A Failed Trendbook
On a cool and misty Wednesday afternoon, the NAIS Trendbook 2022-23 arrived on my doorstep. As a consultant, I hear about (and see) lots of things in schools, from start-up schools and highly innovative approaches to learning to financial solvency crises and everything in-between. In the past, I often read the annual Trendbook with great anticipation, looking to devour its pages and come away the wiser. Anticipation changed to disappointment with this tome.
One of the critical issues for schools, which has been with us for some time, is their financial sustainability, whether we consider it from the perspective of the pure business model, opportunities for meaningful alternative revenue streams, keeping expenses under control, or responding to inflationary pressures on the endowment as well as on compensation and benefits (and so on). Many schools have been struggling with financial sustainability for years, and their worries have only increased over the past couple of years, even as they took the shiny money from PPP loans, temporarily masking their underlying financial deterioration. Where is the financial outlook?
The Trendbook, however, has not one word to say on the subject. Not. One. Word. It spells out an obvious economic outlook (obvious, that is, to anyone who reads/watches the news on at least a weekly basis), demographic outlook, enrollment outlook, demand outlook, philanthropy outlook, workforce outlook, equity and justice outlook, learning and teaching outlook, and an outlook on international students. Many of these outlooks are useful. Yet where is the outlook on what schools need to do financially? Recalibration? Restructuring their models? Paying down/off debt in order to maintain/meet debt convenants? Consider merging or aligning operations with a like-minded school? The finance of independent schools requires most of the 'outlooks' contained in the Trendbook, but the most obvious outlook needed by schools is one around how to keep schools functioning, from a financial perspective.
Perhaps there is a greater omission: the legal (regulatory) outlook. Nothing less than the actual independence of independent schools may be at stake from a ruling as recent as this summer. In a case decided in July, former students of an independent school alleged that they were subject to sexual assault and verbal sexual harassment at that school, and that the school failed to adequately address their complaints. The school argued that the claims could not proceed because it did not accept federal funds, and therefore was not subject to Title IX. The U.S. District Court in question rejected this defense, agreeing with the plaintiffs that the school’s tax-exempt status under 26 U.S.C. § 501(c)(3) represented federal financial assistance sufficient to subject the school to Title IX. The court first noted that a school need not receive federal funds directly to qualify as a recipient of federal financial assistance for Title IX purposes. It then reasoned that, in Regan v. Taxation with Representation, 461 U.S. 540 (1983), the U.S. Supreme Court “recognized § 501(c)(3) status as a form of Congressional subsidy and the equivalent of a cash grant.” Therefore, the court concluded, tax-exempt status constitutes “federal financial assistance” under Title IX. Even though this case was not to be decided until the summer of 2022, NAIS was surely aware of its presence on the docket, and could have framed the potential issue(s) for schools to contemplate, as an exercise in risk management. How about a risk outlook?
Consider the potential reverberations and implications of this case. At a minimum, schools may need to overhaul their existing policies, or create new ones, as schools may become subject to Title IX regulation. The ultimate scenario would bring into question the right of independent schools to exist, or at the very least, whether they should be regulated at the federal level. Will Pierce v. Society of Sisters stand up to this new affront? Such questions abound...yet there is no legal (regulatory) outlook in the Trendbook.
No financial outlook, no legal outlook, no risk outlook: in a world in which uncertainty seems to grow daily, how might the bulwark advocate for independent schools better rise to the occasion?