Dartblog

President Kim was more forceful today in apprising people of the serious budget difficulties that the College faces in the coming years. Cuts are on the way and they will be big. Though buckets of whitewash were used to explain how we got to where we are, President Kim did at least provide the elements to help us understand the past.

First off, the endowment grew wonderfully in the middle of this decade:

2004: +16%
2005: +11%
2006: +14%
2007: +22%

What this means in day-to-day terms is that if the College had simply continued to draw off of the endowment at the historic rate of 4.5%-5.5%, the amount of the draw itself in dollars would have increased each year by the above plump percentages. However, despite howls from the alumni about overspending all through this very period, the Wright Administration was allowed by the Trustees to increase the percentage draw up to 7%. [JOE MALCHOW adds: Some friends and correspondents own private wealth management firms — interesting people, those at the more rarefied airs of the industry: they’re generalists fascinated by everything — and I note that these people, who are expert at ensuring that money lasts, never, ever permit clients in retirement to draw down their accounts more than four percent on an annualized basis.]

Why this increase? According to President Kim, pressure from Congress, notably Senator Charles Grassley, caused colleges to increase spending in the name of “inter-generational equity.” Kim explained that the increase in the distribution of Dartmouth’s endowment funds from approximately $160M in fiscal 2008 to over $200M in fiscal 2009 was for money spent on “the students of today.” That’s suspect.

The College has reported that between 2006-2008 the number of full-time-equivalent faculty increased by a grand total of ten people, so Kim’s assertion bears a little more examination. And, as loyal Dartblog readers know, we have been doing just that over the past few weeks.

Our conclusion, and I hope that it is yours, too: very little of this extra spending went to improving students’ education. It went to the growth of salaries, lavish health insurance, other benefits, retirement payments, and vacations for staff and faculty who were already working here. (Note: one nugget of information in Kim’s PowerPoint presentation: the College spent close to twice as much money in 2009 on staff compensation—$219M—as it did on the faculty—$127M.)

However, now that the hammer has fallen, President Kim stated that the Trustees have instructed him to return in 2011 to the historic endowment draw of 5.5%. Working with this figure and most-likely-case assumptions about costs and the economy, Kim reports that if we don’t take steps to cut spending, the current projections for the budget deficit going forward after this year are as follows:

2011: -$54M
2012: -$96M
2013: -$114M
2014: -$122M

Hard decisions will be made aplenty in the coming months.

The rest of the presentation was a reprise of the last faculty meeting: there was lots of talk about an inclusive budget process, grand ambitions leading up to Dartmouth’s 250th birthday in 2019, a re-balancing of the endowment to avoid the gyrations that have turned the College upside down twice in the last eight years, and the conclusion that all parts of the budget are “on the table.”

The faculty was notably quiet, and no one rose at this meeting to plead the case of the “most vulnerable.” Finally, after too many years, the realization seems to have sunk in that undoing Jim Wright’s mess is going to affect almost everyone.

Addendum: If the endowment were to magically return to its peak 2007 level and we were to draw off of it at the traditional 4.5-5.5% level, the College budget would still be in the red.