Navigating a global health emergency
No manual exists for navigating a school through a deadly pandemic, but Masters’ Chief Financial Officer Ed Biddle drew from the next best resource – a comprehensive report analyzing the effects of the 2008-2009 recession on independent schools across the nation.
After school shut down unexpectedly last March, Biddle quickly called up the author of the study, Jim Pugh, whose 12 takeaways from the last major economic crisis have guided Masters’ response to the virus since it arrived in New York a year ago.
While Biddle said the most difficult part about the early stages of the pandemic was staying calm, he harnessed Pugh’s advice, upholding optimism and a collaborative approach through a period of induced isolation and uncertainty.
Biddle said, “The role of a CFO at a school is to help inform the financial decision making by the leadership team and the board. People will look to me to see if we’re going to be okay. I don’t answer, ‘Yes, we’re going to be okay, but–’ I say, ‘We’re going to be okay, and–’”
That “and” included a series of crucial steps in the early stages of the pandemic that impacted the school’s ability to adhere to its top fiscal priority – supporting the educational program.
Unforeseen cuts and expenses
Based on data from Pugh’s study of independent schools during the recession, Biddle said he needed to prepare the school for lower contributions from donors, lower enrollment and higher costs.
“We had no idea what our expenses were going to look like, but we knew they were going to be higher,” he said. “And we anticipated that our revenues would be lower due to lack of fundraising and potentially due to enrollment, because in prior recessions people who are in a position to pay for private school have actually not enrolled their kids in private school, but kept them in public school.”
While the school actually saved substantially on necessities such as food, transportation, heating and electricity after campus shut down last March, the goal was always to reopen safely, as soon as possible. This required major preparation and investments.
Back in the spring, over $1 million from the school’s operating budget was directed towards revamping academic spaces for students’ return. This effort included transforming spaces like Strayer Gym and Doc Wilson Hall into classrooms, upgrading ventilation systems and technology infrastructure, as well as purchasing new furniture and cleaning devices.
“People on my team were saying, ‘We have to get this stuff now!’ We couldn’t waste time talking about if we were going to do it or not,” Biddle said. “A good example would be the MERV 13 filters for the HVAC [heating, ventilation and air conditioning]. If we had not ordered them in the spring, we would not have been able to get them because they quickly sold out all over the world.”
Biddle added that the initiative taken during the early months prepared the school to confidently reopen when deemed safe by the school’s health advisory team.
“We put measures into place so that we would not be limited by our lack of preparedness. We were able to make a decision that was informed by the Covid situation in the area, rather than our situation,” Biddle said.
By the end of the 2019-2020 fiscal year (which ended June 30), the cuts and additional expenses essentially balanced out, according to Biddle.
Employee retirement contributions were halted this year
As national unemployment numbers skyrocketed to record highs, Masters tried to avoid furloughing employees at all costs, Biddle explained.
“In New York State, furloughs do not make sense for employees who make less than about $60,000 because you [the employer] end up paying the state back in unemployment for the savings that you got,” he said.
Instead, the school decided in the spring to stop contributions to employee pensions for the current fiscal year, saving the school over $1.5 million; Biddle said it was the “fairest move to make” considering the circumstances because it impacts all employees proportionally.
A pension is an annual investment into an employee’s retirement fund by their employer. At Masters, this has historically been 10% of an individual’s salary – for example, if an employee makes $75,000 a year, the school would add $7,500 to the individual’s retirement account. All employee pensions were halted in July, four months after the teaching faculty had signed annual letters of agreement with the school in which the benefit was promised.
Math teacher Hank Kim, who is one of the faculty committee co-chairs, recalled his reaction to this news (teachers were notified in early June).
“It is a significant loss, but because it is a retirement fund, I don’t really feel it yet,” he said.
Kim said he is grateful for the financial team’s updates to faculty throughout the pandemic, but conceded that there is still some confusion amongst teachers.
“I know we won’t know exactly where everything goes, but at the same time, people are a little bit concerned about how everything is being allocated. Sometimes I feel hesitant to approach administrators because they’re working so hard and it’s a very sensitive and tiresome topic," Kim said.
The National Institute of Pension Administrators (NIPA) indicates strict notice deadlines for a school’s retirement plan in order for it to be compliant with the Employee Retirement Income Security Act (ERISA). Because of the immediacy of the pandemic and the impending deadline, Biddle said the School had very little time in which to make this important decision.
“There are some things that you just can’t Harkness within the broad Masters Community. That may sound like a tough message, but in a really time sensitive, intense process, sometimes we have to proceed with the limited information we have, and trust that the decision will prove to be best, and that it will serve us well over time.”
However, he said he regrets not providing more context and training to employees who were grappling with the reality that the employer contributions to their retirement plans had been halted early on in the pandemic.
Gala, Masters Fund and Student Access Fund
The pandemic forced the cancelation of the April 2020 gala, an event that was in the works for over two years and which Biddle estimated could have raised roughly $1 million for the school.
Because the gala is not an annual event, the school does not depend on the funds for its operating budget, but rather for new projects and initiatives facilitated by the advancement team. For example, the last gala, held in 2017, focused on supporting Masters’ sustainability initiatives.
Nevertheless, the school’s Annual Fund (now called the Masters Fund), was impacted because the school planned to ramp up fundraising efforts as the gala neared, and was therefore a “little bit behind” totals from previous years at that time of the shutdown, according to Biddle.
But instead of trying to make up for lost revenue during the spring, the school decided to prioritize students and their families by directing the money raised through the Annual Fund between April and June 2020 to the Student Access Fund.
The Student Access Fund was created to provide financial support to families impacted by the COVID-19 crisis. The funds raised through this initiative ensured that all students could continue their Masters education without interruption, according to a description last spring in The Messenger.
Over $550,000 was raised for the Student Access Fund, Associate Director of Institutional Advancement Mary Ryan said, adding that to her knowledge, no families left the school due to affordability in the past year.
“The response was incredible, from college freshmen giving $5 to faculty making gifts, to families who gave $20,000. It was really heartening to see,” Ryan said.
Biddle is proud of how Ryan and others on the advancement team shifted their efforts after the gala cancelation.
“They saw what was happening, and they very quickly pivoted. Rather than feeling bad for us, they rallied the community around raising money for the Student Access Fund, which was very successful.
Ryan said that Masters finished the 2019-2020 fiscal year “pretty close to where they wanted to” with regard to the combined total from the Masters Fund and Student Access Fund.
Debt and endowment
The school’s endowment currently stands at $65 million, and it’s net endowment is $35 million, because the school is $29 million in debt and there is an annual draw from the endowment of 4% of a five-year rolling average that is put into the school’s operating budget. This is a significant improvement from 2015, when the endowment was $30 million and the net endowment was negative $2 million.
Biddle said contributions to the endowment have not been impacted by the pandemic because it is made up mainly of “major gifts”, not small annual donations.
Masters did not apply for a PPP loan
As a non-for-profit, the school did apply for a loan through the Paycheck Protection Program (PPP), but ultimately decided against accepting it.
The PPP is a $953 billion program established in 2020 by the federal government and designed to aid businesses in keeping their workforce employed during the COVID-19 crisis.
In the early months of the pandemic, the criteria as to who was eligible for a PPP loan was unclear and the process was disorganized. The first pot of stimulus ran out in just 13 days, and while the PPP was designed for businesses with 500 employees or less, large corporations and organizations like Shake Shack and the Los Angeles Lakers received checks (they later returned the money).
Several New York City independent schools also received aid through the PPP. Poly Prep Country Day School, Columbia Grammar & Preparatory School and Packer Collegiate all got loans between $5 and $10 million.
Biddle explained what informed Masters' decision not to accept the loan.
“It was a difficult decision. It was not a slam dunk. But it was our understanding that the program was really designed for organizations that could not maintain their current payroll,” Biddle said.
He added, "There was a limited amount of money. It just did not feel right to accept this funding when mom and pop restaurants that could not be open at all could not access the program."
While there was strong media backlash against independent schools that did accept loans, Biddle defended them.
“I feel bad for them, because quite frankly, there was very little guidance available at the time,” he said. “I’m aware of schools that would really have had to lay off a significant number of employees if they didn’t get their PPP loan.”
Tuition increased
Despite widespread demands for tuition to be lowered at private institutions across the country after classes went remote, most schools, including Masters, did not do so. In fact, tuition has increased this year to $51,500 for day students, a trend that is in step with colleges and universities across the country – Forbes reported in August that 34% of universities indicated that their fall 2020 tuition was the same as it was last year, while tuition was higher than last year at 62% of the schools and lower at only 4%.
Biddle explained why.
“The costs that are associated with running a college or a university with Covid, or even just operating your school online are the same, if not more than when you have people in person.” He continued, “Colleges and universities are not charging their students boarding costs like dormitory and food service; we're not doing that either. But the cost of the educational content that students are receiving has not gone down, and the money that was ‘saved’ has had to be reinvested in the program in order to bring the students back this fall.”
Boarding families paid the day student tuition rate beginning when school went online, up until recently when boarders returned to the dorms (boarders who have chosen to remain at home continue to pay reduced tuition). This has cost the school approximately $1.5 million in revenue, Biddle said.