Wealthy Hershey School curbs expansion plan

The Hershey School, the nation's wealthiest boarding school for impoverished children, has scrapped plans to boost enrollment to 2,000 students by 2013 and is seeking other ways to cut its budget.

A dairy herd will be sold, and so will the president's $700,000 off-campus residence. In addition, the construction of new group homes for at least 150 students has been indefinitely postponed.

These cutbacks and others end a brief period of rapid growth at the fabulously rich institution.

And they renew tension between managers of an extraordinary endowment and fretful alumni who say the school spends lavishly on infrastructure as opposed to more children - key components in a continuous discussion of how best to satisfy the mandate of Milton Hershey, who left his chocolate fortune to the orphanage and school.

In the late 1990s, Hershey School alumni criticized the school for failing its charitable mission when enrollment fell to almost 1,000 students, or the level of the late 1930s.

Responding to a public outcry, the school added 700 students as it spent hundreds of millions of dollars on new buildings, renovations, student group homes and even a golf course.

The expansion had its consequences, though. Per-student costs soared to more than $110,000, significantly higher than prestigious prep schools, and this became a problem when the economy crashed and endowment income shrank.

"We are facing the same economic situation as everybody else," school president Anthony J. Colistra said in an interview, adding that the trust that finances the school wasn't a "bottomless pit."

The expansion pullback has nothing to do with the Hershey Co.'s failed bid to purchase British candy giant Cadbury P.L.C., Colistra said. The Hershey Co. is the largest source of cash for the school's operating expenses and recently boosted its dividend.

The school had to rethink plans that included the widely publicized 2013 enrollment goal. "I don't know when we will reach 2,000 students," Colistra said. He was delaying the expansion, not canceling it. Enrollment now is about 1,850 students from poor families.

Those who fought the school over enrollment issues view the change of plans with dismay.

"Two thousand students is a very modest goal, and for them to be backing off at this early date, given their financial resources, does not make sense to me," said Joseph Berning, a 1973 graduate from the Harrisburg area. "It was only a little more than 10 years ago that they marched into court and declared the school had more money than it could spend," he said.

John W. Schmehl, a partner with Dilworth Paxson L.L.P. who represented the school's alumni association in a court case seeking reforms at the school, said it was "nonsense for the trust to blame the economy for subjecting children to program cuts while sitting on $7 billion."

In a 2006 court document, the alumni association asserted that the school's endowment had assets to serve 8,000 children and that if it had "prudently husbanded its resources" over the years "it could today have ended Pennsylvania foster care as it is now known."

The Hershey School's most recent IRS tax filing shows an endowment in 2008 of $7.3 billion, which would rank among the top 10 college and university endowments. It's likely the endowment fell in 2009.

Colistra, in his first year as top administrator, said he wouldn't claim it was a "poor school," but he had to cautiously manage expenses so the trust fund lasts into perpetuity.

Colistra will vacate a president's home purchased in 2003 and return to the Homestead, which was where the school's top administrator traditionally lived, school spokeswoman Connie McNamara said Friday. The vacated residence will be sold, she said.

In keeping with his mantra, Colistra cut $54 million in spending this year. The largest chunk was the 16 new group homes.

The dental staff halted a practice of removing some wisdom teeth for students. Colistra said he was guided by the principle: "What do we need to do? What is nice to do? What don't we need to do?"

Suzanne Rieger, an employee and house parent at the Hershey School, said she would "love to see more children" at the school but "many times expansion done too fast is not a good thing." With fewer students, the staff can devote more time to those who are there, she said.

Located two hours west of Philadelphia, the Hershey School is nestled in Pennsylvania dairy country.

The school enrolls students from throughout Pennsylvania and other states. There are 311 from the Philadelphia area - 170 from Philadelphia, 30 from Chester County, 31 from Delaware County, 68 from Montgomery County and 12 from Bucks County. There were no enrollment data by county for South Jersey.

Tuition, board, food, clothing, and activities are free. Admittance is based on family income and other factors. The school accepts students whose family income is no more than 150 percent of the federal poverty guidelines. This amounts to income of $33,075 for a family of four, according to the U.S. Department of Health and Human Services Web site.

Prospective students must score at least 80 on an IQ test, and classes are offered for pre-kindergarten through 12th grade.

The school traces its roots to a deed of trust Milton and Catherine Hershey signed in 1909. The first student joined in 1910. Widowed and childless, Hershey passed away in 1945.

The school boosted enrollment through the late 1940s, the '50s and '60s, peaking at 1,553 students in 1971, according to school records. Then, the school enrollment fell in subsequent decades, while assets continued to grow.

Saying it had too much money for educating disadvantaged children, the Hershey trust petitioned the Dauphin County Orphans Court in 1999 and proposed using some of the money for a research institute to train a "leadership corps" of teachers.

Dauphin County Senior Judge Warren G. Morgan disagreed and said a research institute would not conform to the Hersheys' wishes that the money go directly to help poor children.

Chastened by the judge's decision, the school eventually set the 2,000-student goal.

Colistra, a 1959 Hershey School graduate and retired superintendent of the Cumberland Valley School District, points out the new buildings and updated facilities with pride as he drives around campus.

There's a new supply center that transports food by panel vans to more than 100 group homes.

A clothing section looks like a Gap store, with shelves of khaki pants, stacks of polo shirts, and racks of blue blazers. The school hands out several sets of clothes to students and fits them twice a year, said Cynthia L. Richmond, a senior director who runs the supply center.

The former Senior Hall, a landmark Depression-era building, overlooks the Hersheypark amusement park. It was renovated for $114 million and renamed Catherine Hall and has classroom space for 600 to 850 fifth, sixth, seventh, and eighth graders.

On the afternoon of March 26, students were hugging each other and saying goodbye for spring break in a second-floor hallway.

Later that day, the students would board 60 Greyhound-style buses the school leases to drive them home for the break. The buses drop students off at locations near their homes for parents or relatives.

Many Hershey School students are from single-parent homes or families dealing with drugs, alcohol, or mental illness.

The school's 2008 IRS tax document showed that the Hershey School spent $187 million for student programs, administrator salaries and other overhead. That worked out to $111,720 per student.

By comparison the Lawrenceville School near Princeton had per-student costs of $71,875 in the same year, while the Hill School in Pottstown had per-student costs of $58,585. Lawrenceville and Hill are nationally renowned prep schools.

"Our kids have been through a lot and they need a lot of support," spokeswoman McNamara said. "We are not making candy bars. The kids coming here get individual care." She said there were no directly comparable institutions.

The front of Catherine Hall looks toward the amusement park roller-coasters and two tall chimneys with H-E-R-S-H-E-Y spelled on them.

A second-floor balcony on the back of Catherine Hall looks out on what appears to be a Toll Bros. subdivision of McMansions. This is the new student housing.

The homes, which cost $1.7 million each, are stately and gracious and roomy, with 10,600 square feet, stone-front facades, computer rooms, and recreation rooms. Capacity is 14 boys or girls per home, and the homes contain separate living quarters for house parents. A married couple runs each home to create a familylike environment.

Rieger, a house parent with her husband, Tom, said a main benefit of the new home is that the living quarters for the house parents are the equivalent of an attached two-story townhouse, with doorways on both floors to the students.

Colistra said he would like the school to be more accountable in its spending and not frivolous. The school has frozen hiring for 27 open staff positions and among other smaller cuts was eliminating the rock-climbing club.

"I'm feeling comfortable," Colistra said, "that we have not diminished the quality of our program.".

How the Hershey School stacks up with the nation's largest university endowments, in billions:

1. Harvard University                         $36.6

2. Yale University                            $22.9

3. Stanford University                         $17.2

4. Princeton University                         $16.3

5. University of Texas System                $16.1

6. Massachusetts Institute of Technology    $10.1

7. University of Michigan                      $7.6

8. Hershey School                              $7.3

 9. Northwestern University                   $7.2

10. Columbia University                      $7.1

NOTE: Data for the 2008.

SOURCES: IRS 990 for the Hershey School; National Association

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