Alec Ward | Hey, big spender

Fair Enough | Penn's financial disclosures are comically opaque

By Alec Ward 03/22/16 10:39pm

Most Penn students probably don’t bother to look through Penn’s Annual Report, the yearly financial disclosure which Penn, as a nonprofit, is required by law to publish.

This is a shame, because doing so provides some interesting insights into how the institution we all attend actually functions. For example, I would surmise that most students wouldn’t guess that, in the previous fiscal year, patient service fees — the bills that Penn charges patients in its hospitals and health system — accounted for just shy of 57 percent of the University’s $7.1 billion revenue, whereas tuition and fees accounted for just 11.9 percent.

Providing such insight is, after all, the purpose of a nonprofit’s annual report. The tax-deductibility of donations to institutions like Penn, which enjoy recognition under section 510(c)(3) of the United States Internal Revenue Code, essentially amounts to a public subsidy of such organizations. The idea behind requiring annual financial disclosures, therefore, is that the public has a right to know how the organizations that their tax dollars effectively support spend their money.

Beyond suggesting, however, that the school I attend should perhaps be renamed “the University of the Hospital of Pennsylvania,” the Annual Report actually doesn’t reveal nearly as much about the University’s financial decisions as it ought to.

The vast majority of Penn’s FY2015 spending — some $3.88 billion comprising 57.9 percent of total expenses — are reported simply as “Compensation and Benefits.” The Annual Report gives no indication of what portion of this vast sum is paid to professors versus administrators, or to administrators versus Health System employees versus security and police, and so on, despite the drastically different functions that these personnel serve in the university.

Even more opaque is the 35.6 percent of the annual operating expenses — $2.39 billion — which are reported simply as “Other Operating Expenses.” As far as a reader can know, the University might well be funding a small European nation under this category. The GDP of San Marino was only $1.8 billion in the same year.

The consequence of all this vagueness is that it is very difficult for community members without inside information to assess the extent to which the University’s spending choices are consistent with its stated priorities. As a 501(c)(3) public charitable organization, everything Penn does is theoretically supposed to be in pursuit of its stated public mission, which is itself rather vague.

The meatiest portion of the statement reads: “Faithful to the vision of the University’s founder, Benjamin Franklin, Penn’s faculty generate knowledge that is unconstrained by traditional disciplinary boundaries and spans the continuum from fundamental to applied. Through this new knowledge, the University enhances its teaching of both theory and practice, as well as the linkages between them. Penn excels in instruction and research in the arts and sciences and in a wide range of professional disciplines. Penn produces future leaders through excellent programs at the undergraduate, graduate, and professional levels.”

Given adequate information, Penn community members might well quibble about how much spending on instruction versus administration versus research, etc. is appropriate for the furtherance of this mission. If, say, the University reported that it spent seven times as much compensating administrators as on compensating faculty members who teach and conduct research, I might argue that this represented a failure to put Penn’s money where its mouth is. Someone else might disagree.

As it stands, however, the community is unable to have such discussions, and thus to have even an indirect say in the allocation of financial resources. The information necessary for students to educate themselves on the relevant matters just isn’t available.

One could of course argue that students aren’t really stakeholders in the University at all, but merely its customers, and as such have no more right to know the details of its expenditures than do patients in HUP. This strikes me as an awfully cynical line to take, however. Our aspirations for higher education have always been that it be more than a mere transaction of cash for a diploma. If the University’s leaders would seek to preserve this, they ought to give students the information needed to be more than the passive recipients of yet another prepackaged commercial product.

ALEC WARD is a College junior from Washington, D.C., studying history. His email address is alecward@sas.upenn. edu. Follow him on Twitter @ TalkBackWard. “Fair Enough,” formerly “Talking Backward,” usually appears every other Wednesday. 

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