Source: AVI CHAI
At the YU School Partnership, we have adopted the principle of “stress testing” relative to helping ensure our Jewish day schools can sustain themselves under challenging conditions. The findings from our Benchmarking program with fifty Jewish day schools indicates that over half of our schools need to work on improving their scores!
With the generous support of The AVI CHAI Foundation and Federations and foundations in schools and communities around the country, we have built an aggregate database of 50 Jewish day schools of widely varying sizes and all denominations. Collectively these schools educate over 22,000 students and have operating expenses of in excess of $300 million. We believe that a key day school financial stress test measure should be the ratio of current year Revenue relative to current year Expenses.
First, the good news: just under half of the schools in our sample had Revenue to Expense ratios in excess of 1.0. On another key ratio, Net Tuition plus Mandatory Fees divided by Expenses, they averaged 0.8, meaning they were covering 80% of their expenses with “hard income.”
What we found less encouraging was that 1/3 of schools had ratios of 0.90 to 0.99, meaning they were falling short of matching Expenses with Revenue by between 1% and 10%. Their ratio of Net Tuition plus Mandatory Fees to Expenses only averages 67%, meaning they need to raise very large amounts of money from donations and non-tuition sources including foundation and government grants, endowment income, and fee for service income.
Those schools with wider stress test gaps than 10 percent should seriously consider more radical changes including mergers because their fundamental operating models are simply unsustainable. Fundamental strategic re-thinking and planning by the Board is an absolute requirement in such cases. Facing into the challenges will maximize the choices available to the families and communities served by schools in this condition and is not something to avoid, but rather something to embrace.
Fortunately, schools can take steps to purposefully improve their ratios. Implementing benchmarking analysis can point schools to specific areas to focus on. For example, schools can focus on the revenue side of the equation and/or the expense side of the ratio. Many do both.
Revenue boosting “moves” can include:
- Raising tuition in some grades to better mirror the cost per student.
- Professionalizing the recruitment of students by sharpening brand image and focusing parent ambassadors on specific target market segments.
- Improving the sophistication of fundraising—becoming more donor– and less event– focused and better managing the cultivation of major gift prospects.
- Pursuing fee based and rental income, increasing endowment funds, and securing foundation and government grants.
On the expense side of the equation schools can:
- Reduce educational administrative expense by asking senior faculty members to assume administrative roles or administrators to assume teaching roles.
- Lower teaching costs per student through modest increases in section size enabled by teachers trained in differentiated instruction and blended learning, plus the more effective use of teaching assistants.
- Reduce non-faculty costs through outsourcing and joint purchasing.
- Schools involved in the YU Benchmarking and Financial Reengineering program have successfully attained ten or more percentage points of ratio improvement over a period of several years, making steady progress each year.
A recent publication “Sustaining Your Day School: 50 Strategies from the Field,” catalogues additional concrete tactics that schools are using.
Read more at the AVI CHAI Blog.