 out the conundrum. One, you\'re the only one

22 who was there for this synopsis. And nobody

23 here could vote for this \-- may vote for the

24 form of it, but I don\'t think any of us could

25 vote to say that this is exactly what happened.

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1 And what I\'m going to do with a consensus,

2 if you don\'t mind, that what we have just

3 talked about before Mr. Watson pointed this

4 out, this is what we\'re trying to get to.

5 MR. WATSON: Okay. Great.

6 DR. FRANCIS: So on the matter of

7 getting it down to a synopsis, that\'s what

8 we\'re trying to do. But we can\'t today pass on

9 these October minutes because we were not here

10 except Lezli. So I will defer this in terms of

11 its substance to Lezli so you will look at it,

12 because the other members are gone.

13 However, after we get a chance to take a

14 look at this on its substance, then I think at

15 the next meeting we can say do this for what we

16 read for the meeting of the past and the one

17 that we\'re going to have today, okay?

18 MR. WATSON: Great. Great.

19 DR. FRANCIS: I know that\'s a lot of

20 work, but \-- I hate to say this, but for those

21 of us who have been on boards and the like, I

22 don\'t want to sit before a grand jury one day

23 and say, now, you agreed to those minutes,

24 didn\'t you?

25 So it\'s an important \-- it is an important

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1 action, and it\'s a lot of work. And I think,

2 if anything, we will defer at least the action

3 on the minutes of the one for April knowing

4 that we read the transcript and then ask that

5 you do the April one in this format.

6 And then at the end of this meeting, we\'ll

7 have our nice recorder\'s work, and you will do

8 the same thing. And we will put both of them

9 together so that we will agree that they

10 represent what it is we have done, okay?

11 DR. HUGHES: Does that mean that when

12 we see the minutes of this meeting \--

13 DR. FRANCIS: Right.

14 DR. HUGHES: \-- they will be in

15 appropriate format for minutes rather than the

16 dialogue?

17 DR. FRANCIS: Yeah. What Mr. Watson

18 is saying is this is what he has done with a

19 similar meeting that was held at Howard, to do

20 a synopsis.

21 And if we agree \-- and you can contact \--

22 if you agree this meets what our needs are,

23 then he will do that for both the meeting in

24 April and the meeting that will take place

25 today.

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1 MR. WATSON: I do want to make a

2 point of clarity, though. The Federal

3 Guidelines Act, because this is a federal

4 advisory board, dictate that after this we

5 receive the court report. And at least three

6 weeks after this meeting, Dr. Francis, as the

7 chair, has to certify the minutes.

8 So that\'s what the court reporter has

9 done, is transcribed the business that we\'ve

10 done. But you won\'t have this synopsis format

11 at the same time.

12 DR. FRANCIS: The time is too short

13 for you to do it in. I don\'t mind signing that

14 that\'s what the court reporter has done. It\'s

15 just a matter of our putting it in a format

16 that would pick up the major parts of it.

17 I mean, you know, I see a lot of things

18 and I break my sentences up, and then I read it

19 and say, whoa, I better do a better job in how

20 I speak. But at the same time, at least we

21 have the document itself. And that\'s the audit

22 trail from which we will go back to,

23 Ms. Grammar notwithstanding.

24 DR. HUGHES: You\'ve got to get it

25 right, Dr. Francis.

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1 DR. FRANCIS: Get it to what we did.

2 Welcome, Doctor.

3 DR. STRICKLAND: Good morning.

4 DR. FRANCIS: I know it\'s a long way

5 from Texas. Takes a plane a long time to fly.

6 DR. STRICKLAND: Sure does. Then you

7 can\'t find your way once you get here.

8 DR. FRANCIS: Have to talk to the

9 president about that.

10 MR. WATSON: I want to note that

11 Dr. Haywood Strickland has arrived.

12 DR. FRANCIS: For the record and the

13 minutes.

14 Okay. We have certified, and I will

15 certify \-- I\'ll certify the minutes from April

16 and I\'ll certify these at the end of this

17 meeting. And then we\'ll come back in our next

18 meeting with the synopsis, okay?

19 MR. WATSON: Okay. Great.

20 DR. FRANCIS: All right. Satisfied.

21 Any objections to that?

22 So when we write these minutes up, we will

23 write that there were no objections to the

24 actions that I\'ve just described, okay?

25 I\'m not going to take a vote on that.

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1 It\'s a consensus. Because I don\'t want to

2 argue this for another 20 minutes.

3 Let me thank Dr. Broadnax and his team for

4 inviting us here to this great campus. I have

5 to say, I can\'t remember when \-- I can only

6 date it when the Republican group in the

7 Congress rebelled and took over as the new

8 order in a revolt. And that was how many

9 years?

10 DR. HAYNES: \'94.

11 DR. FRANCIS: \'94. So if it was \'94,

12 I came here as a SACS chair of the legal team

13 to look at the consolidation of the

14 undergraduate school and the graduate school at

15 Clark Atlanta University. Wasn\'t it \'94, give

16 or take? Do you remember? You weren\'t here

17 then.

18 DR. STRICKLAND: That was \'88.

19 DR. FRANCIS: I remember being in the

20 hotel looking \--

21 DR. STRICKLAND: The consolidation

22 was \'88.

23 DR. FRANCIS: \'88. Okay. Well, then

24 when did our friend from Georgia \-- Ringrich, I

25 called \--

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1 DR. STRICKLAND: That was \'94.

2 DR. FRANCIS: Well, then I came back.

3 I came back to do the tenures reaffirmation,

4 but I came with the legal team for the

5 consolidation. And I used the right word

6 consolidation. Beat that into my head. It was

7 a consolidation.

8 So I\'m thrilled to be back on the campus.

9 And, Mr. President, we certainly would like to

10 hear from you. We don\'t have all the money yet

11 to provide you, but we\'d be happy for your

12 comments as we start our HBCU Capital Meeting

13 this morning.

14 DR. BROADNAX: Terrific. How would

15 you like to position me?

16 DR. FRANCIS: Right here so that

17 Lezli can hear you.

18 Lezli, are you still hearing us?

19 DR. BASKERVILLE: Yes, I am. Thank

20 you.

21 How are you, Dr. Broadnax?

22 DR. BROADNAX: Fine, Lezli. How are

23 you?

24 DR. BASKERVILLE: Well. Thank you.

25 I\'m sorry I\'m not on your beautiful campus, but

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1 I\'m definitely with the team in spirit.

2 DR. BROADNAX: Well, I\'m sorry you\'re

3 not here so I can get my kiss.

4 DR. FRANCIS: Uh-oh. Cut the record.

5 We don\'t want that in the record.

6 MR. BACOTE: She\'s got it.

7 DR. FRANCIS: He\'s not a member of

8 the Advisory Committee.

9 DR. BROADNAX: It\'s a great

10 opportunity to be able to talk to the board a

11 bit about our experience. And I have some

12 wonderful notes here, but I\'m sort of getting a

13 feel for the tenor of the meeting, so I\'m not

14 going to be overly formal and retreat to those

15 notes.

16 And I\'ve got people here who really do

17 know things, particularly my CFO, so any errors

18 I make, they can be corrected almost on the

19 spot so that you don\'t go away with a bad \--

20 DR. FRANCIS: Would you introduce

21 them for us?

22 DR. BROADNAX: Yes.

23 DR. FRANCIS: I know some of your

24 great staff members, but not all of them.

25 DR. BROADNAX: Bobby Young.

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1 DR. FRANCIS: Mr. Young.

2 MR. YOUNG: Good to meet you.

3 DR. BROADNAX: And my executive vice

4 president, Carlton Brown.

5 MR. YOUNG: That\'s it.

6 DR. BROADNAX: So I\'m well covered,

7 or you\'re well covered, because you\'re the ones

8 that will be injured by the bad information.

9 Let me say that the Capital Financing

10 Program for me here at Clark Atlanta came into

11 sharp relief a while after I was aware of it.

12 It was not when I first heard about it that it

13 became important and I thought that this was

14 something that we could embrace and that it

15 would do us a world of good. It came after we

16 had gone through the financial recovery here at

17 Clark Atlanta. And let me just say a few

18 things about that.

19 When we started this watch at Clark

20 Atlanta, we had a substantial deficit that we

21 were facing, and an even more substantial cash

22 flow deficit that we were facing to the extent

23 that we were under some tremendous pressure and

24 threat, particularly from our bond insurers.

25 And it finally reached a point that there

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1 was nowhere to turn, that this institution was

2 going to be faced with having to do some very

3 difficult things in order to not have the

4 institution basically go into receivership.

5 And the conversation did get as far as the

6 bond insurers talking about the total asset

7 value of the institution and how they might

8 want to begin to think about sort of a ladder

9 or a schedule of presenting different parts of

10 the institution.

11 As I talk about this, you know, it

12 truncates what was more of an elongated process

13 and a process where we were sobering as we were

14 going through these conversations, because as

15 all of you know, the kind of medicine that was

16 about to be laid out for an academic

17 institution is totally anaphora, because at the

18 end of the day what it meant was, is we were

19 too large for the resources that we had

20 available to us and we had to become a size

21 that fitted the resources that we did have

22 available to us.

23 And so at the end of the day, consultants

24 came to the campus. And this was part of the

25 deal with the bond insurers. And we

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1 constructed a road map for the recovery. And

2 it was well done by the consultants, but what

3 it involved was some major cuts.

4 We ended up laying off over a hundred

5 staff. We had some vacancies, so we could get

6 rid of those vacancies, but there were bodies

7 in over a hundred staff positions. And we had

8 to cut programs and reduce faculty size. In

9 total it was 75 faculty over time that would be

10 phased out along with the programs.

11 DR. FRANCIS: Of a faculty of how

12 large?

13 DR. BROADNAX: The faculty was over

14 300 at that point. About 329, 330, something

15 like that.

16 DR. FRANCIS: 25 percent.

17 DR. BROADNAX: Yeah. Yeah. That\'s

18 exactly right. So tough medicine, right?

19 And some of the programs \-- we went

20 through an elaborate process on the campus,

21 various committees trying to come up with ways

22 how we could do this, because consultants did

23 not tell us which programs. They just told us

24 the dollar amounts that you got to hit to show

25 that you are going to be on your way out. You

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1 go and figure out the programs.

2 Now, some people wanted us to declare

3 financial exigency, but that seemed to us that

4 that just sort of created more turmoil. So

5 you\'re going to have to work with the folks

6 that are there anyway, so you might as well

7 start out right now. So we did. And we worked

8 through these committees. And we finally came

9 up with a list of proposed programs.

10 And then we sat with our board and went

11 through those. And there was some change with

12 the board, but not a lot. And we finally came

13 up with it. And it was five programs.

14 And then we started having meetings on the

15 campus and worked all of that through. And

16 then June 30th came, and we pulled the trigger,

17 so to speak.

18 Now, also embedded in this was some other

19 cuts. It wasn\'t just people, but we had to

20 make other cuts. And one of them was the

21 university had acquired this icon called

22 Pascal\'s Restaurant. And maybe some of you

23 read about it in the New York Times. And I

24 always joke and say that when you\'re a

25 university president and you make the New York

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1 Times, you know you\'ve bottomed out. And so

2 that I had probably gone as low as I could to

3 have my name show up in the New York Times.

4 And it was not favorable or pleasant.

5 But the point was, is that we had decided

6 we were losing a substantial amount of money

7 every year on this and we couldn\'t afford to

8 keep operating it. So we were going to shut it

9 down. And that would save us a great deal of

10 money.

11 I say all that to give you an idea of the

12 backdrop of what became described as phase one

13 of the transformation of this institution.

14 When I came, this was not at all what I was

15 thinking about doing. And I\'m sure that there

16 are other people around the table who could

17 echo that. But once we got into it, we

18 realized that it was transformation that we

19 were going to be about. And the farther we got

20 into it, we began to think of that as phase one

21 of the transformation.

22 What we had not talked about was the

23 condition of the place, which was the other

24 part. Because as we worked through the

25 financial recovery, we realized that really the

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1 big issues were competitiveness and student

2 satisfaction and parental satisfaction. It was

3 all the questions that you face every day. So

4 since we\'re on this road, then let\'s really go

5 get them. So how can we do something about the

6 physical plant, became a really important part

7 of this. We had a deferred maintenance tab

8 of \--

9 MR. YOUNG: 76 million.

10 DR. BROADNAX: \-- \$76 million. When

11 we mentioned that to our board facilities

12 committee, I was shocked at their shock and

13 doubt about the size of the number. And we

14 were queried really hard about how could it be

15 that much.

16 And we finally retreated to saying, well,

17 you know, we invite you, just walk around

18 during the lunch break and you come back and

19 you tell us what you think it is, but you got

20 to go in some of the places and look around.

21 You come back and you tell us what you think it

22 is. And I think that calmed them down some

23 that they maybe started looking a little

24 harder.

25 And so we said, how can we then address

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1 this problem? I\'ve got to give Bobby Young,

2 our CFO, all the credit in the world because he

3 was the guy that brought me back \-- he had

4 introduced me to this program early in my

5 tenure. And as I said, I didn\'t pay it a lot

6 of attention. Didn\'t see the immediate value

7 of what it could do for us.

8 He brought that thing back, and he said

9 not only can we start to do something about,

10 with this program, our physical infrastructure,

11 which is really important to us, but it can

12 help us with some of our financial problems

13 that we are dealing with in the context of this

14 recovery.

15 And so he began the conversations. And I

16 had a couple meetings with people from the

17 program, and it got integrated into my psyche

18 in terms of this phase two, which was going to

19 be the physical Clark Atlanta.

20 We\'ve done some things with Title III.

21 And I don\'t want to muddy the waters talking

22 about that, but between the two things,

23 Title III and the Capital Financing Program, we

24 were able to then put together a corpus of

25 resources that have helped us in total here.

24

1 We calculate that we\'ve invested somewhere

2 north of a hundred million dollars into the

3 physical Clark Atlanta over the last five

4 years.

5 DR. FRANCIS: Five years.

6 DR. BROADNAX: And \$20 million of

7 that is new money which has helped us through

8 the Capital Financing Program to renovate three

9 of our old dormitories. Because all of you

10 know, housing is extremely important. And

11 because we\'re in the inner city, which I had

12 never thought about before, it becomes even

13 more important.

14 I\'ve always thought about residential

15 facility as being really important if you\'re

16 sort of isolated at schools like \-- you know,

17 that are out in the country. But here people

18 say it\'s great. I want my child in the city

19 but if they\'re freshmen or sophomores, I want

20 them to be safe. And that means \--

21 DR. FRANCIS: You take care of them.

22 DR. BROADNAX: You take care of them.

23 DR. FRANCIS: That\'s right. Guard at

24 every door.

25 DR. BROADNAX: Absolutely. Exactly

25

1 Been there. And folks shaking their fingers,

2 as you know, in your face as they\'re getting

3 ready to leave their kids saying, \"I\'m holding

4 you responsible for my son or daughter.\"

5 So my excitement just went like this

6 (indicating a hand gesture) about what we could

7 then do and being able to get at this deferred

8 maintenance issue. And I had no idea earlier

9 on how we might do that.

10 This \$20 million in and of itself will

11 virtually finish the transformation of the core

12 of Clark Atlanta.

13 Now, if I had a photograph of what the

14 school looked like in 2002 and what it looks

15 like now \-- and, see, it becomes hazy to me,

16 right? Because I\'m coming here, not every day,

17 but a lot of days in each week. People talking

18 about how different it looks.

19 But it will be virtually a new institution

20 when those dormitories \-- those three

21 dormitories are finished in terms of the

22 remodeling along with the next academic

23 building we\'re going to do, which is our School

24 of Education which is called Clement Hall,

25 which is not far from here. In fact, it\'s sort

26

1 of right across here. When you go out the door

2 and go down the sidewalk, it\'s the building to

3 your left. Trevor Arnett is next, to your

4 right, and it\'s right down the hill. And

5 you\'ll notice that\'s going on.

6 It\'s been magnificent. The refinancing of

7 the debt and the money that that saved us in

8 the recovery is tremendous. The only sad thing

9 about it, it\'s hidden to the campus, that

10 probably no more people outside of Carlton,

11 Bobby, myself, and two or three other people

12 really get or understand that. And, think

13 about it. If we hadn\'t been able to do that,

14 that would have been another \-- what?\-- almost

15 14 million \--

16 MR. YOUNG: Uh-huh.

17 DR. BROADNAX: \-- that we\'d of had to

18 find a way to come up with. But by refinancing

19 that debt, that saved people, that saved more

20 pain.

21 So I\'m here, not only willingly, but

22 enthusiastically supporting this program,

23 because a lot of our institutions, as I\'ve

24 talked to my colleagues over the last five, six

25 years, I know have some of the same challenges,

27

1 particularly in terms of their physical plant.

2 And you go around this city, and I look at

3 the competition, Georgia State and Georgia

4 Tech, and, you know, you\'ve got kids you want,

5 high-quality kids to come to your institution,

6 and they go down there and look at all the

7 wonderful stuff, and then come up here and say,

8 \"Well, where\'s the air conditioning and where\'s

9 the WIFI and the rec rooms?\"

10 And you say, \"We don\'t have any of that,

11 but we\'ve got history. Boy, have we got

12 history. So all those comforts you were

13 interested in you, just but that in abeyance,

14 and four years from now you\'ll see that we were

15 right.\"

16 DR. FRANCIS: That dog won\'t hunt.

17 DR. BROADNAX: It\'s helped us

18 tremendously to have parents and people comment

19 now about how good things are looking these

20 days at Clark Atlanta. And the story is it\'s

21 going to look even better in the short term.

22 So by 2009, phase two of the

23 transformation we intend to have completed,

24 which is when those dorms will be completed and

25 Clement Hall will be completed. And Davage

28

1 Auditorium, for those who know the campus,

2 which had a tremendous amount of traffic \-- I

3 mean, we did everything there, all of our

4 theatrical stuff. We do chapel there. And it

5 seats about 500 people. And the place is

6 really beaten up. And that will be completely

7 refurbished with new sound systems and so

8 forth.

9 So Sam Bacote and his colleagues deserve a

10 tremendous vote of thanks and appreciation.

11 They were patient with me because \--

12 DR. FRANCIS: They had to be. You

13 were so skeptical and not knowing it in the

14 beginning. Had to lead you by the hand. But

15 now you\'ve got it, and look at your testimony

16 this morning. That\'s going to be in the

17 record.

18 DR. BROADNAX: That\'s why I say don\'t

19 give up on those C students, that you just keep

20 working with them, and, by George, some day

21 you\'re going to see them down the road and

22 they\'ll be president of a college or

23 university.

24 DR. FRANCIS: Well, Mr. President,

25 you\'ve done very well. Let me say that. And I

29

1 preface my remarks by saying I came for the

2 consolidation, I came then for the affirmation.

3 And I know what the struggle was. I know \-- I

4 saw it coming at the time because you were

5 being \-- well, you weren\'t here, but Clark

6 Atlanta was being inundated with students. I

7 mean, inundated. They were hiring faculty two

8 weeks before classes because of students coming

9 in. And this is 20 \-- what? \-- some odd years

10 ago. About 20 years ago.

11 So all of these things sort of catch up

12 with you. And, unfortunately \-- I guess we

13 will end with this \-- for those of us who are

14 presidents and staff, you do work that people

15 don\'t see, people take for granted. Mostly

16 faculty.

17 I don\'t blame them. I just get a little

18 upset when they don\'t acknowledge what it took

19 to get to where you are. And it\'s unfortunate.

20 I think Martin Luther King said it very

21 well. He said, \"You will hear the criticism of

22 your enemies and the silence of your friends.\"

23 Remember that. And you\'ve been there.

24 DR. BROADNAX: I\'ve been there.

25 DR. FRANCIS: And yet you have to

30

1 keep on keeping on. And that\'s what they \--

2 they don\'t pay you for that. There isn\'t

3 enough money in the world to pay you for that,

4 but they do remunerate you at least to keep

5 body and soul together. Of course, they are

6 not paying you like Georgia Tech and all the

7 rest.

8 I want to congratulate you. I\'m glad you

9 were here to give us this report. I think it\'s

10 encouraging. It\'s certainly encouraging for

11 all of us as we will talk later about why we

12 must keep this program going and get the money

13 that is needed for those others who are out

14 there who need the same thing, and use Clark

15 Atlanta as an example of what that\'s all about.

16 DR. BROADNAX: Thank you very much,

17 Mr. Chairman. I haven\'t read this piece that

18 Leonard has handed out, but I think one of the

19 things that we suffer from could be cured

20 through programs like this.

21 I mean, what people see \-- it\'s hard to

22 try to talk to families about the high quality

23 of your faculty if they\'re looking at a

24 building that\'s falling down and you\'re going

25 to say you\'re going to teach their children in

31

1 that building. So it\'s really important work.

2 DR. FRANCIS: No question about it.

3 We thank you.

4 DR. BROADNAX: Thank you very much.

5 DR. FRANCIS: We wish you well, and

6 we wish you to continue to thrive and folks

7 downtown will look and say, \"Well, my goodness

8 look at this. We\'ve got big-time competition

9 down there at Clark Atlanta.\"

10 DR. BROADNAX: Dr. Brown is becoming

11 just a first-class cheerleader. I mean, he

12 talks loud and strong about us being the force.

13 It scares me a little bit, you know, this

14 force, not only in Atlanta, but in the region,

15 in the world. So, you know, I have to drink my

16 strong coffee to try to \--

17 DR. FRANCIS: We know Dr. Brown very

18 well. And you can always point the finger and

19 say that\'s what he says.

20 Thank you, Dr. Broadnax. Appreciate it

21 very much.

22 DR. BROADNAX: Thank you.

23 DR. FRANCIS: Keep up the good work.

24 DR. BROADNAX: Thanks much.

25 DR. FRANCIS: All righty. We will

32

1 have now the ethics update for new members.

2 And we have only one new member, right?

3 MR. WATSON: Actually, we have two

4 new members. We actually have three ethics

5 primers to go out. The two members are

6 Dr. Haynes, who is the Executive Director of

7 the White House Initiative on HBCU, and Dr.

8 Hugine, who is the president of South Carolina

9 State University.

10 DR. FRANCIS: Who is going to do the

11 duties, today?

12 MR. WATSON: Actually, same as

13 before. Very simple. I\'ll just pass these

14 out.

15 Dr. Haynes, this is just the ethics rules

16 of what the responsibilities are of being on

17 the Advisory Board. One is for actually

18 Dr. Myers as well. Although, you\'re not a new

19 member, I missed giving you that the last time.

20 That\'s provided you to read at your leisure.

21 If you have any question, I can put you in

22 contact with our attorney.

23 That\'s about it for your ethics.

24 DR. FRANCIS: That saved 30 minutes.

25 Well, my goodness, Dr. Haynes, you\'ve seen

33

1 so many of those \--

2 DR. STRICKLAND: He still has a

3 problem reading them, though.

4 DR. HAYNES: I was a C student.

5 DR. FRANCIS: We want to welcome our

6 new members to the Advisory Committee.

7 Interestingly enough, we are only one year old

8 or new. We\'re all in this together.

9 You\'ve been with us Doctor, what? How

10 many years? You\'re a senior.

11 DR. STRICKLAND: Where? Here on

12 this?

13 DR. FRANCIS: Yes.

14 DR. STRICKLAND: No.

15 DR. FRANCIS: What about Lezli?

16 DR. STRICKLAND: I came with you.

17 MR. WATSON: She\'s been here for a

18 while.

19 DR. FRANCIS: She\'s the senior.

20 That\'s why her vote counts so much on that

21 October Howard meeting.

22 DR. BASKERVILLE: I love being the

23 senior rep.

24 DR. FRANCIS: Okay. Now we\'ll move

25 on, do our program update.

34

1 Let me thank Dr. Watson for the work that

2 he does. He doesn\'t have a big staff. He\'s

3 got Dr. Watson, right? That means he\'s got to

4 make visits, he\'s got to put all this together

5 and make sure that this is all in good order.

6 And we compliment him for that. And I want to

7 thank you, Mr. Watson, for that. But I\'ll turn

8 it over to you now for your director\'s report

9 as we go along in this meeting, on schedule,

10 too.

11 MR. WATSON: Actually, I\'m the only

12 Department of Education employee, but there are

13 other people who work with me to make this

14 happen, Commerce and PMO folks that make it

15 happen for me as well. I had to put that out

16 there.

17 DR. FRANCIS: We know that, but you

18 got to carry that load on the Department of

19 Education side. These guys \-- I know what

20 these guys do. They do what Dr. Broadnax just

21 got through saying. This is what you\'ve got to

22 do. This is you. Okay. Go ahead.

23 MR. WATSON: On tab \-- it\'s tab 7 in

24 your notebooks. It\'s the director\'s report.

25 I\'m going to highlight some things here. Of

35

1 course, if you have any questions, I can

2 address your questions as we go through the

3 report. I want to thank the Chairman of the

4 Board for allowing me to provide this report to

5 you.

6 The first item, as you\'ll see, is our

7 Barber-Scotia update. Barber-Scotia is the

8 only loan that is in default in the program.

9 During the last meeting I reported that we were

10 going out to do an appraisal. We had not yet

11 looked at it.

12 We have looked at that appraisal, and

13 we\'re taking the next steps to review the

14 market conditions and those other things that

15 are important to see what we can actually get

16 out of a foreclosure if we were to foreclose on

17 this property.

18 The Department, along with the trustee,

19 the designated bonding authority will do all we

20 can and recover any outstanding \--

21 Barber-Scotia\'s outstanding loan, but until we

22 actually make a sale and foreclose on this, we

23 can\'t say with certainty how much we would get

24 for a particular property or Barber-Scotia\'s

25 collateral.

36

1 We\'re in the process of retaining an after

2 broker to see what those market conditions are

3 for a property such as a college. And we

4 also \-- within the Department of Education,

5 we\'ll look to see what alternative uses of the

6 property \-- the property can be used for. So

7 far it\'s been said possibly a military academy.

8 There may be some interest someplace on a

9 charter school, something like that, but

10 there\'s nothing as of this date. There\'s no

11 one interested in that as an alternative use

12 within the Department of Education.

13 DR. FRANCIS: I don\'t know if this is

14 a fair question or not, but I thought I read

15 that Barber-Scotia was trying to recover and go

16 on and start a campaign. From your comments,

17 it doesn\'t sound like that\'s going to happen.

18 MR. WATSON: Well, I\'ve been here for

19 about a year. And prior to me coming,

20 Barber-Scotia has been working on this plan.

21 I\'ve made several visits to Barber-Scotia.

22 I\'ve been in contact with President Flamer as

23 well as members of their board to try to help

24 them work out a plan. But, I mean, as of this

25 date, we have not yet seen any plans from

37

1 Barber-Scotia.

2 As far as from the standpoint of the

3 borrowers within the program, we have to

4 proceed forward. Borrowers in the program

5 actually plan for Barber-Scotia\'s debt service.

6 That\'s presently a 5 percent escrow within the

7 program. And so for those other borrowers in

8 the program, we have to proceed to make some

9 kind of \-- make those borrowers whole again.

10 DR. FRANCIS: How many in that group?

11 Five?

12 MR. HANSEL: That are subsidizing the

13 Barber-Scotia?

14 DR. FRANCIS: Yes.

15 MR. HANSEL: It\'s about 10 or 11.

16 DR. FRANCIS: So what you\'re saying

17 for the record is that, like in any business

18 deal, you have to foreclose, sell the

19 properties in order to make whole the money

20 that was borrowed as well as the monies that

21 were in escrow to pay.

22 So, I mean, it\'s just not Barber-Scotia

23 that\'s at risk. It\'s the trust fund for the

24 others that \--

25 MR. WATSON: Right.

38

1 DR. FRANCIS: So you\'ve got to make

2 that whole to the extent it can be made whole.

3 MR. WATSON: Right.

4 DR. FRANCIS: Okay.

5 MR. WATSON: Now, the problem is

6 also, as I informed Barber-Scotia with \--

7 Barber-Scotia wants to come up with a valid

8 plan and that kind of a thing, which we would

9 consider a release of collateral, but we have

10 to move forward.

11 DR. FRANCIS: I understand. I

12 understand.

13 DR. HUGHES: Can I ask a question?

14 DR. FRANCIS: Yes.

15 DR. HUGHES: In applying for the

16 loan, I assume Barber-Scotia was required to

17 put forward its payment plan and receive

18 approval according to the payment plan.

19 MR. WATSON: When you say payment

20 plan \--

21 DR. HUGHES: To repay the loan.

22 MR. WATSON: Right. They had a debt

23 service.

24 DR. HUGHES: So something must have

25 happened. I think there\'s some lessons to be

39

1 learned here. Something must have happened.

2 MR. WATSON: I\'ll say this. I\'m

3 sorry. Are you finished?

4 DR. HUGHES: I\'m just trying to

5 learn.

6 MR. WATSON: Okay. Well,

7 Barber-Scotia actually defaulted \--

8 Barber-Scotia lost its accreditation. And I\'ll

9 say here, and I\'ll say it anyplace, if any

10 institution loses its accreditation, it loses

11 Title IV eligibility. And once you lose Title

12 IV eligibility \--

13 DR. FRANCIS: It\'s a death penalty.

14 MR. WATSON: No matter how large your

15 endowment may be, it\'s only \-- at some point

16 your institution is going to have to close,

17 close its doors. And that is why Barber-Scotia

18 actually \-- they lost their accreditation and

19 Title IV aid.

20 Most of our institutions are heavily

21 relying upon tuition, which that tuition is

22 funded through Title IV student aid.

23 DR. FRANCIS: Well, for somebody who

24 has been at this for a while, I can assure you

25 from the day one, I have said all along,

40

1 irrespective of borrowing money, if you lose

2 any steps in financial aid in Title IV from the

3 government, you\'re out of business.

4 I mean \-- and, fortunately, thank God for

5 every administration in Congress over the many

6 years that we\'ve been, financially it has been

7 there and it continues to be there. But it\'s

8 not a day that we should not be trying to keep

9 Title IV.

10 And that is \-- I mean, that is the answer

11 to your question, that when you lose the

12 accreditation, you lose Title IV funds with

13 students, it\'s your backbone, and the bottom

14 falls out.

15 Yes. Sam, you wanted to say something.

16 MR. BACOTE: I just wanted to say, as

17 the DBA, it\'s part of our job to advise the

18 Department really the likelihood of the school

19 making payment. And prior to the loss, it was

20 not believed that that would occur. So we

21 believed the school could make those payments.

22 And then the loss occurred.

23 MR. HANSEL: To follow up on that \--

24 but, you know, your point \-- to your point,

25 Dr. Hughes, your question is, are there lessons

41

1 to be learned from the default. And I would

2 tell you that both the Department, the

3 designated bonding authority, and our counsel

4 Patty Wilkinson, have worked together to try to

5 look at the Barber-Scotia situation to see,

6 okay, what are the lessons to be learned from

7 this in terms of making sure that security is

8 properly documented, making sure that there\'s a

9 full understanding of how these loans are

10 secured.

11 Dr. Francis has talked a lot before about

12 the fact \-- you know, the nature of this \-- the

13 general program with the cross-collateralized

14 escrow. To a certain extent, you know, all of

15 the borrowers are put together.

16 And so if one has a problem, it becomes a

17 problem for the body of the borrowers. And so

18 it\'s very important for the Department, the

19 designated bonding authority, and our counsel

20 to work together to make sure that these loans

21 are as secure as possible, partly to protect

22 the Department\'s financial interest and the

23 interest of the federal taxpayers, but also to

24 protect the financial interests of all of the

25 program participants who are pooled together.

42

1 And so we really have, I would say,

2 tightened up how we look at that. Not so much

3 tightened up in terms of the loans that we

4 make, but make sure that everything is properly

5 documented and secured in such a way, you know,

6 hopefully, this won\'t be an issue ever again.

7 DR. STRICKLAND: Mr. Chairman, I\'d

8 just like for the record to say to Mr. Watson

9 that though he is 90 percent correct, he\'s not

10 100 percent correct, that an institution can

11 lose its accreditation and move back into

12 viability.

13 I happened to take over one in 1994 I knew

14 was going to lose accreditation within a year,

15 and lost financial aid. And it\'s now restored

16 and part of SACS and all and thriving. So

17 there\'s some leadership kinds of things that

18 often take place that \--

19 DR. FRANCIS: No question about that.

20 DR. STRICKLAND: \-- offset that

21 statement.

22 DR. FRANCIS: But it\'s a major \-- it

23 is a major factor. I think it was in an answer

24 to Dr. Hughes, what was the \--

25 MR. HANSEL: What was the

43

1 precipitating factor.

2 DR. FRANCIS: Where was the link?

3 And that was the link.

4 DR. HUGINE: I guess the question it

5 raises, I\'ll make this comment, when an

6 analysis is made as to whether or not an

7 institution has the ability to pay, I suppose

8 that\'s more financial and based on enrollment

9 projections. But is there another part that

10 would deal with the programmatic aspect of it

11 more towards, you know, is the institution in

12 jeopardy of losing accreditation or other \--

13 those programmatic factors, as opposed to just

14 purely the financial factors.

15 MR. WATSON: Well, a couple things

16 happened. Before I came to this program, I

17 actually worked in Title IV. So when I came on

18 board and I heard about the Barber-Scotia

19 situation, I started thinking of situations in

20 which a school could close programmatically.

21 Two reasons. One was called default rate. And

22 so I asked Sam to actually make that part of

23 our application.

24 DR. HUGINE: Okay. Okay.

25 MR. WATSON: The other piece, I\'m

44

1 actually in talks now internally at the

2 Department with our accreditation staff to see

3 if we at some point can \-- if there\'s a way in

4 which SACS or someone else can let us know in

5 advance when they\'re going to look at these

6 institutions, so we can start to have a little

7 more involvement with where an institution may

8 stand in its accreditation or get some insight

9 on accreditation, more than just what we have

10 today. So I sort of want to expand those

11 things. And that\'s something, I guess, lessons

12 learned and \--

13 DR. HAYNES: I think we have to be

14 very careful.

15 DR. STRICKLAND: This is our

16 conversation at our last meeting, that SACS

17 should not be a part of this process.

18 I fully understand the fact that you want

19 to know whether or not a school is reasonably

20 expected to continue, but I think that you will

21 destroy the program if you begin to use SACS as

22 a vehicle by which you determine \-- I know

23 you\'re not saying that.

24 MR. WATSON: Right.

25 DR. STRICKLAND: But we need to be

45

1 careful when we go down that road.

2 DR. HAYNES: The Department, as you

3 know, Don \-- the Secretary recognizes

4 accrediting bodies. We don\'t actually do that.

5 So we have to keep that separation there and

6 not invite or encourage the regionals to do

7 things that they think they\'re doing at our

8 request. So we have to be very careful about

9 that.

10 MR. WATSON: Just let me clarify for

11 the record. I was not suggesting that SACS or

12 anyone else be involved in our process. What I

13 was suggesting, that you can see an

14 institution \-- and, again, we need information

15 from the institution. And that\'s where we

16 requested information from.

17 But if we\'re about to make a loan on an

18 institution, and all we\'re relying on is

19 documentation that\'s, say, ten years old, in

20 their accreditation, then we need to \-- and we

21 know it\'s not going to be accredited again, we

22 need to ask the more \-- we can ask some more

23 pointed questions.

24 The Department does have regulations which

25 will guide us in some idea of what happens in

46

1 accreditation. So we can ask more pointed

2 questions to the institutions, not \-- I\'m not

3 suggesting at all to go to SACS or anyone else

4 other than the institution. That\'s who we work

5 with, the institution, to get information from

6 those institutions.

7 So that\'s what I\'m looking for, to ask the

8 institutions more questions about their

9 accreditation and where they stand. You know,

10 if you have anything that we need to know \-- I

11 mean, because we want to be a helpful body, not

12 necessarily just to make loans, but, again, we

13 want the institutions to last.

14 DR. HUGINE: And you are correct. I

15 don\'t think that we want the Southern

16 Association coming in making that kind of

17 assessment and determination. But, again, if

18 you go on the financial side, you bring in

19 experts, you bring in bonding persons who kind

20 of review the books and be sure that everything

21 is in order.

22 It would seem to me that, not SACS, but

23 the program itself could have similar persons

24 that come in and look at the information which

25 is provided to make some assessment. They

47

1 aren\'t passing judgment on the accreditation of

2 the university or none of that, but they are

3 assessing the information that\'s been presented

4 just as you would assess the financial

5 information to see whether or not there\'s a

6 likelihood that this institution would be able

7 to maintain its accreditation.

8 DR. FRANCIS: And that\'s a part of

9 your system.

10 MR. HANSEL: I would tell you, that\'s

11 part of it. It\'s important to note that

12 Barber-Scotia lost its accreditation, not as

13 part of the tenure process. It lost its

14 accreditation very suddenly as a result of

15 certain actions that the university had taken.

16 I don\'t want to really go much further

17 into that. But this was not part of its normal

18 review, and it\'s really not something, frankly,

19 any of us could have foreseen.

20 DR. FRANCIS: I think that we said

21 last meeting \-- and Dr. Strickland raised it \--

22 we\'ve had bad experiences \-- or let\'s put it

23 allegedly information being provided that

24 should not have been provided by the

25 Association.

48

1 DR. HAYNES: Yes.

2 DR. FRANCIS: We don\'t want to \-- we

3 want to separate the two things. However, the

4 issue stays with the HBCU Capital Financing

5 Plan with the institution. And all of those

6 questions that you have to answer, whether it\'s

7 enrollment, what programs you\'re going into,

8 what it looks like, which is important

9 wholistically, but not passing on \-- now,

10 accreditation is a matter of public record so

11 that if, in fact, you were on probation, for an

12 example, that\'s public record. Sure, that\'s

13 one of the questions we ask, how are you doing

14 with respect to dealing with that? That\'s a

15 legitimate \-- that\'s a question that goes to

16 the institution, not to SACS.

17 MR. WATSON: Exactly.

18 MR. HANSEL: That\'s exactly right.

19 MS. WILKINSON: Couldn\'t you think

20 about instituting policies and procedures that

21 would have on the front end of a loss of

22 accreditation type of monitoring with the

23 school, and then to establish some policies in

24 what you would do in a generic situation if a

25 school lost its accreditation?

49

1 Because we sort of went through the

2 Barber-Scotia \-- and I think that there were

3 ideas on the Department of Education side, but

4 I think you have to be very careful in terms of

5 stepping over the line and getting involved in

6 how Barber-Scotia resolved its situation.

7 So it seems that you have to really

8 consider as a board all the policy issues and

9 how you want to proceed with the school if you

10 ever got into the situation again.

11 DR. HUGHES: Let me raise a question,

12 because I\'m concerned about Barber-Scotia, but

13 I\'m also concerned from a larger perspective.

14 There is an aspect of this that clearly

15 relates to managerial accountability. And I

16 know that it is the responsibility of the

17 management of institutions to be accountable.

18 But when it\'s very apparent that that\'s not

19 happening, at what point does something else

20 kick in?

21 No, it should not be SACS, but at some

22 point there should be a check on fiscal

23 accountability. And I even wanted to ask

24 Dr. Broadnax that, because I know what he

25 walked into, but it\'s very, very important that

50

1 we raise those questions and decide how to give

2 assistance.

3 DR. FRANCIS: Well, I think that\'s

4 absolutely correct. I think you put your

5 finger on it. It inures back to management of

6 the institution, that if it is having problems

7 with this agency over here, that you know what

8 those are you. You go to the right side for

9 consultants to handle the problems that have

10 been identified, but you don\'t go to the agency

11 that\'s evaluating you. You go to an agency

12 that says how can we get auditors in here to

13 make sure that our auditing report is right, to

14 get a look at what is the inventory of the

15 prospects of students and so forth. I think

16 it\'s really back to management without

17 question.

18 And for the record, or not for the record,

19 but for the record, right now in the Higher

20 Education Act there is a major battle going on

21 with respect to the accreditors\' concern about

22 the federal government\'s entry into requiring

23 certain things of accreditors that will come

24 back to the institution.

25 And the basic argument is that you should

51

1 have the institution\'s management, its board,

2 its presidents and the like in control of what

3 it is they do and that they do their own

4 inventory about \"self-evaluation.\"

5 And all the accreditor is supposed to do

6 is what an auditor does when you audit your

7 books. They only come in and say, \"You said

8 your mission was this. You\'re doing this.

9 Does that fit?\" \"Yes, it does.\" \"No, it

10 doesn\'t.\" And it\'s not that they will tell you

11 what to do.

12 And I think it all comes back to we have

13 to be in control of our fiduciary

14 responsibility. And that\'s why I\'ve always

15 said \-- and the Doctor here knows it \-- he was

16 in this business \-- we have to be involved in

17 the accrediting process so that the accrediting

18 process doesn\'t \"ask for things that are

19 impossible given the circumstances of higher

20 education in terms of people.\"

21 I think if we keep it in that context \--

22 but you have to build some Chinese walls. And

23 I can just tell you watch the current passage

24 of the Higher Education Act. And if, in fact,

25 some of the language that\'s in the House

52

1 Bill \-- it\'s in the Senate Bill and whether in

2 the Senate bill it will \"be amended\" to protect

3 the institutions through \-- now, it\'s the

4 accrediting agencies that are complaining about

5 it.

6 So let me just \-- so we understand what

7 you said and we understand what I think has

8 happened. I started the question by trying to

9 find out what is the future for Barber-Scotia.

10 And I think what I\'m hearing is, like in

11 anything else, if, in fact, by some reason a

12 plan is developed, funds are forthcoming,

13 obviously the Department will look at that.

14 But in the meantime, like any other, I guess,

15 bank loan from any bank, until that happens,

16 the foreclosure process is ongoing.

17 MR. WATSON: That\'s correct.

18 DR. FRANCIS: Okay. Any other

19 questions on that report?

20 (No response.)

21 DR. FRANCIS: And we go back to you,

22 Mr. Executive.

23 MR. WATSON: The next item is the

24 results of the GAO audit. Last year the

25 program \-- the Government Accountability Office

53

1 audited the program about this time last year,

2 asked us to look at several things. I guess

3 about three weeks ago we actually closed the

4 audit. So the audit is completed.

5 Some of the things we did to close the

6 audit was continue having these board meetings

7 at least twice a year. Inform individuals of

8 how the process works, overview of the process.

9 And we did that by creating frequently asked

10 questions on the Department of Education\'s Web

11 site. Customer satisfaction survey that we

12 send out to borrowing institutions and everyone

13 at least 15 days after the loan is closed.

14 We also \-- there was an issue about

15 Federal Financing Bank fees in which the DBA,

16 had held those fees. Those fees are now being

17 transferred to the Department of Education.

18 They\'re also included in what\'s called the

19 Department of Education Cash Model.

20 DR. FRANCIS: Would you explain that.

21 MR. WATSON: It\'s just \-- not a lot

22 of individuals look at this program as just

23 having the Department of Education and the DBA

24 designated bond authority, but another partner

25 in this is also the Federal Financing Bank,

54

1 which is an arm of the Treasury.

2 The Federal Financing Bank charges .125

3 percent, which is attached to a payment of a

4 loan as sort of a servicing transaction fee, if

5 you will. And that \-- the DBA was holding that

6 fee. The GAO felt that this was the

7 Department\'s federal money and it should come

8 into \--

9 DR. FRANCIS: Goes back to the

10 Department of Education.

11 MR. WATSON: Initially, it\'s supposed

12 to go up to the Federal Financing Bank.

13 However, the Federal Financing Bank \--

14 DR. FRANCIS: The Treasury.

15 MR. WATSON: Right. The Treasury

16 said you all keep it. And so that\'s exactly

17 what we\'re doing. And that money is being

18 transferred, because as payments come in, a

19 portion of the payment is Federal Financing

20 Bank fees. So those monies are being

21 transferred to the Department on an ongoing

22 basis.

23 DR. FRANCIS: And that money goes

24 into the Department\'s treasury, so to speak,

25 not the Federal Financial Bank treasury?

55

1 MR. WATSON: Right. And the way you

2 look at it, the Federal Financing Bank vehicle,

3 the escrow, comes into play when looking at the

4 subsidy for the program.

5 And we spoke earlier about the escrow and

6 how the escrow was being affected from \--

7 borrowers\' escrow was being affected. But the

8 Federal Financing Bank fee comes into play,

9 too.

10 The final thing that the Department

11 actually does is issue a letter of credit.

12 Once the current borrower\'s escrow is depleted,

13 the Department issues a letter of credit.

14 DR. FRANCIS: All right. Next is the

15 independent review.

16 Any other questions on that? Sorry.

17 Please ask any questions as the director goes

18 over the results of the GAO audit.

19 Did everybody get a copy of that, of the

20 Advisory Board? Do you know? I\'m talking

21 about the GAO report.

22 MR. WATSON: The actual report

23 itself, I did not \-- you won\'t find in your

24 notebook, but my last director\'s report had the

25 recommendations as well as our action items. I

56

1 can provide you all with an actual copy, if

2 that\'s what you want.

3 DR. FRANCIS: I had the pleasure of

4 getting one early right after it was released.

5 And I think it might be some good reading for

6 you to see what an audit of this program was by

7 the GAO.

8 And our executive, what he has done is he

9 has picked out some of the main things the

10 audit said we should be doing as an

11 organization, right?

12 MR. WATSON: Right.

13 DR. HAYNES: Norm, I would agree with

14 that, because you need to see the entire report

15 to get some sense of the tone, because it\'s

16 contained in there, and just to see the

17 experts, you need to \--

18 DR. FRANCIS: It would be helpful.

19 Those of you who would like to have a copy,

20 just tell the executive and you can read that

21 and get a picture \-- get a picture of it.

22 All right. The next is the independent \--

23 you said the independent review of the DBA, the

24 handling of loan funds. That sort of ties in

25 with the one above it. It\'s right after \-- it

57

1 says the handling of loan funds and associated

2 fee. That was in your outline for your GAO

3 report.

4 MR. WATSON: That\'s something \--

5 we\'ve already completed that item as well. We

6 actually had someone going to review the DBA,

7 to see if there were any programmatic changes

8 we needed to make, how can we improve the

9 program, those sort of things. We actually did

10 that.

11 And later on you\'ll see our program

12 objectives for the upcoming year and some

13 things that we\'re going to do. And those are

14 things that we\'re going to work on, what the

15 independent review actually told us. The

16 suggestions they gave us, we\'re going to look

17 at some of those things.

18 DR. FRANCIS: The last thing I\'m

19 looking at on page 1 of 3, we\'re requiring the

20 DBA to submit quarterly reports on the status

21 of the program.

22 MR. WATSON: Right. Those quarterly

23 reports was also part of the GAO \--

24 DR. FRANCIS: Uh-huh. Right.

25 MR. WATSON: The GAO basically was

58

1 saying that we need to monitor the DBA a little

2 bit better, have a little bit more management

3 control. Those are some of the things we\'re

4 doing. Having quarterly reports for marketing

5 activities, what kind of institutions we\'re

6 looking at, what kind of institutions we\'re

7 loaning to. Part of the report said we weren\'t

8 looking at small institutions. We were only

9 looking at large institutions.

10 DR. FRANCIS: It\'s interesting. It

11 talks about student enrollments, types,

12 locations as well.

13 MR. WATSON: Right. Those are part

14 only because, although as part of our marketing

15 program we visit many institutions, GAO just

16 felt that the program in lending money only

17 loaned money to institutions at certain levels.

18 But, again, I think most people need to

19 realize that this program, no matter what

20 institution you are, you have to meet the

21 credit criteria to be able to repay the loan.

22 So if you\'re a small institution and you

23 meet that, we have no problem in lending money

24 to you. This report just shows what

25 institutions we\'re reaching out to and that

59

1 kind of thing.

2 DR. FRANCIS: Okay.

3 DR. STRICKLAND: Is there \-- was

4 there a written review, the independent review

5 of the DBA? Was that written?

6 MR. WATSON: It was a written review.

7 It\'s a written review of their suggestions,

8 things they found, things they were required to

9 look at, things we asked them to look at.

10 And \-- let\'s see \-- I think it\'s page 3 of

11 3 where it says 2007 Program Objectives and it

12 reviews the four areas in which we\'re going to

13 be working on over the next year or so.

14 DR. FRANCIS: Let\'s run through,

15 then, and get to Dr. Strickland\'s question. On

16 page 2 of 3, it starts the areas of work that

17 we\'ll be doing, is it not, if I\'m looking at

18 this correctly?

19 MR. WATSON: On page 2 of 3,

20 actually, we\'re going to talk a little bit

21 about the program cap and some statutory things

22 that are going on. And the Secretary supported

23 it.

24 DR. FRANCIS: Right.

25 MR. WATSON: The performance

60

1 assessment rating tool is another measurement,

2 another way to re-look, sort of monitor the

3 management program.

4 And then page 3 of 3 actually gets into

5 more what Dr. Strickland was talking about.

6 DR. FRANCIS: Okay. Okay.

7 MR. WATSON: So if you want to go to

8 page 3 of 3, you can do that.

9 DR. FRANCIS: Let me ask if there are

10 any questions on page 2 of 3. The first part

11 of 2 of 3 talks about the fact that we reached

12 our limit, right?

13 MR. WATSON: Right.

14 DR. FRANCIS: Over the last few weeks

15 we\'ve briefed the Secretary on that. The

16 option \-- the Secretary chose to do several

17 things apparently. Change the escrow

18 requirement to provide for our risk premium and

19 origination fee, and to increase the program\'s

20 insurance authority \$1.1 billion.

21 MR. WATSON: Right.

22 DR. FRANCIS: And what follows are

23 the specifics.

24 MR. WATSON: Yes. And just to let

25 you know that the House \-- the Secretary\'s

61

1 options and these proposals actually went all

2 the way to Congressman Miller\'s office.

3 However, in the House itself, the only

4 things in there is increasing the program

5 insurance authority. The other piece about

6 changing the escrow requirement did not make it

7 all the way through to the Congress.

8 DR. HUGINE: I would like to, I

9 guess, have some discussions of the advantages

10 or disadvantages of what\'s being suggested here

11 versus what exists currently.

12 One of the things I see is that neither \--

13 and maybe I don\'t understand this \-- but

14 neither the origination fee nor the premiums

15 will be returned to the borrower.

16 MR. WATSON: Yes.

17 DR. HUGINE: That\'s different from

18 what\'s in existence now?

19 MR. WATSON: That\'s different than

20 what\'s in existence now. What happens today

21 with the escrow fund, if the escrow fund is

22 returned to the borrowers in the case that \--

23 DR. HUGINE: It\'s not used.

24 MR. WATSON: It\'s not used for

25 delinquent payments or defaulted payments, you

62

1 turn it back to the borrower.

2 The other piece of that is that you have

3 institutions who say that they don\'t want to be

4 tied to \-- their escrows be tied to someone

5 else. And this is a way to get around that.

6 The funds wouldn\'t be returned because

7 there would be a reserve fund. In theory there

8 would be \-- and all of this is \-- we hadn\'t

9 laid down how we\'d actually implement it. But

10 in theory what would actually happen is the

11 reserve fund would actually have \-- be kept

12 aside for any defaults, for the Secretary to

13 use in the case of defaults. But the

14 origination fee and a risk payment would be

15 attached which would give you somewhere near

16 the 5 percent that you would pay now. It\'s

17 just that you wouldn\'t get the money back.

18 DR. HUGINE: So assuming that there

19 are no defaults, then what would be the

20 advantage of that to what we do currently?

21 Notwithstanding if we don\'t have a default in

22 the program \-- and we\'ve only had one, correct?

23 MR. WATSON: One.

24 DR. HUGINE: Then you\'ve got a pot of

25 money, some 5 percent or so that\'s being held

63

1 that the institutions will not get back.

2 What\'s the benefit to the universities, to the

3 institutions, of that?

4 I know \-- there\'s always a risk. I mean,

5 the current process has a risk because we\'re

6 all tied together.

7 MR. WATSON: Right.

8 DR. HUGINE: But assuming that you do

9 not have any future defaults, what would be the

10 advantage of not returning the 5 percent versus

11 leaving it the way that it is?

12 MR. WATSON: Well, there\'s a couple

13 things going on. Let me just go back a little

14 bit. These options came out of HBCU week when

15 the Secretary announced that she would be

16 looking into \-- someone had told her that \-- it

17 was the issues with universities in the

18 program, current borrowers and borrowers who

19 were interested in the program have not

20 borrowed found that having this escrow

21 requirement the way it is in today\'s program

22 was a problem.

23 In that HBCU week she actually said that

24 she would look into changing the escrow

25 requirement as well as increasing the program

64

1 insurance authority. There was several

2 options. And part of this \-- and let me just

3 give you a little more history.

4 Part of this is that there\'s a subsidy

5 cost. When the program was first created, the

6 program was created at zero subsidy, which

7 means there was \-- the default risk was zero.

8 Today the \-- it went from 10 \-- I\'m sorry \--

9 from zero to 10 percent of a subsidy. In the

10 current environment the \-- we have a deficiency

11 of about 6 or 7 percent on subsidy, which the

12 program still needs to be a zero subsidy

13 program.

14 And so the Secretary \-- we have to have

15 money from someplace to say this is what we\'re

16 going to do in the case of a default. This was

17 just one of the options. But, of course, that

18 did not make it to the Congress. And if this

19 board has other suggestions, we will look at

20 that. But this was a way to get around

21 institutions saying they didn\'t want to have

22 their collateral tied in with someone else.

23 It also seemed reasonable because it

24 was \-- a risk payment would be attached based

25 on credit risk and that kind of thing. But the

65

1 origination fee \-- I can\'t recall \-- 3 percent

2 origination fee would be something very similar

3 to what someone would have to pay anyway in

4 getting a loan.

5 DR. BASKERVILLE: I\'m sorry. On the

6 origination fee \-- I don\'t know which

7 legislation or which iteration of the

8 legislation you all are looking at now, but it

9 was not my understanding that that would be

10 nonrefundable.

11 And as we worked with staff on it, there

12 were a couple of things that were attractive.

13 One was that the pool itself would be increased

14 to \$1.1 billion so there would be additional

15 dollars. There would be \--

16 DR. FRANCIS: Let\'s go down the line

17 because I\'m starting to make a list. That has

18 been done now, right? The Secretary has

19 recommended to the Congress to do the 1.1?

20 DR. BASKERVILLE: 1.1 billion.

21 DR. FRANCIS: Okay.

22 DR. BASKERVILLE: And then the cap

23 would be raised to \-- oh, that\'s the 1.1

24 billion. There was an origination fee, the 3

25 percent origination fee.

66

1 Now, when we responded in support of

2 that \-- and in our discussions we never talked

3 about any irrevocable origination fee. I need

4 to look at the language and see if that\'s what

5 it says. But we supported a revocable fee.

6 And then in terms of the risk premium, there

7 was no cap in the legislation that the

8 administration advanced, but we suggested that

9 the risk premium could in no case exceed the 5

10 percent that they have under the existing

11 bill \-- under the existing legislation.

12 So there would be the 3 percent

13 origination fee and a cap on the risk premium

14 of not more than 2 additional percentage points

15 so that the institutions that were high risk

16 would not have to put up more than they

17 presently do, which is the 5 percent.

18 And the other \-- the very attractive piece

19 was the elimination of the pooling requirement

20 that\'s in the current legislation. And all of

21 our members have said that the pooling

22 requirement is troubling because they\'re

23 carrying the risk and the burden of someone

24 else.

25 So that was the legislation we looked at.

67

1 And, Don, I\'ll look at \-- I don\'t know what

2 you\'re looking at right now. I need to revisit

3 it. And, certainly, if it is the

4 administration\'s intent that it is an

5 irrevocable fee, then we need to be clear in

6 our comments against the irrevocability of the

7 origination fee.

8 MR. WATSON: And, again, these were

9 only options that were provided to the

10 Secretary. Some of the things that you\'re

11 actually talking about are probably \-- a

12 borrower paying 2 percent risk premium is

13 really, really expensive.

14 MR. HANSEL: It would be at the high

15 end. Not to exceed.

16 MR. WATSON: I mean, that\'s \--

17 DR. BASKERVILLE: So it could be

18 none.

19 MR. WATSON: Right. Exactly. It

20 could be none.

21 DR. FRANCIS: What\'s the current?

22 DR. BASKERVILLE: It\'s a 5 percent

23 pooling requirement presently.

24 MR. HANSEL: With no risk premium.

25 DR. BASKERVILLE: With no risk

68

1 premium.

2 DR. FRANCIS: So the 5 percent that

3 you have just described is similar to what

4 happens now except that you pay a 2 percent

5 risk premium. Is that what I\'m hearing?

6 DR. BASKERVILLE: The 3 percent

7 origination fee, and not to exceed a 2 percent

8 risk premium.

9 DR. FRANCIS: So it could be zero

10 you\'re saying?

11 DR. BASKERVILLE: Correct. But you

12 still don\'t have the pooling requirement. So

13 for the strongest institutions that are

14 vehemently opposed to this pooling requirement,

15 you don\'t have that. Then for the weakest,

16 they would be in no worse position than they

17 are now because it would not exceed the 5

18 percent.

19 DR. FRANCIS: The difference in all

20 of what we are saying is whether or not this is

21 returned at any point in time?

22 MR. BACOTE: That\'s correct.

23 DR. FRANCIS: In the current in the

24 pooling, it\'s returned that which is left. It

25 sounds like \-- I guess you do an insurance.

69

1 You buy insurance, hope you don\'t die soon.

2 But if you don\'t die, you still don\'t get your

3 premiums back. And so I think that\'s what I\'m

4 hearing here. As a trade-off for being in the

5 pool, you buy the insurance with the hope that

6 nobody \--

7 DR. HUGINE: Uses the insurance.

8 DR. FRANCIS: Exactly. Exactly. But

9 you don\'t get your money back.

10 DR. HUGINE: And maybe there is a

11 point in the middle \-- obviously, I understand

12 the risk factor, because, obviously, if you do

13 it in the private sector, you may have to pay

14 private mortgage insurance. So that\'s not

15 atypical.

16 But the compromise might very well be the

17 risk insurance up 2 percent, but some portion

18 of that 3 percent be returned to the

19 institutions.

20 DR. FRANCIS: I think that\'s,

21 obviously, what ought to be looked at, because

22 of the things we have learned in the program,

23 and much of what I have read, is that the

24 institutions, HBCUs, have found it more

25 expensive to do this program than in the

70

1 private sector.

2 So what we want to do is bring it down in

3 here to be more competitive. And if the deal

4 breaker gets to be, say, the risk fee premium,

5 that could be a deal breaker.

6 DR. HUGINE: Uh-huh.

7 DR. FRANCIS: And what we\'re trying

8 to do \-- now, I must confess, the deal breaker

9 talking strictly for me was I didn\'t want to be

10 in the pool because \-- that was the deal

11 breaker. And I stayed in the private market.

12 In the current thing, we\'re not in a pool,

13 although we are going to have a trust escrow

14 fund to cover, I assume, what it is that may

15 happen to us. But I\'m not worried about what

16 happens to Dillard, because they\'re never going

17 to default. But even though I love them, I

18 didn\'t want to be in the pool with them, and

19 she didn\'t want to be in the pool with me.

20 My point is every bucket sits on its own

21 base in what we are now. Now, the question is:

22 What do you pay for that? And I think what I\'m

23 hearing is the government is saying with a zero

24 subsidy risk, we\'ve got to have something that

25 meets the law. And, Lezli, you may want to

71

1 look at that.

2 DR. BASKERVILLE: Yeah. In fact,

3 I\'ve got to go over to the Hill. We\'re trying

4 to come up with some language with the staff

5 today, which is why I couldn\'t be there. So

6 I\'ll make sure that their intent is consistent

7 with my understanding that this would be

8 revocable.

9 DR. FRANCIS: Okay.

10 DR. BASKERVILLE: Now, the other

11 thing is that there is a Cohen Bill that\'s got

12 some momentum because some of our members \-- I

13 think five of our members are attempting to

14 legislate so that they can get in. And the

15 Cohen Bill is not all bad, but I have a general

16 problem, and it makes our lives more difficult

17 when we try to legislate or do policy to impact

18 five people.

19 But there\'s \-- in the Cohen Amendment, in

20 order to be eligible for the funds, you have to

21 be a Part B institution, which is no problem.

22 You would have to have limited financial

23 capacity to effectively modernize your campus

24 and compete for students. You\'d have to show

25 that you had a decrease in \-- that the student

72

1 body had an increased declined over a ten-year

2 period, that the institution had long-term debt

3 under \$10 million, that they had endowment

4 under \$15 million and some other thing. Oh,

5 net assets, I think it is, right? Net assets

6 under \$15 million.

7 Well, that \-- when we looked at that

8 against what the administration was proposing,

9 we \-- \"we\" meaning the collective HBCU

10 community representatives \-- UNCF, NAFEO,

11 Thurgood Marshall Group \-- supported with the

12 modifications that I just indicated the piece

13 that the administration was showing, because

14 our calculations showed that there were only

15 about five or so institutions that would get in

16 under the Cohen Bill. But they have a team of

17 lobbyists here and they\'re aggressively seeking

18 support for it. He want those five, but we

19 want a wide range of others to be able to

20 participate.

21 DR. FRANCIS: Lezli, we have a

22 representative from Lemoyne-Owen that is going

23 to be making a presentation to us in the public

24 comment side which covers what you\'ve just

25 said.

73

1 DR. BASKERVILLE: Okay.

2 DR. FRANCIS: What I think we\'re

3 dealing with now, which you can be a big help,

4 if indeed there is a \"constructive alternative\"

5 to what\'s on the table in these options now

6 wherein the legislation \-- I\'m talking strictly

7 now about the origination fee and the risk fee

8 premium and the question of return to the

9 institution if, in fact, there are no defaults

10 in this.

11 And you\'ve got to be very careful with

12 that, because if you had one default, you know,

13 you lose the ball game in a sense. You\'ve got

14 to have \-- it\'s got to be nobody defaults

15 because you \-- you\'re either in a pool or

16 you\'re not in a pool.

17 And so if you\'re not in a pool, which is

18 positive for me, and if, in fact, there are no

19 defaults, can the 3 percent origination fee be

20 returned in that circumstance? That would be

21 giving merit for good behavior, so to speak.

22 And if that is a consensus of the Advisory

23 Committee\'s recommendations to the options of

24 the Secretary, I think we may want to comment

25 on that or pass that. That\'s not dealing with

74

1 the issue you\'re talking about. That\'s dealing

2 with how can we make the program more inviting

3 and competitive for HBCUs. Am I summarizing?

4 DR. HUGINE: Yes.

5 DR. BASKERVILLE: Correct. I really

6 actually need to step off for a while, because

7 I\'ve got to run over to the Hill now on this.

8 And I will expect some additional information.

9 But, Mr. Chairman, is it appropriate or

10 are we as a body able to submit something in

11 writing to advise Congress as they\'re trying to

12 make final decisions on this?

13 DR. FRANCIS: Well, what I just

14 described in trying to summarize this I think

15 would be appropriate, but only that at this

16 point in time.

17 DR. BASKERVILLE: Okay.

18 DR. FRANCIS: Only the fact that what

19 you have just questioned, and we\'re all wanting

20 to find out are we correct. And the executive

21 director may be very correct about that. And

22 if he is, then what we\'re saying is, would you

23 consider in the legislation in order to keep us

24 out of a pool, in some way return monies out of

25 the 3 percent side for those who are in the

75

1 program where there are no defaults. I think

2 I\'m hearing that.

3 It\'s the only way \-- it\'s hard for me to

4 describe it, because on the one hand you\'re not

5 all locked together in my Louisiana law of in

6 solito anymore. You know, you are separate.

7 And so it almost has to be that everybody has

8 got to be no default.

9 Now, if you go with history, you may be

10 winning because you\'ve had only one in the

11 years. So it\'s worth \-- it\'s worth the risk of

12 trying to get some of that 3 percent money

13 back, so \--

14 DR. BASKERVILLE: Is that worth the

15 risk, that is the consensus of the Advisory

16 Board?

17 DR. FRANCIS: That\'s what I was

18 trying to get.

19 DR. BASKERVILLE: Let me run to this

20 meeting, and I\'ll have some other information.

21 DR. FRANCIS: Lezli, before you

22 run \-- before you run, strictly on this point,

23 is there any opposition for what I\'ve just

24 described? Namely, that in keeping with the

25 option to separate those out of the pool, the 3

76

1 percent and 2 percent that\'s being recommended,

2 which should be no more than 5 percent, no more

3 than 2 percent that currently we believe would

4 be \-- would not be returned, we are

5 recommending that at least 3 percent of that

6 money would be put back to the institutions,

7 returned to the institutions where there are no

8 defaults?

9 Is that \-- I\'m saying it as best I can in

10 describing that. And if there\'s no objection

11 to that, I\'ll take a motion to put it on, we

12 pass it as a recommendation of this Advisory

13 Council.

14 DR. BASKERVILLE: Okay.

15 DR. FRANCIS: That\'s strictly on this

16 point. Can I get a motion to do that?

17 DR. MYERS: I so move.

18 DR. FRANCIS: Second?

19 DR. HUGHES: Second.

20 DR. FRANCIS: Any questions about it?

21 (No response.)

22 DR. FRANCIS: All those in favor

23 state properly by saying aye.

24 DR. STRICKLAND: Aye.

25 DR. HUGINE: Aye.

77

1 DR. MYERS: Aye.

2 DR. HAYNES: Aye.

3 DR. HUGHES: Aye.

4 DR. BASKERVILLE: Aye.

5 DR. FRANCIS: Nos?

6 (No response.)

7 DR. FRANCIS: Motion is carried.

8 That\'s our recommendation.

9 DR. BASKERVILLE: Okay.

10 DR. FRANCIS: Not members of

11 Congress, but we would recommend to the

12 Department of Education that they pursue this

13 in their passage.

14 DR. STRICKLAND: Lezli, we still have

15 time to address the other issues that you

16 raised about the five schools \--

17 DR. FRANCIS: Yes. Yes. That\'s \--

18 we will have the presentation from

19 Lemoyne-Owen.

20 Lezli, are you going to be back?

21 DR. BASKERVILLE: Yes, sir.

22 DR. FRANCIS: Well, go for it right,

23 not left.

24 DR. BASKERVILLE: I\'ll be back.

25 DR. FRANCIS: And, hopefully, you\'ll

78

1 come back when we get the presentation, because

2 there are \--

3 DR. BASKERVILLE: Tell me \-- may I

4 get a sense of the timing, because I want to

5 coordinate so that I am on when \--

6 DR. FRANCIS: Well, we are moving

7 rather nicely and deliberating. We\'re not

8 cutting anybody off. We\'re down \-- we

9 really \-- we\'re down to \-- we passed the

10 program data. We\'re in the program \-- I mean,

11 we\'re on the board side.

12 We\'ve talked about Congressional support

13 to increase the cap, which has happened. And

14 that was the discussion that we just had that

15 we went into, of course, aspects of increasing

16 the cap which had this origination fee and risk

17 fee in it. But we would be going next to the

18 current capital needs of Historically Black

19 Colleges, the needs can be met through the

20 program.

21 DR. STRICKLAND: Have we finished

22 with the director\'s report yet?

23 DR. FRANCIS: What?

24 DR. STRICKLAND: Have we finished

25 with the director\'s report yet?

79

1 MR. WATSON: Almost.

2 DR. FRANCIS: Almost. Almost. We

3 have about three more bullets left of his

4 report.

5 DR. BASKERVILLE: Don, may I call you

6 on your cell phone when I need to be

7 reconnected?

8 MR. WATSON: Yes, ma\'am.

9 DR. BASKERVILLE: Okay. Thank you

10 very much.

11 DR. FRANCIS: Do that. And I\'d say

12 in about 20 minutes. Stay where you can talk

13 on the phone.

14 DR. BASKERVILLE: Okay. Thanks.

15 DR. FRANCIS: All right. Cut that

16 off.

17 Now, Mr. Executive, let\'s go about the

18 current capital needs. What tab are we under,

19 8?

20 MR. WATSON: Actually, it\'s on 9.

21 DR. FRANCIS: Wait a minute. Wait a

22 minute. We have to increase the program

23 insurance authority. I think that\'s where you

24 are, right?

25 MR. WATSON: Right, unless there\'s a

80

1 question on that. I think we\'ve gone through

2 that with Lezli.

3 DR. FRANCIS: So that says the

4 authority \-- now, the authority here, it says

5 the insurance authority would not be

6 apportioned by public or private use.

7 MR. WATSON: Well, again, these are

8 the Secretary\'s recommendations. This is not

9 what was \-- I wanted to inform the board what

10 the Secretary was thinking, not what the

11 Congress has actually done.

12 DR. STRICKLAND: Who\'s informing the

13 Secretary\'s thinking of these?

14 MR. WATSON: I\'m involved, the Deputy

15 Assistant Secretary of the Office of

16 Postsecondary Education, the Assistant

17 Secretary of the Office of Postsecondary

18 Education, the Office of the Congressional

19 Liaison, members from the Secretary\'s office

20 herself.

21 DR. FRANCIS: Is the Treasury

22 involved?

23 MR. WATSON: No, the Treasury is not

24 involved. I\'ve been updating the Treasury of

25 what our ideas may be, what ideas are floating

81

1 around, but the Treasury isn\'t involved in

2 this.

3 DR. FRANCIS: Well, to

4 Dr. Strickland\'s point, on the one that says

5 insurance authority would not be apportioned by

6 public or private use, you\'re saying that\'s the

7 Secretary\'s, but what does the Congress \--

8 MR. WATSON: The Congress wants to

9 leave it just like it is today where two-thirds

10 of the dollars will go to private institutions,

11 one-third will go to public institutions.

12 DR. FRANCIS: And that\'s how it is

13 now currently?

14 MR. WATSON: Yes.

15 DR. FRANCIS: And the Congress has

16 not been persuaded to change that?

17 MR. WATSON: Right.

18 DR. FRANCIS: What\'s the betting odds

19 in Las Vegas about that? Who is winning?

20 MR. WATSON: Congress is winning.

21 The Secretary brought it up because having that

22 flexibility, it would allow the Secretary to

23 make loans to individual schools as they came

24 available. In the past it\'s been very

25 difficult to have states borrow through the

82

1 program. Most states higher education \--

2 DR. FRANCIS: Refuse to \--

3 MR. WATSON: They have some state

4 laws now where they either refuse states to

5 allow it.

6 DR. FRANCIS: But it doesn\'t cut out

7 public institutions?

8 MR. WATSON: No, it does not. We

9 just want the percentage to go away. In fact,

10 in the original option, it gave the Secretary

11 the option if she saw that public institutions

12 weren\'t coming in, to set money aside. But she

13 wanted that flexibility to do that herself but

14 not to have the Congress to say this is what\'s

15 going to happen.

16 DR. FRANCIS: Yeah. Okay. Okay.

17 DR. HUGHES: What, in fact, is the

18 history regarding public and private use of

19 funds?

20 DR. FRANCIS: Sam, do you have a \--

21 MR. HANSEL: For public borrowers.

22 MR. BACOTE: The par amount is 525

23 committed on private. It\'s about 110 \-- well,

24 110 on public. That gives you some ratio

25 there, too.

83

1 DR. FRANCIS: Okay. All right. Five

2 to one.

3 MR. HANSEL: Right. Right.

4 MS. WILKINSON: Don, did you say \--

5 when we saw the bill, it came out of Congress.

6 And we asked about the public/private split.

7 And you indicated that you were going to try

8 and get that taken away. Have you all tried

9 and you cannot?

10 MR. WATSON: I\'ve actually asked \--

11 well, this committee \-- well, I\'ve actually

12 asked folks \-- the folks I mentioned earlier

13 that I\'m working with about it. There hasn\'t

14 been any feedback yet on it. But, of course,

15 whatever this committee suggests, then I\'ll go

16 back and relay that to the group as well.

17 I mean, based on what\'s happening today,

18 we\'ll probably have about \$150 million to lend

19 to private institutions.

20 MR. HANSEL: We\'re going to run out

21 of money first.

22 MR. BACOTE: You\'ll have excess

23 capacity for the public.

24 MR. WATSON: I won\'t say that because

25 we want them to pass that, but \--

84

1 MR. HANSEL: We\'re going to hit up

2 against the private cap first.

3 MR. BACOTE: We\'ll have money sitting

4 there for the public.

5 DR. FRANCIS: So right now the

6 private use has been, you said \--

7 MR. BACOTE: About 525.

8 DR. FRANCIS: 525 million.

9 MR. WATSON: And for the record, when

10 the audience speak, if you\'re speaking, can you

11 say your name so the court reporter can capture

12 it.

13 DR. FRANCIS: And it\'s been about 5

14 million and 1 million on \--

15 MR. BACOTE: 100 million.

16 DR. FRANCIS: Okay. And the current

17 law has it as what proportion to what

18 proportion?

19 MR. WATSON: Two-thirds for private,

20 one-third for public.

21 DR. FRANCIS: Okay. So you\'re within

22 that format currently? You\'re at 20 percent.

23 You have a third that you can use, okay? All

24 right. So nobody so far has been hurt, but the

25 cap is always going to be a problem.

85

1 MR. BACOTE: If we hit the 1.1 in

2 theory, then we will have about 650ish, 675 in

3 the private.

4 MR. HANSEL: 740, I think you and I

5 figured out yesterday.

6 MR. BACOTE: We have 525 now, so \--

7 MR. HANSEL: About a couple hundred

8 million.

9 DR. FRANCIS: What\'s the likelihood

10 our getting at 1.1 appropriation into it?

11 MR. WATSON: We\'ve been \-- to

12 increase the cap and leave it at today\'s

13 proportions, it looks pretty good. And that\'s

14 part of where the next part of my report comes

15 in.

16 DR. FRANCIS: Okay. Good segue.

17 MR. WATSON: The Office of Management

18 of Budget does what\'s called a program

19 assessment rating tool. What that tool is

20 designed for is to assess government programs,

21 see how they\'re working, see if they\'re needed,

22 how they\'re performing, and that sort of thing.

23 And just last week I met with them as well

24 as members of the Budget Service and other

25 members in the Office of Postsecondary

86

1 Education to talk about what kind of \-- how

2 we\'re going to rate the performance of this

3 program.

4 And we looked at \-- looking at revenue,

5 looking at change of revenue of the

6 institutions who borrowed through the program,

7 how can we decrease the subsidy in the program

8 as well as delinquent payments, and what we

9 call persistence, which is a measure of

10 first-time, full-time degree-seeking students.

11 And to look at those things and how we\'re going

12 to assess how these borrowers in the program

13 are performing at those levels.

14 Defining the appropriate measures in doing

15 these surveys \-- I sent out the survey, I asked

16 the institution or any program how they\'d rate

17 the program if it was their program. Also,

18 Dr. McNealey, who isn\'t here, provided some

19 assistance in that as well. And that\'s how we

20 came up with the persistence performance

21 measures.

22 But the performance measures for programs

23 who participate in Title III have always been

24 an issue, because they put the net out for a

25 broad group of people, but I sort of kept this

87

1 very internal to individuals who actually

2 borrowed from the program to get their

3 feedback.

4 And, also, that informed the Office of

5 Management of Budget, although these may be the

6 measures, that other things that our borrowers

7 would like for us to see to measure to improve

8 performance. We\'ll look at those things again.

9 I hope this will be an \--

10 DR. FRANCIS: Ongoing.

11 MR. WATSON: \-- ongoing process where

12 we\'re actually looking at how we measure the

13 program.

14 And how we measure this program on

15 performance, also, I think, will have a bearing

16 on some of the things we talked about earlier

17 and how a lot of institutions were doing well,

18 tell us how you\'re doing well.

19 So if an institution has fallen on some

20 hard times, we can maybe provide some

21 assistance through our current borrowers and

22 that kind of thing.

23 And we talk about also creating something

24 called technical assistance which will help the

25 institutions push these numbers up.

88

1 DR. FRANCIS: Questions on this?

2 (No response.)

3 DR. FRANCIS: Okay. Where are we

4 now?

5 MR. WATSON: Page 3 of 3. And

6 it\'s \-- the Commerce Bank is listed there. I

7 wanted the board to be informed that TD Bank

8 Financial Group and Commerce Bank Corp.

9 announced that TD Financial Bank would acquire

10 Commerce. TD Financial is actually a Canadian

11 bank.

12 I\'ve talked with our general counsel about

13 this. She suggested that we don\'t look at

14 taking any action on anything until it\'s

15 actually final. I talked with the Treasurer as

16 well. I haven\'t heard back from him yet. But

17 we don\'t see any \-- we don\'t see any need right

18 now to be concerned about this merger. It\'s

19 about a year away or so.

20 DR. FRANCIS: So at this point, this

21 is information that a definitive agreement for

22 TD Bank to acquire Commerce Bank is in the

23 making?

24 MR. WATSON: Right.

25 DR. FRANCIS: But that has not been

89

1 finalized, is what I\'m hearing?

2 MR. WATSON: Right. That has not yet

3 been finalized.

4 DR. FRANCIS: Okay. And it is being

5 reviewed or at least being discussed by

6 Treasury and general counsel.

7 MR. WATSON: Right. That\'s the

8 Department of Education general counsel.

9 DR. FRANCIS: That\'s what I meant,

10 general counsel for the Department of

11 Education.

12 Nothing we can do now.

13 DR. HUGHES: Are there any

14 anticipated pros and cons of a merger versus a

15 non-merger for the HBCUs initially?

16 MR. WATSON: The only thing that

17 possibly could be a concern would be a Canadian

18 bank \-- because the way this program works is

19 that the DBA actually issue bonds which the

20 Treasury buys. That\'s why we want to have a

21 conversation with the Treasury.

22 But at this point, we don\'t see \-- that

23 would be the only thing, but we don\'t see that

24 would hold any bearing as well. The DBA itself

25 is actually a private corporation in

90

1 Pennsylvania, not \-- and not Commerce. So it

2 most likely won\'t affect how the program

3 operates.

4 MR. HANSEL: And we don\'t \-- Derek

5 Hansel on behalf of the designated bonding

6 authority.

7 At this point, based on conversations with

8 bank staff, we don\'t anticipate any changes.

9 There have been no changes that have been

10 highlighted as needing to occur. The staffing

11 is going to continue to be the same. We\'ve had

12 the same staffing at the designated bonding

13 authority for about five years now, and we

14 expect that to be continuous and maintain the

15 continuity that we\'ve had during our tenure as

16 DBA.

17 DR. FRANCIS: But we don\'t know

18 what\'s going to happen for sure?

19 MR. BACOTE: Again, it\'s in process.

20 And once the DOE counsel gets back with us on

21 whatever it sees as concerns, issues, if any,

22 we\'ll then be prepared to respond to if it

23 requires adjustments, whatever.

24 DR. FRANCIS: We just want to keep

25 close tabs.

91

1 MR. HANSEL: Absolutely.

2 DR. FRANCIS: It\'s a foreign bank,

3 and, you know, stockholders are stockholders.

4 And what are the socioeconomic sensitivities

5 always play into this.

6 MR. HANSEL: Mr. Chairman, I can

7 assure you that there are not two people more

8 interested in the outcome of this than

9 Mr. Bacote and I.

10 So we are keeping very close tabs on it.

11 And we will make sure, obviously, that the

12 Department is fully informed and that this

13 board is as well.

14 DR. FRANCIS: For the program itself,

15 it\'s well designed for assistance to the HBCUs.

16 And we don\'t want, as I used the word before,

17 deal breaker in where it starts to become a bur

18 under the saddle. So \--

19 MR. HANSEL: Neither do we.

20 DR. FRANCIS: Okay. All right.

21 That\'s information for the record.

22 Program review, did you cover this?

23 MR. WATSON: I think this is where

24 Dr. Strickland\'s question was going a little

25 bit earlier.

92

1 DR. FRANCIS: Okay.

2 MR. WATSON: \-- about the written

3 report.

4 Because of the massive paper with the

5 minutes and other things, I sort of highlighted

6 some of the things that we looked at, four

7 different sections: review of different fees,

8 the escrow fees, FFB fees, cost of issuance.

9 And under each of those, I\'ve actually listed

10 things that we\'ll be working on to try to

11 improve the program and to have more written

12 procedures in how things are done.

13 DR. STRICKLAND: So you\'ll take a

14 closer look at the issuance cost?

15 MR. WATSON: Cost of issuance, yes.

16 Actually, I talked with some borrowers about

17 that earlier. I believe it was in May, June,

18 when we closed the last bit of loans. But

19 we\'re going to take a look at the cost of

20 issuance and develop some guidelines on how the

21 cost of issuance is actually broke down, those

22 sort of things.

23 DR. STRICKLAND: Whether or not they

24 can be lowered or \--

25 MR. WATSON: We\'re going to take a

93

1 look at the entire process. And whatever the

2 process is and outcome, we\'re going to make

3 sure we document those procedures so it\'s

4 actually part of the record.

5 DR. FRANCIS: And, again, I\'m sure a

6 measure of all of this has to be how

7 competitive we are, you know, because if an

8 institution leans, say, to wanting to do this

9 with HBCU capital but finds in the private

10 market that they\'re better off \-- like any

11 competitive business, we want to look at it and

12 say, now, how can we tell the Secretary and the

13 Congress and everybody else \-- well, it\'s nice

14 to say you\'ve got a program for us, but it

15 doesn\'t meet the private side. So let\'s look

16 internally.

17 If that\'s what this is going to be a part

18 of, I think we\'re in total support of that.

19 Its competitiveness is still important because

20 it\'s important for us to pay as little of a

21 cost factor. That\'s why we got the program.

22 DR. STRICKLAND: And, you know, the

23 original thought was, is this would be a better

24 deal for our colleges. It would not have the

25 same rigid requirements that are required from

94

1 a bank. So that sensitivity still needs to be

2 present, incorporated in the implementation as

3 it was, you know, in the development of this.

4 DR. FRANCIS: Exactly. And that\'s

5 part of what we talked about last time and now

6 we talk about stuff today. Your marketing has

7 to be strong enough to say to an institution

8 you\'re better off in this HBCU Capital Program

9 than you are in the private side.

10 And we\'re getting there, but I don\'t think

11 we\'re totally there yet. And part of what we

12 talked about in that 5 percent in that

13 origination fee is one aspect of that.

14 Okay. Assessment and internal controls.

15 I\'m leading you a little bit. Are you ready to

16 go there?

17 MR. WATSON: Yes. This is just very

18 basic. Talks about basic guidelines of what

19 our servicing requirements would be, selection

20 process, how we would receive loans, distribute

21 funds, those sort of things, how we want our

22 institutions to borrow from the program, those

23 things.

24 Some of these things are actually in our

25 Agreement to Insure, which is the contract

95

1 between the Department of Education and the

2 designated bonding authority. I think this

3 sort of needs to be something a little more

4 comprehensible of what\'s actually in those

5 documents.

6 DR. FRANCIS: Good. Good. Good.

7 MR. WATSON: Again, as I spoke of

8 earlier, part of the GAO report, although we\'re

9 receiving the quarterly report, probably put

10 some time frame on when the reports want to be.

11 You got some other items that can be in the

12 reports and that sort of thing. We\'re looking

13 at receiving our first annual report in

14 January.

15 That\'s it. If there\'s no questions \--

16 DR. FRANCIS: All right. Okay. What

17 we\'re looking at here is just information

18 regarding \--

19 MR. WATSON: What we did last year.

20 DR. FRANCIS: \-- what we did last

21 year.

22 MR. BACOTE: In fact, since the last

23 meeting.

24 MR. WATSON: But you\'ll find it

25 behind \-- there\'s things \-- this is going to be

96

1 a book that you will have for each meeting. So

2 those objectives that you\'re looking at now are

3 actually things that we\'ve already completed.

4 DR. FRANCIS: Okay. All right. I\'m

5 just going past \-- I\'m just going in my tabs.

6 MR. WATSON: We can go back to tab 6

7 now.

8 DR. FRANCIS: Okay. 6 is the charter

9 you\'re talking about?

10 MR. WATSON: Right. I just want to

11 point you to the charter because the charter is

12 actually going to address some of the things

13 that we\'re looking for from the board and just

14 getting feedback from the board on what \-- we

15 can talk about the Congressional support and

16 program changes and things like that which may

17 change after we hear from our guest. But

18 the \-- and we covered most of that, too, when

19 we talked about the Secretary\'s options, what

20 her thinking was.

21 DR. STRICKLAND: How do you define in

22 your charter qualified colleges and

23 universities?

24 MR. WATSON: I\'m sorry?

25 DR. STRICKLAND: How do you define

97

1 qualified? You have stated qualified when

2 you\'re talking about colleges and universities.

3 How is qualified determined or defined?

4 MR. WATSON: Let me clarify a couple

5 of things. The charter is actually the charter

6 for this board, not for the program itself.

7 But the program defines eligible institution by

8 Title III B of the Higher Education Act, which

9 is the same for all other Title III

10 institutions.

11 DR. STRICKLAND: I thought you were

12 trying to change it a bit.

13 MR. WATSON: Oh, no. No.

14 Dr. Haynes, do you want to expand a little

15 bit on the concept of what you\'re doing?

16 DR. HAYNES: Go head.

17 MR. WATSON: We had an issue where

18 institutions want to become part of the

19 Historical Black College and University

20 designation. Is that what you were talking

21 about?

22 DR. STRICKLAND: No. We\'re fine.

23 We\'re fine. I understand now.

24 DR. FRANCIS: I\'m at \-- back here.

25 The last these questions, current capital needs

98

1 of Historically Black Colleges and

2 Universities, what tab is that under?

3 MR. WATSON: Actually, it\'s not under

4 a tab.

5 DR. FRANCIS: You just want to talk

6 about it?

7 MR. WATSON: Well, I just wanted to

8 hear from the board what your input was and

9 what \-- if you had any input, capital needs of

10 the program, anything we need to try to look

11 at.

12 DR. FRANCIS: Well, just from this

13 view \-- and I\'ll certainly ask everybody to

14 join in \-- I think what\'s happened to

15 Historical Black Colleges and Universities

16 hasn\'t changed. The need for capital

17 improvements, the need for refinancing, debt

18 service \-- and that first one I think was

19 spoken \-- both were spoken to quite eloquently

20 by Dr. Broadnax with respect to that.

21 I mean, he found himself \-- and I would

22 say that a number of new college presidents, as

23 well as many who have been at it, but

24 particularly new college presidents come in and

25 find they have got capital needs, deferred

99

1 maintenance needs, debt service needs, so

2 that \-- those are hallmarks of the program that

3 still exist out there.

4 I think what is happening is the

5 exacerbation of those three areas of coming

6 from \"HBCU\'s ability to compete with other

7 institutions,\" particularly well-financed

8 institutions as well as state institutions.

9 And you can\'t do that unless you have funds in

10 those first three categories, because those are

11 daily reminders when every president gets up in

12 the morning about how he or she is going to

13 cover those matters.

14 And this program has been a big help in

15 that. And that\'s the reason we spend the time

16 trying to cut the costs of the program. So we

17 can use most of that money in those areas.

18 Now, I\'ll stop with that, and then say to

19 the members, add some other things that are out

20 there, what I call wolves at the door that

21 we\'re facing as well now. This program won\'t

22 cover all of that. That\'s why we got Title III

23 and some of those others, but in terms of this

24 program, or the other things we want to add to

25 that. Marvalene.

100

1 DR. HUGHES: I was just thinking

2 that, like you, I observe anecdotally a lot

3 that is needed by various institutions. I

4 think what I would like to recommend that we do

5 for the future is conduct some kind of survey

6 or assessment so that we have more information

7 based upon the actual status of HBCUs rather

8 than talking in isolation about them. Because

9 I could go down and list and name a number of

10 them.

11 DR. FRANCIS: Some of this we\'re

12 picking up in your surveys from the current

13 people who are in the program?

14 MR. WATSON: Right. And I\'ll tell

15 you some things that have actually come up.

16 Short-term financing has come up. And we\'ve

17 seen that with some current borrowers who \-- we

18 don\'t offer that in the program, but in trying

19 to assist them, we\'ve seen that as an issue.

20 But in it getting the surveys out \-- I

21 must admit getting surveys back has been \--

22 that\'s been very difficult. I was hoping when

23 we send out \-- the next survey I send out, hey,

24 maybe get something great. But I\'ll try to

25 shorten the survey to get that kind of

101

1 information. But it\'s been very difficult to

2 get surveys back.

3 DR. HAYNES: Let me say I think that

4 the present board of advisers for the White

5 House Initiative on Black Colleges has also

6 been wrestling with these same kind of issues,

7 getting good information on the status of

8 institutions.

9 And I think we can probably join forces

10 here and go with a unified front to conduct

11 what I think is a much needed needs assessment,

12 if you will.

13 And I think if we go on the record saying

14 we will do this \-- our board meeting meets on

15 December the 8th in New Orleans right before

16 SACS, and I\'ll put this on our agenda. I think

17 the board would probably be in support of this,

18 because that\'s what\'s missing right now, the

19 data on what really is going on in our

20 institutions. It\'s inconsistent. Even the

21 Wall Street Journal article that I have talks

22 about the data is incomplete so we really can\'t

23 make a proper assessment of where our schools

24 are standing and the like. So I think we can

25 join forces.

102

1 DR. FRANCIS: Yeah, we can.

2 Particularly \-- I guess in surveys it\'s

3 difficult. I\'ve got to tell you, college

4 presidents all around this table, we could

5 spend all day just answering surveys. So what

6 we have to do is choose the one that\'s a

7 priority.

8 And this one would have priority. It\'s

9 the question of developing the culture in an

10 institution about how important the program is.

11 Once you do that, then they\'ll be knocking on

12 your doors for it. But that\'s going to be

13 just \-- have some patience. That\'s going to be

14 part of that.

15 MR. HANSEL: I recommend that. I

16 mean, relatively shortly after we took over as

17 the designated bonding authority, we did, in

18 fact, try a written survey of all of the HBCUs.

19 I want to tell you that I think our response

20 rate was somewhere in the 15 to 20 percent

21 range, which, frankly, just didn\'t get there.

22 I like the way that you\'re characterizing

23 it. Instead of characterizing it as a

24 \"survey,\" characterize it as needs assessment.

25 It\'s something that\'s going to require,

103

1 frankly, a lot more follow through, a lot more

2 handholding with chief financial officers and

3 financial staff to really get results that are

4 meaningful and informative.

5 DR. HUGHES: I don\'t mind putting

6 some reasonable consequences such that people

7 would be required to participate if, in fact,

8 in the future they expect to request support.

9 And if they don\'t, they don\'t need to respond.

10 DR. STRICKLAND: Part of the

11 problem \--

12 DR. FRANCIS: You might have a

13 constitutional problem there. When I leave the

14 presidency, I\'m going to practice law. I don\'t

15 think you can do that.

16 DR. STRICKLAND: You know, the one

17 problem is in the course of a year, we get

18 about 75 needs assessments, surveys, whatever

19 you want to call them. And they have no

20 meaningful outcome or results to us as we fill

21 them.

22 And so something has to be a part of that.

23 Say, okay, money is available, number one. The

24 cap has been raised, so now there\'s money

25 available. It\'s appealing to you because

104

1 you\'ve got 1 percent interest or whatever, you

2 know.

3 And the other factor is that the issue of

4 accreditation comes into play from both \-- from

5 both sides. It may be that this kind of

6 activity would help an institution secure and

7 maintain accreditation, and yet you say if

8 you\'re not very close to having it, we can\'t

9 give you the money. So we\'ve got to have a

10 kind of rethinking of this process. How do we

11 make this money really available to

12 institutions that really need it?

13 I mean, I realize that my brother in South

14 Carolina State might have needed it, but I

15 don\'t think he needed it as much as School X

16 who has having problems with SACS. And if they

17 could redo their campus, refinance \-- make

18 their residency centers appealing, getting

19 academic facilities, that would make them a

20 stronger institution in the long run.

21 And so we also got to keep on the table

22 those kinds of thoughts as we look at redoing

23 the legislation or interpreting legislation.

24 And someone has to be at the table to say that.

25 And very few people ever come to the table

105

1 saying that because they\'re looking at schools

2 who they know can pay back, who got a decent

3 bond rating, etc., etc. And yet to me, this

4 program ought to have some real meaning for

5 those institutions who only need this impotence

6 or thrust in order to make them stronger and

7 make them viable accredited institutions.

8 DR. HUGHES: We have 103

9 institutions. We\'re not that big to get lost.

10 And I\'m just saying that we should expect more

11 of ourselves and of our institutions.

12 DR. STRICKLAND: Absolutely.

13 DR. FRANCIS: No question.

14 DR. STRICKLAND: Absolutely.

15 DR. FRANCIS: It\'s just that I don\'t

16 think you can make a requirement. There\'s a

17 case in New Orleans right now in the morning

18 paper where a judge wants to put a lawyer in

19 jail because he got somebody else to represent

20 a client who did it pro bono. And breaking the

21 law \-- the judge is breaking the law. And you

22 just can\'t do that. It\'s a long story. My

23 only point is you have to be careful if you tie

24 in consequences.

25 DR. HUGHES: You can expect it,

106

1 Dr. Francis.

2 DR. FRANCIS: Oh, yeah, but you can\'t

3 require it. We\'ve got so many requirements

4 right now, I have to add a new VP for every

5 rule that comes out.

6 All right.

7 MR. WATSON: The same would apply for

8 Dr. Strickland\'s comments. We have to follow

9 the letter of the law. Unless the law changes,

10 we have to go with the criterion \--

11 DR. STRICKLAND: And my only thinking

12 was we ought to work sometimes by changing

13 laws. That\'s what I was saying. Legislation

14 ought to be changed. That\'s all I\'m saying.

15 DR. FRANCIS: And we\'ve made some

16 progress, but it\'s one step forward and two

17 steps back. But you have to keep moving

18 forward with it. No question about it.

19 MR. WATSON: Dr. Strickland, attached

20 on that second bullet, how can we meet those

21 needs through the program other than what we\'re

22 doing, now, just to reiterate, you know, there

23 need to be some changes in the law itself

24 giving more flexibility to those institutions.

25 DR. STRICKLAND: I\'m only saying we

107

1 must have a willingness to do it. We must be

2 proactive in doing it. And it\'s been on our

3 table all the time. As the board we have to

4 state it, and as the person in charge you have

5 to carry it, you know. Otherwise, it won\'t

6 happen. Nothing is going to change because we

7 want it changed. Lobbyists are certainly

8 effective, but those of us who are involved in

9 the process ought to continue to restate it and

10 work toward it.

11 MR. WATSON: So you all wouldn\'t mind

12 if I had that as an agenda item so we can keep

13 it in the record every time?

14 DR. FRANCIS: Oh, absolutely.

15 DR. HAYNES: We could make a

16 resolution to that effect.

17 DR. FRANCIS: I think it\'s one that\'s

18 understood, but if you want to have it as a

19 resolution, fine.

20 DR. HAYNES: Because that goes for

21 the record.

22 DR. FRANCIS: Yeah. Want to make it?

23 DR. STRICKLAND: So make it. You can

24 restate it.

25 DR. FRANCIS: Would you describe

108

1 it \-- and I\'ll put it on the table \-- the fact

2 that \-- and I\'m assuming what I heard you say

3 is that part of our responsibility in reviewing

4 the program needs of HBCUs, we first ought to

5 have good data, and that we should put that

6 data in relationship to what the program

7 objectives are as it relates \-- as it relates

8 to the law, but if in deed the law is not

9 consistent with achieving those, we as an

10 advisory group would be aggressive in

11 recommending those changes, as we have done,

12 and ask our executive director to keep that

13 aggressiveness and the monitoring for us. Is

14 that okay?

15 DR. STRICKLAND: That\'s it.

16 DR. FRANCIS: And you\'ll make that

17 motion?

18 DR. STRICKLAND: I so move.

19 DR. FRANCIS: Who will second?

20 DR. HAYNES: Second.

21 DR. FRANCIS: All those in favor,

22 please state properly by saying aye.

23 DR. HAYNES: Aye.

24 DR. HUGHES: Aye.

25 DR. HUGINE: Aye.

109

1 DR. MYERS: Aye.

2 DR. STRICKLAND: Aye.

3 DR. FRANCIS: Opposed.

4 (No response.)

5 DR. FRANCIS: The motion is carried.

6 I think that will keep us moving forward.

7 MR. WATSON: The last item before

8 public comment, I guess we can \--

9 traditionally, what we\'ve done, I\'ve checked

10 Dr. Francis\'s calendar and then send out some

11 dates for everyone to see when and where we\'re

12 going to have the next meeting. If that\'s okay

13 this time, we\'ll do that.

14 DR. FRANCIS: And we\'ll see what

15 might be a good place and you may recommend

16 that. And we want to make sure we don\'t

17 overburden you and try to make it where all of

18 us can get there and out.

19 And it\'s also good if we\'re able to visit

20 sometimes places where the program, like here,

21 has been helpful, to have a president come and

22 talk about it. And maybe have a place where a

23 program \-- president who has been in the

24 program talk about the program, its positives

25 and its negatives, if there are negatives and

110

1 the like, which will help us. That\'s where the

2 rubber hits the road really, okay?

3 If you\'ll look at your watches, we have

4 public comments at 12:15. Not bad for people

5 who can\'t cooperate.

6 Okay. Do we have public comments? And I

7 think we will get a presentation from

8 Lemoyne-Owen. Is that it?

9 MR. WATSON: Yes.

10 DR. FRANCIS: If you can put \-- you

11 know, put that chair and have any of your staff

12 with you, Mr. President. You can identify

13 yourselves.

14 Mr. President, the floor is yours. We

15 welcome you here. And I\'ll ask for the

16 recorder, you\'ll state your name for the record

17 and any of your colleagues that you ask to make

18 a presentation will do the same thing.

19 DR. WATSON: Thank you very much.

20 I\'m Johnnie B. Watson currently serving as

21 interim president of Lemoyne-Owen College.

22 Thank you for this opportunity, Chairman

23 Francis. To our distinguished colleagues and

24 members of the board and guests, again, my name

25 is Johnnie B. Watson, interim president of

111

1 Lemoyne-Owen College. Joining me are Jim

2 Dugger to my left, vice president and chief

3 financial officer of the college, and the

4 college\'s financial adviser to my right,

5 Bridgette Chism. Thank you for the opportunity

6 to address the HBCU Capital Financing Advisory

7 Board.

8 Lemoyne-Owen College located in Memphis,

9 Tennessee has a rich history that dates back

10 almost 150 years. I have been personally

11 associated with the college for 50 years. I

12 enrolled as a student in 1952 and almost \--

13 1956, and almost 50 years to the date, I

14 returned as the interim president of the

15 college.

16 I\'ve also served on the board of trustees.

17 And I am the recipient of an honorary doctorate

18 from the college. So I have some ties to the

19 college.

20 The college was founded in 1862 and has

21 survived \-- has strived to provide academic

22 rigorous curriculum and adequate physical

23 resources to its student body. However, as

24 many of you know, Lemoyne-Owen is currently

25 fighting for existence. A steady decline in

112

1 enrollment over the last ten years coupled by

2 aging facilities and our current probationary

3 status has Lemoyne-Owen College struggling to

4 survive. We\'re on probation primarily due to

5 financial instability.

6 That being said, things are slowly turning

7 around for us. Next week I will be attending

8 the Southern Association of Colleges and

9 Schools that will convene in New Orleans. And

10 we look forward to receiving reaffirmation of

11 our accreditation. I\'m extremely positive of

12 that as Mr. Dugger will cite when he goes over

13 some figures with you.

14 I appreciate the opportunity to be here

15 with you today and hope that each of you

16 received my earlier letter this week.

17 Now, I\'d like to introduce Mr. Jim Dugger,

18 the CEO and vice president \-- CFO. I can\'t

19 give my job away. He is the CFO and vice

20 president \-- to discuss my letter in greater

21 detail. Particularly, the college\'s financial

22 issues and our need to relate it to the HBCU

23 Capital Financing program. Jim.

24 MR. DUGGER: Good afternoon. I just

25 want to begin by saying that I\'m part of HBCU.

113

1 I attended Alcorn State University and received

2 a BS degree in business administration. My

3 first job was also at an HBCU in the business

4 office of Mississippi Valley State University.

5 But I went on to obtain an MBA from Ohio

6 University and a CPA and a certified internal

7 audit designation.

8 I spent my career starting in public

9 accounting with Arthur Andersen in Milwaukee.

10 I spent approximately 20 years in corporate

11 America at Wisconsin Bell, Ameritech Service,

12 and Ameritech Corporate where I retired in 2000

13 as comptroller of the investment management

14 group responsible for a \$80 million budget, the

15 accounting and financial reporting as well as

16 bank relations for over \$25 billion in pension

17 and savings plan investments.

18 And now I\'ve gone full turn. I\'m back at

19 an HBCU at Lemoyne-Owen College. When I

20 arrived at Lemoyne, I found that we had a \$1.5

21 million deficient as of the end of 2006. We

22 were projecting an increased deficient at the

23 end of 2007.

24 We have put together a short-term plan to

25 eliminate our short-term problem. We have gone

114

1 out and secured funds for approximately \$6.6

2 million over a three-year period. That takes

3 care of our short-term problem, but at the end

4 of that three-year period, we must have a

5 long-term solution in place.

6 If you look at our income statement, there

7 are two items that play the major role in our

8 financial position. One is student revenues,

9 and the other is debt service costs. They both

10 are intertwined. If you can\'t get the

11 students, you can\'t get the student revenues.

12 If you don\'t have the facilities, you can\'t get

13 the students.

14 We\'ve looked at means of getting low-cost

15 capital. And we find that the HBCU Capital

16 Financing Program is our only option, but we

17 need low-cost capital at modified repayment

18 terms. There\'s probably 10 percent of the

19 schools that are in our same position.

20 If you take a moment and step back and

21 look at the HBCU Capital Financing Program as a

22 \$1.1 billion business, with 103 customers over

23 the 11-year period, you probably provided

24 service to 25 percent of those customers.

25 We\'ve identified at least 10 percent of your

115

1 customers that are in the same position that

2 we\'re in that need low-cost capital with

3 repayment terms that are different from the

4 current program.

5 The current program offers one product.

6 And we think that you need more than one

7 product. And that\'s why we\'ve gone to Congress

8 members and presented a product that we think

9 that will help that 10 percent of the schools,

10 because we\'re in dire need. If we don\'t come

11 up with a long-term solution very quickly,

12 we\'re not going to survive.

13 So we ask for your support in coming up

14 with an additional program to help those HBCUs

15 that are in dire need of financing.

16 MS. CHISM: I\'m Bridgette Chism, and

17 I\'m the financial adviser to the college and a

18 friend of the college. I\'ve been involved

19 on \-- UNCF chairman for several years and was

20 kind of helping the interim president before

21 Jim came and have also shared this with a

22 colleague from North Carolina, which is my home

23 State, Andrea Harris, who is president of the

24 North Carolina Institute for Minority Economic

25 Development and a Bennett alum, Bennett

116

1 College.

2 President Hughes, you talked about

3 accountability. The one thing we \-- in doing

4 all this is \-- to put clear, this is not about

5 mismanagement and not willing to do \-- not be

6 accountable. This is, as Jim pointed out,

7 looking at there\'s only a couple places on your

8 income statement that you can make significant

9 change.

10 As President Broadnax spoke about, you

11 know, you\'ve got \-- you\'ve got human capital,

12 your payroll. That\'s your biggest expense.

13 You guys know that. But the debt service is \--

14 you know, for us right now is probably 10

15 percent of our revenues, that cost, which, of

16 course, is killing the operating cash flows for

17 the institution. That\'s your day-to-day

18 survival.

19 So we wanted to offer, President Francis,

20 is how do we make this program more robust.

21 And that\'s where the legislation change came,

22 because right now there is one product, because

23 the legislation offers one product. And the

24 special product came because of a natural

25 disaster, which is unplanned.

117

1 We would submit that for the 12 or so

2 institutions that we\'ve come up with, that

3 natural disaster is now. And it\'s not because

4 it\'s because it\'s been mismanaged. It\'s just

5 because of simple mathematics. If your

6 revenues are declining, your expense \-- your

7 borrowing, your debt service is continuing to

8 grow because of that percentage, you just don\'t

9 have any money left over to operate the school.

10 So how do you fix it? You fix it with

11 cheaper cost of capital. That\'s why we were

12 wanting the rates lowered from 5 percent to 1

13 percent. We want a deferment period so you

14 have a chance to catch your breath, if you

15 will, because now that debt service payment can

16 go to your deferred maintenance.

17 You know, President Broadnax mentioned 76

18 million. I submit probably every school has a

19 deferred maintenance number that\'s pretty high

20 that\'s unfunded which is a requirement of SACS,

21 that you fund these. And that you have a way

22 of getting a lower cost of capital to do your

23 facilities so that you can be competitive,

24 because that was the other issue, are we

25 competitive for the future?

118

1 And Andrea will speak to this, but, you

2 know, when times get tough, even the fed

3 doesn\'t increase the rates. They lower them.

4 When banks \-- they want banks to borrow from

5 other banks at 4-1/2 percent, but if a bank \--

6 a financial institution gets into trouble, they

7 go to the Federal Reserve Desk and they get a

8 discount rate of 3-1/2 percent so they can get

9 out of trouble.

10 So this notion of applying increased costs

11 because of risk, because a school is in

12 trouble, only exacerbates the problem. It\'s

13 counterintuitive to the entire world banking

14 financial system. So as a body, it\'s important

15 that we raise \-- if we\'re going to make a

16 program, that it is a federal program, that,

17 quite frankly, our legislative team thinks that

18 is making a tremendous difference in HBCUs. We

19 can\'t qualify for it, or it\'s not competitive

20 in our market. So, you know, we\'ve got a huge

21 disconnect going on.

22 And, you know, since you voted on the

23 resolution to create some legislation \-- that\'s

24 how this started, so that we can do exactly

25 what the fed does. When someone gets in

119

1 trouble, needs to get out, needs a true

2 economic recovery plan, financial recovery

3 plan, you have a mechanism for lower cost of

4 capital to get you through.

5 And that\'s kind of, as Jim came in, how do

6 we do this for our institution and the other,

7 you know, 12 or so institutions, which, quite

8 frankly, about 15 schools, individual schools,

9 have taken part of this program over the last

10 11 years. Some schools have done multiple

11 loans, but, really only 15 new schools,

12 individual schools. And that\'s about the same.

13 So, you know, we just want some other

14 options for the program to make it more robust.

15 DR. FRANCIS: Any comments?

16 MS. HARRIS: As Bridgette said, my

17 name is Andrea Harris, and I\'m from North

18 Carolina. And I\'m here just out of an overall

19 concern about the future of HBCUs.

20 I am an HBCU graduate. I am president of

21 an organization that was started by the

22 Legislative Black Caucus, significant supporter

23 of our state legislature, and always had strong

24 ties to all the historically black colleges in

25 our state and done my part to try to help

120

1 support them, both public and private.

2 But at this particular point in time, I

3 think there\'s a window of opportunity. We have

4 more HBCUs, four-year institutions in North

5 Carolina than any other state in the South.

6 So, naturally, I have a very vested interest.

7 And I also have a vested interest because I

8 believe that HBCUs are critical to the economic

9 future of our community and of our states and

10 our nation.

11 I want to just share something which would

12 maybe give you some idea about \-- one of the

13 most recent efforts on our part is to try to do

14 a better job at first educating the HBCU

15 community in North Carolina and others in

16 general around the growing and mounting debt

17 that our students have.

18 And if we just look at the HBCUs, HBCUs

19 collectively, our students in 2006 had a little

20 over \$900 million worth of student loan debt.

21 That\'s almost a billion dollars worth of

22 student loan debt with terms that I consider

23 predatory where those students are not able to

24 qualify if they fall on hard times to have

25 their student debt included in bankruptcy.

121

1 I think that where we are as a nation in

2 some respects when it comes to the cost of

3 college and the mounting student debt may be

4 sinful. So college students are now joining

5 with us around the country, and we are working

6 with Congressional leaders and others to try to

7 make some change.

8 The one thing I do celebrate about my

9 state is that we don\'t always just accept what

10 is. I am around the corner from an institution

11 that tried to work with the minority business

12 and didn\'t have enough money and had a bake

13 sale and raised a thousand dollars from a bake

14 sale. And today that institution is the

15 Self-Help Credit Union with a billion dollars

16 worth of assets.

17 And it has created an organization called

18 the Center for Responsible Lending that\'s

19 headquartered in Washington. And I would ask

20 that you work closely in partnership with that

21 institution.

22 I ask that because I think that the window

23 of opportunity to change the terms of loans so

24 that our institutions can service their debt

25 that is affordable that we can put them on

122

1 sound financial ground for the long term and

2 they can sustain that financial stability is

3 now.

4 Bernanke was in Charlotte on yesterday

5 suggesting to the banking community in North

6 Carolina \-- as you know, we are home to

7 Wachovia and Bank of America \-- that interest

8 rates will probably be lowered again.

9 The Secretary of the Treasury yesterday

10 was speaking about what will \-- steps will

11 probably be taken to deal with subprime

12 mortgages.

13 And I think it is important that we note

14 that most people who have subprime mortgages

15 are not always people who have credit problems.

16 The greatest evidence of that is here in

17 Atlanta where African-Americans with the large

18 number of subprime mortgages, whether perhaps

19 intentionally or unintentionally, steered into

20 higher cost loans than \-- while they qualified

21 for more favorable terms.

22 So I just ask for your leadership. And

23 I\'m asking that while we have this opportunity,

24 when everybody is looking at credit, when

25 everybody is looking at credit and looking at

123

1 how we change the standards, we change this for

2 our colleges and for our students, if we don\'t

3 do it now, then I think we will have lost an

4 opportunity.

5 The danger is that \-- you know, I\'m from

6 Durham, North Carolina. And I say to folks,

7 you know, that we used to be the Black Wall

8 Street of America, the true Black Wall Street

9 of America with North Carolina Mutual and

10 Mechanics & Farmers Bank and Mutual Savings &

11 Loan. And during the Great Depression no black

12 people suffered in Durham, North Carolina

13 because of our economic infrastructure.

14 But what we see today is that that has

15 eroded and we don\'t have that wealth. If we

16 lose this opportunity, then when the bottom

17 falls out of white working class America, I

18 hope we understand what\'s happening in the

19 black community. We should not expect

20 contributions to increase from alarms in the

21 next generation. They won\'t have the

22 resources. We should not expect after this

23 credit crunch that our schools \-- we will have

24 whatever the number is you say we have today,

25 they will not exist unless we take advantage of

124

1 this opportunity.

2 I am only here asking you for your

3 leadership and your courage not to simply

4 accept what is the tradition in the financial

5 community. If we had done that in Durham, we

6 would not have a billion dollar financial

7 institution today.

8 And if you need additional resources to

9 help address this, then we are offering

10 whatever resources we have in our state,

11 whether that be the resources that we can pull

12 upon in the banking community in Charlotte,

13 whether that be the Center For Responsible

14 Lending, and anyone, to help us move forward.

15 I\'m begging \-- I am really here taking

16 advantage of their opportunity to beg you for

17 your leadership in making sure that we get some

18 different language in this legislation, because

19 if we don\'t do it now, I think we\'ll lose an

20 opportunity long term.

21 Let\'s make sure that if we can put loans

22 on hold, put them in abeyance, lower the

23 interest rates, do away with the high

24 prepayment penalties. And look at what others

25 are doing now, not just accept what is, but

125

1 let\'s take the \-- let\'s be bold and have some

2 courage. So I\'m asking for your leadership in

3 at least taking a further step including other

4 institutions, but changing how we do business

5 in a way that allows us to sustain our schools

6 and put them on sound financial ground but give

7 them a resource.

8 You know, the one difference here is

9 you\'re talking about a governmental program.

10 You\'re not talking about a private sector

11 program. And I\'ve been \-- Bridgette has been

12 trying to help me stay calm in understanding

13 how a governmental program sees itself as

14 needing to have the same level of even greater

15 protection than the private sector.

16 I mean, if it\'s going to be a governmental

17 program, let\'s take advantage of an opportunity

18 to do what this initiative was intended to do

19 to start with, to help our neediest schools,

20 but do it in a way that does not harm people.

21 I mean, let us not step on people. Let

22 us, you know, really find ways to put them on

23 sound financial ground. We don\'t have a lot of

24 time to make that happen, but I ask that you do

25 this. We know that most of our schools are not

126

1 institutions that have been \-- intentionally

2 been derelict in trying to achieve their

3 mission.

4 And so just as those who have started

5 HBCUs didn\'t start all these institutions

6 simply by looking around and saying, here\'s

7 what is, so I\'m going to accept what is, but

8 had the courage to go a step forward and make a

9 difference.

10 I thank you for your leadership and your

11 commitment here and for being so indulging of

12 allowing me to talk on.

13 DR. FRANCIS: Mr. President. You

14 tried to give away that interim, but you\'re

15 still president.

16 DR. WATSON: Can you help it?

17 They\'ve slowed down the search. Can you help

18 them a little bit?

19 DR. FRANCIS: There may be

20 questions \-- Lezli, as you well know, is the

21 president of NAFEO. And she was starting to

22 talk about this program. And she, obviously,

23 is very interested in the HBCU Capital. And I

24 think she was getting into the very specifics

25 that you\'re talking about.

127

1 And I picked up \-- and you may have heard

2 this already, and think it\'s the kind of

3 question that needs to be asked. What I picked

4 up from her was that the program, what is

5 currently listed in the criteria and so forth

6 is designed for schools that meet that

7 parameter now.

8 And the question is, is it one that would

9 keep out others, the other institutions that

10 need as well, because it is \-- it is pretty

11 focused, as such. How do we respond to what I

12 think her question was going to be, if we\'re

13 going to do it, can we do it for all

14 institutions?

15 MS. CHISM: Right. And what we did

16 is we listened to her comments and we expanded

17 the criterion, I mean, because, quite frankly,

18 we think if you have a series of products

19 within the HBCU Capital Financing Program,

20 then, really, you have three different products

21 and you apply under the product that makes

22 sense for your institution. And, so if \-- you

23 structure it like that. So if we\'re going to

24 act like a financial institution, then let\'s

25 just have different product offerings.

128

1 And in hearing what she said, we expanded

2 against the definition of an affected

3 institution that would fall under product

4 number 2 under the HBCU program. So we

5 expanded so that instead of \-- I think she was

6 thinking of a limit of 5. In making the

7 expansion it created an avenue for 10 or 12 or

8 whoever fit this, but it was \-- we just showed

9 any student enrollment decline over the last

10 ten years. So it didn\'t have to be a

11 continuous decline. That changed the dynamics.

12 And, also, the endowment was a marketable

13 security, if you will, cash, stocks, so that \--

14 of 20 million. So that added some additional

15 schools. And then net marketable securities of

16 20 million.

17 So we took her \-- the feedback that she

18 had heard so that \-- that\'s net \-- so that

19 more \-- so that it would be applicable to more

20 schools in the 103 client base, if you will,

21 but recognizing that this would just be one

22 version of a product within this program making

23 it more robust.

24 DR. FRANCIS: Where is \-- go ahead.

25 I don\'t want to cut anybody off. I wanted to

129

1 follow \-- you talk about an opportunity and

2 dealing with legislation, dealing with the

3 Congress. And, yes, you have to be aggressive

4 and you have to \-- timing is very important.

5 And, unfortunately, you go through a maze

6 of committees and staff and the like. Where is

7 your current proposal?

8 MS. CHISM: And because \--

9 DR. FRANCIS: I say the current \--

10 MS. CHISM: The current amendment \--

11 because they\'re in the business of higher

12 education and running other things, we did

13 engage a group, the Carmen Group. Julia, if

14 you would like to give us an update.

15 MS. ERHGOOD: Sure. Sure. I can

16 speak to that.

17 Right now, as you know, the Higher

18 Education Act was approved by the House

19 Committee, and we wish for it to go to the

20 Floor.

21 All of this language that Bridgette has

22 been discussing, that is not currently in the

23 bill. So there is no separate piece of

24 legislation that has been introduced by

25 Congressman Cohen, who represents Lemoyne-Owen,

130

1 or any other member.

2 DR. FRANCIS: Okay.

3 MS. ERHGOOD: But I will say that

4 there is certainly an appetite, a strong

5 appetite among a number of the members of the

6 committee of the Congressional Black Caucus and

7 then those members that represent the

8 individual institutions that have been

9 recognized as needing the help. They want to

10 help. And there is still an opportunity to do

11 so on the Floor. When the Higher Education Act

12 goes to the House Floor, there\'s an

13 opportunity.

14 DR. FRANCIS: Has the Senate \--

15 MS. EHRGOOD: The Senate has passed

16 this bill. It did that earlier this year. So

17 the Senate Bill is closed, but with the

18 House \--

19 DR. FRANCIS: How did it close with

20 respect to what we \--

21 MS. EHRGOOD: There is nothing in the

22 bill to increase the cap for the program. It\'s

23 really silent as to any additional change.

24 DR. FRANCIS: It stands silent?

25 MS. EHRGOOD: That\'s correct. So the

131

1 opportunity that exists \--

2 DR. FRANCIS: Has to be in the House.

3 MS. EHRGOOD: \-- is to have been in

4 the House and then to keep that in Congress.

5 DR. FRANCIS: Go ahead.

6 DR. HUGHES: I think we have to start

7 somewhere. And I\'m hearing that we lost the

8 first window, and maybe there\'s a second window

9 that you can come under.

10 There are principles of economy and

11 economics that I hear which make a lot of sense

12 to me, particularly when you associate them

13 with how this market works today in the United

14 States, and how the Treasury works, for that

15 matter.

16 So it seems to me this is a species that

17 really needs to be silently developed and

18 disassociated \-- by the way, this is just my

19 opinion \-- disassociated from the principle of

20 Katrina, because I can see you closing

21 yourselves off by that.

22 But if you develop that strong principle

23 of how this economy works, even including the

24 housing market as it exists today and the kind

25 of adjustments that are made in interest to

132

1 accommodate that, you\'ve got some sound

2 principles, I think, for a good rationale in

3 moving forward.

4 DR. FRANCIS: And the question is how

5 much time? Maybe you can answer that?

6 MS. EHRGOOD: Sure. It\'s unknown.

7 We always have to be prepared for something to

8 happen anytime. It\'s unrealistic that the bill

9 will go to the Floor in December, but it is

10 possible. We\'ll know more this coming week

11 when Congress returns.

12 More likely, the bill will go to the Floor

13 after the new year. It could be a month. It

14 could be two months. From our perspective, we

15 have to be prepared for it to happen in the

16 middle of December.

17 And while it\'s not ideal in terms of, as

18 you said Dr. Hughes \-- you know, we believe we

19 have done a lot of due diligence to make sure

20 that we are doing this in an appropriate way to

21 really optimize the benefits of the program.

22 We want there to be no misunderstanding

23 about what we\'re trying to do. And that\'s

24 really why President Watson and his staff have

25 come here before you today. But that being

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1 said, as you\'re alluding to, Dr. Francis, this

2 train is moving, and we want to be on the

3 train.

4 And with your support for what we\'re

5 trying to do, and whether we slightly modify

6 the eligibility criteria or some other things,

7 I think we can really be effective here. And I

8 know that\'s important to Lemoyne-Owen. It\'s

9 entire to the HBCU community.

10 DR. FRANCIS: Any other comments?

11 One of the issues \-- and I was hoping that

12 Lezli \-- because Lezli is very much involved in

13 this. I know Lezli was asked, Thurgood

14 Marshall Group was asked, UNCF was asked \-- I

15 think there is some support there. There are

16 questions that haven\'t been answered that

17 you\'re seeing now that even if you were before

18 that committee now you would be amending your

19 original that might meet the requirements of

20 some of the concerns.

21 There\'s no question about \-- as we said

22 earlier, the program that was constituted as an

23 HBCU Capital Program in my view is an evolving

24 one.

25 And you heard earlier, many of our

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1 institutions, including my own, did a lot of

2 bond financing and we did not use this program.

3 And so this program has evolved and is

4 evolving. Now, how fast it\'s going to evolve

5 to the context of what you have described, I

6 don\'t know and I don\'t how fast \-- I am not as

7 persuaded at this point in time, unless it just

8 flip-flops, Congress will do everything we want

9 them to. And the question is how much can we

10 get in a change now that we get another bite,

11 if we can.

12 The issue of lending is going to be around

13 at least for the next two or three years. I

14 can tell you from the student financial side or

15 loan side, financial literacy, the debt that\'s

16 being taken on by students, the question of

17 whether the money is being used for core

18 academic work as against others, that\'s an

19 issue that isn\'t going away.

20 And we just started to see it with the

21 money that went into Title IV came from the

22 subsidies from banks and the rest to pay for

23 the increase in Pell Grants and the rest. So

24 that\'s going to be around.

25 But we have got to get some things now if

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1 we don\'t get everything now. The question is

2 what are they?

3 MS. CHISM: And, Chairman Francis,

4 since I am from North Carolina \--

5 DR. FRANCIS: We better get somebody

6 here from Tennessee.

7 MS. CHISM: Both my parents went to

8 Tuskegee. Actually, my mama was a

9 Ms. Tuskegee.

10 DR. FRANCIS: That\'s Alabama.

11 MS. CHISM: This is a Capital

12 Financing Advisory Board. We\'re talking about

13 the money and the economics. Your leadership

14 in being in front needs to trump protocol.

15 I am going to be direct right now. My

16 Wake Forest, Wharton MBA training, my friends

17 may be a little aggravated. What is the holdup

18 is we need three bodies, associated bodies that

19 have different visions, missions, and agendas

20 to agree to our amended \-- to this legislation,

21 whatever form it\'s in. And, quite frankly \--

22 DR. FRANCIS: And that comes from \--

23 MS. CHISM: And that would come from

24 the Thurgood Marshall, NAFEO, and the UNCF.

25 And the only support that we have received is

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1 from NAFEO in writing informally.

2 The other two institutions wanted for

3 everyone 1 percent money, the 3 percent

4 deferment. You know, these economic principles

5 as you mentioned, President Hughes.

6 However, my legislative bodies are saying

7 to me we will not fund that for everybody. So

8 you have to give some sound rationale as to

9 what is your definition of this. And the

10 thesis is, well, if everybody can\'t get it,

11 then we won\'t support it.

12 If only 15 schools have ever taken part of

13 this program, then you already are inconsistent

14 with your thesis. So all I\'m suggesting is

15 that you add another vehicle and allow for the

16 same number of schools to participate as the

17 current program. So you\'re not \-- I mean \-- so

18 we get these situations \-- protocol, and I\'m

19 like, no, we are \-- lending and credit will

20 always be here. That\'s an issue.

21 But as soon as Jim and I started talking

22 about, okay, if we got this facility, well, you

23 know, Jim, you\'re going to have to increase the

24 cost of the dorm rate because it\'s going to be

25 a new dorm, you got to pay for it, if we do it

137

1 in the old method.

2 Well, then you get the, well, they\'re

3 going to have to borrow more. You get to the

4 student side. So now we \-- we can\'t keep

5 operating in the same paradigm. So we really

6 need to \-- my ask to this body is help the

7 other \-- our legislative team is going to

8 abdicate their power to three associations that

9 don\'t have the same agendas to decide whether

10 we can move forward with changing a legislative

11 amendment so that we can have more options to

12 this financing program, then, you know, we

13 don\'t stand a chance.

14 So this \-- somebody needs to say, come on,

15 guys, let\'s get together, because a year from

16 now I want to be sitting here \-- because this

17 is easy to fix when it\'s not mismanagement and

18 it\'s just financial. Next year we\'ll sit here

19 and we\'ll go, see, President Myers, the income

20 from cash flow from operations is up because we

21 didn\'t have to pay for, you know, our debt

22 service.

23 MS. HARRIS: We didn\'t have to over

24 collateralize.

25 MS. CHISM: And we built our new

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1 dorms that are opening in fall \'09 and my

2 enrollment is up. So, hello, the model works,

3 because it\'s just mathematical. So it\'s not

4 really deep strategy. It\'s just \--

5 DR. FRANCIS: Have we heard from bond

6 counsels and \--

7 MS. CHISM: Well, this is just our

8 own bond counsel.

9 MS. ERHGOOD: If I can just

10 interject, one of the other concerns that I\'ve

11 heard is that by putting this other product \--

12 making this available that it would imperil the

13 program.

14 And it\'s our understanding that \-- of

15 course, we would never want to jeopardize the

16 program. And from listening to the discussions

17 today \-- Dr. Hugine and Strickland, I do not

18 mean to put words in your mouth in any way \--

19 but I sense that there is, you know, a

20 willingness to help the neediest schools, to

21 provide them with some assistance. And in no

22 way are these efforts meant to imperil the

23 program.

24 As a body, if you would believe that this

25 effort would not imperil the program, and if

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1 that is something that could be communicated,

2 that would be helpful.

3 DR. HUGHES: Have you used the

4 need-based strategy or some need-based strategy

5 to identify the number of institutions that

6 you\'re trying to qualify for?

7 MS. CHISM: We did based on this

8 language. I mean, when we say neediest, it\'s

9 neediest from the sense of declining

10 enrollment, a tremendous amount of debt

11 already, tremendous for your size of balance

12 sheet and institution, the lack of endowment,

13 the lack of net assets, because 20 million is

14 not a lot when you\'re talking about, you know,

15 running a business, an institution compared to

16 some of our other schools.

17 So when we say neediest, it\'s defined by

18 this category. And we have \-- as Julia said,

19 we have gone through and done a lot of

20 analysis. We actually have, you know,

21 solicited information from, you know, people

22 outside of our, you know, domain.

23 I mean, I have called the Federal Reserve

24 directly because there is an office in Memphis

25 which handles that region. And good luck,

140

1 sister. And we have talked to these financial

2 institutions across the country, the first and

3 third and largest financial institutions in the

4 country. So this is not done \--

5 DR. FRANCIS: What have you asked

6 them?

7 MS. CHISM: Well, we asked them

8 about, you know, access to capital and how do

9 we get better terms for institutions you\'re

10 trying to turn around.

11 This is about financial recovery. This is

12 not about trying to gouge an institution

13 because, you know, they\'re highly leveraged

14 already and they\'re trying to get a new dorm

15 facility, or charging them a premium because

16 they have very limited, you know, net income

17 because they have declining enrollment and they

18 have a high cost of debt service.

19 So this is about other avenues, because if

20 this program isn\'t going to be available, we

21 still have an institution that must survive.

22 You talk to other places that can \--

23 there\'s more than one way to skin a cat. You

24 know, we want to work, and think this is a

25 great vehicle because it\'s already a

141

1 governmental program.

2 However, if we go back and we talk to our

3 legislative body and go it really doesn\'t work

4 the way you think it works, it\'s really not

5 helping the way you thought it helped \--

6 MS. HARRIS: Or if you look at the

7 number of schools in North Carolina that the

8 program has been able to help \-- if you look at

9 Livingston, Bennett, whatever \--

10 MR. HANSEL: There\'s Shaw.

11 MS. HARRIS: We know the schools in

12 North Carolina. If you look at these programs

13 and you look at the terms, and I look at

14 collateralization, I look at prepayment

15 penalties, I look at some of the other terms,

16 and I look at the mandatory arbitration

17 language in the documents, etc., I get

18 incensed. And when I share that with them,

19 it\'s unbelievable to them.

20 So we\'re just saying, you know, if we can

21 at least say let\'s look at another avenue and

22 add that to what exists. And it is responsible

23 language. It is not language that is not

24 responsible.

25 And I do think that we have the support of

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1 our delegation from \-- at least in North

2 Carolina and some within \-- the leadership

3 within the Center for Responsible Lending.

4 DR. FRANCIS: Let me get to the core

5 in a way. I don\'t think there\'s a person \--

6 I\'ll just speak for myself \-- around this table

7 who would not be interested very much in

8 helping the neediest institutions. But I\'ve

9 got to tell you, I\'m not so sure I know exactly

10 what all of the various aspects of the plan are

11 in terms of what you\'re asking for.

12 I mean, I\'d be hard-pressed to support

13 something I\'m not sure I know with respect to,

14 you know, what are the interest rates. I say

15 the parameters which you are now changing,

16 which is fine.

17 But in the long run the same thing that I

18 think I would want to see is going to be what

19 the Congressional committees are going to want

20 to see as well as if you say \-- who is asking

21 for \-- I know they asked UNCF, I know they

22 asked NAFEO and Thurgood Marshall, but I don\'t

23 think that\'s the last word on what is to

24 happen. I don\'t think it is. And if it is, do

25 they know exactly what your detailed plan is?

143

1 MS. CHISM: And I would just say that

2 you are familiar \-- and the only reason we

3 reference the Katrina legislation, is because

4 the only change to that legislation is the

5 definition of affected school. Because, see,

6 that\'s language in a process that you\'re very

7 familiar with because you just closed against

8 it. So everything is the same except for the

9 definition of affected institution because it\'s

10 based on economic. It\'s not based on a natural

11 disaster.

12 So when you say \-- so when I\'m reading to

13 you the four criteria \-- and that\'s just to

14 define affected institution. Everything else

15 in the legislation is the same as that amended

16 legislation to allow for that particular

17 product to be introduced \--

18 DR. FRANCIS: And still at 1 percent?

19 MS. CHISM: Still at 1 percent.

20 MS. ERHGOOD: But the other terms

21 related to deferment you are willing to \--

22 MS. CHISM: Yes. Because, I mean,

23 that\'s how \-- the original language is exactly

24 the same. The feedback we have is, like, well,

25 maybe you could have \-- instead of a three-year

144

1 deferment, could you live with a two-year

2 deferment? I mean, those are negotiating

3 points. But to answer your specific question,

4 everything in that base Cohen Legislation that

5 Lezli referred to before these amendments is

6 exactly the same as the Katrina special

7 legislation \--

8 DR. FRANCIS: Did I misspeak when I

9 said that Lezli had questions. You said

10 Lezli \-- NAFEO has supported everything you\'ve

11 said.

12 MS. CHISM: With some suggested

13 changes which we incorporated.

14 DR. FRANCIS: But not \-- you just

15 incorporated? Not what the other two

16 institutions \-- agencies have seen? You

17 separate NAFEO from the other two?

18 MS. CHISM: They were all sent the

19 same thing. NAFEO responded with a letter of

20 support.

21 DR. FRANCIS: With the amendments

22 that you just said?

23 MS. CHISM: With the amendments \--

24 with those suggestions. And we did not have a

25 letter of support from the other two.

145

1 MS. HARRIS: And I think maybe the

2 others were looking at if, well, we\'re going to

3 go down this route, can we not just include

4 everybody?

5 Well, ideally, that would be the best \--

6 the thing that we would all want to do, but how

7 practical it is and \-- it\'s not very practical.

8 It\'s like, you know, getting \-- you have the

9 door open. So since somebody has cracked the

10 door for a few institutions, can we just get it

11 open a little wider. That\'s all we\'re asking.

12 But if you try to open it up all the way,

13 that\'s not going to happen, because that

14 appropriation level would not be increased to

15 allow that to happen in any effective way.

16 DR. FRANCIS: And the complaints of

17 those who can\'t go into that door?

18 MS. HARRIS: That\'s right.

19 MS. CHISM: They still have the base

20 program which \--

21 DR. FRANCIS: But that\'s not the

22 program you want.

23 MS. CHISM: That\'s right. Doesn\'t

24 work for us. We started with our objectives to

25 make this more robust and competitive, adding

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1 some options.

2 MR. WATSON: Can I just make a point

3 of clarification?

4 DR. FRANCIS: Sure. Yes.

5 MR. WATSON: I think a lot of people

6 when hearing about the Katrina situation \-- no

7 matter what the interest rates are, what those

8 terms are, you have to qualify for the loan.

9 So I just want to make sure that\'s understood.

10 The other thing, Dr. Francis alluded to

11 earlier talking about student loans. In

12 getting those increases, we also have to give

13 up something. And in talking about the 1.1,

14 that came into play \-- that came into play

15 because of a subsidy issue. That was a

16 difficult battle of trying to discuss how much

17 this current method would pay every year if we

18 increase that level to 1.1 billion.

19 So Congress is thinking about cost. And

20 there\'s also a 1 percent Katrina. There\'s a

21 hefty cost of subsidy. Not the 7 million,

22 but \-- this is almost more than the program in

23 and of itself at 1.1. So you sort of have to

24 think of all those subsidy costs when making

25 your argument to the Congress or whoever else

147

1 about what\'s going to happen and what you need.

2 You have to sort of justify how those subsidy

3 costs are going to play out.

4 MS. HARRIS: I think one of the

5 things that I was suggesting is that perhaps if

6 you use the model of what is happening with

7 home foreclosures and how Congress is

8 responding to that and how the financial

9 community is responding to that, how terms are

10 being changed, how the language is changing,

11 what\'s happening within that leadership, both

12 within the Congress as well as within the

13 Executive Branch and within the financial

14 community in the private sector, then we can

15 use that as leverage, follow that same track,

16 follow that same track, and we will be able to

17 achieve what we are talking about even to a

18 greater extent if we get the right financial

19 minds around the table.

20 We have to have people who have effected

21 this level of change. I\'m just saying that

22 we\'ve got some folks. We know some of these

23 people. Let\'s engage them to help us put more

24 of our HBCUs on sound footing. They\'re willing

25 to do that and walk with us in partnership.

148

1 And I think we have the ears of people in the

2 financial community willing to walk with us on

3 this.

4 DR. FRANCIS: And I\'m saying I think

5 it all goes in the pot. I would worry a little

6 bit about using the subprime as an example

7 because it could backfire.

8 MS. HARRIS: Well, I think basically

9 what you\'ve got is subprime if you look at it,

10 right? You can kind of take this effort and

11 you look at how it\'s structured now, and I

12 almost think of subprime argument.

13 DR. FRANCIS: My point is people are

14 so worried about subprime \--

15 MS. HARRIS: All subprime isn\'t

16 predatory.

17 DR. FRANCIS: Well, I grant you. But

18 my point is, if you\'re talking about helping

19 the neediest, they start thinking about, oh,

20 now you\'re going to get another program where

21 you\'re so-called going to help the neediest.

22 But you\'re going to put a problem that gets a

23 subprime. I\'m not \-- I\'m talking about

24 perception.

25 MS. HARRIS: I think we can handle

149

1 that. I really do.

2 DR. FRANCIS: Wait, wait, wait,

3 before you finish. I\'m back where you are. I

4 think if you put the creative minds and the

5 talent of people who deal with this, and put a

6 package together where you get UNCF, if you\'re

7 talking about them, and Thurgood Marshall and

8 NAFEO, and you say this meets all of the,

9 quote, concerns that people would have.

10 MS. HARRIS: I gotcha. Right.

11 DR. FRANCIS: My problem with that \--

12 it\'s not a problem. It\'s the timing problem.

13 It\'s the timing problem. I don\'t \-- I don\'t

14 think as part of UNCF I would totally favor \--

15 and we said this in our last meeting. We want

16 to be able to expand.

17 First of all, we supported increasing the

18 cap, ruled by the Secretary and all. And we

19 said in April, if you read our transcript, that

20 we want to help the neediest. We\'ve got to

21 find a way. If this model of the Katrina was

22 anything, can we work on that and how do we do

23 it?

24 And we didn\'t have an answer, I know at

25 that meeting, as to how. But our interest was

150

1 getting it done.

2 What you just said is how do we do it?

3 And there\'s still questions. My major concern

4 is if we tailored two programs, if you will,

5 that you capture more of those institutions

6 other than the ones you\'re talking about with

7 the data to show that, I think you\'d get \-- I

8 worry about those same institutions who are

9 sitting out here and saying, oh, you tailored

10 that for this, but we\'re still out here and you

11 haven\'t helped us. When is our time?

12 And you say, well, your time is going to

13 be next year. You say, but, no, my time is

14 like yours, right now.

15 MS. CHISM: Well, I think 12 \-- and

16 considering only 15 schools have ever gotten a

17 loan out of this program, 12 is not a low

18 number.

19 I mean, I think that we have \-- I mean, we

20 are really trying to address that issue of not

21 leaving anybody on the sidelines who qualifies

22 right at this moment in time. And you still

23 have the funding \-- because it becomes

24 competitive. We are under no illusion that you

25 can\'t \-- that you have to get through the

151

1 underwriting.

2 All we\'re saying is that when we go

3 through this Capital Financing Program, we now

4 have another option. When I call Sam back \--

5 we\'ve been talking to him for almost two years.

6 We want to apply under the HBCU program but

7 under this criteria. And then he\'ll go all

8 right. We\'re going through underwriting. We

9 understand that process. No one is asking for

10 a hand. We\'re asking for the tools so we can

11 do our jobs and be held accountable.

12 DR. FRANCIS: And I think \-- all I\'m

13 saying is I\'d like to see what is it, what is

14 it, and what would you be asking us now to do?

15 My first point was what we said before, we

16 want to help the Lemoyne-Owens of the world.

17 We\'re all brothers and sisters in this. And

18 none of us sit on a mountain so high that all

19 of this doesn\'t touch us. So let\'s make sure

20 that\'s understood.

21 But how you decided to get it passed and

22 not have it reverberate in a way that they say,

23 oh, we made a mistake. You know, we acted too

24 quickly and so forth, I think that\'s extremely

25 important.

152

1 But what we do today, it seems to me, can

2 only be done at almost a 5,000 feet level

3 rather than on the ground unless we had it as a

4 drawn-out package almost the same way that

5 you\'re going to have to do it, because the

6 Senate \-- and I can imagine that conference

7 between the Senate and the House when the

8 Senate didn\'t have any of it in and they

9 started saying, well, how much of it we\'re

10 going to buy of this.

11 And I want to make it, not only as

12 palatable, but to help \-- we were talking

13 earlier about just the short-term cash needs of

14 HBCUs. I mean, short-term. I mean, you know

15 the wolf is at the door. We need 20,000, or we

16 need 500,000, can this program help? And we\'re

17 looking at doing that.

18 And what you\'re saying is, well, there\'s

19 another dimension of this. And you have just

20 described that dimension. How do we sell that?

21 MS. EHRGOOD: And I think certainly

22 this package should be distributed among the

23 board. But I don\'t think \-- today we\'re not

24 looking for a yea or nay. We know that this

25 is \-- you\'ve heard about it, but this is your

153

1 first real discussion about it. We want to,

2 you know, provide you with the information,

3 provide the opportunity for comments. I\'m

4 happy to do that.

5 DR. FRANCIS: Well, let me just say

6 without question \-- I\'m not saying we did it

7 today. We did it last April. We said, you

8 know, this program that we were a part of was

9 good. How do we extend this now to programs

10 for the needy, and as an advisory council, we

11 would recommend it.

12 We started saying we\'ve got to put more

13 money in the pot. Hopefully, we\'ve got that

14 support. Now, how do you create that and

15 spread it further. So you\'ve got that already.

16 And I think the question is how do you get

17 it in a detail that gets as close as we can to

18 helping, not \-- I\'m very serious about this

19 one. Not just what you\'ve told us but others

20 outside the pyramid. Because you\'re

21 persuasive. You say time is everything.

22 Well, if I\'m sitting over here and you\'re

23 talking about timing for you, what\'s my \-- when

24 is my time? And I say my time is your time.

25 And how can you construct it to make it our

154

1 time? I mean, that\'s the way I would describe

2 it. That\'s just a personal view.

3 DR. HUGHES: Dr. Francis, I\'m aware

4 that all of us around this table have talked

5 about the limitations of the initiative as it

6 exists. That was even pre-Katrina we talked

7 about that.

8 And I think it\'s time for us to consider

9 that a very serious issue so that we can make

10 it more relevant and accessible to more

11 institutions. Now, where we start, I don\'t

12 know, but I do know that there isn\'t a person

13 who believes that it hasn\'t been responsive to

14 the HBCUs.

15 DR. FRANCIS: Well, this morning we

16 talked about this trade-off, this pooling

17 thing. I got to tell you, if that pooling

18 thing was not eliminated, I don\'t know how many

19 of the schools you just described would want to

20 be in the pool.

21 MS. CHISM: We wouldn\'t.

22 DR. FRANCIS: My point is we\'ve taken

23 those steps. We\'ve chipped away some of the

24 major what I call Draconian parts of the

25 program. And the question is how much more can

155

1 you chip away? And that\'s what your program

2 has to do.

3 MR. DUGGER: Well, one thing, we have

4 our institution and, say, a dozen institutions

5 out there that are in dire need of getting some

6 kind of low-cost capital now.

7 So if we do nothing, some of those schools

8 are going to fold. I mean, if we don\'t come up

9 with a long-term solution for our problem at

10 the end of the three-year period that we\'ve

11 gotten grants from the city, state, county, and

12 United Church of Christ, we\'re going to be out

13 of luck.

14 I mean, we\'re going to be exactly at the

15 same point at the end of those three years that

16 we were last year. The accreditation people

17 are going to come back and say due to financial

18 instability, you\'re on probation again.

19 DR. STRICKLAND: Mr. Chairman, we

20 can\'t vote. We don\'t have anything to vote on,

21 a hard-and-fast piece of information.

22 Can we affirm our \-- at least that there

23 ought to be some other criteria established

24 that would allow for schools that have great

25 need to become a part of this and then

156

1 encourage this body to, you know, work on with

2 Congress and even send out our affirmation to

3 UNCF and Thurgood Marshall as a statement?

4 DR. FRANCIS: I think we could craft

5 something to that extent that came from our

6 earlier feeling about it. Namely, that a part

7 of the concern of this Advisory Committee has

8 been the lack of its ability to get more HBCUs

9 into the program, this HBCU Capital Program,

10 and there are aspects of it that history has

11 shown to be counterproductive.

12 We have seen some strides. We made some

13 strides. And you could name them. One, the

14 pooling side that has been eliminated.

15 Although, we are concerned about one aspect

16 that eliminated, but we are working on that

17 now. And that our instructions and

18 recommendations would be for the Department of

19 Education with our concurrence would work to

20 change any aspect of the program that works

21 against helping needy schools in the HBCU

22 Committee.

23 Once you leave \-- once you leave that, I

24 don\'t know what other elements you can put in

25 it. But I think this Advisory Committee is

157

1 not \-- does not have closed ears and it\'s

2 against going and opening the doors for more

3 institutions.

4 MS. CHISM: And so maybe a good next

5 step, because what we don\'t have is a lot of

6 time and luxury. I think, Julia, you said

7 January. So we need \-- our next steps would be

8 to get you the detailed information so you know

9 what it is we are discussing, and then a

10 timetable for the actions that need to happen,

11 because I recognize you also run major

12 institutions around this country and this may

13 not be the only thing you\'re working on.

14 DR. FRANCIS: We\'re got a few other

15 things.

16 MS. CHISM: And then if we can go

17 through those milestones, I mean, because \--

18 and I know you\'re good at keeping the pressure

19 on. We\'ll put that in your hands.

20 DR. FRANCIS: Let me add. Some of

21 the things you said about the data you\'ve

22 collected, the kind of things you have is

23 extremely important so that we can look other

24 institutions in the eyes that didn\'t \-- because

25 of the fact that we \-- you know, you didn\'t

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1 want a Katrina. I can assure you. But it

2 happened to us. And first time it happened in

3 the United States. So that that was

4 significant enough to get the attention of a

5 Congress to help HBCUs.

6 DR. HUGHES: Finally.

7 DR. FRANCIS: Well, there\'s still a

8 whole lot of things out there.

9 And so that happened. And it was \-- some

10 cases people call it an act of God. I guess

11 that\'s in part. But we know there was some

12 things that were man made in that that caused

13 it. But the point is this happened.

14 There are other aspects of challenges to

15 other institutions, and this program was

16 intended to help those institutions. Now, what

17 are they, and what are the elements inside this

18 program that\'s keeping this from happening?

19 All I\'m saying, it has to be clear and

20 demonstrative. And if you put the minds

21 together quickly, there\'s no \-- I\'ve had no

22 problems \-- I\'ve spent 40 years as a president.

23 I\'ve been fighting the battle of HBCUs and

24 aggressively saying things people may not have

25 wanted to hear. And if you read the Wall

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1 Street Journal article of this morning about

2 HBCUs, I\'m on the record at the HBCU Conference

3 saying, Mr. President, every September you have

4 to remind people about what you mean. And

5 people forget. And you\'re in that climate, and

6 you\'re still in that climate.

7 So my only point is I think we\'ve got to

8 be aggressive and persuasive, but you have to

9 be very clear of that, how it is going to meet

10 the criteria that you have established that

11 shows it\'s worth this program. If it\'s going

12 to be anything, that\'s got to help the neediest

13 schools.

14 DR. HUGINE: I don\'t think there\'s

15 any question about that.

16 DR. FRANCIS: And that has our vote.

17 DR. HUGINE: I guess one of the

18 things that continues to just send up a flag

19 with me is the definition that you all are

20 coming up with for a needy institution, because

21 it seems to be counterproductive in the sense

22 of what you\'re attempting to do.

23 You\'ve used enrollment decline as a

24 definition. And I guess in the world of

25 business when you think of decline \-- is there

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1 some other way to describe what it is you\'re

2 trying to achieve? You seem to be going

3 backwards. You\'re identifying an institution

4 because \-- I\'m not saying the enrollment has

5 not declined. Don\'t get me wrong. But to use

6 that as a description of an institution, I\'m

7 not sure you want to do it that way, because

8 what you want to do is you\'re trying to grow

9 capacity.

10 And so you are looking at institutions

11 that have the ability to grow or increase

12 capacity as opposed to these institutions that

13 have enrollment decline over the last four or

14 five years. So whatever it\'s worth.

15 MS. CHISM: And, President Hugine,

16 internally we agree with that wholeheartedly.

17 It was, again, trying to accommodate \--

18 MS. HARRIS: The HBCU leadership,

19 organization leadership.

20 MS. CHISM: Because from business you

21 would want \--

22 DR. HUGINE: The potential to grow.

23 MS. CHISM: That\'s right. That\'s

24 what this is about, long-term \--

25 MS. HARRIS: So the language was

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1 changed so it would not look like we\'re saying

2 that this is the trend now, but somewhere over

3 the past decade there\'s been some decline. But

4 that is counter to what we really want to see

5 happen. But it was really in an effort to be

6 accommodating.

7 DR. HAYNES: Let me say something.

8 Andrew, I think you\'re right. I agree with

9 you. There\'s something that you have to

10 emphasize.

11 At the end of the day, any institution is

12 about providing an education. In other words,

13 so the students can achieve academically. If

14 you don\'t talk about that, it\'s irrelevant.

15 Why do these schools have to exist? They are

16 teaching.

17 I mean, that\'s not part of what I\'m

18 hearing. And I think that falls on deaf ears,

19 because if you talk about declines, you\'ve got

20 to talk about they exist to provide blah, blah,

21 blah. It\'s an academic institution.

22 Incidentally, no student goes to any

23 institution, or should go, unless it\'s for an

24 academic reason. There is no other reason to

25 be there. And we don\'t emphasize that enough

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1 in the language pattern that we use as a

2 community.

3 And I\'m concerned about that. We\'ve got

4 to change that. We talk about declines,

5 deferment, but that is for a reason. It\'s an

6 academic issue that we\'re trying to attack.

7 It\'s not football. It\'s not the band. But you

8 see what I\'m getting at?

9 MS. CHISM: Yes.

10 DR. HAYNES: And that\'s not a part of

11 this.

12 MS. HARRIS: Dr. Francis, if I could

13 I have one final comment.

14 DR. FRANCIS: We\'ve got about five

15 minutes.

16 MS. HARRIS: I won\'t say anything

17 else.

18 I do come from an economic development

19 organization. And so for me, as I look around

20 my state, and I look around the South, I see

21 what\'s happening, whether it\'s in \-- whether

22 we\'re talking about science and technology or

23 whether we\'re talking about how we\'re going to

24 make our country competitive and what it is

25 that this country has still as a positive in

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1 comparison to other countries. What we have is

2 basically our ability to collaborate.

3 Everything else that we have other

4 countries have right now. But it\'s our ability

5 to collaborate at the higher education level

6 between the private sector and the public

7 sector. And these institutions of higher

8 education allows you to do the research and be

9 creative.

10 So when I look at my community in

11 particular, and what does it mean for

12 African-Americans or people of color, then the

13 greatest asset we have in one respect are

14 HBCUs, because it is that education that is

15 going to cause us to become competitive.

16 If these institutions are at risk, then

17 that is of concern to me. I mean, we are

18 talking about our best and brightest. So if I

19 know that my community has 10 percent of the

20 wealth of white America, if I know that that

21 divide is growing, if I know that the next

22 generation that\'s there now will be strapped

23 with student debt and servicing debt for 30

24 years and no economic opportunity, and that

25 that credit score because of that student loan

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1 is going to keep them from getting jobs in the

2 financial community and in the insurance

3 community and security and anywhere else, then

4 I know that I have to do something about that

5 and try to partner with whomever I can, not

6 only to try to make sure that we can lessen the

7 debt for who are our best and our brightest,

8 but, also, that we can put our institutions on

9 sound financial ground, because there\'s nowhere

10 else that our students go where a parent can

11 drop their child off and feel that this one

12 place is the place that\'s going to care about

13 my child just as much as I care about my child.

14 That is the one positive of an HBCU that I

15 don\'t think we don\'t say enough about. But you

16 are critical to the future of our country. And

17 so I want to just thank you for letting me go

18 on, but I want you to also know I value

19 tremendously what you do.

20 DR. FRANCIS: Let me just tell you

21 something. We had a meeting of the college

22 presidents. Dr. Strickland was sitting around

23 the table. This is just a tack-on. But don\'t

24 drop your student at the church door and leave

25 them without any money. And let me tell you

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1 what\'s happening. I can\'t tell you how many

2 parents are dropping their students at our

3 doors without a dollar. And our receivables

4 are unbelievable.

5 DR. HUGHES: May I say something?

6 DR. FRANCIS: Yes.

7 DR. HUGHES: Ask for a consideration

8 of something. It\'s very clear that we have not

9 engaged at this level on this topic before.

10 And it has been very informative, for me at

11 least.

12 I think if you can take from what we have

13 given to you as feedback and listen to

14 everything about how to expand this in a way

15 that\'s going to make sense, even looking at the

16 criteria that already exists in here and that\'s

17 being changed, if we could come back with a

18 product given a certain amount of time to

19 reconsider, it might be valuable. But at this

20 time we don\'t have what we need.

21 DR. FRANCIS: And I think they

22 understand that.

23 I want to thank you, number one, and say,

24 number two, time is of the essence, but you

25 never know how things work, but being this kind

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1 of optimistic and an entrepreneur, that if it

2 doesn\'t work with every effort now, that

3 doesn\'t mean we give up.

4 I think we start from where we have left

5 off and then start taking it on in a more

6 aggressive fashion with the kind of data you

7 have been talking about, because persuasion \--

8 and nobody does anything out of the goodness of

9 their hearts. You\'ve learned that.

10 And you have made a case. And time may

11 not allow us the entirety of what we want, but

12 as I sit here, this is not the last time we\'ll

13 be trying to change what\'s in here. It\'s just

14 been our second meeting.

15 So I want to thank you and let you know

16 you have the support of what we\'re talking

17 about, but I think it has to be with the detail

18 that would give us something to really bite on.

19 MS. CHISM: Thank you.

20 DR. WATSON: Thank you.

21 MR. DUGGER: Thank you very much.

22 DR. FRANCIS: We\'re all in the same

23 boat over here.

24 The meeting is now adjourned.

25 (Meeting adjourned at 1:26 p.m.)

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1 C E R T I F I C A T E

2 STATE OF GEORGIA )

3 COUNTY OF FULTON )

4 I hereby certify that the foregoing

5 transcript was taken down, as stated in the

6 caption, and the proceedings were reduced to

7 typewriting under my direction and control.

8 I further certify that the transcript is a

9 true and correct record of the evidence given

10 at the said proceedings.

11 I further certify that I am neither a

12 relative or employee or attorney or counsel to

13 any of the parties, nor financially or

14 otherwise interested in this matter.

15 This the 4th day of December, 2007.

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24 GALA M. REZNICK, B-826

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