The College Board is a non-profit; its also a hedge fund

On her blog, Diane Ravitch recently published a link to a very important article (Does College Board Deserve Public Subsidies?) by Richard Phelps of Nonpartisan Education Review. The article, which takes as its starting point the question of what role taxpayer funds should play in supporting a nominally non-profit private organization, goes far beyond what its rather dry, technocratic title would seem to imply. In fact, the implications are so head-spinning that I actually had to read the piece several times to absorb it in full. It pulls together a lot of the threads Ive been attempting to trace over the last couple of years, and provides a plausible answer to the question of how the College Board has continued to bounce back from scandal after scandal in a way that most other organizations in its position could not. It also casts a critical lens on the College Boards favorite set of talking points regarding the 2016 SAT redesign and considers how the CB cannily exploited some of the common criticisms surrounding the test to further its own ends, to a degree Ive seen in very few other places. Its a long read, and fairly dense, but it is  hands-down one of the most important exposà ©s Ive encountered; if you have the time and the inclination, I highly urge you to read the whole thing. For the rest of you, a couple of key sections Id like to emphasize. Ive touched on these issues in various posts over the last few years, but I think its worth seeing them recapitulated here. At the very least, its revealing  Ã¢â‚¬â€ and disturbing — to see all the major missteps catalogued in one place. One point Id like to insist on, particularly for people who are just beginning the standardized testing process or who havent followed the SAT redesign (I keep encountering highly educated middle-aged adults who have no idea the SAT no longer tests vocabulary, for example): it is important to understand that the College Board of 2018 is a radically different organization than it was 20, or 10, or even six years ago. The appointment of David Coleman as President, and the subsequent decision to transfer the writing of the SAT from ETS to the College Board, set off a mass departure of long-time CB members, with a resulting decline in the organizations quality, reliability, and capacity to create/administer exams effectively. The redesigned SAT is the SAT in name only; it is effectively a Common Core mess cobbled together from the ACT and the PARCC. Yes, there is a 1600 scale, but the exam features a grammar section almost identical to that on the ACT, and analogies, sentence completions, geometry (!) have been eliminated. Oh, and in some score ranges, verbal scores are inflated by 100+ points relative to the pre-1995 exam. As Phelps explains: Whether by design or default, College Board would rapidly transform in Colemans image. Some balked at the new CEOs ambitious plans and schedule for achieving them, leading to an exodus of veteran employees. After two years of 11 and 10% growth, College Boards total payroll declined by 6% in the first full fiscal year of David Colemans management. Of the 21 members of College Boards top leadership the year before David Colemans arrival, only five remained the year after, and two of them were demoted. Eight were awarded a total of $3.4 million in severance. One former senior vice-president, who strongly disagreed with Colemans direction, received extremely large severance packages in each of two years. By the end of 2015, three quarters of the top leadership had worked at College Board for less than two years.[12] It would be understatement to assert that the transition—accommodating a new CEO and leadership team, re-engineering the SAT (and PSAT) with radical changes promised, and pulling SAT development in house—did not transpire smoothly. Among the snafus: In Colemans first year, the SAT suffered a shortage of test items and forms. College Board compensated, improperly, by recycling, such that thousands of students taking the test a second time encountered the same questions.[14] A no-bid contract was awarded an IT firm with little relevant experience to help develop an online version of the SAT. College Board handed the firm a $3 million upfront payment, which was never returned, and the work was never completed.[15] College Board administered a test form in Asia though aware that it had been compromised, reproduced, and published by a Chinese test prep firm.[16]   Ã‚  Ã‚  A misprint in some test materials resulted in some students being allowed 20 minutes and others 25 to complete the same section of the SAT.[17] Having to release a new PSAT before the redesigned SAT was completed (because the PSAT is used to prepare for the SAT), caused disruptions and presented alignment issues.[18] Though the timeline for the SAT redesign was too rushed to adhere to reasonable quality standards, it was still completed a year behind schedule.[19] Complaints arose that the new SAT math questions were so wordy they advantaged highly verbal students and disadvantaged the many students with competent math skills but inferior verbal skills.[20] Widespread assertions that the new, internally-drafted SAT test items paled in quality by comparison to the old, ETS-written questions.[21] Manuel Alfaro, College Boards executive director for assessment design development—responsible for the technical undergirding of the new SAT—revealed irregularities in test construction so egregious that they invalidated the test as a measurement instrument. He turned whistleblower.[22] And thats not even counting the scoring irregularities that plagued the August 2018 test. Now, given this rather lengthy list of missteps, some quite serious, one might reasonably why the College Board, and particularly David Coleman, have faced no real consequences. My ongoing assumption has been that its a question of market share — the SAT was redesigned to allow it to compete in the state testing market (hence the removal of college-level vocabulary), and indeed the CB was almost immediately successful in flipping several major states (Illinois, Michigan, Colorado) away from the ACT. Those additional tens of thousands of test-takers led the SAT to reclaim its traditional mantle of most popular college entrance exam, even if many school-day testers presumably do not intend to apply to college. I still think thats a large part of the reason Coleman has remained in place, but as Phelps makes clear, the story is actually more interesting than that. And unsurprisingly, it involves money. A lot of money. At first glance, College Boards IRS filings indicate revenues and expenditures itemized across all regions of the world. The SAT alone is administered to students worldwide, so it seems reasonable that College Board would have representatives scattered throughout. Look closer, however, and one may notice assets in the Caribbean many magnitudes larger than those in other regions, including Europe and Asia. Ordinary College Board programs? Apparently not. In recent years, these assets, mostly in the Cayman Islands, but also in the British Virgin Islands and Mauritius (in the Indian Ocean), have been listed as partnerships and investments. One partnership produced a tax write-off for intangible drilling costs in 2013. The business activity code indicated by College Board? 525990: Other financial vehicles.[28] An earlier College Board tax filing let slip their real identity in a footnote: they are hedge funds. The corporate partnerships resemble a game of musical chairs. There were 12 in 2010, identified only as A, C, D, E, F, G, H, I, J, K, L, and M (note: no B), and 16 in 2013, identified as B, C, D, E, F, G, H, I, J, K, L, N, P, Q, S, and T (note: no A, M, O, or R). A for-profit arm of College Board, with a quarter billion dollars nestled in offshore tax havens, has not paid any tax in the several years it has filed separate returns. Deductions, credits, and paper losses seem available aplenty. Nonetheless, despite seemingly limping along without taxable gains, the fund has grown mightily, or did until the 2015 tax year when it was, apparently, tapped to plug the hole in revenues left by the various aforementioned fiascos All seems to be legal. As a 501(c)(03) nonprofit, College Board is an organization that normally receives no more than one-third of its support from gross investment income and unrelated business income and at the same time more than one-third of its support from contributions, fees, and gross receipts related to exempt purposes. The existence of a quarter-billion dollars stashed in offshore tax havens prompts some questions, however. For example, Why is a public-serving nonprofit investing overseas instead of in the U.S.? How does a public-interested nonprofit come by such a surplus in the first place, unless it has been charging its clients fees much higher than needed to cover operating costs? With so many resources already available, why is College Board soliciting government subsidies, foundation grants, and the volunteer labor of several hundred good Samaritans each year? Are those who volunteer resources to the College Board as a charitable organization aware of the nature and scale of the assets College Board management controls? Does it leverage the offshore money to fund operations, subsidizing its activities in competitive markets? The answer to the last question appears to be, yes. In some recent years the offshore accounts made from one-to-four-million-dollar charitable contributions to an unidentified recipient. Was that recipient, perhaps, the nonprofit, charitable College Board? Charitable contributions, of course, are tax deductible. Far larger amounts, however, accrued from asset sales—of securities or partnerships from the offshore accounts, as well as securities held in the US Recall the aforementioned list of snafus. The string began in fiscal year 2013, the year of David Colemans arrival at College Board and a substantial increase in asset sales. One could argue that the increase is even more dramatic than appears at first glance College Board switched from a July–June to a January–December fiscal year in 2014. The shaded bar [in Figure 2, represented in the original article] represents only half a year: the latter six months of calendar year 2014. The accumulation of snafus cost College Board in lowered reputation and compensation payments in money or in-kind services, as in free re-tests (in those cases where the company responded with more than denials or shrugs). Apparently, the financial hole created by corporate blunders was at least partially filled by sales of equities tropically domiciled in the Cayman Islands. Luckily for College Board, it had the assets to sell. Other companies do not, and some of those firms must compete with College Board. That certainly explains why the CB was able to underbid the ACT so easily. Think about that: assuming that Phelps is correct in his analysis, this is an organization that every year recruits thousands of teachers to proctor its exams for free, while sitting on millions of dollars in the Caymans and collecting donations tax-free donations from its for-profit holdings. Beyond the almost comical unfairness of that fact, there is something even more disturbing: the College Board has no incentive — none — to clean up its act. With such an enormous slush fund, the company can afford to continue cutting corners while paying its own executives inflated salaries and then throwing money at the problems its created. Expect more scandals, more repeat administrations of released exams, more scoring irregularities, and more Kafkaesque responses. But dont expect things to get better any time soon.