CLAYTON — A judge will allow Webster University to access over $30 million in restricted donations that college officials said will help them strengthen its financial standing during a difficult period for the private institution.
St. Louis County Circuit Court Judge Stanley J. Wallach Webster University to add protections around the funds, cautioning Webster that doing anything other than honoring donors’ original intent could have a “chilling effect†for future donations.
Board Chair Sumit Verma said that the university intends to keep with donors’ wishes while being able to meet a loan obligation. He added that the university is focused on “achieving greater efficiency†after cutting costs.
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“The support of donors during this financially challenging time demonstrates the commitment they have to Webster and the impact the university has on the students and communities we serve,†Verma said in a text message.
Webster developed plans to use restricted donor funds — which are earmarked for research, scholarships and professorships — late last year after its “liquidity ratio,†a measure of an organization’s ability to pay its debts, plummeted. Its attorneys on Friday said that bondholders expressed concerns about Webster’s financial health and pressured the university to quickly correct the situation. A recent Moody’s report from February of this year warned Webster is at risk of default without an improvement to its liquidity ratio.
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Over the past decade, Webster has lost more than $160 million, including a $37 million deficit at the end of the 2022-23 school year. Yet its board of trustees continually awarded raises to then-Chancellor Beth Stroble and President Julian Schuster that made the two among the highest-paid university leaders in the St. Louis region.
In addition, the school faced a lawsuit over unpaid rent at its satellite campus in downtown St. Louis. Its bond rating has fallen into junk status, which affects the school’s borrowing power. And a recent audit revealed that nearly $2 million had been “misappropriated†by a former employee in the previous school year; the university has not provided details but has referred the issue to authorities.
Four of its leaders, including Stroble and CFO Richard Meyer, have since resigned.
The university’s troubles with its liquidity ratio are related to a loan Webster obtained to construct the new business school building on its main campus in Webster Groves. Its ratio had fallen from its required 75% to 20% at the end of the 2022-2023 school year.
On Friday, university attorneys told Judge Wallach that the restricted endowment funds will enable the university to “just meet†the ratio’s requirement.
They argued against Wallach’s request to add protection around those funds, stating that the money is already protected: Webster passed a resolution that said the funds would be re-restricted when possible, its attorneys said Friday. Verma, the board chair, also told donors in a letter that Webster would only spend the money to pay bills as a last resort, and that the trustees’ executive committee would vote on the matter before doing so.
“I’m having a hard time getting comfortable with what seems like a blank check,†Wallach said Friday.
He ordered Webster to house those funds in a separate account to protect donors’ money from being used for day-to-day operations. The money will return to restricted status once Webster’s liquidity ratio is over 100%, after the university has at least one full year of a budget surplus, and as long as the university remains compliant with its loan agreements.
Webster filed its petition to tap restricted endowment funds on Feb. 1, two days after Verma sent a letter to donors informing them of the university’s plan. The Missouri attorney general’s office, which represents the public interest, said it would not intervene.
A handful of donors sued to stop the university from accessing their restricted endowments that went towards scholarships and professorships. They settled with the university last week and declined to share details.