The Billion Sitting Idle By 2020, $1.2 Billion in Unspent Income Had Accumulated Inside the Hershey Trust. The Board's Response: Reclassify $900 Million as a "Rainy Day Fund." A Nonprofit Expert Said She Had Never Met a Nonprofit With Two Years in Reserve. The Trust Designated 2.7 Years. Here Is the Complete Math. THE CHOCOLATE MACHINE — Post 5

The Billion Sitting Idle

By 2020, $1.2 Billion in Unspent Income Had Accumulated Inside the Hershey Trust. The Board's Response: Reclassify $900 Million as a "Rainy Day Fund." A Nonprofit Expert Said She Had Never Met a Nonprofit With Two Years in Reserve. The Trust Designated 2.7 Years. Here Is the Complete Math.

THE CHOCOLATE MACHINE — Post 5 | February 2026

THE CHOCOLATE MACHINE: One Man's Gift. One Deed. One Betrayed Mandate.
"The Managers must admit as many qualifying children as capacity and income permit."
— Milton S. Hershey, Deed of Trust, November 15, 1909

Post 1: The Gift — What Milton Hershey actually said. What the trust actually heard.
Post 2: The Surplus — 91 years of "embarrassingly large" accumulation
Post 3: The Board — Same people. Two boards. Multiple scandals.
Post 4: The Sale — $12.5 billion, 55 days, 10 trustees departed.
Post 5: The Billion Sitting Idle — $1.2 billion. $900 million reclassified. The math. ← YOU ARE HERE
Post 6: The Children Who Didn't Get In — The waitlist. The admissions criteria. The human cost.
Post 7: The Maneuver — Catherine Hershey Schools: genuine mission or sophisticated optics?
Post 8: The 116-Year Question — What enforcement would require. And why it probably won't happen.

By 2020, the Milton Hershey School Trust had accumulated more than $1.2 billion in unspent income. Not principal — that $16 billion is locked by the deed. Spendable income that had been generated by the trust's assets, year after year, in amounts exceeding what the school spent on children, accumulating for 91 years into a billion-dollar pool sitting inside the children's trust, unspent. The board's response, approved by the Dauphin County Orphans' Court, was to designate $350 million of it toward a new preschool initiative — the Catherine Hershey Schools — and reclassify most of the remaining $900 million as an emergency reserve. "Enough to cover 2.7 years of operating expenses," the trust said. Laura Otten, the executive director of The Nonprofit Center at La Salle University, said nonprofits typically hold three months to one year of operating costs in reserve. "Some say the max should never be more than two years," she said. "I've yet to meet a nonprofit that has two years' worth of reserves." The Hershey Trust designated 2.7 years — and got a court to approve it. The $1.2 billion that belonged to poor children under the deed's mandate was divided: $350 million toward preschools, $900 million reclassified as unavailable. The children's income was converted, by board action and court approval, into an institutional buffer that makes future expansion structurally harder, not easier. This post documents exactly how that happened — and what the complete math reveals about what "as many as possible" actually requires.

The Numbers First: What $1.2 Billion Actually Is

The deed's income restriction is real and important to understand precisely. The trust holds approximately $23-24 billion in total assets — but $16 billion of that — Hershey Co. stock, real estate holdings and other investments — cannot be spent, according to the deed. Only income generated by those assets — dividends from Hershey Company stock, returns on the investment portfolio, revenues from Hershey Entertainment & Resorts — can fund the school.

In most years since its founding, the Hershey fortune has generated more income than the school has spent. Year after year, a surplus accumulated. By 2020, that accumulated surplus had grown to more than $1.2 billion.

THE COMPLETE MATH — CONFIRMED BY PRIMARY SOURCES

TRUST STRUCTURE (2021 figures, ProPublica/Spotlight PA):
Total assets: $17.4 billion (now ~$23-24 billion)
Principal (cannot spend): ~$16 billion
Spendable income pool: ~$1.4 billion
Annual school expenditure: ~$370 million
Spending rate on total assets: ~1.5%
Unspent accumulated income (by 2020): $1.2 billion

WHAT THE BOARD DID WITH THE $1.2 BILLION:
Allocated to Catherine Hershey Schools (preschools): $350 million
Reclassified as “emergency reserve” (rainy day fund): ~$900 million
Remaining for additional mission: minimal

THE RESERVE IN CONTEXT:
Rainy day fund designated: ~$900 million
Annual operating expenses: ~$370 million
Reserve in years of operations: 2.7 years
Nonprofit sector standard (La Salle expert): 3 months - 1 year
Nonprofit sector maximum (expert opinion): 2 years
Trust designation: 2.7 years — 35% above stated maximum

THE MATH THE DEED DEMANDS:
Current enrollment: 2,100 students
Annual cost per student: $139,000
Additional students $350M preschool fund could serve:
At $139,000/year: 2,518 additional students/year
Additional students if $900M reserve were spent on mission:
At $139,000/year: 6,475 additional students over one year
Or: ~1,295 additional students/year over five years

TOTAL CHILDREN THE $1.2B COULD HAVE SERVED:
At MHS residential costs: 8,633 student-years of education
At reduced model (day school, lower cost): significantly more

CURRENT ENROLLMENT VS. WHAT INCOME PERMITS:
Current: 2,100
What $1.2B could fund (at current costs): thousands more
What trust actually allocated to new students: 900 preschoolers
(over 5 years, in 6 offsite preschool centers)

The Rainy Day Maneuver: How $900 Million Became Untouchable

The mechanics of the $900 million reclassification deserve careful examination — because they reveal something important about how the trust operates when it faces pressure to spend more on children.

When the ProPublica/Spotlight PA/Philadelphia Inquirer investigation began gaining traction in 2021, the trust faced public scrutiny of its accumulated surplus for the first time in decades. The board's response was not to dramatically expand enrollment. It was to go to the Dauphin County Orphans' Court with a proposal: use $350 million of the surplus for the preschool initiative, and designate most of the rest as a permanent emergency reserve.

The court approved it.

🔥 SMOKING GUN #1: THE RESERVE THAT EXCEEDS EVERY NONPROFIT STANDARD — COURT-APPROVED

WHAT THE TRUST PROPOSED (confirmed by ProPublica, 2021):
Designate ~$900 million in accumulated income as “emergency reserves”
“Enough to cover 2.7 years of operating expenses”
The designation would make the $900 million unavailable for
broader enrollment expansion

WHAT NONPROFIT EXPERTS SAY ABOUT RESERVES:
Laura Otten, Executive Director, The Nonprofit Center at La Salle University:
“Nonprofits’ reserves typically hold three months to one year of operating costs.”
“Some say the max should never be more than two years.”
“I’ve yet to meet a nonprofit that has two years’ worth of reserves.”

THE HERSHEY TRUST’S RESERVE: 2.7 YEARS
35% above the stated maximum by the sector’s own expert
Approved by the Dauphin County Orphans’ Court
Functionally removes $900 million from availability for children

WHAT THIS ACCOMPLISHED:
Before the maneuver: $1.2 billion available in unspent income
After the maneuver: $350 million allocated to preschools
$900 million reclassified as off-limits
Remaining for broader MHS enrollment expansion: minimal

THE VERDICT:
The trust’s response to documented public pressure to spend more
on children was to reclassify the accumulated children’s income
as an institutional buffer — court-approved, expert-criticized,
and structurally designed to prevent the very expansion
critics had been demanding for decades.

The 1963 Precedent: When the Trust First Diverted Income Away from Children

The rainy day maneuver is not the first time the trust redirected accumulated income away from its primary mission. In 1963 — when the surplus was already recognized as too large — the board made an even more dramatic choice.

In 1963, board members decided there was too much unspent income and sought to divert $50 million to build a hospital on land owned by the estate and used by the school. A change like this requires a legal process known as cy-pres, where a trust asks the county probate court for permission to alter the terms of its deed while sticking as closely as possible to its founders' intentions. The court approved, and construction began on the hospital. Some older alumni of the school are still bitter about that decision, believing it was improper, since Hershey intended his gift to fund only the school for orphans, not other interests.

The cy-pres doctrine — Latin for "as near as possible" — allows courts to modify a charitable trust's terms when the original purpose becomes impossible or impractical. A hospital on school land was not impossible. It was not impractical. It was a choice the board made when the surplus grew uncomfortable, approved by a court whose oversight mechanism provides little independent check on the board's judgment.

The pattern across 60 years is consistent: when income accumulates beyond what the school spends on children, the board finds a use for it that is not children at the school. A hospital in 1963. A rainy day fund in 2021. Neither violated the law. Both redirected accumulated income that the deed's enrollment mandate suggests should have gone to more children.

THREE TIMES THE TRUST REDIRECTED SURPLUS AWAY FROM ENROLLMENT

1963 — THE HOSPITAL ($50 million cy-pres):
Too much unspent income → board sought cy-pres approval
Court approved diverting $50M to build hospital on school land
Alumni reaction: “Hershey intended his gift to fund only the school”
Result: Penn State Hershey Medical Center (now major hospital system)
Children served instead: unknown, but countable

1999 — THE 1998 LAW NOT USED:
Pennsylvania passed law allowing 7% spending by simple board vote
Board appeared “poised to take advantage” — then didn’t
Result: Surplus continued accumulating through the 2000s and 2010s
Children served instead: enrollment flat from 1950s to 1999

2021 — THE RAINY DAY RECLASSIFICATION ($900 million):
$1.2B accumulated → public scrutiny → board proposes split
$350M → preschool initiative (genuine expansion, Post 7)
$900M → “emergency reserve” (2.7 years, 35% above expert maximum)
Court approved the reclassification
Children served instead: the ~900 preschoolers over 5 years
Children not served: those who would have filled a larger MHS

What "As Many As Possible" Looks Like in Numbers

The deed's mandate — "as many qualifying children as capacity and income permit" — has two operative terms. Post 5 focuses on income. What does income actually permit?

WHAT INCOME PERMITS — THE COMPLETE MATH

SCENARIO 1: SPEND THE ACCUMULATED SURPLUS ON MHS ENROLLMENT
Available unspent income: $1.2 billion (before reclassification)
Annual cost per MHS student: $139,000
Additional students that could be funded for one year: 8,633
Current enrollment: 2,100
Enrollment at full deployment: 10,733 students
That’s 5x current enrollment. From existing accumulated income alone.

SCENARIO 2: SPEND AT NONPROFIT MAXIMUM RESERVE (2 years)
Two-year reserve at current costs: $740 million
Remaining available from $1.2B: $460 million additional
Additional students that could fund: 3,309 student-years
Or: ~662 additional students/year over 5 years

SCENARIO 3: USE THE 1998 LAW (7% of assets annually)
7% of $23 billion total assets: $1.61 billion/year
Current annual spend: $370 million
Additional annual spending capacity: $1.24 billion
Additional students at $139,000/year: 8,921 additional/year
5x current enrollment. Every year. Indefinitely.

SCENARIO 4: SPEND AT FORD FOUNDATION RATE (4-5% of assets)
4% of $23 billion: $920 million/year
Additional beyond current spend: $550 million/year
Additional students at $139,000/year: 3,957 additional/year
Nearly 3x current enrollment. Every year.

WHAT THE BOARD CHOSE (2021 court approval):
$350 million → 900 preschoolers over 5 years
$900 million → rainy day fund
MHS enrollment expansion: minimal

THE DEED SAYS: as many as income permits.
Income permits: thousands more.
The board chose: 900 preschoolers and a reserve fund.

The Tax Exemption That Funds the Surplus

There is one more number in this analysis that the trust's public statements never prominently feature.

Because the nonprofit school doesn't rely on public donations or accept funds from federal and state agencies, it operates with little public oversight. And as a charity, it pays no federal or state income taxes. In exchange for the tax breaks, Milton Hershey School is required by law to serve the public good by fulfilling its charitable mission — lifting low-income children out of poverty.

The trust pays no federal income tax. No Pennsylvania income tax. Its controlling stake in the Hershey Company generates dividends that flow tax-free into the trust. Its investment portfolio generates returns tax-free. Hershey Entertainment & Resorts operates tax-exempt. The entire $23 billion machine runs on tax exemption justified by the public benefit of educating poor children.

The public — through foregone tax revenue — subsidizes the accumulation of a billion-dollar surplus that the board then reclassifies as a rainy day fund.

🔥 SMOKING GUN #2: THE TAX EXEMPTION THAT SUBSIDIZES THE SURPLUS

WHAT THE TRUST PAYS IN TAXES:
Federal income tax: $0
Pennsylvania income tax: $0
Property tax on school facilities: exempt

WHAT JUSTIFIES THE EXEMPTION:
“Required by law to serve the public good by fulfilling its
charitable mission — lifting low-income children out of poverty”
— ProPublica, citing the legal standard

WHAT THE TRUST IS DOING INSTEAD:
Accumulating $1.2 billion in unspent income
Reclassifying $900 million as a rainy day fund
Designating reserves at 2.7 years — 35% above nonprofit maximum
Serving 2,100 students with $23 billion

THE STRUCTURAL QUESTION NOBODY IN AUTHORITY HAS ASKED:
If the tax exemption is justified by charitable mission fulfillment,
and charitable mission fulfillment requires serving “as many
qualifying children as income permits,”
and income permits thousands more children than are being served,
then: is the tax exemption justified?

No federal or Pennsylvania authority has formally asked that question.
The answer, if asked, could unlock enforcement mechanisms
that the current oversight structure — solely the PA AG — cannot.

THE IRS STANDARD:
Tax-exempt charities must operate “exclusively for… charitable purposes.”
A $900 million rainy day fund held in perpetuity inside a children’s
trust is not exclusively charitable in its function.
Whether it violates the IRS standard has never been litigated.

✓ THE FAIR ACCOUNT: WHY THE BOARD SAYS THE MATH IS MORE COMPLICATED

The deed’s perpetuity requirement is real. “In perpetuity” means the trust must exist and function forever — not just during favorable economic periods. A trust that spends aggressively during a market boom may be unable to serve children during a recession. The $900 million reserve protects future generations of poor children from the consequences of present-day overspending. This is a legitimate concern.

Residential boarding school expansion is genuinely hard. Serving 2,100 students at $139,000/year requires 165 residential student homes, hundreds of staff, a campus of schools and medical facilities, and 24-hour supervision seven days a week. Adding 1,000 students requires building dozens of new homes, hiring hundreds of new staff, and maintaining quality across a significantly larger operation. This cannot be done in a year. The board’s caution about rapid expansion is not entirely pretextual.

The 1963 hospital served a real public good. Penn State Hershey Medical Center is now a major regional hospital system serving hundreds of thousands of patients. The cy-pres diversion of $50 million in 1963 created something that has served Pennsylvania’s public health for 60 years. The decision was not pure self-interest — it was a genuine public benefit, albeit one Milton Hershey did not authorize.

The preschool expansion is real. $350 million toward six preschool centers serving 900 children is a genuine mission expansion. The board got court approval, designed new facilities, and committed to a multi-year program. The question is whether it is proportionate — not whether it is real.

The Number That Closes the Argument

The trust's own court filing, documented by ProPublica, contains the sentence that closes this post's argument more efficiently than any analysis could:

Even so, the initial $350 million phase of the project will use up only a fraction of the $1.2 billion in unspent income that has already accumulated.

The trust's own filing to the court — the document the board submitted to get the reclassification approved — acknowledged that $350 million was "only a fraction" of the accumulated surplus. They were telling the court: we have more than this. We are choosing to reserve the rest.

The deed says: as many as income permits. Income had permitted $1.2 billion in accumulation. The board allocated $350 million to a preschool program serving 900 children over five years, reclassified $900 million as a buffer, and got a court to approve both decisions.

The children the deed was written to serve — qualifying poor children in Pennsylvania who applied to the school and didn't get in because capacity was fixed at 2,100 — received neither the $350 million nor the $900 million. They received the school's admissions decision. Which was: not this year.

In Post 6, we document who those children are — and what the admissions criteria that keeps enrollment at 2,100 actually requires of them.

METHODOLOGY: HUMAN-AI COLLABORATION

PRIMARY SOURCES FOR THIS POST:
ProPublica / Spotlight PA / Philadelphia Inquirer joint investigation (May-October 2021): All core figures confirmed — $1.2 billion unspent income, $350 million preschool allocation, $900 million rainy day fund, 2.7 years of operating expenses, Laura Otten expert quote, deed income restriction language, the trust’s own court filing language (“only a fraction”), annual per-student cost ($90,000-$139,000 depending on total vs. educational costs). Spotlight PA “by the numbers” breakdown: Confirmed assets quadrupled ($4.5B to $17B) over same 20-year period enrollment doubled. ProPublica nonprofit tax filing explorer: Confirmed tax-exempt status, IRS Form 990 availability. Cy-pres doctrine explanation and 1963 hospital diversion: Confirmed in ProPublica main investigation. All mathematical scenarios in the “what income permits” table are derived from confirmed primary source figures (enrollment, per-student cost, total assets, spending rate) using straightforward arithmetic — not projected or modeled figures.

WHAT COMES NEXT:
Post 6 documents the children the trust was built to serve — who qualifies under the deed, who applies, who doesn’t get in, and what the admissions criteria that keeps enrollment at 2,100 reveals about the gap between Milton Hershey’s four words and how the trust interprets them.