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New College Out of Money: Teachers Unpaid, Not Teaching 

Wednesday, Feb 13 2008
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Katie Paul, a tall, brown-haired psychology student, is driving south along the peninsula, watching her future recede in the rear-view mirror. "I wanted to go into a public agency and work with people who don't have funds to go to a private practitioner, and give them the respect and support that someone paying $200 per hour would elicit," says the 26-year-old, who was close to completing her master's in psychology when San Francisco's New College of California began to financially implode last fall.

School was supposed to start more than a month ago. Teachers haven't been paid for nearly four months. Classes are now postponed indefinitely, with the possibility that the college may soon cease to exist.

New College, a self-styled progressive school begun in 1971, is deep in a bizarre meltdown that is creating a wake of human suffering. Students dependent upon financial aid are seeing their aspirations dashed. Teachers are leading classes and helping students, but without getting paid. Meanwhile, a skeleton leadership group is struggling to control an accelerating cascade of financial and organizational crises, all while the school's Web site cheerfully and appallingly invites students to enroll for 2008.

Just as San Francisco has benefited over the years from the work of idealistic New College graduates anxious to change the world, it's now the city's responsibility to halt the potential catastrophe. Community leaders, particularly those with expertise in education (and no prior affiliation with New College), need to step forward and augment what is a decimated and overtaxed board of directors. San Francisco philanthropists, who have long shown a soft spot for advancing idealism and alleviating suffering, now have an opportunity to do both by setting up and contributing to a trust designed to support the school — as long as the trust is independent of the New College leadership responsible for the current mess.

New College, a über-leftist school that inhabits a former mortuary and several other buildings along Valencia in the Mission district, is in a bizarre state of suspended animation in which it doesn't have enough money to function, yet refuses to formally cease operation.

The school can announce that it will close and undertake what is called a "teachout," in which the Department of Education releases enough aid money for students to complete the current semester. New College trustees and interim president Luis Molina have refused to take that option, despite appeals from students and faculty that the school officially shut down so they can get on with their lives.

"I don't know what it's going to look like," said a defiant Molina, a real-estate attorney who has served several years on the school's board of trustees. "But the plan is we'll still be around next year."

This situation has aborted the futures of hundreds of students. It's impossible to say how many remain, as the school has no registrar, but last year there were around 500. Those leaving now would technically be dropping out thanks to the school's ghost-ship status, so many would forfeit tens of thousands of dollars in federal financial aid. For some students, New College credits aren't transferable — the school is famous for its nontraditional curriculum — so they will essentially have to start over.

Paul, who used to cast plays in New York before coming to New College to prepare for a career as a family therapist, says she anticipates dropping her studies and taking a job, and then perhaps starting over in a year or two. "Most programs would accept only one-fourth of my graduate work," she says, which means she'd be out around $30,000 in student loan money.

School staff, meanwhile, haven't been paid for months, despite repeated promises last fall that their next cashable paycheck was around the corner. Several learned at doctors' visits that their health insurance hadn't been paid. Tom Clark, a core New College poetics instructor who was once poetry editor of The Paris Review, became so distressed that his health seriously declined.

"One of the members of our union, Tom Clark, has suffered a stroke because of the financial stress, and it's further complicated by the fact he doesn't have health insurance," said Steven Kushner, New College shop steward for Service Employees International Union Local 1021, which represents school staff and some faculty. "He's one of the most brilliant guys you'll ever want to speak with, and now as a result of the stroke he has a slur. He's not managing, just like most of my people are not managing. They're praying."

New College's situation is changing daily, and specific information about its financial situation is scant. But the news this week was that most of the school has shut down, remaining in business in name only as its directors await a miracle that might allow it to reopen at an undetermined date. It has a small satellite school in Southern California that Molina said is still giving classes — although it's unclear how, given its financial status. The New College of California School of Law, which has been run somewhat independently from the core humanities school, is still operating, though its teachers haven't been paid for several months. Law dean Ed Roybal said he has been in discussions to have the law school absorbed into another institution if New College folds.

Last week, school trustee and Craigslist cofounder Phillip Knowlton was in New York arranging a cash infusion from an undisclosed source, to be routed through a newly formed limited liability company called Friends of New College. That money would sustain the staff's health benefits, which supposedly had a Feb. 9 payment deadline. The exact nature of this transaction is unclear; by press time, Knowlton and Molina had not returned calls requesting a fuller explanation.

Molina, for his part, says the school has a new, highly qualified president waiting in the wings to turn the school around, if only the Department of Education will allow New College access to financial aid money to pay him. In the meantime, Molina says, the school will seek to sell property in order to cling to life.

New College's financial crisis exists, in its most immediate form, as the result of recent steps by the Department of Education to investigate what the school has done with previously granted federal money. Recordkeeping has been sketchy, with several unsubstantiated rumors of unaccounted-for funds. Pending investigation, the education department has frozen millions of dollars' worth of federally subsidized student loans and grants from last fall and this spring.

The school, which had an annual budget of around $15 million, has depended almost entirely on tuition payments, much of it coming from students receiving federal aid. As a result, the lack of federal dollars has all but eliminated that budget. An education department spokeswoman would not comment directly, so I don't know the nature of the apparent accounting irregularities that have caused federal officials to suspend payments. Molina told me the rumors of missing federally linked money are false. "There was a lot of concern that we have moved money around, and we weren't accounting for it," he said. "But we have done a full accounting and a full reconciliation of funds."

Beyond the issue of the frozen money, the current crisis seems more fundamentally rooted in recently resigned college president Martin Hamilton's dreams of creating a nonprofit real-estate empire. These dreams began to crumble last year, as students and teachers informed the Western Association of Colleges and Schools (WASC), which accredits New College, about allegations that Hamilton gave away grades, credit, and money to a foreign student he had befriended — accusations he strenuously denies.

Whether true or not, the claims invited scrutiny by regulators, and revealed a situation at New College even more complicated than an alleged student-administrator relationship gone awry.

For years, student tuition seems to have served in part as cash flow for a series of real-estate transactions. There exists no evidence that any people involved with the school have enriched themselves, and I have no reason to believe that. But public records seem to reveal a financial situation at New College that would take teams of accountants significant time to sort out.

My own review of information at the recorder's offices of San Francisco and elsewhere reveals that for many years the school seems to have been partly run as a tangled real estate and credit operation, in which the college acquired properties across the state and then took out loans against them, using the money and property to engage in further transactions. In 2006, the school bought a dilapidated flophouse on Fillmore, intending to turn it into a residence hall. Molina said that building is now in escrow; the sale was held up because of asbestos contamination and other permitting issues.

That purchase was part of then-president Hamilton's apparent strategy to significantly expand the school, which included buying the Roxie Theater business in 2005, but not the building. Hamilton had also lobbied for rights to acquire the former U.C. Berkeley Extension campus in the Upper Market area. Public records describe purchases, sales, loans, leases, and intramural property transfers that seem extraordinary for a small liberal arts school.

During recent months, the school appears to have tried to stay afloat. In mid-July, the school sold its interest in a piece of property near Calistoga in a transaction valued at $1.7 million. Since November, the school has borrowed at least $1 million, most from current and former trustees, using as collateral a former creamery on Valencia that it bought in 2005 for $1.5 million.

On Dec. 13, the school took out a $1 million loan secured by other New College campus buildings from Advance Holdings Participações Ltda., which I was unable to find information about at press time.

The college's seemingly intractable financial situation was recently summarized in a report from the WASC, which has suspended accreditation. "The fragile state of the financial situation leaves the College with few options to continue operations in the near and long term," the report read. "All the property is highly mortgaged, leaving little ability to sell and lease back buildings which would, in any case, be a short-term solution to the cash crisis. Continuing to borrow from individuals and bank overdrafts are a further indication of desperation to meet the basic operating obligations."

Much has been written here and elsewhere about the disastrous effects of New College's previous cultlike leadership structure, in which old friends Hamilton, Peter Gabel, and Millie Henry ran the college as if it were their own personal property. The WASC report made this analysis official, declaring that "many faculty members felt they were living in a culture of currying favor, rather than a culture of accountability with clear faculty rights and responsibilities." Both Molina and trustee Jane Swan told me that the old guard would no longer have a role running the school.

Ironically, and despite its mismanagement, New College seemed to attract significant academic talent because of its professed commitment to preparing students for careers advancing social justice. This is the aspect of New College that is worth saving.

It's now up to San Francisco civic leaders to dramatically expand, or supplant, the current board of directors and provide a complete break from the school's troubled past. This may seem like an obscure story about the travails of a tiny institution. But a human disaster is taking place that should matter to everyone. New College belongs, as a matter of law, to all of us. It is an IRS recognized category 501(c)(3) public benefit corporation, meaning that it is publicly subsidized through tax breaks to provide services the government somehow missed.

If this proves impossible, Molina, Swan, and Knowlton should admit defeat in their efforts to save the school, and help students and faculty get on with their lives and dreams.

About The Author

Matt Smith

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