Dependent Schools - How the Public Pays More to Educate Students in Wealthy Private Schools Than Those in Public Schools

(4th of 5 installments)

Tax subsidies exist for private schools at least in part because the schools and their students' parents are deemed to serve a public purpose by shouldering the cost of educating students whom governments would otherwise have to educate on its own. This sounds good - until we remember that government pays as much or more to educate a student at Mercersburg as it pays to educate a student in Pennsylvania's public schools.

There is little awareness in private schools of the strong financial role of governments, a role that grows with each school's endowment and fundraising success. Like most Americans, the schools naturally prefer to trumpet their independence of government, rather than their dependence on it.

Sadly, U.S. tax policy assures that this subsidy goes disproportionally to the schools that need it least - those that raise the most money and generate the biggest endowments - just as the TARP money went to the biggest banks, and just as tax policy favors the wealthiest Americans.

Mercersburg has become a wealthy school. Its $483,000 endowment per student in SY2012, which ranked 9th among boarding schools (Appendix E), was comparable to Duke University's, but less than half that of Phillips Exeter Academy (top among boarding schools), which was in turn about half that of Princeton University (top among universities.)

Rather than feigning financial independence of government, wouldn't it be more honest and more honorable for our wealthiest non-profits to regularly acknowledge the tremendous support they receive from governments and thank them profusely, just as they would any other major donor - perhaps even name a building for them? Any other annual donor of $5.7 million could expect as much.

EXECUTIVE PAY

A Chronicle of Higher Education study of college presidents' compensation revealed that 42 of them received over a million dollars in SY2011 - prudent management? The study did not include a look at their expense accounts, which might have been more interesting. Still more intriguing could have been a study of pay for bigtime college football and basketball coaches.

Executive pay at private schools is lower, of course, some would say reasonable. The IRS Form 990 reports salary and benefits for non-profits' five most-highly-compensated employees. Pay packages for the heads of the 15 wealthiest boarding schools (Appendix F) averaged $490,000 in SY2012; the next four administrators averaged $239,000. The comparable figures at Mercersburg were $430,000 and $189,000.

Average pay for the CEO's of S&P500 companies was 354 times that of the average American worker in 2012. Pay for school heads is not nearly so obscene, of course, but "reasonable" is probably not the word the superintendent of the Mercersburg public schools would choose to describe it. Her compensation that year, in a system with six times as many students as Mercersburg Academy, was $130,000.

Pay for Mercersburg's teaching faculty and staff is not reported on the 990s, but a clue may lie in the fact that, from SY2007 to SY2012, the Head's pay grew at 5.5% per year, on average, the other four "most-highly-paids" by 2.3%, and inflation by 2.0% (Appendix F.) If all pay raises, like pay, were proffered from the top down, there could be little real growth in wages at lower levels - not unlike what we read about wage stagnation for most Americans in the last 40 years.

It is not the pay, but the number of administrators that old Mercersburg-watchers notice most. This was once called "administrative creep", an expression that was quickly bastardized by clever classroom teachers who added an "s" to the second word. It doesn't occur in all schools, but it is natural in the most affluent, which can well-afford a few superfluous administrators.

The number of administrators and administrative staff was noticeably higher at Mercersburg in SY2012 than in SY1992. Its per-student expenses, however, grew at slightly less than the 15-school average (but still more than twice the rate of inflation) over that period and ranked 15th in the bookend years. This could suggest that Mercersburg was at least no more casual about administrative growth than its wealthy counterparts.

Unfortunately, tuition and fees at the wealthiest schools also grew at over twice the rate of inflation in those 20 years (Appendix D), shrinking the already tiny slice (under 3% today, according to TABS, The Association of Boarding Schools) of American families who can comfortably afford boarding school. To maintain a semblance of economic diversity in their student bodies, boarding schools have all made efforts to increase their financial aid budgets.

Over 40% of Mercersburg's students receive financial aid. In fact, the school devotes more to financial aid, relative to its budget, than all but one of the 15 wealthiest schools (Appendix D.) But it still draws 60% of its students from that small sliver of families who can pay the full fare. Increasingly, these are not American families.

In the final installment of this series, we look at the growing conflict between the desires of many private schools to have student bodies that are both economically diverse on the one hand and geographically diverse on the other. We will also consider some measures that might slow the widening gap between wealthy non-profits and their poorer counterparts.