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Wednesday, July 18, 2012

Reader Help: "Delayed Tuition Payments"

(Don't let this small post distract from the previous post).

A reader pointed out that The Rosenbaum Yeshiva of New Jersey published an annual report, available online here, which includes a financial report.  The yeshiva claims that full tuition paying students only subsidizes those on scholarship by $300.  However, later in the budget there is an *operating* expense of 2.4% called "delayed tuition payments."

Readers, especially finance and accounting professionals, if you either read and analyze financial statements or produce financial statements (as I do), help me out.  What in the world are "delayed tuition payments" that the yeshiva accrued as an expense on the Income and Expense Statement?  A Google search for the term "delayed tuition payments" turned up a link to Yeshiva Sanity on the first page of my own Google Search.  There were only 3 pages, and not a single accounting website showed up.  

My best (and hopefully educated guess) is that this is:1.  Either bad debt expense under an unusual name that needed match to the current fiscal year, which means that the subsidization level is actually $600 per full-tuition paying student as parents are defaulting on 300K of tuition, or 2.  An expense for tuition somewhere for someone else that needed accrued in the current fiscal period, but hasn't been paid out, i.e. "delayed".  It is a possibility that this is the tuition benefit, but is simply isn't clear.

I congratulate the school for putting out financial information, but without a balance sheet, the information is difficult to analyze. . . . at least for me.  I tend to start my analysis by reading the balance sheet, not the profit and loss/income and expense statement.

74 comments:

JS said...

My take is that it is bad debt.

Look at the bright side, at least they're not holding on to it as an asset under accounts receivable.

What's odd is that bad debt is deemed uncollectable, there's no hope of collection. That's why it's being written off as an expense. So, there's no reason to call it delayed. I wonder how much more bad debt they're holding on to that they might still hope to collect on (good luck).

JS said...

The round figure of $300,000 as a bad debt expense strongly suggests they're sitting on a lot more non-collected tuition that they just haven't decided to write off yet.

JS said...

Also, their mathematics is really dishonesy, imo:

"Need-based financial aid scholarship grants total approximately $1.3 million. That amount has been relatively consistent in each of the last few years, accounting for approximately 10.5% of gross tuition revenue. Approximately 23% of children of RYNJ families received financial aid of some amount with a financial aid median grant of approximately $4,700 per child. As shown above, financial aid of $1.3 million was granted through our financial aid scholarship program and the Yeshiva raised approximately $1 million in voluntary contributions. The remaining $300,000 provided in financial aid had a net impact on total parent tuition-related obligations of approximately $300 per child."

The school has 1,015 students and 491 families. What they're doing is saying: we gave out $1.3M in scholarships and raised $1M. The shortfall of $300k is spread over 1,1015 students so each student's tuition only went up $300.

That is baloney.

They say 23% of families are on scholarship and the median scholarship is $4,700. The families on scholarship aren't paying $300 extra per kid to fund their own scholarships. That would be ludicrous.

A rough estimate using the median scholarship grant as approcimately equal to the average would have about 277 kids on scholarship. That's in the right ballpark since 23% of families is 113 families and the families likely have 2+ kids in school, on average.

So, the $300k shortfall falls on 1,015-277 = 738 kids, which is $406 per kid. Add in the $300k bad debt and you're up to $812/kid.

On a family level, the 378 non-scholarship families pay an extra $793/family or $1586/family including the bad debt.

You can argue whether this is fair or not, but at least these numbers are more honest.

JS said...

Oh, and the $1M they raised in "voluntary" contributions includes $320k of parent dinner journal obligations and $195k in scrip.

So, add on another $515k that the non-scholarship families are paying.

Now we're at $1510/kid or $2949/average family when you include non-voluntary contributions being labeled as voluntary, fundraising shortfall, and bad debt.

Orthonomics said...
This comment has been removed by the author.
Anonymous said...

You can also claim that the $1,000,000 in voluntary contributions could have been used to lower the tuition amount. Of course they probably wouldn't have raised $1,000,000 if it wasn't for financial aid but maybe they would have raised 40-50% of it.

JS said...

Anon 5:56,

Very true. I just wanted to focus on the misleading (dishonest, imo) information being presented.

They present it as $300/kid when it's really $1,500/kid. That's a significant difference.

Mark SoFla said...

I agree, it is most likely bad debt. Or soon to be bad debt.

But from what I hear, it's not nearly as bad as many other schools. I'm actually pretty impressed by the numbers RYNJ is displaying in that document.

Anonymous said...

I believe what they're doing is writing off $300,000 is past tuition debts. Once it's on the income statement as an expense, the only way you balance is by reducing your accounts receivable on the balance sheet. For whatever reason, at this point they deemed this amount uncollectible.

I can appreciate the school publishing this report and it's much more than any other school, but it's not completely accurate.

Anonymous said...

JS - it appears you misread the report. The $1,000,000 in fundraising does not include the parent dinner obligation or scrip. Those are in addition. The scrip obligation as well is the "profit" the school makes off of the scrip - i.e., it is the amount that the stores give the school for using the scrip and doesn't cost parents anything beyond the inconvenience of purchasing the scrip. The dinner obligation is also inclusive of voluntary contributions which make up the majority. If you include that amount, the totals for scholarship just went down further.

I won't accuse you of dishonesty - as you seem compelled to do about the school. Perhaps just a mis-understanding.

JS said...

Anon 6:25,

You are correct that they are not calling the parent dinner obligations and the scrip to be voluntary contributions. I misread that. They have a total of $1.5M in what they call "other sources of revenue" and are only considering $1M of that to be "voluntary contributions." My mistake.

However, they do NOT include it as "Net Tuition Income" and do NOT include it as part of the subsidizing that non-scholarship families do of scholarship families. I still think this is dishonest - it's an amount non-scholarship families are forced to pay that goes to funding the school, which scholarship families do not pay.

Therefore, nonetheless, I think my overall point is still true.

JS said...

Anon 6:25,

Also, the dinner journal is $320k in parent dinner obligations and then an additional $167k in additional voluntary donations (journal ads). The $320k should be counted toward scholarship subsidizing imo - the parents are forced to pay it while non-scholarship families do not.

As for scrip, I don't really buy the argument that the parents would be spending this amount anyways. RYNJ requires $7,500 in scrip purchases or a $375 fee. The $195k is the portion of the total amount the parents spent that went to the school (based on the fee a likely 5% of all purchases). Maybe you can quibble on how much parents would spend anyways, but it's still a fee put on non-scholarship families.

Anonymous said...

JS -

Thanks for admitting you were mistaken and not dishonest.

I'm at a loss to understand your point about net tuition income above. The school is pretty clear what parent obligations are. It is not hard to understand nor is it misleading to anyone who reads 3 more lines down on the page.

As for the dinner journal - the school is clear that it is an obligation. I could (if so inclined) argue that part of this is not. If I go the dinner and voluntarily donate $5,000, these figures would indicate that $850 is applied to my obligation and the rest to voluntary contribution. Practically that is true. Pragmatically it really is not. Some portion of parents are deciding to give up and above and the $850 is no consequential. In addition, the school allows parents to raise the $850 from other sources - e.g., businesses. This is not a donation and no receipts go out but parents can effectively defer this obligation. Some actually do.

On scrip - I disagree with your overall premise but we could likely agree that some portion would be spent anyway and it costs parents nothing to raise money for this school this way. This is even true for scholarship families (they do have to eat don't they) so not an obligation that just falls on non-scholarship families.

In the end, I would argue that they are raising voluntarily more than $1m so event the $300k is overstated but you are correct that the denominator should be full paying parents.

By the way - you've chosen to focus on one small part of the report, take the most aggressively negative read on the numbers, make accusations about the honesty of school (while incorrectly reading the report) and totally ignore the overall value of the information being provided. Pretty disturbing.

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Anonymous said...

JS - let's go back to your criticism of "approximately $300" per child. As you point out 23% of families are on on scholarship or 113 families. Based on 1015 children in the school there are 2 kids per family (actually 2.1) or 226 children on scholarship or if you count partial children to be more exact 233 (not 277 as you note above). That means that 782 children (not 733) are covering the $300,000 or $384 per student.

Now, if we assume that those scholarship families also buy scrip then that 23% of 195k or roughly $45k that scholarship families are contributing (above the $1m) and the per student cost of scholarship goes down to $327 per full paying student. If we assume that some go out of their way to raise money for dinner journal adds this comes down further. Sounds like "approximately $300" to me.

JS said...

Anonymous,

I'll try again. But first, enough with the ad hominems. I focused on the $300 subsidy because that was the opening paragraph of SephardiLady's post. There's a lot of interesting stuff in their report, good and bad. I applaud them for putting it out in the first place. I think a more interesting point was the one I made in the last post about percentage of budget on faculty is the same as the Islamic school, the difference is amount spent per student - we do everything bigger and better (and more expensive).

Anyways...

Let's consider how a scholarship amount is calculated. The school charges parents a tuition per child and then various family fees including scrip and a dinner journal obligation. Say a family has 2 kids and the tuition is $15k/kid, scrip is $375 (assume the fee) and the dinner obligation is $895. That's a total bill of $31,225. They tell the school we only have $25,000. School gives a $6,225 scholarship.

Now, does it make any sense to say that the scholarship all goes to tuition even if the school requires the scholarship parents to pay part of the $25,000 total to scrip and dinner obligation? Of course not. The total amount they can pay is based on the total cost of the school and the total cost is not just tuition. If they were told not to pay scrip or the dinner obligation they'd pay $1,225 more to the tuition, but we wouldn't say their scholarship is now only $5,000.

Here is where RYNJ is using fuzzy math. They separate out the tuition from the scrip and dinner obligation. They consider the scholarship to be exclusively to tuition and not to scrip and dinner obligation. This is only OK if every scholarship family pays the dinner obligation and scrip - otherwise there is a "second" scholarship to these costs that they are not considering.

But, at least for the dinner obligation, we see this isn't true. They collected $319,675 for the dinner obligation. If all 491 paid the $850, they'd have collected $417,350. The percentage that paid ($319,675/$417,350) is 77% - exactly how many full payers there are (23% of families on scholarship).

It's hard to do the same calculation with scrip since a family that spends more than $7500 on scrip raises extra money for the school.

Regardless, there's a $300k shortfall between scholarships and voluntary contributions, there's a $97,675 shortfall from the dinner obligation ($417,350-$319,675), there may be another shortfall on scrip, and there's another $300k shortfall in bad debt from uncollected tuition.

My numbers above are off and I thank you for making me rethink this more carefully. But, the point remains it's a lot more than $300/kid. We can quibble over the denominator (at least we both agree 1,015 is wrong), but using your lower number of 226 still makes the subsidy at least $884/kids ($697,675/789 full paying kids).

JS said...

"Say a family has 2 kids and the tuition is $15k/kid, scrip is $375 (assume the fee) and the dinner obligation is $895."

should read "...dinner obligation is $850."

Anonymous said...

JS - I guess the irony is just lost on you that you accuse the school of using fuzzy math and in almost every single one of your comments above you calculated your math wrong, misread figures in the report or mistated facts. Worse case scenario, giving the school the benefit of the doubt, lets assume that the school use the wrong denominator and mistated $380 as almost $300. Everything else you write is assertions to back up your desire (imo) to show that scholarships cost more. Is this the best weh can do during the 3 weeks?

tesyaa said...

I don't know what the three weeks have to do with it. I don't believe JS is doing anything wrong by trying to sort out the RYNJ data, but even if you believe he has nefarious motives, why would it be OK to push a nefarious agenda before and after the three weeks but not during the three weeks? Mentioning the three weeks is an irrelevant distraction.

Anonymous said...

tesyaa - 3 weeks are only relevant because presumably we are all frum Jews and the inappropriate assertion above was about the alleged dishonesty of a Yeshiva. Beyond that - sure - totally irrelevant.

Be that as it may - you are right - there is nothing wrong with trying to sort out the data. Presumably the intent of the school publishing a 20 page report was to share information. There is, however, something wrong with attributing nefarious motives to the school while at the same time using bad math, incorrect information misread from the report and assertion that are not backed up by the available data.

Perhaps a deeper issue here is that the school provided an email address to solicit comments, ideas and questions. Isn't that the first appropriate place to address any of these questions before taking anonymous pot shots on a blog? I'll give everyone posting here the benefit of the doubt that they have already done so.

LifeAct said...

Why focus so much on the scholarship aspect? Even if the "true number" for the subsidy is $2000 per child instead of $300, how important is that in the scheme of things? All it means is that "real" tuition per child is $15K instead of $17K. In my mind, that is still quite expensive for most of our community.

The bigger question in my opinion is can the real expenses be slashed. Getting rid of bloat should be the focus if we're trying to control tuition prices.

Anonymous said...

LifeAct - the school indicates that average tuition is roughly $13,000. If my math is correct that is actually for full paying parents - i.e., scholarship parents pay $4,700 less per child as per the report - and inclusive of all parent obligations. Looks like tuition is $2k less than you indicate. Probably irrelevant to your point but good to be accurate.

tesyaa said...

LifeAct: surely you realize getting rid of "bloat" means that people in the community, who have been getting a fairly good deal for years and years, will have their jobs slashed. Getting rid of bloat doesn't mean buying toilet paper more cheaply - it means slashing jobs, slashing hours, and requiring a full day's work for a full day's pay.

If teachers, administrators and secretaries have to give up their jobs as part of getting rid of bloat, why shouldn't scholarship families be required to give up some "bloat" in their lives? A stay-at-home mother in a scholarship family could be viewed as "bloat". So could a large mortgage.

JS said...

Anon 9:37,

Cut the sanctimonious "frummer than thou" nonsense. Everytime someone criticizes a "frum institution" out come people like you saying it's the 3 weeks, 9 days, elul, aseret yimei teshuva, yamim noraim, omeir, etc. What's next? It's Tu B'Shvat? The only irony is that you spout off the "frumspeak" and then go on to take pot shots at me. I know your type - you're the guy who loudly shushes his neighbors in shul with a "guys! it's chazaras hashatz!" and later in the day loudly berates a waitress because the steak was medium, not medium-rare. I don't like people like you when I meet you at shul and I like them even less when they hide behind anonimity on a blog.

The school made at least 3 mistakes: wrong denominator, not factoring in the uncollected tuition expense, and not factoring in dinner obligation and scrip scholarships. I made 2 mistakes: I said the school was calling certain obligations "voluntary" and I included the entire scrip and dinner obligation instead of just the scholarship part. The first mistake I made did not affect results, the second did and I corrected it. Both times I came clean.

You, on the other hand, continue to cling to $380 which is just plain wrong and includes the latter 2 errors the school has made. Your math about how $380 can be lowered to $300 is specious and doesn't make any logical sense.

The reason it's not ironic that I accused the school of making mistakes while making mistakes of my own is that I don't have any constituency I'm trying to persuade. The school's agenda is to persuade it's full-paying families that the subsidy they are paying is minimal - that they shouldn't be up-in-arms about it. They're trying to gloss over the $4700 median scholarship by 23% of families by saying full-payers "only" pay an extra $300. That alone is pretty absurd. The actual cost difference isn't $300 betwene full-payer and scholarship family, it's $4700+ (median).

The other difference is they had a whole team of people working on this, may have paid an outside firm to get the report made, and administrators paid hundreds of thousands to look over this. Maybe the denominator thing was a simple error, but it seems pretty clear they are selectively categorizing various contributions and expenses to make scholarship appear as low as possible (e.g., not including uncollected tuition or dinner/scrip scholarships).

Miami Al said...

Can I point out the irony of presumably all "frum Jews" (with a Yeshiva education being implied) commenting about the "three weeks" on a website run by a woman whose handle is "SephardiLady."

Three Weeks is Minhag Ashkenazi. Sephardim generally follow the codified Halacha of Chodesh Av and Shavua Tisha B'Av, not Tammuz-Av.

And it was CLEARLY a non-sequitor to silence a disagreeing opinion by accusing JS of not being sufficiently frum to have an opinion on this, since your three weeks comment did nothing but try to silence someone.

Also, RYNJ presumably prepared the numbers by an accountant, informally audited, etc. JS is typing into an HTML form on a blogspot page. I think that expecting his arithmetic to be perfect is ridiculous.

Everyone is analyzing the same forms, and clearly RYNJ said something "true" ($300/student) but meaningless, which is spun down, perhaps dramatically, perhaps not. But the real number is higher.

JS said...

Another thing:

There's no reason to believe that uncollected tuition is from the same set of families that receive scholarship. It's actually more likely that some families get a "scholarship" by saying they're paying in full and then pay what they think they can afford. So, instead of asking for a $5,000 reduction, they just pay $5k less. It's not called a scholarship, it's eventually just written off as uncollected tuition. So, uncollected tuition HAS to be included in the figures aove AND the actual number of families on scholarship is likely higher than 23% when you factor in non-payment "scholarship."

Also, the school has a large building fund - $8,000 payable as $1,000/year for 8 years. There's no indication as to whether scholarship families pay this either. They say $347k was collected in building fund obligations, but it should be $423k less $1k times the number of parents who are "older" and have had kids in the school for more than 8 years (assuming the obligation existed 8 years ago). Whatever.

Selena said...

I don't know about your schools, but at our school, there is no getting out of the dinner obligation. Every family has to pay the 500, it is not taken into consideration for scholarship. Same with a 350 per student registration fee (every year). That is non-negotiable and they don't take those amounts into consideration when giving out scholarships.

JS said...

Selena,

How can it be true that it isn't taken into consideration? If I only have $25,000 to pay for my 2 kids and the school is forcing me to pay a $500 dinner fee and $700 registration fees, I now only have $23,800 to pay in tuition. My scholarship for tuition is now larger - though the same amount total is paid. It's all just games with numbers.

If they play "hard ball" what will end up happening is the parents will pay the dinner and registration fees and leave a corresponding amount of tuition unpaid. That will then get expensed as uncollected tuition.

You can't get blood from a stone (the family can't magically make the money appear) and this is what happens when you have a yeshiva for all policy regardless of ability (or willingness) to pay.

Mark SoFla said...

The thing that impressed me most about this RYNJ report is that it seems to indicate that children of staff members pay tuition like everyone else does (or the numbers of staff children are tiny). This is not true at many, MANY, other schools.

JS said...

Mark,

Where do you see that? I assumed those discounts were rolled into the general scholarship pool or are simply off the books.

Anonymous said...

JS - I appreciate your very interesting description of the type of person you think that I am. It is quite amusing.

Al - Your comment is actually funny. I didn't realize that our host was SephardiLady.

JS - I have decided to take the school at face value. Looks to me like they made a mistake in their calculation. You go straight to accusation of dishonesty. I hope that this is just reflective of the level of debate and accusations that happen on blogs. You want to ask questions, take issue with the way the school's representations, go for it. They've asked for feedback!! However, I know the people who signed the front of this report and I find your your attribution of ill will extremely offensive.

You don't like my reference to the 3 weeks - so be it. As tesyaa points out - it is irrelevant. This is not a question of "frummer than thou" - just common decency.

Fred said...

On a side note, but important note, I think there’s a big concern going forward. At first I was surprised that the report suggested that only 23% of kids receive scholarships, suggesting 77% pay full price. But if you look at the amount of kids and families (1015 and 491), this suggests a fairly low ratio of about 2 kids per family.

So I’m wondering if there are many families with just one child in the school who can now pay full price, but if the family has two or three, they might not be able to pay full price.

I still think its commendable that the school is working at maintaining tuition. But the tuition crisis is only going to get worse absent major initiatives.

JS said...

The fact that you know the people who signed the front of the report is completely irrelevant. It's a public report from an organization and is entitled to public scrutiny. One of the big problems in "frum organizations" is that everyone knows everyone else - he was my counselor, his wife is my brother's sister-in-law, our parents used to go to Kutscher's together, etc. so there's diminished scrutiny and a heightened degree of nepotism.

The people who signed the report may be the finest human beings who walk this Earth, but the report is still misleading. Maybe it's just "aggressive advocacy" as lawyers would put it, but it's still dishonest in my opinion. You should note that dishonesty and ill will are completely different things - I said the former, never the latter.

Mark SoFla said...

JS - Where do you see that? I assumed those discounts were rolled into the general scholarship pool or are simply off the books.

1. If they are off the books, then the tuition/#students would be lower. Unless they aren't including such cases in #students, and that is very farfetched!

2. I'm not sure they can call that "scholarship" and still remain honest when facing the people funding those scholarships via contributions. Do other schools call that "scholarship"?

3. And even if they do call it "scholarship", the numbers then become even more impressive - the vast majority of students do indeed pay full tuition or close to it.

The average net tuition collected appears to be $11,423 per student. That's excellent!

JS said...

Fred,

I agree. The 23% on scholarship is likely to grow as the school continues to grow. They grew 3% last year and 3.6% this coming year. That's primarily new students in nursery, pre-k, and kindergarten. I would think most parents can swing the 1 tuition, but when it becomes 2, 3, or more kids they'll be on scholarship. So, the 23% may be hiding a lurking problem. There's also some percentage of parents promising to pay full tuition and then not paying and getting a "scholarship" in the form of uncollected tuition write offs.

Regardless, that 23% (at least) is going to travel right up to the high school level. Tuition at high school is around $10k+ more per kid. So, the amount of scholarships in high school has got to be higher both percentage-wise and in total amount. If the median scholarship at RYNJ is $4,700/kid, it's got to be around $14,700/kid in high school.

The subsidy full-payers are paying in high school has got to be significantly higher than at the elementary school level.

JS said...

Mark,

Maybe they do this: include the discount to teachers' kids as both tuition paid (income) and as teachers' compensation (expense). So it has no impact on the bottom line. In other words, the full amount of tuition is billed to the teacher, but the school pays it itself as part of the teacher's compensation.

I agree with your points that calling it a scholarship would be misleading and wrong.

JS said...

They could also just say the amount owed is less and leave at that (tuition obligation is just lower for those parents). I think what I wrote about about income/expense is a more accurate way of reflecting it though (it reflects it through increased compensation just as scholarships are reflected as an expense).

Mark SoFla said...

JS, that's possible! Hey, are tuition benefits for ones children a taxable benefit? Any accountants/tax lawyers out there want to comment!

I think if my company were to pay tuition, or part of tuition, for my kids, I might have to pay taxes on that amount.

tesyaa said...

MarkSoFla: I believe tuition reduction can be offered as a nontaxable employee discount, as long as it is offered to all employees in a nondiscriminatory way (i.e., no special deals for special folks).

What was really egregious was that until a few years ago, if a teacher in School B had kids in School A, School B would send some amount to School A to pay that teacher's tuition bill. This practice cannot be viewed as an employee discount since the employee is not using School B's services, yet it was effectively treated as such. Of course, since this deal was part of the teacher's compensation deal, the money sent to School A was effectively not taxed. (Shame, shame!)

Miami Al said...

JS,

The "correct" treatment of the tuition benefit is as an expense in the compensation and income in the tuition. The Net effect is the same, and it makes the tuition collection rate look much higher... indeed it is higher of sorts.

Normally the schools just don't book it, because if they book it as compensation, they worry about taxes.

The other reason to book it as compensation is internal cost accounting. If you are a Nursery-12 school here, your discount applies to all grades. So a early childhood teacher with 5 kids in the school might never make more than $35k, but could conceivably receive no paycheck because a $60k tuition - 40% staff discount = $36k/year.

However, if you just do it that way, $35k salary, $36k tuition, you are ignoring that the $24k/year "tuition reduction" is part of the early childhood school's costs (therefore she makes $59k/year) and the reduced tuition removed income from the elementary/middle/high schools. That makes the early childhood look better financially than it really is.

Here it's a real issue. The schools all run early childhood thinking it's a cash cow, but it's not, it basically redirects money because the "teachers" are paid "poorly" (they are babysitters and paid a fair market wage), but compensated with discounted education and therefore hide the expenses of running it.

Mark, my guess is, if you ask a tax accountant/tax lawyer, they will say probably. If you asked the IRS two years ago, they'd agree. After the "ministry exemption," I'm pretty certain that the IRS has ZERO interest in arguing with religious institutions about this stuff. The courts are erring pretty heavily on the "Congress shall pass no law" part acknowledging that the price of religious freedom is that religious institutions get to do awful things. :)

tesyaa said...

The Internet is so amazing:

http://www.irs.gov/pub/irs-tege/fringe_benefit_fslg.pdf

Mark SoFla said...

tesyaa - (i.e., no special deals for special folks).

What if it is a benefit only given to employees that are considered "administration" (or executives)? (as many/most schools indeed do)

tesyaa said...

Mark - that might be OK if administration is a separate "class" of employees. That might be accomplished based on professional designations, level of responsibility, ability to hire & fire, etc. Naturally, you would have to ask someone with expertise, not a blog commenter who's not even a lawyer :)

tesyaa said...

By "no special deals", I meant a situation where Mr. A and Ms. B are both third grade teachers, but Mr. A gets a bigger percentage or dollar discount because his wife just had twins or he is making a bar mitzvah this year. You get the idea.

tesyaa said...

Although, I imagine a rebbe would be considered a different class of employee than a secular teacher because of his rabbinical degree. The example of the two third grade teachers would apply to teachers of the same "class".

In the end, I think Miami Al is correct and religious institutions will be able to make their own uncontested rules in the foreseeable future.

JS said...

Al,

Glad to see my intuition about how it should be correctly booked (and how it may be actually booked) are correct.

As tesyaa pointed out it may come under the fringe benefit provision and be excludable from taxable income, but I believe it's fairly complicated. My understanding is that it's for colleges and grad schools, so I'm not even sure if it applies to a private elementary school tuition.

Miami Al said...

JS,

Not an accountant, not giving accounting advice. My accounting classes were in the Business School, NOT the accounting school, so I'm decent in managerial accounting. Don't ask me how to book the journal entry though... :)

Well, in the concurrence to:

Hosanna-Tabor Evangelical Lutheran Church and School v. Equal Employment Opportunity Commission

"She also taught a religion class four days a week, led the students in prayer and devotional exercises each day, and attended a weekly school-wide chapel service. Perich led the chapel service herself about twice a year."

I'm pretty sure that ANY Orthodox Jew employed at a day school would qualify as a "minister" under that definition. Despite the fact that our current Supreme Court is all Jewish/Catholic, our legal heritage has a heavy Protestant bias, complete with the term minister. The implication before this was that Rabbis would be Minister, Rabbi is our term for it, but after this, it looks like anyone that "leads a prayer" could be considered it... I mean, if the 3rd grade secular teacher had the kids make the Bracha for cupcakes, that would qualify as leading prayers, no?

I just don't see the IRS wanted to get entangled in the very complicated (but low dollar figure) inter-Yeshiva transfer payments, especially since we're talking about teachers that likely owe $0 in income tax and only FICA on it... at the risk of getting the entire staff declared ministers and subject to payment via parsonage and no taxes as all.

JS said...

Al,

I think, based on tesyaa's link it would be a Qualified Tuition Reduction:

Education Below the Graduate Level

Qualified tuition reductions for education below the graduate level (including primary and secondary school) are tax free if provided to the following individuals who are treated as employees.
1. A current employee of the eligible educational institution
2. A former employee who retired or left on disability
3. A widow or widower of an individual who died while an employee
4. A widow or widower of a former employee who retired or left on disability
5. A dependent child or spouse of any person listed in (1) through (4), above IRC 117

See also this link:
http://www.acsi.org/Programs/LegalLegislativeServices/tabid/585/itemId/2203/Default.aspx

Regardless, I don't think it's possible to tell how many teachers are getting the QTR or what the total amount is from the RYNJ report.

Miami Al said...

JS,

The issue with the tuition reduction, in addition to taxes, prior to "Hosanna-Tabor" was whether it would constitution religious discrimination in employment.

i.e. we offer a 40% discount to all employees, but the school openly discriminates in enrollment, therefore, the discount creates a discriminatory pay structure by compensating Jews more.

I would think that the inter-yeshiva payments make this bad, unless it is offered for non-Orthodox Jewish schools.

i.e. could a Conservative Jew with their children at a Solomon Shechter school take advantage of this payment, or is it strictly inter-Yeshiva? What about a parent with a child in Catholic school.

The sums are small, but I can't see an Orthodox School agreeing to send money to the Catholic Church or a "Heretical" Jewish school.

But I just don't see the IRS being interested in getting involved in second guessing the internal governance of religious institutions... Many Orthodox Day Schools refuse to file a 990 claiming to be a Church, and the IRS doesn't get involved.

JS said...

Al,

Transfers to other schools regardless of type or affiliation would not qualify as a QTR best I can tell.

Inter-school transfers and parsonage and the like are just big cans of worms. I agree the fact that the schools are religious institutions gets them out of a lot of unwanted scrutiny.

tesyaa said...

JS, comments on this blog and on the "tuition blogs" indicate that the Bergen County schools stopped the tax-free interschool transfers within the past few years. These practices are not even borderline.

Orthonomics said...

I don't have time right now, but in a bit I will clarify some things regarding QTRs. There are pitfalls and I do think the QTR isn't always used correctly. I can outline some of the rules and pitfalls later.

miriamp said...

2 possibilities come to mind -- (this is just from reading the comments here as I haven't read the actual report.)

1. Since the amount matches, is there any possibility that this is the same $300K shortfall between fundraising and scholarships? But that's so simple that it probably can't be that or someone else would have picked up on it

2. Exactly what it says: delayed tuition payments from families on a payment plan that extends past the end of their fiscal year. (could be they don't count on getting it, or that if/when they do it will count on the next years balance sheet?)

As for the registration fee, etc., not counting, I was trying to explain that to someone about preschool. Officially there are no subsidies for preschool here. BUT if you have older kids in school and get a scholarship for them, they do"have" to give a larger scholarship if you also send a kid to preschool. therefore I reasoned that a family on scholarship who also sends to preschool is cheating and getting preschool/babysitting for free. If it doesn't mean that the mother will then be able to get a paying job to bring in more money for tuition (say more younger kids at home and daycare would erase financial benefits of the job) then one should keep preschoolers home another year or two.

tesyaa said...

therefore I reasoned that a family on scholarship who also sends to preschool is cheating and getting preschool/babysitting for free

I wouldn't call it cheating, since the school is well aware of what's going on. If the school wanted to avoid this situation, it could set a policy that any family that's receiving a tuition reduction not be allowed enroll kids in preschool.

fun with numbers said...

I don't get it all this accounting stuff.

To me the formula to determine what I pay for the other guy is simple - take the total school budget divide by kids and the result is what tuition per child should be. Then subtract that from what I pay. Voila.

My daughters school sent out a letter about their $10 million budget and referenced 1450 kids in the school. Doing the math I got $7k per student and yet they ask $13k.

Orthonomics said...

Miriamp,
I don't want to give an entire accounting lesson on the relationship between the balance sheet and the income statement. #1 isn't even a possibility if normal accounting is taking place (which I believe it is). Regarding #2, assuming the statements are in accordance with Generally Accepted Accounting Procedures or are prepared on an accrual basis according to IRS standards, income includes tuition payments that haven't been received (those payments would be sitting on the books as income. So this isn't about a payment plan.

My guess is that it is bad debt (actual write-offs) under a very strange name. If a payment was just DELAYED you would not need to expense it. But there are other possibilities that I'm trying to consider. . .

A P.S. I didn't imagine this post would get so much attention. Be polite all.

Orthonomics said...

fun with numbers--

That is almost what I would do. One does need to consider cash flow needs and sometimes depreciation expense (a non-ash current expense) divided out among all students won't capture cash needed now. Mortgage payment covering principal or other payments covering debt need consideration to come to an average cash needed per student.

JS said...

fun with numbers,

It's simple, but it's not totally accurate. If $1M of that budget came from donations, it's not an amount that is charged to you in tuition.

RYNJ has an operating budget of a little over $13M. They have 1,015 students. Your approach would say tuition should be just under $13k. But, they raise $1M in donations. So, it's really $12M.

The other issue is that you can't just divide by the total number of students - doing so would just tell you what EVERYONE should pay, it doesn't tell you what the full-payers are paying to subsidize those on scholarship. This is one of the problems I mentioned above.

So, tuition SHOULD be $11.8k for everyone.

It's hard to take the analysis much further because the $11.8k isn't a tuition amount, it's a total payment amount (spreading family obligations over all students).

To give a sense of what tuition actually is for 2 kids (average family size in RYNJ it would see) consider 2 kids in kindergarten to make it simple. Tuition is $11.3k, registration is $1700, family fees are $1,650. So, total cost for full-payer is $25,950 as compared to $23,600 of what it SHOULD be (if everyone paid the "should" amount).

Again, the "should" amount is only a piece of the picture.

Also, I hate to break it to you, but your $7k/student is probably too high as you didn't factor in donations to the school as a part of the budget. Sorry.

Nephew of Frum Actuary said...

fun with numbers:

I don't get any of this accounting stuff either (although there was an exam on it), but I do know that prices vary based on grade. So in your example, you also have to factor in the relative price stucture on a grade by grade level.

I'm sure that even the lowest grades cost more than 7K, but there are additional costs for higher grades that have to be taken into account.

tesyaa said...

So in your example, you also have to factor in the relative price stucture on a grade by grade level.

If necessary, couldn't the schools provide separate budgets for preschool, elementary school and middle school? After all, the differences in variable costs are known. Yes, there would have to be some formula to allocate overhead/fixed costs.

Think about the fact that schools set tuition rates before next year's enrollment is known. It seems like school budgeting is augmented by the technical process of "hope for the best and pray".

JS said...

Actually, it does tell you the amount that full payers are subsidizing, it just doesn't tell you the size of the subsidy to the kid on scholarship - for that you need to know what percentage of kids are on scholarship.

To clarify, for the 2 kids in kindergarten, that full-paying family is subsidizing a total of $2,350 - $1,175/kid. This is in line with the numbers I calculated above. But, the actual subsidy to a kid on scholarship depends on how many are on scholarship. Given the 23% of families on scholarship and assuming the average of 2 kids/family - you have 3 full-paying kids subsidizing 1 scholarship kid, so the subsidy is $3,525/kid. RYNJ says the median subsidy is $4,700 so either the average is less (unlikely or they would have reported the average and not the median) or scholarship families have more kids on average than full paying families.

Orthonomics said...

I think by budget, fun with numbers means expenses.

Total expenses divided by total number of students (I wouldn't include pre-school here) should give a ballpark.

Add to that cash flow needed beyond the depreciation expense taken and cash flow needed to cover principal of debt payments.

JS said...

Of course each grade has a different tuition (about a $1.5k difference from kindergarten to 8th grade), but these calculations are getting complicated enough already.

I think the scholarship family size vs full-payer family size is interesting to think about though.

JS said...

SephardiLady,

The expenses at RYNJ are $13M. On the income side, they raise $1M in donations. The remaining $12M in income comes from parents. It's the $12M imo that is the relevant number to see what the charge per kid SHOULD be, not the $13M number.

The building fund obligation is not included in their income/expense report, but that's another ball of wax.

Orthonomics said...

I think the comments are crossing. I was commenting on fun with numbers 10M figure. . .

I'm done for now. Back to the business of running this home.

Anonymous said...

The cost per student is the cost per student. It seems that the question being asked is how much "should" be carried by parents vs. the school "should" fundraise. The corollary, or perhaps primary, issue that seems to be driving this discussion is how much of a burden should full paying parent be required to carry for families not paying their own way. It appears that there is no clear alignment on exactly what these figures should be.

Anonymous said...

What about schools taking tuition for teachers kids out of their paychecks pre tax. Is that legal?

Mark SoFla said...

Anon 12:03pm - You don't like my reference to the 3 weeks - so be it. As tesyaa points out - it is irrelevant. This is not a question of "frummer than thou" - just common decency.

I don't understand your statement. Are you implying that common decency only applies during the 3 weeks? It should apply all year round!

Anonymous said...

That was the point. It should apply all year round and it should apply now. Unfortunately, I do believe it is being exhibited by the comments above.

miriamp said...

Maybe they borrowed against their endowment or similar to cover the payment plan stuff ("delayed tuition payments" for cash flow and then wrote it off instead of paying it back?

Tesyaa, I know the school is okay with it. but I don't really understand the mind set of get your kid in playgroup and then preschool as soon as you can regardless of if a parent is stay-at-home. in one community I heard it as soon as I moved in: "oh, your oldest son is two? We have a class for that!" well, he stayed home until he was 4 and it wasn't for financial reasons either - I just didn't think he needed to be in school before that! It was only 4 instead of 5 because he was bored and seemed to need school or something similar. He had three younger siblings by then.

Orthonomics said...

miriamp--you can borrow from a fund but it won't hit the income and expense statement. There is an interplay between the two statements.

tesyaa said...

I don't really understand the mind set of get your kid in playgroup and then preschool as soon as you can regardless of if a parent is stay-at-home.

You don't understand the mindset because it's not your own mindset. I have no problem with people having different mindsets. If you enjoy staying home with little kids, that's great. When I had a lot of little kids it was tough for me, and I really wanted a break. (Of course, we didn't ask anyone else to pay for it, but if the school is willing to offer a discount, I can understand why people would take it).

Just because I didn't enjoy staying home all day with little kids, does that mean I shouldn't have had the kids? (I guess some people would say yes). But they're not all little anymore and I find parenting more enjoyable.

Mark SoFla said...

miriamp - I don't really understand the mind set of get your kid in playgroup and then preschool as soon as you can

That pressure is nothing here in the USA compared to Israel. In Israel if you don't send your kid to gan by 6 months, you are looked upon as almost insane. When my wife told friends and family (and strangers, and people on the bus, and grandmas walking on the street, and the folks where she used to work, and the people at the pool, etc) there that she is a SAHM and keeps the kids with her full-time until age 4 or so, many of them told her straight out that she is harming the kids and their future development. My wife was rather put off by it.

LifeAct said...

tesyaa-

Sorry for not responding sooner. Yes, I understand that slashing bloat means getting rid of jobs and people, not toilet paper. Personally, I can stomach that. There is absolutely no other way to make tuition affordable to everyone (as it should be, since everyone is the target market).

I don't believe we need so many "chesed jobs" and I don't believe that the high-earning people in the schools justify their salary by the amount of value they add. If they feel they are worth that much because it is their "market value", I encourage them to jump right in to that market and get it. People need to be paid what they are worth in the job they do, not what they might be worth outside.