I’ve spent too much time on this one and am going on to something else.
The final piece of looking at these figures was to figure out what the separate balance sheet for Temple Japan a/k/a TESS would be. That is, what does it own versus what does it owe?
The unit usually has a $3 million or $4 million “line of credit” outstanding balance each year. This is probably represented by the money that they are showing as a reduction to net assets on that analysis I did the other day.
The problem is that Temple University uses fund accounting. So what happens, usually, is that the cost of the space that a nonprofit occupies is not so clearly evident. There isn’t a separate line for rent or depreciation–especially if something called a capital lease is involved. An operational lease is normally off-balance sheet but shows as an expense.
Land and buildings that are owned outright customarily don’t factor in the in-and-out statement unless there has been a purchase or sale.
When Temple Japan started up in 1982, chances are that it didn’t have any money. So the money came from Temple University proper. They probably entered into a capital lease and then carried that lease on the balance sheet of the main Temple U.
Depending on how the transaction is structured, TESS could still be free riding on space all the way. Temple Philadelphia picked up the cost long ago, and carries it under “Property, plant and equipment, net.”
The “net” is key, because it indicates that any capital lease liabilities are merged into the asset value on the balance sheet.
Capital lease accounting itself involves the use of present value and a discount rate, which is a kind of interest rate you use to reduce the long-term cost you report in a financial statement. (An explanation would put you to sleep.)
So technically someone could be right in saying that Pennsylvania does not currently fund Temple Japan, but only because Pennsylvania funded Temple Japan long ago.
It just isn’t clear.
I’m convinced though, that the in-and-out money for Temple Japan does not include a “PP&E” charge for the space it occupies. And it’s still unclear if the educational and general expenses aren’t just an allocation.