PREPARED: How Parker Plans for Financial Longevity

PREPARED.

Bolstering the financial stability and longevity of the School.

This story originally appears in the 2023 Issue of Parker Magazine

One of the most integral pillars of Parker’s strategic direction is aptly named Future Forward. Centered on the stability and longevity of the School, Future Forward focuses on researching and designing institutional systems, processes, and plans that ensure Parker’s sustainability as a leading educational system.

Although only one piece of the direction, Parker’s financial stability is a topic that often draws the interest of parents, donors, and other supporters of the School. Those that support the community understandably want to know if their investments are safe, stable, and stewarded appropriately.

In alignment with Future Forward, the financial team partnered with Head of School Kevin Yaley, Ph.D. to review and improve the school’s budgeting, reporting, review, and forecasting practices. Ensuring long-term financial stability came down to two important financial elements—the School’s budgeting model and the School’s endowment.

Specifically, transitioning to a five-year budgeting model and growing the School’s endowment have greatly contributed to the ultimate goals of this pillar. These two recent endeavors have already proved effective at securing Parker’s financial future.

STABILITY AND FLEXIBILITY

Kevin explains, “We need to think five years down the road because the decisions we make today in terms of the budget will have an impact in the subsequent years.” One of the most significant financial changes that Parker has undergone in recent years, transitioning from a one-year to a five-year budgeting model provides more stability and flexibility while helping those involved to plan and manage interconnected needs across divisions and programs.

The Parker financial team found that a one-year financial model offered insight only into the six months ahead. By the time budget requests were reviewed and approved, the team found themselves already halfway through the year. After establishing Parker’s strategic direction, it became clear that this short time frame did not align with the goals of Future Forward.

Enter the five-year budgeting model. “The main benefit of a five-year budgeting plan is to map out the financial resources to support the strategic direction of the school,” states Dan Lang, Assistant Head of School for JK-12 Strategic Initiatives.

This longer-term view encourages Parker decision-makers to ask, “What does this program or endeavor look like in five years?” and then work backward to what they need today. This approach allows people to see what steps to take now in terms of financials and budgeting to achieve the strategic plans of their department, team, program, or the School in general.

With the recently started Parker Forward construction project, this new budgeting model allowed Parker’s financial leadership team to plan for the School’s financial needs and anticipate future increased costs stemming from the programs and upkeep associated with the expanded Silberman Student Life Center, gymnasium, and pool. 

The five-year perspective allowed the bank to confirm the School’s long-term planning and thus loan Parker the necessary funds at a very favorable fixed rate of 2.5%.

While not fully implemented yet, the transition to a longer-term budgeting model has sparked useful conversations—encouraging Parker faculty, staff, and administrators to look beyond their immediate needs and focus on growth and working together.

GROWING PARKER’S ENDOWMENT

Along with the new budgeting model, the financial team identified growing the School’s endowment as another important opportunity to support Parker’s strategic direction. “The endowment hugely strengthens the balance sheet for the School. It gives us a resource to support ongoing programming and innovation so we don’t have to always rely on tuition,” shares Assistant Head of School for External Relations Shara Freeman Hoefel.

Every year, Parker draws down from the endowment fund to fill the gap between tuition and the cost of running the School. Bolstering financial stability, the endowment drawdown at Parker is a conservative 3.5% annually—most independent schools, colleges, and universities typically have a drawdown closer to 5%.

“The goal is to grow the gap between what it costs to educate a child at Parker and the amount of tuition we use,” Kevin states. “One way to grow the gap is to grow the endowment. Growing the endowment means you have more money to draw down and put into the operating budget, meaning we can rely less on tuition.”

Growing the Parker endowment is well underway and will continue to be a long-term strategic goal of the School. Ten years ago, the Parker endowment fund was at approximately $10 million. As of the end of 2022, the endowment contains more than $40 million.

Augmenting the endowment supports the Future Forward theme by boosting the stability of Parker’s financials. The more the fund grows, the less dependent the School is on tuition and the more independent the School becomes from outside sources of potential volatility.

PARKER’S FINANCIAL STATUS IN RELATION TO GLOBAL FINANCIAL STABILITY

As the economic realities continue to become more unpredictable, Parker’s financial status remains solid. The School’s conservative financial approach has paid off over the years—Parker has historically remained unaffected by recessions and other financial fluctuations.

“We are in a very solid position to weather whatever lies ahead,” Kevin states. “We are locked into low-term debt, we have sufficient cash reserves, we have emergency funds, and we don’t spend in excess or unnecessarily.”

Parker has a strong repeat customer base and very low attrition rates. Since the School has tuition as its primary financial resource, it is able to meet its expected annual expenses. One potential sense of financial uncertainty in the face of a recession occurs if current families suddenly find themselves unable to afford or unwilling to pay tuition.

“We have a strong waiting list, we have strong applications, and the value of a Parker education remains high enough that we haven’t seen a drop in our retention in recent years,” says Director of Admissions and Financial Assistance Chris Sanders. “Even when the economy gets tighter, the families who are here are choosing to invest their dollars in Parker.”

Parents, donors, and other supporters of the School can be assured that Parker makes every effort to safeguard their investment and to continue to provide a quality students-first education and community. Reworking the budgeting model, growing the endowment, and, overall, working toward the objectives of the Future Forward campaign will ensure that Parker’s legacy remains stable for years to come.