Partners present acquisition plan as model for other colleges
By James M. Odato
The board chairmen for Paul Smith’s College and The Fedcap Group urged state officials last month to authorize their novel affiliation to ensure the college’s best survival option.
Fedcap Chairman Mark O’Donoghue and Paul Smith’s Chairman Mark Dzwonczyk also wrote in their May 24 letter to a top lawyer for the State Education Department that Fedcap’s plan to acquire the college could serve as a model for the many struggling small institutions of higher education.
“It is the only option that allows (the) college to survive and thrive while retaining its core identity and character,” the two said in a jointly signed letter.
The education department had sought clarity on the governance blueprint planned before allowing Fedcap to acquire the Adirondack’s only college with four-year degree programs, according to materials provided the Adirondack Explorer under the state Freedom of Information Law.
The department told the Explorer separately that the school needs approval of an amended charter to accomplish the deal and that the state attorney general’s office and state Supreme Court may have a role in the process.
Paul Smith’s holds a substantial status in the Adirondack Park as an employer, contributor to the economy and researcher of the environment. The school’s proposed acquisition by Fedcap is of great interest and has generated a host of letters to the college’s board from politicians and economic development leaders supportive of the affiliation.
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Their letter accompanied a document representing a proposed revision to the college’s bylaws. The changes would give Fedcap powers of a “sole member” of the college, akin to being the sole shareholder of a corporation.
In the proposed amended bylaws and charter submitted with the letter from the board chairmen, the school adds Fedcap as sole member in numerous passages.
Among the powers Fedcap would obtain as sole member is the right to appoint and remove all the college’s trustees after Dec. 31, 2025. Before then, Fedcap would have the right to appoint no more than 49% of the board, which could contain five to 30 members.
According to the letter to the state, Fedcap, a New York City-based job and workforce training organization with more than 20 nonprofit entities, would offer the college “centralization of shared administrative resources and the coordination of shared practices, standards, and visions.” It would respect “the central tenets” of the college’s governance, including an empowered board and a faculty that has a voice, the letter said.
The school’s board would remain independent, the document assures the state officials.
“This model is entirely consistent with New York law,” the chairmen wrote, stating that independence would be guaranteed because trustees and their family will not be employed by the college or Fedcap or any of its affiliates.
As sole member, however, Fedcap would have to consent to many board decisions and actions, including the hiring or termination of top officials.
Fedcap would lay aside some of its trustee-selection powers if the deal was authorized. “In the interests of moving forward with the combination,” Fedcap would agree to have its authority limited to appointing and removing no more than 49% of the college’s trustees for two years.
Fedcap, however, would have final say on the school’s budget and would approve changes in the college’s charter and bylaws, mergers or consolidations and sale of most assets of the college. The school told the Explorer that Fedcap has no intention to sell any of Paul Smith’s 14,000 acres in the Adirondacks. And in the letter the chairmen state that Fedcap has presented a long-range plan to the college’s trustees envisioning reinvestment of any operating surpluses to add new land holdings to strengthen the college.
The acquisition plan is needed “in an era of existential threat,” the men wrote. The school would benefit by tapping into Fedcap’s “sophisticated administrative and managerial talent.” Fedcap hired James Malatras, the former SUNY chancellor, to join its management team.
Several core staff directors and leaders have left the college in recent weeks and months, some expressing disenchantment with Fedcap’s execution of its management objectives, according to people familiar with Paul Smith’s.
The letter writers said the college would benefit from “cost efficiencies and economies of scale, and the ability to deploy resources when and where needed by the college, all at a cost far below what it would otherwise incur as a standalone school.”
If the school can’t combine with Fedcap as presented, the chairmen said, “the only small institutions that survive will be elite schools with large endowments (catering to traditional – and wealthier – students), and proprietary schools driven by shareholder profits,” the two chairmen wrote. “Small nonprofits like the college, that can best serve students facing the greatest barriers to education, will vanish.”
The school told the Explorer that Fedcap will be responsible for the college’s finances because the college’s financials and balance sheet will be consolidated with Fedcap, including debt. Its latest tax documents show an endowment of about $35 million. The school has been losing money as enrollment has dropped. Its expenses exceeded revenues by $2.5 million last year.
The appeal comes as many colleges across the country have faced weak enrollment and increased costs. Several have closed or combined with other institutions of higher education. The proposed Fedcap acquisition would involve something different — an institution that isn’t in the higher education business taking on one that is.
The letter writers said the two partners intend to be together for decades. “Fedcap’s commitment to Paul Smith’s is permanent,” the letter states.
Fedcap’s pursuit of Paul Smith’s, the letter said, is part of Fedcap’s mission of helping “individuals who face barriers” achieve economic wellbeing through early education, high school and technical, vocational and workforce training programs. These people would be introduced to the college’s academic offerings “strengthening enrollment and opening doors to new educational opportunities.”
The writers said only schools that innovate will succeed, noting that New York’s college landscape has lost Cazenovia College, Concordia and Medaille University because of market forces.
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As I read the article, and the summary of the proposed acquisition of Paul Smith’s by Fedcap (and it is an acquisition, not an affiliation, partnership, joint venture, etc.), I wish to observe:
Fecap is purchasing everything. All the buildings, land, infrastructure, forest, and presumably the $35 million endowment.
None of the referenced letters from politicians, alumni, etc., refer to an “acquisition”. If they support an acquisition, they have not said so.
Fedcap is paying nothing – no money is changing hands and no money is being committed. For example, the deal is not that Fedcap will spend a specified sum every year for, say, fifty years to support PS.
Fedcap will provide Paul Smith’s with shared administrative services. That is worth something, but how much?
Fedcap will absorb Paul Smith’s finances, plus and minus, presumably meaning that if PS runs a deficit, Fedcap is responsible for it. So Fedcap will pay the deficit out of PS $35 million endowment! PS does not need Fedcap for this.
Fedcap gets complete control of governance on 1/1/26.
If Fedcap has complete control of governance, what guarantees the survival of PS as a college?
What am I missing? I don’t get it. I see a table with three shells.
Correct me where I am mistaken. Please fill in the gaps.
Why this is good for PS?
Desperation is not enough.
George, I just termed off the investment committee of a college foundation managing a 180 million dollar endowment. We were a separate 501c3 as I assume Paul Smith’s Foundation is instituted and managed. Fed Cap does not automatically get it’s hands on the 35 million.
Thank you Ms. Grabe . So the $35 million question is, who now controls, and who would control (under the Fedcap acquisition) the Paul Smith’s Foundation?
“These people would be introduced to the college’s academic offerings “strengthening enrollment and opening doors to new educational opportunities.” ”
How many students has Fedcap introduced to PS in the time Fedcap has been on the scene?
Zero?
I assume that Fedcap is eager to have access to Paul Smith’s federal Title IV funds. Fair speculation would be those Title IV funds would then be applied to other Fedcap subsidiaries to enhance revenues. Someone should ask about the impact this proposal would have on PS student debt and other students in Fedcap programs.
Based on the way Fedcap has acted since making its proposal, I would not trust them one bit. Even though they do not yet own the college, they are acting as if they do. They have fired faculty and staff that would not kowtow to their demands and replaced them with their own minions. They have created an environment that has encouraged other valuable, highly skilled personnel to leave of their own volition.
I believe their intention is not to save the college but to turn it into something completely different that better fits their own business plan. I expect that within two years, they will have eliminated existing programs and replaced them with ones that better fit in with their other existing programs, staff them with their own people and change the composition of student enrollment to reflect their own priorities.
This deal is not rescuing the college from certain demise. It is changing it into something entirely new.
Knowing this, if I were a parent, I would not send my child to Paul Smith’s for the coming year.
I understand that the college board is risk averse but Fedcap has backed them into a corner where they feel they have no other alternative. In spite of the risk of failure, I believe it would be in the best interests of the college to reject the Fedcap deal and continue to pursue other ways of the college’s survival, such as partnering with other local business interests.
If the the State of New York and residents of the Adirondack Region really want to save the college in something like it’s current form, they should reject the Fedcap deal completely.