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Tuesday, August 17, 2010

School Shuts its Doors with One Days Notice

I can't even imagine what the parents of 400 students in Lakewood must be going through when currently after receiving the news (one day before the first day of school!) that their boy's Yeshiva was shutting its doors (see TLS, YWN, and Matzav). This isn't the first closing of the 2010 year in Lakewood. A Bais Yaakov day school announced its closing prior to the end of the previous school year. The school had a student body of 65 and over $1mil in liabilities including half a million owed in back taxes to the IRS. The numbers are as incomprehensible to me now as they were then when I heard the story.

I doubt there is much more behind this latest school closing beyond a lack of funds, or more specifically the lack of available parental funds. As we've learned from past articles, the majority of families in Yeshiva schools receive tuition discounts.

I think it disingenuous for Jewish news sites (YWN) to continue and propagate wishful thinking that school closings are a result of being "hit hard by the recent financial crisis." Such wishful thinking allows all involved to continue to naively believe that when the market turns around, that everything will return to normal. While we can't be completely dismissive of the current economic downturn, I find the thinking a distraction from the house of cards that has been constructed. Let's imagine an individual runs up numerous sources of debt from debts to friendly local retailers, to auto loans, to a mortgage giving them income to debt ratio of 1:1. This individual may well muddle along, making all required payments, by designating work bonuses and windfalls and taking advantage of transferring balances from card to card. Should that individual take a 20% pay cut in an economic downturn, is it really fair to blame insolvency of the economic downturn? Of course not! At least Matzav's report is a little more balanced writing that the situation is "indicative of a disturbing reality that is hitting home with great force: the dire financial state of our communities’ mosdos hachinuch." Of course, the financial state of Yeshivas and Day Schools is directly related to the financial state of the parents, and there are few schools out there (including modern Orthodox schools) that do not have significant numbers of families receiving significant discounts.

Of course, wishful thinking seems to be modus operandi. Commentors can't seem to help themselves as they suggest that all parents enroll their children in the public schools so as to "overwhelm" the public schools and receive those long awaited vouchers. Let's be frank, I doubt that even a small percentage of the most desperate parents of these 400 students will enroll in the public schools and even if all 400 did, it wouldn't be overwhelming. That probably about the size of an average elementary school. A few new trailers on a few campuses would solve the problem asap. If parents want to "overwhelm" something, they are better off dropping their 400 children off at homes of the board and administration on their way to work tomorrow. But, wishful thinking is always a cozy distraction. In other wishful thinking news, the cynical bunch wants to believe the school will open and this is just a brilliant fundraising move. Doubtful since there seems to be no fundraising campaign attached.

I think it would be interesting and very valuable for those involved in school closings to help educate other schools on the signs that the numbers just aren't going to crunch and that a closing is inevitable. That would be productive and hopefully helpful in the future. It certainly isn't pleasant to enroll 400 kids in school only to announce, one day before school, that the curtain has closed. One can only imagine the panic that has currently ensued.

49 comments:

Dave said...

Two points.

One, there is no legal way in the state of New York for there to be Vouchers, without a Constitutional Ammendment. And that simply isn't going to happen.

Two, you could add every single Orthodox child in America to the New York City school system, and you wouldn't "overwhelm it".

Dave said...

To follow my own comments, while New Jersey has no Constitutional impediment to Vouchers, they are still highly unlikely to pass (especially considering the tax and revenue situation).

JS said...

Every time I hear vouchers I just laugh. Maybe these people should read Zelman v. Simmons-Harris, the school voucher case. The vouchers in question in that case were $2,250 per child and were only done because Cleveland's public school systems were in a state of total and complete collapse educationally. Also, only most poor received the vouchers in the first place. Whatever, read the case. The Orthodox dream of publicly funded private schools is simply hilarious. As an aside, I find it troublesome that Orthodox Jews want greater involvement of government in religion. It's to our benefit, in my opinion, to have the exact opposite - a "wall of separation" between religion and the state.

Beyond that though, I think we all pay lip service to the importance of yeshiva education, but very few are willing to prioritize it. People will come begging to the schools, but have no problem paying for simcha after simcha and in some circles this entails an expensive watch for the chassan, a seforim set, expensive shaitels, vorts, l'chaims, etc. All that stuff gets prioritized before yeshiva education. When it comes to yeshiva apparently $3k/child is too much given your past post, but that same person I bet will spend far more than $3k on that child's wedding gifts, let alone the wedding itself.

If we prioritized yeshiva education, there would be no problem. People would move to cheaper areas, live less lavishly (even "poor" Jews generally live better than most Americans), not treat yeshivas as the last to get paid in a series of bills, etc. Heck, people might even engage in some degree of family planning if they prioritized yeshiva.

And I'd add that prioritizing yeshivas also entails ensuring the yeshivas are being managed properly and aren't communal employment agencies or used as someone's personal piggy bank.

You can't put funding and properly managing yeshivas on the communal back burner and then wonder why your school shuts down.

Anonymous said...

And another blogger weighs in on tuition:

http://hadassahsabo.wordpress.com/2010/08/17/tuition/

Anonymous said...

It can be very hard to admit that a business has to close. How many people sell their house and move to a smaller one or rent when there is a downturn in family finances as to how many try to hang on? How many small businesses keep getting further and further into debt before they shut their doors. It is very hard to tell people they don't have a job so it is human nature to defer the bad news. Unfotunately, a school system that doesn't give students the ability and drive to get the best secular educations and jobs they can alongside their religoius education, and that affirmatively promotes alternatives to education and earning is always going to be on shakey financial ground at best.

Ariella said...

Several years ago, a 5 Towns high school for girls shut down just a few days before Labor Day. The girls had to scramble for places in the other local schools. They had been on the verge of acquiring a building, ran into problems about zoning, and then the board just shut it down out of the blue.

FR guy said...

The 5 towns School had 40 kids. Most were taken in by the much larger girls school in FR. Every single girl had a place by Day 1.

As far as the lakewood yeshivas, they pride themselves on taking sons of 'klei kodesh' who can't pay tuition; in a neighborhood where a large percentage of able bodied men are not earning a living by choice. What Was their business plan?

Mark said...

I wonder if this school closing is real or if it is a fundraising "stunt"?

re: vouchers, to even think about it is an utter waste of time. Where enacted, vouchers have strict rules regarding average income in the area, individual income, and are not for huge sums of money. Probably 95+% of frum Jews wouldn't qualify due to where they live, not to mention that the vast majority wouldn't qualify due to their income!

tesyaa said...

Mark- not to mention that parents wouldn't welcome the type of govt oversight that would doubtless accompany govt funding.

LoZ (Resurrected) said...

MARK/TESYAA:

not to mention that the schools themselves wouldn't welcome the ensuing govt oversight (of curriculum and financial matters)

not to mention that the schools would simply respond by raising tuition the exact amount of the voucher

rosie said...

If it is a fund raising campaign, that type of campaign is based on allowing the community to develop the plan and implement it rather than the hanhala of the school deciding that the parents must sell half a million dollars in raffle tickets.
One grandparent offered $1200 if 24 other grandparents would match it. That total sum would be a drop in the bucket of the total amount that the school needs but it is not a bad start given that there are likely 24 other grandparents willing to donate at that level ($100/month).
If there really is no community response in terms of pulling in the money, then it probably is time for the yeshiva to shut down. It could be that the publicity will cause concerned frum Jews from around the world to donate.

Miami Al said...

Rosie,

Probably right. But this is a sad and pitiful way to fund raise.

If the schools were well managed, then in good times, you could build an endowment. Real donors (not someone's grandparent offering part of their social security check) want to see their money DO something.

Crying about money to pay the electrical bill because you spend more than you bring in is a great way to raise chump money and stay in the muck. Excellence and endowments is the path to sustainability.

But it's more work than dialing for pocket change because you ran the organization into the ground and are using children as pawns.

Anonymous said...

Al and Rosie: It is hard to believe that this is a fundraising ploy. Maybe a white knight will swoop down to save the day, but as cynical as I generally am, I really don't see a school doing this to parents and 400 children at the very last minute as simply a way to try and raise money. No school could last with a tactic like that.

rosie said...

I am not sure that "ploy" is the correct term but I have seen other schools shut down and were resurrected because people now took their fund raising needs seriously. This may not be a ploy but a 0 hour attempt to get the community to take this seriously.

Mark said...

Anon 9:48 - No school could last with a tactic like that.

Isn't that more or less what Bais Yaakov of Boro Park (one of the, or perhaps the, biggest Jewish day school) did a few years ago?

Anonymous said...

I think JS nailed it. Yeshiva for all is taken for granted since, in the lives of most of the current yeshiva parents, its always been there and scholarships for your own kids and funding (at least for other people's kids) is assumed and therefore just is not a priority. It's kind of like how we take clean drinking water and energy and arable land for granted instead of prioritizing and consesrving these essentials.

Anonymous said...

Short of having endowments and budget carry-overs (something many well run non-profits have), probably the only way to avoid these last minute closures is to make registrations and tuition payments and scholarship applications due the preceeding June so the schools can determine in advance if they will have enought money to operate. I suspect this is not going to happen.

LoZ (Resurrected said...

"I suspect this is not going to happen."

there is a small day school in brooklyn (not sure if its ortho) that requires that payments start in april the previous year and are completed by january

Anonymous said...

Another indication of the growing financial crisis in the orthodox community. Sad.

Avi said...

@Anon 9:48 -

The Going Out of Business Sale is a tried-and-true marketing technique. I'm sure that's not the deliberate intent here, but it might be the effect.

Miami Al said...

Anon 10:46,

How will the help?

If your school spends every dollar it sees, plus builds up payables each month, how do any changes on the receivables side help?

It's not like the schools are seeing significantly lower percentages paid as in the past, they had these problems in the past too.

If the problem was, the school runs fine with a 20% write-off level, but the recession knocked it to 30% or 40%, then sure, procedures to protect your 20% write-off level help.

But these same schools were getting in trouble during the boom, it's not a new problem.

Blaming the community, parents, etc., is all well and good, but not true. Running fraudulent accounting for a "communal resource" that absorbs 40% of Orthodox income is criminal, and should be treated with total contempt.

i.e. Anyone that runs one of these schools into the ground (i.e. closes after payment for next year is taken, etc) should be put into Cherem and be persona non grata in ANY Orthodox community.

Blaming the victim (the parents who enrolled their children in good faith) is sad, the problem is the fraudsters running these places.

Orthonomics said...

The update I've seen is that the school has debts of $500,000 (including back pay to 17 staff members). They received a psak that they could not open, but can apparantely open if the 1/2 mil is raised. It does appear that they are now trying to raise the money and keep the school open for those that don't get placed in another school. Half a mil is a huge amount of money and if they can't raise it, they have annouced they will sell the building.

Perhaps I'm not cynical enough, but I think the story is as it appears. I don't think it is a fundraising ploy.

Orthonomics said...

rosie-Even if grandparents pitch in, remember the 1/2 million is to cover last year's deficit.

If they raise money needed to cover last year's deficit and make up back pay and mortgage payments, the school will still have to deal with this year and the bottom line is that parents aren't paying enough tuition as a whole. . . . . . not something the parents want to hear. If they do reopen, I imagine installment 2 will follow shortly.

You simply can't continue to run a business as a revolving door. That door always hits you on the way out.

Anonymous said...

So to cover last year's deficit and what presumably would be the same deficit this year, they need $2500 per child. Some families have multiple children in the school, so it could be $5,000 -$7500 for some families. If all the dads got jobs (even if part time) and one or both parents took on some extra work, that is doable. What probably is not doable is most of the families relying on scholarships each year unless a sugar daddy steps up to the plate.

Lion of Zion said...

regarding the school i mentioned above that requires payments the previous year:
http://agmk.blogspot.com/2010/08/day-school-like-no-other.html

Anon1 said...

It would be instructive to know:

1. The school's annual costs for everything truly required to educate its students.

2. The maximum $ the school could rationally hope to bring in annually.

LW2 said...

I have a PERFECT solution, that will catch on like wildfire.

Needed: One frum real estate agent

Plan: Every family in the school sells their house to the next family, buying the other house with the proceeds of the first house. Then, each family sells the house back to the original family and buys their own original house back with the proceeds. The realtor commissions should be more than enough to pay the school debts.

Isn't it PERFECT? This is just like so many money-making schemes that go around in these circles, only quicker.

Miami Al said...

LW2,

That was tried down here. Plenty of money, home renovations, trips to Israel, etc.

Now half the neighborhood is upside down in their house.

On the plus side, tuition is easier to pay once people stop paying their mortgages, and the courts are backed up two years here.

On the negative side, families are wiped out financially. But the trips to Israel were FANTASTIC!

JS said...

"I think JS nailed it. Yeshiva for all is taken for granted..."

Well, thank you. Yeshiva is simply not a funding priority on a communal level or a personal level. Whether this is correct or not, I don't know. But, it surely indicates it is not a priority. If yeshiva was a priority, on a personal level you'd see people working two jobs, cutting all extraneous expenses, not spending on simchas, paying yeshiva first instead of last, doing anything possible to not be on scholarship, etc. On a communal level we'd have endowments being set up, schools working together to cut costs and standardize forms, etc. Actions speak a whole lot louder than words.

On another level you have a tragedy of the commons when it comes to scholarship. For each individual family it makes sense to go on scholarship. If you were to advise a family to take a second job, cut back on their lifestyle, and forgo more children because of tuition OR go on scholarship, the answer is the latter. It ALWAYS makes sense for a particular family to be on scholarship over paying in full. So, everyone goes on scholarship and the "commons" gets ruined - first the full payers that aren't super-wealthy suffer and eventually the school closes.

JS said...

SL,

I'm curious to hear your opinion on the charge of fraudulent accounting in the yeshivas since you are a CPA. Have you ever posted about this? Would you consider doing so?

I'm reading Miami Al's comments on this (bad debt, etc) and it struck me as an interesting point.

Miami Al said...

JS's point about "taken for granted" is also an economic principal, called Tragedy of the Commons.

Essentially, when a resource is jointly owned, people over use it. If you can take your animals to graze on the commons, then people over-graze because it's free, and the commons is wiped out for all.

Everyone would be better off if they used less, but each individual is better off if they use more.

Everyone would be better off if tuition was a higher priority, less scholarship, and more income, so more people could afford it. But an individual family is better off abusing the commons, so most people do.

Trying to get people to act against their self interest is generally a waste of time. The study of Game Theory is all about how people make choices, and how you manipulate them. The most basic game is the Prisoner's dilemma, where there are two players.

None of the problems facing Orthodoxy are that difficult, they are all easily solved economic problems. However, you can't declare the solutions "assur" and hope for the best, or the market acts exactly as you'd expect.

Orthonomics said...

I'm not currently a CPA. I regret not finishing in the window that I had. Perhaps someday I will go back and finish up, but I'm probably more likely to do into another related field and certify there. I don't feel fully qualified to speak, but here is my take.

Fraudulent is a strong term for the accounting and budgeting practices that we do see used. These communal organizations and schools are not publically traded companies regulated by the SEC. As such, I don't believe they must strictly adhere to Generally Accepted Accounting Principals (GAAP) as laid out by the Financial Accounting Standards Board or any other GAAP standard.

When an organization takes a mortgage, they do need to file regular financial compilations, but a financial comp is not an audit and does not need to meet the same standards. Where the financial comp lacks honesty, there may very well be a legal problem. Something we've seen.

Bad debt should be taken and receivables should be accurate. Any school Controller that doesn't do so is creating deceptive financial statements. Additionally, non-profits should get in the habit of making cash flow statements (required of publically traded companies) because such a statement lets a Controller and Board know if a company is headed in the wrong direction. The FASB started requiring a Statement of Cash Flow a while back because companies that were not healthy looked to be alright on paper.

I wouldn't go so far as to use the word fraud. My experience with non-profit accounting is that it leaves a lot to be desired. I haven't found that 990s are comparable. Often a single organization might run separate accounting systems for different entities.

What I will say is that organizations must employ budgeting practices that make sense lest they end up in a big, fat mess. They need to know the signs that they are heading in the wrong direction. They need to understand what money can be budgeted and for when. In other words, they need to stop wishful thinking and get down to business. If you want to use the word fraud, I would add that they are perpetuating a fraud on themselves with wishful thinking. The donors aren't the only ones being tricked. I find that Boards tend towards the optimistic. A little more pessimism and you wouldn't see schools close the day before school with a 1/2mil in debts.


BTW-good comment from Miami Al above.

Miami Al said...

Orthonomics --

If the school is presenting optimistic numbers that they believe, it is incompetence.

If they are intentionally producing financial statements to the board or other supervision that are overly optimistic to avoid telling people the truth, it's fraudulent.

I think that, sadly, it is more the latter than the former.

Thanks for the kind words.

Anonymous said...

Thanks Orthonomics for your wonderful blog. It is a great place to discuss Orthonomics! :-)

Anonymous said...

Great summary SL. It might also be wise to add to the cash flow and financial review aging of the accounts receivable. The likelihood of collecting an account receivable (i.e. tuition bill) that is 180 days past due is far lower than collective a receivable that is current or only 30 days past due. Both business and non-profits can sometimes get in trouble by considering accouonts receivable as assets and not discounting their value to reflect the likelihood of collection and collection costs.

no one said...

Most yeshivot are a scam. They are a way of getting money power and prestige for the Rosh Yeshiva and his buddies. How many roshei yeshivot do you heard making careful analysis of this Rambam "The roshei yeshivot that tell people that there is a great mitzvah in giving to them and their yeshivot money are saying complete nonsense."
However I do think there must be people that learn Torah lishma somewhere.

Anonymous said...

Here is an idea...since most of the fathers of these students are sitting and learning all day...why don't you take your boys with you to kollel and teach them there. This will eliminate the financial burden of the boys schools completely.

conservative scifi said...

My synagogue has an annual audited financial statement, as does the day school my child attends. If these schools don't have audited statements, who knows what is going on. That might be one place to start.

rosie said...

Wasn't there a school in Monsey last year that tried to open in a private home and neighbors complained about school bus traffic and noise? Didn't the city say that they could not operate a school in a private home?
I wonder if a kollel could really be used for kids who need a place to run around.

LW2 said...

rosie said...
"I wonder if a kollel could really be used for kids who need a place to run around."

I don't see why not. After all, kollel is already being used for some adults who just need a place to run around.

LW2 said...

Tuition and scholarship is a tragedy of the commons, but the problem is bigger. The disincentive to take a second job, or live more frugally, is that it's a zero sum game. For families on scholarship (many or most of the schools' customers), tuition is the budget balancer.

If you get a raise at work, or start a second job, all that money goes to tuition. If you refinance your debt or downgrade your car, all the saved expenses translates into more money available to pay tuition. With disincentives like that, why would any rational person decrease his utility even one notch?

Notice that this is true even if everyone else is paying full tuition (and TofC doesn't apply).

Ariella said...

If the school just folds and does not raise the money needed to reopen, wouldn't the unpaid teachers never get the money they are due?

Orthonomics said...

From what I've read, they hope to sell the building and use the proceeds to pay debts.

Of course, selling commercial property isn't exactly a piece of cake.

Esquire said...

"If the school just folds and does not raise the money needed to reopen, wouldn't the unpaid teachers never get the money they are due?"

The school (or the entity behind the school) would file a petition under Chapter 7 of the bankruptcy code. When the school liquidated all its assets, the unpaid teachers would be towards the top of the pecking line as far as receiving distributions from the proceeds of the liquidation. Of course, if the school has no unsecured assets, the teachers may be out of luck although they may also be able to sue the individuals running the school in their personal capacity depending on the specifics of the situation. Again, I am not a bankruptcy lawyer.

Shoshana Z. said...

"why don't you take your boys with you to kollel and teach them there. This will eliminate the financial burden of the boys schools completely."

I love it! That's what my husband does every morning with our son at our shul (before husband heads to his place of employment).

Stealth Jew said...

Maybe it is different in the US, but everyone I know seems to make tuition a priority. But if the husband doesn't work, I just don't see how it can be done.

cb said...

AFAIK, most of the fathers are NOT learning all day, but rather are working hard to make ends meet, as are the mothers.

Additionally, this school's methodology is unique, so integrating the boys (especially the lower to mid-grade ones) into another yeshiva may not be smooth sailing.

Mark said...

The solution is staring us right n the face! All you have to do is look around.

Ten thousand shtreimels at $2,000 each is $20 million. Ten thousand diamond rings at $2,500 each is $25 million. Together that's $45 million. That's enough to save the schools in Lakewood.

Unless shtreimels and diamond rings are halachically more important than Torah chinuch.

megapixel said...

mark nice try
the lakewood crowd is not a shtreimel crowd. the black hats cost 160.00 tops.and have no resale value.
selling a 2500.00 ring will cover half a tuition for ONE kid. what should i sell next?