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Kim/Folt: Deconstructing the Puffery (2/3)
Let’s take a representative section of the notes in the Kim/Folt response to the faculty’s unanimous request for budget information. A closer look will help gauge the quality of the explanations offered by the College’s senior-most administrators. These below items describe part of Slide 7; they supposedly enumerate $27.7 million of savings:
OTHER SAVINGS AND ADJUSTMENTS (NET SAVINGS OF $15.1 MILLION); Expense Savings: $27.7 million
Surplus repays deficit: Utilization of FY10 operating surplus to repay FY09 operating deficit more quickly than projected, $14.6 million
What possibly can this mean? First off, Dartmouth can run whatever surplus it chooses to run, given that it can control the income line in its statement of operations by simply increasing the draw from the endowment. There was no cash “operating surplus” in the disastrous 2010 fiscal year that could be applied as real income to future years. Any supposed surplus is reintegrated as an accounting entry into the endowment. And under no accounting convention of which I am aware does the College — or any other enterprise — “repay” its losses from previous years. Of all the comments in the Kim/Folt documents, the above item is the most bizarre.
Contingency allowances: Reductions in contingency expense allowances, $3.3 million
In the life of any enterprise, a certain number of unexpected contingencies crop up. A budget forecast of contingencies is determined based on past results. Are we to believe that the results of recent years won’t repeat themselves, and therefore $3.3 million can be cropped from the budget for contingencies? And how big is the contingency budget in the first place? We are not told. Of course, we will only know whether this supposition is true or not for fiscal 2012 when the College’s audited accounts are released 18 months from now.
New investment reduction in planned expenditures for seed investments; funding for new initiatives will be derived from gifts or other to-be-identified sources, $4.6 million
If “seed investments” are actually investments, then it is unclear what this item is doing in the College’s operating accounts. Investments are found in Dartmouth’s capital budget or in the endowment’s accounts.
Working capital: Better projected yield on investment of working capital, $2 million
The College suffered serious losses to its invested working capital in the 2009 downturn (necessitating large loans and leading to the downgrading of Dartmouth’s credit rating). One hopes that the current investment of working capital is more prudent.
Unrestricted reserves: Use of unrestricted reserves to cover one-time investments, $2 million
Again the question rises: why are reserves being used for “investments”, and why are they being commented upon in a discussion of the Dartmouth’s operating budget? Investments are paid for from the College’s capital budget.
Debt financing lowered on construction projects, $1.2 million
This item would make it appear that the College is borrowing money to finance construction projects. First of all, oftentimes the interest on a loan for construction comes out of the capital budget. Secondly, while the College borrowed over $400 million from the capital markets at the depth of the financial crisis, it has not made any other significant borrowings since then.
Conclusion: It’s all smoke and mirrors folks, it’s all smoke and mirrors. We have no hard information to determine whether any of these figure are accurate, and many items seem to be highly irregular figures that are not properly part of the College’s operating accounts. Clearly no accountant was involved in the preparation of the Kim/Folt document.
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May 31, 2009
Kangaroo Court, Indeed
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