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Wednesday, March 24, 2010

Coast to Coast School Restructuring News

(Thank you readers who pointed out these stories. This blog simply would not be possible without the reporters in the field. Thank you very much. Also, please feel free to comment on any posts from this week. They are all still generating comments. I don't normally blog this quickly. I'm rather surprised given the amount of cleaning and work I've been doing this week. Lots of news I guess. And Chag Kasher v'Sameach in advance.)

Wow! What a week in terms of school news. Two Modern Orthodox Schools on two different coasts are making some major restructuring moves based primarily, if not solely, on financial issues.

First up is Yeshivat Rambam in Baltimore which sent a letter to its parent body to outline the issues and planned changes:

1. In the past 10 years, the school has accrued significant debt. In each of those years, the school has spent more money than it has taken in. Financing that debt has negatively impacted the school, stripping resources from the current mission.
2. Payroll (80% of budget), will be cut 14% or $550,000 through reductions and restructuring. This is "in line with industry best practices." I'm not quite sure what that means, but my best guess is that most private schools do not expend 80% on staffing. I'd be very interested to know what best practice is because the 80% figure continues to appear in nearly every article on Yeshiva tuition. Note that earlier in the letter, it was noted that staff and administration believe they do not have the tools and resources to attract and maintain staff, as well as effectively do their jobs and procure supplies.
3. Occupancy cost per student at the current campus is double industry norm. As such, the Yeshiva plans to sale its current main campus, liquidating equity dollars and freeing up resources. It would be very interesting to know what industry norm is for expenses so Yeshivot/Day Schools could compare their costs to median costs.
4. Baltimore's Associated will be lending funds to the Yeshiva until the campus is sold.
5. Tuition at Yeshivat Rambam will be lowered by 5% next year to bring the price within range of the rest of the Baltimore day school market.

I think there is a lot to learn from this letter: debt will eventually catch up, you can't always run in the red, dramatic change is sometimes necessary, and industry norm provides a "reality check."

Moving to the West Coast we visit the Shalhevet Day School. The school was founded in 1991. It is intersting to note that the Rambam school featured above is also 19 years old. The school has annouced that as of the end of the current school year, the school will be closing its early-education, elementary, and middle school divisions. [Taken from the Q&A] The school, in conjunction with the PEJE, hired an outside consultant Measuring Success LLC, a firm that reportable specializes in Jewish Schools, a curious statement at best, to conduct a review and make recommendations.

The school learned that the lower divisions of the school were costing the school dearly as they were operating at a deficit. The lower divisions are much newer than the original high school. The middle school is 10 years old, the elementary school 4 years old, and the preschool one year old. There are 121 students in the lower divisions and all grades will be closed with the exception of maintaining the 8th grade for one additional year. The Board of Directors has decided to concentrate its efforts on the high school which is "already operating within a manageable deficit range that is on par with other schools." (Oy! A normal deficit range.) Donors have committed to funding the high school. Tuition will be increased for the coming school year. It had been frozen for the current school year.

The Jewish Journal article gives some more interesting insight including these money quotes [highlights mine]:

  1. "[BOD member] said that the large number of existing Jewish elementary and middle schools in Los Angeles created a situation where there was not enough of a customer base for Shalhevet’s lower schools. There was no need to fill, she said, and the board felt that the community had spoken through the low enrollment numbers."

  2. "[Another BOD member] said that there have been signs of financial problems in the past, but that the nature of Jewish schools led to attention being focused on daily operations and the students, and no one knew exactly how deep the problems ran. Every school runs on a deficit, he said, and every school requires donations to close that gap, so the lack of funds didn’t set off alarms at Shalhevet until now."

  3. "[BOD member quote above] attributes the lower schools’ final demise to a devastating drop in enrollment in the middle school – he said 40 children dropped out last year – and the fact that Shalhevet overextended itself in terms of awarding financial aid during last year’s recession."

  4. "Approximately 120 students and 35 staff and faculty members will be displaced as a result of the closings." [Orthonomics note: that 1 staff member for every 3.4 students!. The ratio sent me searching for a similar ratio and I found it in my report regarding the fiscal problems of Bais Yaakov of Boro Park].
  5. "Shalhevet’s head of school, Rabbi [EJW], said that there are enough seats in local schools to accommodate all the displaced children . . . ." Later, "A system of support has also been put in place to help Judaic and general studies teachers find employment."

19 comments:

Jeff said...

As a great luminary said, "The chickens are cominghome to roost." You're going to see more and more of this going forwards.

I think that during the internet and real estate manias of the last 15 it seemed like money grew on trees such that schools built like there was no tomorrow and there was no expense, class or demand that couldn't be accomodated. Now we're going to pay the price for reckless spending, bad planning and a whole host of other mistakes. We're also seeing that it's much easier to spend in easy times than to cut back in difficult times.

As I think about it, when I went to elementary school in the 70s and 80s, schools were simple, no frills, enterprises (of course, there always was a prep school outlier). And students still did well and got into college. Then in the last 15 years practically every school is morphing into a prep school and tuition correspondingly doubles, and there's a crisis.

If only the administrators had practiced what Joseph did regarding "seven fat years and seven lean years."

tesyaa said...

If only the administrators had practiced what Joseph did

The parents happily lapped it up and kept demanding services that they must have known were pricey. There's plenty of blame to go around here.

Jeff said...

To Tesyaa:

No doubt there's plenty of blame to go around. But the moral of the story, I think, is take it slow during the good years, because the bad years will come and you don't know how bad the bad years will be.

You see this in politics all the time: cheap politicians, eager for votes, throw money around with benefits during the good times but when the bad times come they are loath to consider retracting the benefits.

Rochel said...

Does anyone know why new chareidi schools are opening "all the time" in Lakewood, according to my informant? How are these schools funded? Just wondering.

JS said...

A couple of points:

1) Amazing that Baltimore has apparently been charging around 5% more than other yeshivas and was still operating in the red for at least 10 years running.

2) Not surprised at all that the schools are over-staffed to the point that payroll is 80% of costs. There has been a tremendous increase in staff over the last decade or so. Schools are now looked at as employment agencies.

3) Also not surprised the occupancy costs are so high. The mammoth campuses some yeshivas have is just shocking.

4) Kind of surprised they're shutting down K-8. My impression was that at least K-5 subsidizes other grades since you need 2 teachers per class as opposed to subject-specific teachers for each class. On the other hand, it's acceptable to charge significantly more for high school. The 8th grade to 9th grade jump in tuition is frightening.

5) It would seem all schools operate on the principle that X amount of deficit to be funded by donors is OK. There's no attempt to operate in the black.

6) It seems schools only look, typically, at revenue from tuition as being determinative of whether the school operates in the red or black. In other words, if we raise tuition we move to the black, if we offer more assistance we move to the red. There doesn't seem to normally be a look at costs as affecting the red/black outcome.

7) In terms of a "need to fill," many schools just try to create fake hashkafic differences to try to attract more students than the nearly identical yeshiva down the block. Or will argue they're 5 minutes closer or whatever. We'd be much better off with fewer, but larger schools.

Overall, everything just points to poor management and a tremendous waste of communal resources. That being said, it's not just the schools, the same poor management and resource wasting occurs in probably all of our institutions. Why have one organization when you can have two and provide jobs and kavod for twice as many people?

It's like the BOD said, they're too focused on day to day operations. All they see are the trees, not the forest. They forget their primary objective to provide a Jewish education and instead believe teaching chumash is on the same ground as having nearly 20 different kinds of guidance counselors (not a made up number, from Frisch's website).

Having the extras is well and good if you're in the black and have a parent body that wants, supports, and can afford to pay for these things. But, I have yet to see that at least the "running in the black" and the "can afford to pay for these things" are true.

FI said...

One thing I agree with tesyaa on: we'll be seeing much more of this. As has been pointed out above, very few schools used good years to prepare for a down cycle.

Addressing JS' question:
When we do our fiscal planning we conservatively project donation income based on past numbers and prevailing economic conditions. We count this in the budget we put together and require that our budget be balanced on this basis. Any new expense must have a clear funding source and ROI. I wouldn't consider this running in the red, or a "deficit". The problem you will find, which is alluded to in the post, is that many schools don't even have a budget. They move day to day and couldn't tell you what the projected shortfall is. This is what happens when you entrust people with no financial background with running a multi-million dollar organization. Not having a budget, whether in a school, or in a household, results in huge waste.

Matt said...

I find it interesting that the Rambam piece is littered with business buzz words yet the, so to speak, business is run so poorly. I think the primary issue for Rambam, and so many yeshivas, is their superficiality. Focusing on short-term surface symptoms and avoiding the long-term core disease. It amazes me the number fo yeshivas who are losing students and have an answer other than... We'll lower tuition!

Ahuva said...

Actually, it sounds to me like Rambam is addressing the core of the problem. That campus is much too big to house 180 kids. There was an article about it in the Baltimore Sun this morning: http://www.baltimoresun.com/news/maryland/bal-md.rambam26mar26,0,6965349.story

Dome said...

Rambam took a big gamble by separating the sexes: higher faculty costs because of the resulting smaller class sizes; loss of enrollment of anti-separation families not offset by increased "traditionalist" enrollment; and increased physical plant costs due to putting the high school boys in a different campus.

While the Baltimore Sun article gets at this, the school's letter to the parents avoided mention of the sex-separation shakeup as a possible aggravating factor in their current woes. I would be interested as to: if the boys were brought back to the main campus (even if remaining in separate classes), how much would that bring the occupancy cost in line with "industry norm"? How much could payroll be streamlined by recombining certain classes, especially classes like high school A.P.? How (i.e. numerically) has the sex-separating experiment affected enrollment?

Anonymous said...

Saying the core of the problem is too big a campus and too few students is like saying the core issue for the US auto manufacturers is not enough consumers and too big a manufacturing plant. While this is true, the core issue is... Why aren't there more consumers? Rambam needs to make real changes in order to move themselves away from this unfortunate situation. Finding a smaller campus is just further prolonging the inevitable.

For the record, if Rambam could really provide a quality Torah and general studies education, people would be knocking down their doors to attend. Currently, the school administration and otherwise do not have the ability to accomplish this.

Miami Al said...

Anon, right, but the activist parents at most of the schools tend to focus on small areas of hashkafic differences that they can see (boys and girls learning together), and not more fundamental areas of learning. As a result, the schools are heavily segmented into REALLY small niches and therefore top heavy as small schools.

The solution is to be more market oriented, and schools aggressively push to grow and expand, at the expense of competitor schools, and let the weak ones die, instead of narrowly focuses on minor hashkafic differences.

rejewvenator said...

PEJE is a great place to learn all about how day schools and yeshivas really work, and how they might work better. The model budgets there (http://peje.org/docs/samplebudget.pdf) are a few years old, but nonetheless, show personnel costs in the 67% - 70% range. 80% might be the actual case in the field, but it's much too much!

There's a ton that's worth reading on the PEJE site that would help clarify the actual issues and take us beyond anecdotal observations from parents. (For example, though day schools have more admins, they pay them proportionally less. High staff costs are attributable to rising numbers of specialists, and to an idiosyncratic pay-scale for limmudei kodesh teachers that has little to do with how good a teacher a rebbe or morah is).

Miami Al said...

PEJE is actually part of the problem. While they appear to be a helpful organization for Day Schools, in practice they function like a school Cartel and Teacher's Union rolled into one.

They get funding from the Federation, and you only get PEJE funding if you follow their guidelines. Their guidelines mostly serve to prop up teacher salary, and prevent the schools from differing in compensation. For all it's good work, PEJE serves to discourage innovation, and holds a lot of workshops for board members and administrators to travel to.

On the plus side, PEJE means well, extremely well, it's just execution that is lacking.

Mike S. said...

rejewvenator: How can any particular percentage of costs on staff be too much? I can understand an absolute amount being too much, but is it really possible for a school's mortgage or or utility bills to be too low? Because when you say the staff costs are too high a percentage of the budget, that is the same as saying they aren't spending enough on the other budget lines.

Ahuva said...

Anon, that's true. I think part of the problem is that it's very difficult to make comparisons between the schools to see why one is succeeding and another is failing. There are Baltimore parents that bus their kids out to Kemp Mill (about an hour each way) because the Kemp Mill school is a "better fit," but they won't say anything more specific than that as it's considered loshon hara.

Anonymous said...

The sad thing is, Rambam has always stressed an excellent education. When it tried to appeal to community pressures (separating the sexes), it was not done in a financially sound way. The classes were skewed with some grades having boys' classes of above 15, while the girls' class had 7 or 8. At present there are still grades where each class (one boys and one girls) has only 10 or so children in them. While the education still remains excellent, having two campuses and exceedingly small classes (at least in the upper grades) means something has got to give. I hope this does not mean that salaries of extremely competent teachers (who can easily go elsewhere) will not be cut. Many parents are already seeing this as a death knell for the school and they are pulling their children out.

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