Other Thoughts

[Retired CPA]

I decided to pull up the 990’s of Sandra Prep and Bosque to see what they are doing financially.
First thing that stands out is they are operating within a budget. CPA/CFO at Sandia made around 33,000 a year in 2016. Headmaster makes a little over 200,000.

Bosque also is operating within a budget. No CFO on the payroll, but I do see a highly regarded CPA Eric Herrera signed the 990 and is the treasurer on the board of trustees. Maybe Eric is donating his time and expertise.

In 2008-9 AA spent close to a million dollars on a CIO, a CFO, a finance manager and a business manager. Better to get one strong CPA/controller in place and elimate all other positions. There has been no value added in just spending more money on people who don’t appear to understand you can’t spend more than you take in. Budgets are used for a reason.

Let’s looks at some easy ways to cut costs.
Headmaster cut salary in half
Eliminate the CFO position completely. No value added here
Eliminate the assistant head. You have an associate head. Don’t need 2
Several years show conferences and travel expenses of 700,000
Immediately put a cap in place of 50,000.
Savings per year would be roughly 1.3 million

One last thought since the national merit scholars seem to be one of the defining criteria for the school. Someone needs to looks at these 25-30 individuals and see how many were the recipients of AA ‘s mission of giving the best and most qualified students an opportunity at a great education without regard to their ability to pay.

This will give you some idea about whether the quality of your school will go down over time as financial aid is cut to meet budget shortfalls.

[Retired CPA]

Correction to above post…..CFO info was from the 2015 990.
Financial aid as a percentage of total revenues in 2015.

Sandia Prep
Approx. 23%
Academy
Approx. 12.6%

[ExFac]

I’m no longer at AA and am glad I left when I did. I felt I found the school, kids, colleagues of my dreams. I then saw, ___ years ago, the inkling instability of financial mismanagement. First clue: Dick Elkins was a key part of two failed banks. Second clue: Hiring lawyers in the financial officer slot. Third clue: Huge salaries for upper admins and too many upper level admins. Most of whom were completely unqualified for the positions to which they were given (no going through any formal position announcements, applications, interviews or competitive selection).

I am pained that a school I cherished continues, it appears, to make such poor decisions. AA was once a school with “needs blind” admission practices. Given the current downward spiral of fiscal death, it’s those students who should be at AA who will no longer be able to attend due to family financial stresses.

I pray for this school. It is all I have left.

[Retired CPA]

Forgot to add one last question.
Why is the wife of Andrew Watson on the 990’s as receiving 69,000?
400,000 isn’t enough compensation, so his wife is also making money?
Anyone know what this is all about?

[SDHeights]

I was at the presentation given today on the endowment. All numbers are from memory. The following points seem clear:

1) At the current burn-rate, the school will indeed run out of money – they admitted it’s currently not sustainable.

2) Efforts are in place to trim the budget, increase fund-raising in an effort to keep the school above the water-line, but probably just above.

3) There is some buffer given existing real-estate holdings that can potentially be sold at some point in the future, so the well is not dry yet.

4) They lost somewhere between $30M to $80M in hard investments during the crash (outside of real-estate investments) – let’s call it $50M for the sake of simplicity.

5) They purchased Mariposa for ~$5M based on multiple appraisals, had it appraised by a single company from Las Vegas, who apprised it at $~150M, and started operating the school like they had the inflated value.

6) The crash backed that number back down to the ~$20M range.

7) There is about $25M? in bond-debt, that was used to build buildings and such.

8) The cost of servicing that debt is around $2M per year, set to increase starting this year, so the crunch will get worse.

The key failure that I see is not so much in the real-estate bubble bursting – that was pretty much all speculative money back and forth on the books. But the core $50M lost during the financial dip – that is what has brought them to their knees. It’s unclear how or why that massive loss occurred, where they were getting their financial advice from (if at all), and why it did not recover with the economy – they did not address this at all in the presentation.

In fact, it appeared that by continually mixing the “book” real-estate losses with the core non-real-estate losses in the presentation, there was an active effort to hide that underlying $50M loss.

The bottom line is that now they have a school that is sized both from a management salary point of view (and a highly inflated ego that goes along with that), many very well paid admins, a large debt looming over their heads, and $50M less in the bank to cover it all.

I suspect that Mr. Watson is well past the point of really caring about staff morale when it comes to discussing financial matters (or any other matters); and this whole up-roar is just a nuisance to him. But it is good to see the board opening up, and talking about some of these really difficult issues.

[Retire CPA]

Sdheights Thanks for the update. Until they acknowledge the problem they can’t fix it.
I don’t think they can continue to blame the crash on losing the endowment. We have been in a huge bull market and the endowment would still be healthy if they hadn’t overspent every year and continued to deplete it. One of the board of trustees main objectives should have been to minimize costs. Why people let this happen over decades is still beyond me.

Honestly, without management changes I see more of the same going forward.

What I would ask next is why costs weren’t contained after 2009, so that the endowment didn’t continued to be depleted. By habitually overspending….the investments in the endowment had to be sold to cover expenses rather than be left in place to regain their value over time.
Did they really just estimate the endowment losses? 30-80 mil? Need a new accountant if so.

Covering up the problems has certainly not fixed them, so hopefully someone can start to make changes.
A good leader understands that they should always lead by example. I look forward to hearing about the headmasters voluntary pay cut.

[SDHeights]

The $30M to $80M span was based on an original endowment value that was not clear. One commenter in the audience thought the slide had indicated a starting value of $150M, but the CFO said it was never that high, and was really around $100M. He would not bring the side back up to confirm what it indicated (highly curious), thus the ambiguity. The current value was stated at around $70M.

[parent]

Why is the wife of Andrew Watson on the 990’s as receiving 69,000?
400,000 isn’t enough compensation, so his wife is also making money?
Anyone know what this is all about?

Um, because she’s a teacher? She should teach for free just because her husband is well-paid? Y’all seem pretty quick to impute nefarious motivation before checking out the facts.

[Retire CPA]

That is why I asked. I have tried to help people navigate where the millions of dollars that have been grossly mismanaged went.
Please review the net assets on the 2007 990. 330,000,0000
Even deducting net assets for Mariposa leaves 220,000,000.
I will leave it to you to figure out what happened.
I suggest a forensic accountant.

[SDHeights]

The peak non-real estate endowment value shown during the presentation was ~$165M, with current value at ~$75M.

So it’s a whopping loss of ~$90M based on their own numbers.

Zero information presented on where this all went, how it was lost, and most importantly, what the changes in their overall behaviors have and will be implemented to recover from this. Zero accountability.

I suspect they really don’t have a plan, or at least a detailed one; otherwise they clearly would have presented it. It should be an already existing slide-deck that EVERYONE on the board should know forward and backward. There were no slides presented AT ALL on the recovery path, not a single projection looking forward.

At some point, the board is really going to have to wake-up, grow a spine, and exercise their options; hopefully sooner rather than later. Tick Tock.

[Academy worker bee]

In response to “Parent” above:

I have a friend who is a teacher at Albuquerque Academy. My friend has a Ph. D. in their field. Believe me, they have never made anything like $69,000 a year.

[at the meeting]

I didn’t take notes so this is from memory–my numbers are estimates.

Re SD Heights

At Saturday’s presentation Gary Gordon’s powerpoint showed endowment cash value peaked in excess of $130mil. (I don’t recall exact number). When asked to clarify during Q&A he stated that number was a mistake and the endowment cash value had never been in excess of $90mil +/-. The slide presented at Monday’s meeting reflected the $90mil. It was openly acknowledged there had been a decrease in endowment cash due to excessive spend rate and market volatility–roughly $30mil. The current cash value is about $83mil.

At Monday’s meeting Mr. Gordon was asked directly how much exactly did the Mariposa deal cost the Academy and its subsidiaries. He refused to answer the question saying he didn’t know. What he continually emphasized is the Academy paid $4.3mil for the property and it is now valued over $9mil. He refused to give any numbers regarding settlement of the lawsuit (approx. $5mil?) or cost of infrastructure before the property was unloaded. [I suspect this is where some of the cash value disappeared from also.] The Academy still owns between 2,500 and 3,000 acres of the land.

Academy incurred it’s first bond debt in 1985 to build the west campus. Since that time it issued 2 or 3 additional bonds to cover the cost of various expansion and renovation projects around campus. A balloon payment of about $26mil was due in 2009 and the Academy didn’t have the money to pay. So, a new bond was issued in 2010 to include all outstanding bonds, plus some additional debt, for a total new bond of $36mil. This is currently Academy’s only bond obligation. Debt service is approx. $2mil annually thru 2041.

The current operating budget (not including debt service and financial aid) is $3.1mil per annum and Mr. Watson thinks the actual spend will be $2.3 mil. [Keep in mind the operating budget peaked at $ 1 3 mil when the Academy/High Dessert thought it was sitting on gold in Mariposa.] The 18/19 operating budget will less also. He stated he will continue to offer open door meetings twice a year to anyone interested in operating budget details.

The board and Andy think the school can maintain its current financial position -operating budget/financial aid/debt service – if the endowment rate of return stays above 8% annually.

The board’s plan moving forward is to work harder rallying all past donors and tapping new resources for contributions. The annual campaign consistently raises approx. $1mil and they hope to increase this considerably as well as build contributions to the endowment.

[Retired CPA]

Investment in HDIC was 46,977,654 in 2005
An impairment of investment write off of -19,379,938 was taken in 2012.
A -4,000,000 note assumed was recorded as well.

I don’t know how the CFO wouldn’t have a complete detail on the losses for Mariposa. I would continue to ask for this.
There was a community center and and office building built along with roads and other infrastructure. This is before the numerous lawsuits over defaulted bonds and mortgages.

I am not following the budget numbers so I won’t comment on these.

I guess my question would be how do they intend to get an 8% return managing the endowment in an appropriate manner?

It comes as no surprise that the solution is to ask parents and donors to give them more money.

I don’t see the school surviving without making some tough decisions on spending. I sincerely hope I am wrong.

[at the meeting]

re Retired CPA

2 things:
1) There were many alums at the meeting on Monday and each demonstrated deep gratitude for their Academy education and sincere concern for its future. I have no doubt the school will survive. The question is who will be able to afford the tuition? Academy exists, to a large extent, because New Mexico consistently ranks 49/50 in education in the US. Move the school out-of-state to large metropolitan area and competition would put a serious dent in enrollment. We are now willing to pay the tuition because we want the best education available and we found that at Academy. I just don’t think future generations of our family will be able to afford what’s coming.

2) No doubt Mr. Gordon, Mr. Watson, and the board are fully aware of every single dollar lost in Mariposa. The $19mil write-off and $4mil note may be the closest loss estimate we will know.

[Retired CPA]

@at the meeting
I see tuition increases and financial aid decreases as a negative for the school going forward. I certainly understand your desire to give your children the best education possible.

[Author]

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