WEST FRANKFORT — Through a TIF agreement signed by Morthland College and the city of West Frankfort in 2013, the city has paid four loan payments for the college this year. However, there is a chance Morthland College may have to pay this and other funds back to the city.
West Frankfort Mayor Tom Jordan said the city signed a TIF, or tax increment financing, agreement with the college in 2013, using monies from the special allocation fund to help the fledgling college remain stable as they paid to renovate their recently acquired office building at 202 E. Oak St. in West Frankfort.
Cities often enter into TIF agreements in order to help bring new businesses to town. By offering a break in city taxes, cities can help new businesses offset development costs. This being the basic concept, there are several types of such agreements cities can enter into.
“In order to help them survive back when they first started, we agreed if they needed help, we would help them because they would be such an economic engine,” Jordan said.
The original agreement signed by the city indicated that the agreement would never dip into the city’s general fund.
The mechanism in place for the city to make payments for the college requires that the Morthland College board formally ask the city for help. Jordan said the school has to be financially unable to make its payments in order for the city to agree to step in.
In 2017, the city made payments for the college in March, May, June and August, with each check being for $4,745.46. The city has paid $18,981.84 so far this year.
Jordan was clear, though — the city is not a co-signer on the college’s bank loan.
“Our agreement is with Morthland College,” Jordan said, adding that he is unsure if the city would be on the hook for the remaining balance should Morthland College default.
However, he said, the city is prepared to honor the agreement it signed, regardless.
The contract does indicate that should Morthland College “default” on the agreement, it is required to pay back any TIF assistance.
“In the event the Developer defaults on the obligations and/or the building is vacant within 15 years from the signing of this Agreement, the developer shall return to the city a sum of 100 percent of the total amount of Developer Share granted from the City to the Developer for every year of the first 15 years of this agreement in which obligations are not met. Should the Developer go bankrupt, this agreement will not be terminated,” the TIF agreement said.
Morthland College has not indicated any intentions to file for bankruptcy. However, Mike Riva, West Frankfort’s city attorney, said should they file, a bankruptcy judge could rule against the city on the matter depending on what type of bankruptcy is filed for.
While the agreement is not new, the city is making payments on behalf of the college as it faces $2 million in fines from the U.S. Department of Education over alleged mishandling of federal funds, as well as more than $200,000 in liens from the IRS and a local contractor.
It is also unclear, based on documents obtained from the Franklin County Clerk’s Office, if more than $200,000 in liens filed against Morthland College earlier this year have been paid. According to chief deputy to the Franklin County Clerk, Karen Kase, releases have not been filed for either the $123,120.87 lien field by the IRS in April nor the $80,700.10 lien filed by Ferguson Contracting Inc. Lien releases are forms filed by the complainant indicated the debt has been paid.
However, Kase said because her office does not yet have lien releases does not indicate failure to pay, but more simply could be a matter of the complainant failing to file. Kase did say, though, that the IRS typically is punctual in filing releases.
Speaking through a Morthland College spokesperson, Emily Hayes, the college's executive vice president, said the college is "continuing to make progress paying those debts."
Representatives from Ferguson Contracting Inc. declined to comment on the outstanding debt.
Jordan said he stands by the city’s decision to help the college. He said TIF money is meant to be invested to encourage economic growth and does not hurt the city’s bottom line.
“It’s not like that we just threw this money away. We invested this money in a college that we thought was going to be successful and viable at the time,” Jordan said. “Looking this direction,” in 2013 Jordan said he “saw nothing but hope.”
Despite the current reports of mismanagement, Jordan said he thinks Morthland College has benefited West Frankfort.
“Morthland College has generated, in the last three years, millions of dollars in revenue,” Jordan said.
Morthland College was notified last month that the DOE was putting in place an “emergency action,” completely cutting off its eligibility for Title IV student aid dollars and fining the college just over $2 million for an alleged "breach of fiduciary duty."
Morthland College was originally placed on Heightened Cash Monitoring 2 status earlier this year after a program review by the DOE revealed “severe findings.” This status required the college to apply for reimbursement from the department for money spent on students.
The college is being investigated by the DOE as well as by the Illinois Board of Higher Education because of the recent emergency action. The college’s accreditor, Transnational Association of Christian Colleges and Schools, is also conducting a review of the college.