Urbana University faced an increasingly dire financial outlook as its operating deficit ballooned to $1.9 million last year, a situation alleviated when Franklin University agreed this week to acquire the historic campus.

The agreement is critical not only to local students and faculty, but also to the city and county’s economy, said Bill Bean, Urbana’s mayor. Local officials recently estimated the university that employs more than 425 people has a $30 million financial impact on Champaign County.

The university’s presence is also important to the city’s morale, said Bean, an Urbana University graduate who served on its board from 1990 to 2000.

Many graduates become permanent residents or contribute to the county’s workforce, he said, and students are involved in volunteer work and civic projects.

“I can’t say enough how important this is,” Bean said. “To have the students gone would have been such a negative for this community.”

For Urbana University the acquisition allows it to retain its identity and athletic programs while providing more financial stability at an institution that has faced fiscal peaks and valleys throughout its long history. It will likely face lay-offs but the number of cuts hasn’t been disclosed.

University officials have declined to discuss the specific decisions that led to its financial troubles, although Bean said the university has long relied heavily on enrollment dollars. Urbana serves about 1,800 students, but a dip in enrollment of as few as 30 students can have a significant impact on the university’s finances, Bean said.

Tax forms filed with the IRS show Urbana University saw about $574,000 in operating losses for the fiscal year 2011, which ended in May 2012. However, that figure spiked to about $1.9 million in operating losses in fiscal year 2012, the most recent year on file.

Urbana University took in about $27 million in total revenue in fiscal year 2012, but its total expenses were close to $29 million, tax records show.

Franklin, a much larger private university with a mostly commuter and online student population, is in based downtown Columbus.

It had about $71 million in total revenue and $68.3 million in expenses in fiscal year 2011. It employed more than 1,700 people that year, according to the tax records obtained by the Springfield News-Sun.

Financial details about the agreement haven’t been disclosed, but Franklin paid for the acquisition with revenue it had acquired over the past several years, said Christi Cabungcal, chief of staff and senior vice president for administration at Franklin.

Franklin serves about 10,000 students, and also has smaller locations in Westerville, Dublin and Delaware, Ohio, as well as regional locations in Beavercreek and Indianapolis. It also has a presence at several community colleges across Ohio.

Franklin developed a strategic plan in 2008 that set the tone for recent growth, Cabungcal said.

“We are an institution that believes it’s important to grow and important to change and be diversified in those activities,” she said.

Several of Urbana’s assets were attractive to Franklin, Cabungcal said, including an experienced faculty and programs like a Master’s of Science in nursing and a Master’s degree in criminal justice.

“Additionally, they have a campus, a physical footprint, that is well under-leveraged,” Cabungcal said. “This campus certainly has the capacity to take on quite a number more students both residentially and on a commuter basis than it is currently supporting today.”

Franklin is expected to invest in Urbana’s campus, although the details of those investments have not yet been determined.

Acquisitions of private universities aren’t unprecedented, but also aren’t common, said C. Todd Jones, president of the Association of Independent Colleges and Universities of Ohio. The organization represents private colleges and universities throughout the state.

Urbana represents only the fifth nonprofit educational institution to combine with another institution or face other significant changes in the last eight years, Jones said, but the reasons were different for each case.

While the acquisition will help the Champaign County university remain open, layoffs are expected at Urbana. Cabungcal declined to discuss how many staff and faculty that might include, or how the process would work.

But the alternative was the potential that the university might close entirely, said Elizabeth Sorensen, an associate professor in the Urbana College of Nursing and Allied Health.

In recent years, she said faculty members have accepted cuts in medical insurance benefits and seen retirement contributions cut as Urbana tried to remain afloat. Faculty members have also been forced to purchase their own office supplies in some cases, and paid for their own travel to conferences and other events.

Despite potential layoffs, Sorensen said Tuesday’s announcement gives her more optimism that Urbana will soon be on more stable financial ground.

“I was very pleased because the alternative was really a dire picture for our university,” Sorensen said.