ROSE LAW PARTNERS LLP

Governor Baker Signs Legislation to Support Improved

Financial Stability in Higher Education

By Sammy Nabulsi and Judith Sizer

Introduction
Following the abrupt closure of Mount Ida College in 2018, several pieces of legislation were introduced
in the Massachusetts Legislature addressing financial stability and oversight of independent nonprofit
institutions of higher education. Among them was proposed legislation filed by Massachusetts Governor
Charlie Baker to augment the authority of the Massachusetts Board of Higher Education (BHE) to
determine and oversee an institution’s financial status. Prior to the 2019 two-year legislative cycle, the
BHE, separately, formed a working group to investigate the risk of harm to students and other
stakeholders when an institution closes. The Transitions in Higher Education: Safeguarding the Interests
of Students (THESIS) working group was tasked with developing methods to determine and monitor an
institution’s financial health and approaches that would mitigate the risks and interruptions in services
when an institution is at risk of imminent closure.

On January 22, 2019, the THESIS working group presented its findings and recommendations to the
BHE. The THESIS working group’s key recommendation was that the Department of Higher Education
(DHE) should conduct annual screenings of each institution’s financial health to determine whether the
institution had sufficient resources to sustain its operations in the current academic year and the
subsequent academic year. Based on the THESIS recommendations, the BHE tasked the DHE to develop
regulations consistent with the recommendations. The DHE is the state agency governed by and charged
with carrying out the directives of the BHE.

On July 12, 2019, the DHE published proposed regulations, 610 Code Mass. Regs. 13.00, for public
review and comment. During the rulemaking process, criticisms and concerns arose regarding the limits
of the BHE’s authority to exercise financial oversight over institutions and the confidentiality of sensitive
information that might be subject to the Massachusetts Public Records Law upon disclosure to the DHE.

In the meantime, the regional accreditor, the New England Commission of Higher Education (NECHE),
began working with The Boston Consortium and the Association of Independent Colleges and
Universities in Massachusetts to develop a nuanced multi-factor financial and enrollment evaluation
metric that could be used in an annual screening process. In early June, NECHE announced that all
accredited institutions in Massachusetts would be asked to participate in a pilot program using this new
evaluation metric. In early October, the metric was shared with these institutions, which must respond
to NECHE with specified financial and enrollment information by Monday, November 18th.

In September, a Massachusetts House bill on financial accountability of institutions was reported out of
the Higher Education Committee, and on October 2nd the bill was reported out of Ways and Means
and unanimously approved by the House. The Senate voted to approve a slightly revised version of the
House Bill on October 30th. After the House agreed to accept the Senate version, the bill, Senate Bill
2392, was submitted to the Governor for signature.

A Bill Improving Financial Stability in Higher Education

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On November 14, 2019, Governor Baker signed SB 2392. The bill grants the BHE additional authority
to conduct financial oversight over institutions; incorporates the annual screening requirement; and
ensures confidentiality of sensitive information by codifying a statutory exception to the Massachusetts
Public Records Law. Importantly, the bill defines “institution” as any independent institution of higher
education located in the Commonwealth and authorized to grant degrees pursuant to any general or
special law. The following are summaries of key provisions of the legislation applicable to independent
institutions:

Notice
SB 2392 requires institutions to be proactive and affirmatively notify the BHE of any known financial
liabilities or risks that are reasonably likely to result in the institution’s imminent closure or will negatively
affect the institution’s ability to fulfill its obligations to both current and admitted students. “Imminent
closure” is defined as a determination based on the financial screening that an institution is at risk of
being unable to continue operations within a period of time established by the BHE. In the proposed
DHE regulations (cited above), that period of time is set at “the balance of the current and subsequent
academic year, using December 1 as the annual threshold measurement date.” § 13.02.

Annual Screening
SB 2392 requires the BHE to develop a process to annually screen institutions’ financial health. The
legislation does not provide details regarding such process or what metrics the BHE must consider. The
legislation does, however, provide that the annual screening may be conducted by either the DHE or an
accrediting agency, such as NECHE, pursuant to a memorandum of understanding with the DHE
approved by the BHE.

Board Determination and Response

If, after the DHE or NECHE conducts an institution’s annual screening, the BHE determines (or accepts
NECHE’s finding) that an institution is at risk of imminent closure, the BHE shall provide a summary of
its determination to the institution. Upon receiving a summary of the BHE’s determination, an institution
shall respond by (1) informing the BHE of any known liabilities, risks, or financial issues confronting the
institution; (2) providing the BHE with any information necessary to “accurately and fairly” determine
the institution’s financial status and its likelihood of imminent closure; and (3) preparing a contingency
plan.
Contingency and Notification Planning for Closure
Under SB 2392, an institution must prepare a contingency plan for closure if the BHE determines that
the institution is at risk of imminent closure following the annual screening. Such contingency plan must
also describe a process by which the institution or the BHE will provide notification “to relevant
stakeholders,” including, but not limited to, enrolled students, students who have submitted applications,
recent graduates, faculty, staff, and host communities. The legislation does not define who are considered
recent graduates and whether there are other people or entities that may be considered “relevant
stakeholders,” but it is possible that the DHE will further define these terms before finalizing its proposed
regulations.

The legislation further mandates the BHE to establish minimum requirements for the contingency plans,
including: (1) arrangements for current students to complete their degrees; (2) transfer and maintenance
plans for student records should the institution close, including a plan to cover the expenses of protecting
and maintaining student records; (3) information about the rights and responsibilities of student loan
borrowers; (4) information about the institution’s financial condition, accreditation status, and
identification of any compliance issues concerning state and federal student financial aid programs; and
(5) a plan to refund deposits made by prospective and current students.

Bond or Letter of Credit

SB 2392 requires institutions that must submit contingency plans to post a bond with surety or furnish
a letter of credit in an amount sufficient to cover the costs of both refunding deposits to prospective
and current students and protecting and maintaining student records in the event of closure.

Sanctions for Noncompliance

Institutions that do not comply with the provisions of the enacted legislation, including the screening,
contingency planning, and notification requirements, may be subject to any of the following BHE
sanctions: (1) termination of eligibility for state aid; (2) suspension or revocation of degree-granting
authority; and (3) monetary penalties of up to $1,000 per day.

Confidentiality
Importantly, SB 2392 provides that any information shared with the BHE or developed by the BHE
concerning institutions in the administration of the screening, determination, or contingency planning
processes shall not be public records for the purposes of the Massachusetts Public Records Law. A
primary concern with the DHE’s proposed regulations prior to the enactment of SB 2392 was that
institutions would be required to share sensitive financial and enrollment information with the DHE
without the protection of confidentiality because the DHE is a public agency subject to the Massachusetts
Public Records Law. The Public Records Law, however, exempts all records that are otherwise deemed
not public by statute. SB 2392 provides that exemption.

Mandatory Training and Financial Transparency

SB 2392 requires that all members of an institution’s governing body, be it a board of trustees, board of
directors, or similar body, receive instruction and training every four years in higher education financial
metrics, the board’s legal and fiduciary responsibilities to the institution, and applicable accreditation
standards. Furthermore, SB 2392 requires all institutions to make publicly available on their websites a
copy of the institution’s annual financial report or statement (Form PC) and a summary that explains the
report in a manner that is understandable to the general public.

What’s Next?
While the DHE’s proposed regulations have undergone a public comment process and have been the
subject of three public hearings, SB 2392 includes several mandates that are not addressed by the original
proposed regulations published on July 12th of this year. We expect that the proposed regulations will
be significantly modified to incorporate both comments received during the public comment process and
the various mandates and expansion of BHE authority now codified by SB 2392. The BHE’s next public
meeting is currently scheduled for December 17, 2019 at Mount Wachusett Community College. While
no agenda has been published as of this date, it is possible that the BHE may approve final regulations
implementing SB 2392 at that meeting.

If you have any questions, you may always contact us at (617) 536-0040 or reach Sammy Nabulsi by e-
mail at ssn@rose-law.net or Judith Sizer at jrs@rose-law.net.
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