Temple Japan Dean Stronach: “On a steady course of surpluses.”

Just a bit more on this one folks! (Maybe “just one more thing”, as Columbo used to say.)

I have been blogging about my sense that Temple Japan has been costing the taxpayers of Pennsylvania a lot more than annual reports have been showing the past couple decades. Here is another piece to the puzzle.

From an article (h/t to a reader) that was in the June 23, 2010 Chronicle of Higher Education, by David McNeill:

Not that it has been all smooth sailing. Temple set up the campus with lofty educational goals and a plan to be a bridge between the two countries, which were bickering over trade issues. The campus spent many years—Temple officials decline to say exactly how many—being propped up financially by its parent in Philadelphia during the lean 1990s and early 2000s.

Enrollment dropped to its lowest point in 2001, when the campus had 350 students. Mr. Stronach said the university’s English-language program remained popular and helped saved it from going under.

Since joining Temple in 2008, Mr. Stronach has helped shore up the campus’s finances and its “long string of deficits.” He said, “Those years when the main campus carried us are over. The university has matured, and we’re on a steady course of surpluses.” Today the campus has a budget of roughly $25-million.

[Emphasis added.]

What’s baffling is that no one in the public really knows how much those long string of deficits added up to. Remember, Temple Japan started operations in 1982. Per the 1997 Temple annual financial report, sometime in Fiscal 1996, the corporate entity, Temple Educational Support Services, Ltd., (TESS) was set up in Japan. If you look at the “Note O” breakout that I’ve been featuring here, (then, it was “Note M” on page 23), TESS started out with deficit of zero.


(CLICK TO ENLARGE)

Its first year put “new” Temple Japan a/k/a TESS alone to negative $907,000. From that point, it has continued to show a net negative between total revenue and the expenses that were reported on the “Note O” series. In 2009, the number had grown to over $4 million. And as I’ve been saying, I don’t think that that is all — I think the rent has been left out over the years.

It’s interesting that, in the 1997 report, TESS was carrying about $2 million in short-term note debt versus the Main Campus, even though it started on “Note M” with deficit of zero.

How much was being lost before 1996? Earlier annual reports don’t break out Temple Japan. My guess is the number was sizable and buried in other numbers.

In another part of the article, Dean Stronach says:

Stamina, perseverance, and support from its U.S. parent are the secret to survival, Mr. Stronach said. “During the times when the campus was not paying for itself, our main campus had the commitment to international education that they were willing to carry on. Everybody else was getting out.”
[Emphasis added.]

Yet, the problem is, it isn’t clear that the campus is even paying for itself now, when we don’t know the breakout of expenses on Note O. Yes, it looks like TESS revenue covers TESS expenses, but there is nothing under Property, Plant & Equipment (PP&E). Temple Japan rents, so somewhere there is an expense to a landlord. What they’re merely showing looks like expense for the staff.

Then, this piece about the consumption tax is always brought up:

To be sure, Temple’s own struggles are not over. It is currently taxed as a company in Japan, despite the nonprofit status of its parent. The university recently ended two years of administrative debate when it decided to keep its local status as a limited company, [Hoofin’s note: there’s your answer, Joe] concluding that becoming the Japanese equivalent of a nonprofit campus would cede too much control to the education ministry. But it is looking for concessions on tax issues.

To bolster its case with the government, Mr. Stronach emphasized that his campus does not provide revenue to its parent university, but instead pays a management fee. “We do not repatriate surpluses to the main campus; we pay it for the cost of operating us.”

Let’s step back for a minute.

In the period 1996 to 2009, by Temple annual financials, Temple Japan lost money (even without this rent issue). Dean Stronach is claiming “surpluses”–it’s not really clear where those are. “Note O” for 2009 shows a deficit. It’s true that TESS paid Main Campus a $1 million management fee. But it’s also true that Main Campus flies teachers in to Tokyo, and maintains an Assistant Dean for International Programs in Philadelphia. (This used to be Adelaide Ferguson, who is worth her own blog post in all of this red ink and lack of clarity. I don’t know who the replacement is. Anyway . . .)
So, the one million dollars is not “surplus”; it’s the cost for receiving services from an affiliated unit. If Temple didn’t provide the service to its TESS sub, TESS would have to go out and purchase it.

Maybe the bigger concern is that Temple officials don’t seem to understand how consumption tax works in Japan. Even if you are a for-profit company that loses money, you still have to collect the 5% consumption tax on what you sell. You are credited the 5% consumption tax on things you purchase where you have paid the tax. You remit the net. The consumption tax is paid by the students, not by the university. All it’s doing is making the price 5% higher than it would otherwise be. How big a hurdle is that? There are no other “full service”, Tokyo-based American universities in Japan. What’s the competition?

So it isn’t a matter of “we’d have these surpluses if only we didn’t have to pay consumption tax”; or even, “we’d have these surpluses if we could have the Pennsylvania-subsidized teaching staff from Philadelphia flown in and work for us for free.” To be honest, there really aren’t surpluses there, even using the TESS breakout provided by Temple and Deloitte.

It’s nice to read about a school doing its good work, and it is impressive that 40 colleges sought to conduct a teaching enterprise in Japan, but only Temple remains. But what this might actually be saying is that the other 40 quit because they admitted to the red ink. Temple simply hides it.