After almost five years as the Director of Operations/Business Manager/Support Operations Specialist/deft clerical aide/Excel wizard/solution provider, I left Renaissance Academy-Edison Charter School in Phoenixville in August 2005 to, as the saying goes, "explore other opportunities." Renaissance opened in 2000, has grades K-12 and is one of the largest of the more than 100 public charter schools in Pennsylvania. Geographically, it also sits in a center of an enrollment gold mine heaven. It is surrounded by a number of public school districts that tax their residents a lot of money to educate their children. In 2005, the average annual school charge for a regular education student at Renaisance was $9,000. Consider in Philadelphia, that figure would be closer to $6,000. In 2005 Renaissance had an enrollment of over 830 students and a budget of around eight million dollars ($8MM). While allegedly an "independent" school, it was opened, managed and operated under an expiring (though likely to be renewed) June 30, 2005, five year contract with Edison Schools, Inc. of New York. In the early 2000's Edison was a darling of the investment world except to just about any regular poor soul that actually invested in them. That is not to say some people did not make a return, some did many times over, and over, and over. The average guy on the street though, probably not so well. Hey, for those that went to Catholic school; caveat emptor.
Leaving Renaissance was a semi painful decision. Being less than rich, poverty was not always a personal goal however, I submitted my resignation when it became clear the Renaissance Academy was either being led by people Karl Rove might consider for close personal freindship or these 'leaders' had both the allegiance and intelligence of a German Shepherd (no offense intended to German Shepherds). My short version is the Board of Director's past, present and likely continuing interpretation of professionalism was directly opposite my own. If you are a Board of Director type (as in, can formulate semi intelligent questions to things you might not be clear on) and/or are able to help any of your children with their third grade math problems, you may just want to review a typical Board Report actually submitted at the February 2005 Board Meeting and see what you can make of it. Sharper individuals here might ask on such a complicated spreadsheet "does this mean that through January 31, 2005, we are owed $4,541,876? And the answer is "yes." Then "what does the column '% S' mean?" "For example it means, as of January 31, 2005, 28.3 percent of the currently enrolled students came from the Norristown School District." Given this information and six executive partners (including one who wanted to teach students Excel), is there a chance you may be able to calculate the next numbers in the sequence?
I am also fully aware of the "non-burning bridges" tradition however, there are very few, if any actions taken by any individual that lack some additional, perhaps unwritten, integral flavoring and mandate a sense of perspective. To do otherwise should be the moral equivalent of at least, intellectual dishonesty. I have tried very hard to sequence the events and the participating personnel in a straightforward, factual manner, but with a touch of unavoidable seasonings.
Late on Thursday afternoon, August 4, 2005 I received an email from the School Board's newly appointed CEO with a request for specific details on FY05's surplus that was due "prior to the weekend." The basic thrust of this email was Edison was now getting $400,000 more than originally budgeted because of a combination of revenue discrepancy and un-spent funds. I suspect by implication that Renaissance would have wanted to spend these funds. I considered the urgency somewhat unusual as I had brought up a projected surplus issue at the Board's May meeting and again in a June 30 email without further question. I also considered it unusual in that this was the first time in well over a year that she asked me to comment on a budget prepared, presented and controlled by others for the past four years. This was also particularly curious as the new CEO had spent the last year negotiating a $9MM bond issue, presumably requiring all sorts of financial projections, for the school absent any input, conversations or documents from me. The past Board President/new CEO had also spent a portion of the year preparing for a renewal of Edison's contract with the school. Again, presumably involving a number of financial projections and meetings with Edison personnel and again absent any input or involvement by me.
I however, subsequently issued that Sunday evening a detailed analysis addressing the issues asked for in the email. Namely, districts paid more than expected, Renaissance suddenly stopped spending and comparison to budget was an ineffective and inappropriate measurement method . Monday afternoon, August 8, I received and replied to an email (copying several Board members) from the Board's new President suggesting she had read my report, but apparently was still having some trouble with the numbers and implications. I succinctly replied that my prediction on revenue was off by less than two percent, I considered that a good number and that I had had little involvement in what was bought or more important to the issue, was never involved in any discussions as to what was not allowed to be bought.
That Monday evening, August 8, a public Board meeting was held. The agenda included an entry reading "Treasurer's and Business Manager's Reports, Discuss $400,000 budget error, 10 minutes" (emphasis mine). The Treasurer was not in attendance. I did get to meet for the first time, Edison's local Area Financial Manager (AFM) and also learn among other plans for him was that his section would now immediately begin handling accounts payable instead of my assistant.
The actual discussion on the "budget error" took place in Executive Session. and included the Board members, the School's Principal, Edison's Regional Vice President, the AFM and myself. I restated what I had included in my report; that there was no "error," that any seeming surplus Edison received was consistent with the Board's contract, that my estimate of revenue was off by less than two percent of actual and in fact, had purchases been made as collaboratively estimated, the school would have again been eligible for a prestigious Edison "4 Star Financial" rating by a margin of only $37,000 (0.45 % of revenue).
Later that evening, I received notice that the Board had decided to rescind my annual merit increase awarded in July. An action I had never heard or seen before in 30 years of working and one I considered unreasonable and penal. No returning staff member, except the Principal was denied a raise in FY05 and the Principal was under a "corrective action plan" for several months and actually forced to resign (only to be rehired after a week of reflection by the Board). This withdrawal of merit increase was especially abusive and unfair. My January prediction for year end revenue was 1.79 percent under actual and it was not a number ever considered, important or otherwise, in the history of the school. Not incidentally, 1.79 percent was also the most accurate in the last three years and likely, the most accurate for the next three.
Over the next two days, I discussed these issues with the Principal, submitting my resignation to her late Wednesday afternoon. Over the next several days, I continued to redirect, share and assist on immediate issues, finally leaving Monday August 15 just after meeting with three members of the newly hired Edison Area Financial Management Unit.
In hindsight, it has become increasingly clear to me;
Under the contract terms, Edison does not get a "$400,000 error," they get about a $1.6 million "pass-through" fee which as a percentage of revenue is completely consistent with every previous operating year. The only way Edison would have gotten less is if Edison allowed Renaissance to spend more in justifiable and required operating expenses. Situations in which I was never consulted and one that was out of my control. I was not the one that said "that cannot be bought."
It is necessary to understand the contract with Edison that the Board signed in 2000 and the one that has been in place for each of the last five years; In its most basic form, Edison pays all the bills, Edison gets all the money. This Gross Revenue includes all regular tuition, all special education revenue, all federal grants, all State reimbursements on Social Security, all State retirement refunds and all lunch proceeds. In fact, the contract even called for Edison to get at least a portion of revenue if, for example, the gymnasium or cafeteria were rented to an outside party. When Edison talked of monitoring the budget, it is because under this contract, it was their money they were monitoring.
This lengthy contract more usually referred to as the "Management Agreement" has the typical legal clauses and some variations. But in essence, the Board gets to keep just $50,000 per year for their own use regardless of any amount collected. The $50,000 is to cover the cost of ads in local newspapers announcing public meetings, paying their accountant, lawyer, fund raisers and so on. Then $100,000 from Gross Revenue is used to pay rent to Valley Forge Christian College and finally $1,122,000 is used for debt service. Debt service primarily refers to the Board borrowing some $8.5 million from Edison to build the Lower and Upper Schools, but which still revert to Valley Forge Christian College at the end of 15 years. These three items are fixed amounts and cannot be changed. These amounts are subtracted from Gross Revenue to yield Net Revenue. Edison gets all the Net Revenue, the Board gets $50,000.
Think of it this way, if anytime during the last five years, the Federal Government started a new education program and for example, quadrupled some grant money, Edison would have gotten all that new money. If school districts doubled their tuition, Edison would get all that extra money. That was the deal-all the money goes to Edison. There is no clause or provision in the contract that says if revenue or profit exceeds $X, then Edison will share some portion with Renaissance. From one standpoint under these terms, revenue is essentially immaterial-it all goes to Edison.
What is important and part of the contract is the expense side. The reason Edison gets all the revenue is Edison is to also pay all the bills to provide the staffing and materials necessary for the proper performance of the school. Edison primarily controls the expenses, easily witnessed by the number of purchased items that have to be first approved and signed for by Edison's Vice President although the Board apparently also has some say in what is purchased. The point is I did not control directly or indirectly what was bought or what was not bought. I did participate along with five other people in projecting total non personnel expenses for the year. This collaborative estimate in January for total non personnel expenses required for FY05 was $1,267,690 or about $60K over a budget of $1,207,870. The last number I saw in Edison's un-audited year end financials for actual non-personnel expenses was $1,062,021. That is around $146,000 under what was initially budgeted and about $206,000 under ($1,267,690 estimated less $1,062,021 actual) that was collectively estimated as needed and required during the actual school year. Whoever said items could not be purchased remains a mystery to me. As does, what materials necessary for the proper performance of the school were not purchased?
At the same time, what are non-personnel operating expenses? Copier paper to be used in the school year is an expense. A new laptop is not. There is a difference between an operating expense and a capital item. Edison has defined capital expense as something costing more than $1,000 with a useful life of one year or more. A $2,000 laptop would be a capital item while a $3,000 electric bill would be an operating expense. Operating expenses are costs incurred and used in the specific year. Accountants might take some issue with the following analogy, but it works for clarification. A laptop is financed over a five year period so its cost is $400 a year plus interest. Usually the word "cost" is replaced with depreciation. The $2,000 laptop is actually depreciated at $400 a year. The important part of this is capital items and their related finance costs are recorded in a completely different section in financial statements per generally accepted accounting principals. Neither the depreciation nor the interest cost are considered as non-personnel expenses. Capital items are not handled and cannot be listed as an operating or non-personnel expense in the Edison financial model. One could not buy 200 laptops at a cost of $400,000 and charge them as an operating expense. One could not buy a multi-year, $2,000 anti-virus software package and charge it as an operating expense.
A primary budget is simply an educated guess at what income you will receive less what expenses will be incurred in the course of a year. And guess is the proper word for income. Tuition is not determined by Renaissance. It is determined by the school district of residence of an enrolled student. Each school district sets its own rates; one for a regular education student and one for a special education student. Since Renaissance is relatively new and a charter school, it is a guess how many students will actually enroll or return. None of these figures are known when preparing the budget. Basically, one is guessing a number of students and multiplying it by a guess at what a district's tuition will be. As a very simple exercise; 10 students at $10,000 each gives an income budget of $100,000. But so does eight students at $12,500 each or 12 students at $8,333. Is the budget figure of $100,000 accurate? More important, it is not a figure that I put in the budget, it is a figure Edison presented and the Board approved. Knowing the above, to request reconciliation between budgeted and actual revenue is misleading and inaccurate at best.
However, a point may be made that if revenue was ahead of schedule, additional expenses might be incurred to offset at least a portion of the additional revenue. One could buy more things. Revenue in FY05 was ahead of schedule. A fact easily discernable based on the revenue report I submitted to each Board member each month showing what was actually earned through a particular time period. In fact, at the same time the review group in January was estimating non-personnel expenses to exceed budget by $60K, I predicted and adjusted the mid-year appraisal to reflect an increase to annual revenue by $150K consistent with established forecast models.
One needs to understand how tuition is collected from local school districts. In FY05, tuition rates ranged among the 18 districts sending students to Renaissance Academy from $6,300 to $11,400 per year for regular education and $12,100 to $23,000 for Special Education students. There are therefore 36 different rates (which, while not typical, can and have been changed at any time). For one regular education student A attending all year from the lowest district, Renaissance would get $6,300, while from the highest (student B), Renaissance would get $11,400. For a simple example, assume Renaissance has only these two students. Tuition revenue for the year might look like $17,700 ($6,300 plus $11,400). That is to one completely unfamiliar with Pennsylvania charter law or the operation of a school.
Pennsylvania tuition is actually calculated and paid by the districts based on the days the student is enrolled, lives in the district, the services received and the days Renaissance is actually open. Again using the simple example above; Student B moved to the lower paying district February 2 and started Special Education services March 23. Student A withdrew from Renaissance on April 4. The question of course is, in January (or any other time), how accurately can one predict the tuition revenue for the balance of the year without controlling any of these variables or even having any reliable historical information to model?
In FY04; 35 students withdrew from school sometime before year end, 16 new students were accepted during the year, 40 changed school districts during the year, 15 stopped Special Education services during his/her enrollment and 19 started Sped services. In FY05 there was more than double that number of changes and enrollment was about 837 students.
In January, I predicted tuition revenue of $8,128,572. As of June 30, un-audited tuition appeared to be $8,274,479. A difference of less than two percent (1.79%). For that "error," as decided by the Board the evening of August 8, my annual merit increase was to be rescinded.
In short, after four years and nine months of service to Renaissance Academy, my annual performance was apparently now being judged not by the Principal, but by the Board and the new CEO solely on an estimated number that no one had ever mentioned, had never been used, cannot be calculated and in fact, meant nothing in the end anyway. I submitted my resignation. I do not have an idea what happened to whoever did not spend the $206,000 in planned, justified and required non-personnel items. I do understand the former Business Manager that walked out on the school after three months, but later became Board President who then seemingly appointed herself to be the schools's financial consultant at $100,000 per year did work from her home in 2006. I do not know how much she increased enrollment or the number of grants she obtained in that position. Maybe there is something on the Renaissance web site.
Just do not let it be said that I can't take a hint.