The Profit in Being a Not for Profit School - Latest Update

To provide a bit of background I will mention (for those unaware of this fact) that I spent 17 years working at one of the elite private schools I've written about on this topic back in 2016 with an update two years ago. I did some analysis of the budget surplusses and compensation paid by ten such private schools. Here is the list of the schools: Archer School for Girls Brentwood School Buckley School Chadwick School Crossroads School for Arts and Sciences Harvard-Westlake School Marlborough School Milken Community School Wildwood School Windward School Here is the first set of numbers, with updates to add the figures from 2017 through 2019: Average annual surplus: 2012 - $3,771,152 2013 - $4,271,705 2014 - $4,576,092 2015 - $7,125,818 2016 - $8,018,211 2017 - $6,000,447 2018 - $6,153,491 2019 - $7,210,956 Worth noting is that if we take out the one school among the ten that ran deficits each of the last 3 years, the figures look like this: 2017 - $7,111,585 2018 - $7,262,912 2019 - $8,366,020 What is the big deal if not for profit schools keep piling up surpluses? The law does not preclude a not for profit from running surpluses. But when they are showing large surpluses year in and year out, one wonders if they are truly intent on not showing a "profit." According to the Better Business Bureau Wise Giving Alliance, a respected charity watchdog, a not for profit should not have an accumulation of surplus funds that is more than three times its annual budget. Harvard-Westlake School has the highest average annual surplus over the last three years, a stunning $23.9 million per year. Their annual budget according to their 2020 Form 990 (Not for Profit Organization Tax Return) is around $88.6 million. Their accumulated surplus on that same return was $398,678,207. That is approximately 4.5 times their annual budget. * * *

If we substitute the words Head of School for King in the above example of the brilliance of Mel Brooks, we can transition into the compensation of the top person at each of these schools. Average ompensation of the person at the top of the organizational chart: 2012 - $482,453 2013 - $595,335 2014 - $548,445 2015 - $543,791 2016 - $574,501 2017 - $440,923 2018 - $568,605 2019 - $566,020 Those amounts do not include deferred compensation being set aside for their future retirement. The average amount of deferred 2017 - $79,866 2018 - $78,795 2019 - $69,193 Even more interesting is the very wide range of averages among these heads of schools when it comes to deferred compensation. Here are the 3 year averages from highest to lowest, without identifying which school is which: $216,234 $166,176 $164,100 $98,222 $34,992 $31,916 $17,295 $14,402 $11,008 $5,168 Yes, there are three heads of school who are receiving more than $150,000 annually for their retirement plan. How is that possible? Two words come to mind. Rabbi Trust. You can read about Rabbi Trusts here, and about the difference between a Qualified Plan and a Nonqualified Plan when it comes to deferred compensation here. But in simple terms, if a for profit entity was paying an executive this much deferred compensation, they would not be able to deduct the cost of funding the plan from their income. To offer perspective on just how much some of these people are earning in just their deferred compensation, the average household income in Santa Monica is around $75,000 * * * Private schools talk about "The Gap" in their fundraising. This refers to the gap between their budget and the portion of that budget that is covered by just the tuition paid by parents. Every year these schools spent hours calculating just how much they can raise tuition over the prior year. In the early 1990s I was present at the annual budget meeting of the school's Board of Trustees. My reason for being present was to record the minutes of the meeting. At the time, tuition for the Upper School (grades 9 through 12) was less than $10,000. Two of the most famous members of the board had a very spirited exchange about just how much the tuition could be increased. One of them punctuated his position by saying "we could add a zero to the end of the current tuition and still fill this school completely." These private schools do amazing things. They provide large amounts of financial assistance to poorer families in order to give the children of those families an opportunity at the best possible education. They stress community service and other good works. They provide their employees with outstanding benefit and retirement plans. All things that are appropriately highlighted in their efforts to raise funds. They are far less transparent about their finances. I wonder if people who donate to these annual giving drives would be as generous if they were aware of surpluses and compensation at the top of the organizational chart By the way, their finances are a matter of public record. Anyone can ask to examine the last three years of their tax returns.