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Why the Budgetary Smoke and Mirrors?

By now everyone sees that the Kim/Folt administration has been playing games in explaining their cost reduction efforts. Clearly, after the irresponsible spending of the last decade, President Kim is correct that the College has a $100 million structural deficit. The question is: why has it been so tough to bring Dartmouth’s budget into balance in a straightforward fashion?

The answer is quite simple: it is impossible to honestly take $100 million — 14% — out of the budget given the constraints that the administration has imposed upon itself. Take a look at a breakdown of the College’s spending in fiscal 2010. Total spending was $717,063,000.

Dartmouth Costs 2010a.jpg

I’ve divided that figure into three distinct areas in the chart below: a) Yellow: Wages and Benefits that the administration is loath to touch in a serious way; b) Green: Compressible Items that have been cut, often too vigorously; c) Red: Effectively Untouchable Items.

Dartmouth Costs 2010b.jpg

Wages and Benefits: At $431,170,000 — 60% of Dartmouth’s spending — this area must perforce provide the majority of the budget savings that the College envisions.

Dartmouth Costs 2010c.jpg

Kim/Folt have cut personnel — though the exact number changes with each explanation — and it has trimmed benefits, but only with great timidity. If the total budget cuts are to be $100 million, wages and benefits have to provide at least $65 million of the total. By my estimation, cuts to jobs and benefits have been no more than $20 million to date.

Compressible Items: At $180,340,000 — 26% of college spending — this area is composed of Fellowships and Student Support, Materials, Equipment and Supplies, Lodging, Travel and Similar Costs, and Purchased Services.

Dartmouth Costs 2010d.jpg

Here the administration has hacked away. Cuts have been made to everything from financial aid to middle income families, the quality of the College’s photocopiers and printers, the purchase of supplies, budgets for professors and staff to travel, etc. But, and this is an important caveat, just how deeply can this area be cut? Even if you took 20% from this spending, and in doing so measurably lowered the quality of a Dartmouth education, the total savings would only come to about $36 million. The Kim/Folt team’s figures are so convoluted that it is tough to add them up, but it is hard to imagine that they have come close to that figure.

Effectively Untouchable Items: The $105,553,000 in this area — 14% of total spending — is more or less untouchable by the budget-cutters.

Dartmouth Costs 2010e.jpg

The College’s tax bill, depreciation on past expenditures, and the repayment of the College’s huge loans (up from $288 million in 2001 to $949 million in 2010) are not open to negotiation, so there are little or no savings to be found here. In fact, given that utilities are also included in this section, the likelihood is that expenses in this area will only rise in the coming years.

So where do these facts leave the Kim/Folt budget cutting team? If they won’t cut personnel, wages and benefits in a serious fashion (i.e. 15% of 2010’s bill — about $65 million), there is no hope of meeting the budget-cutting goals. The first fallback is to soak students with huge jumps in tuition, room and board (and even parking). But competition with the other Ivies means that we can only go so far here. Given the recent hikes in these areas — we are now the second most expensive Ivy — we’ve probably already gone beyond a healthy limit.

After that, the only recourse left to Kim/Folt is to revert to the accounting manipulations that did not escape the notice of the eagle-eyed faculty at its past two meetings.

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