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College Still Plunders the Endowment

A four-part series: Part 1, Part 2, Part 3 and Part 4.

Let’s look at the College’s finances in a little more depth in light of the recent announcement of the endowment’s 18.4% yield in fiscal 2011.

First of all, we have to get our terminology straight: the endowment itself did not rise 18.4%. This percentage figure represents only the net return on the investment in fiscal 2011 of the $2.998 billion that the College had in the endowment on June 30,2010. A return of 18.4% amounts to $551.6 million. As the College announced, the endowment itself only rose from $2.998 billion on June 30,2010 to $3.413 billion on June 30,2011, an increase of $415.0 million (that’s 13.8%).

Here’s how the College calculates the overall change of the endowment each year. This table is an excerpt from Dartmouth’s 2010 accounts.


In addition to the endowment’s net investment return that we looked at above, the endowment also grows because each year the College receives gifts from donors, and it adds transfers — usually funds that are released from restricted uses — and other changes — a catch-all category — to the endowment.

As you can see in the table above, gifts in 2009 were $53.90 million, and in 2010 they were $60.3 million. The College’s press release noted “new gifts of over $40 million.” The use of the word “over” is somewhat curious here; one would expect more precision, and also, given the jump in the stock market in 2010/2011, a higher level of giving would be normal. In any event, we can comfortably choose $45.0 million as the level of gifts in fiscal 2011 (I bet that it was a good deal more).

The second item is transfers: these additions to the endowment were $24.6 million in 2009 and $15.8 million in 2010. Let’s assume that the total transfers in 2011 were an average of these two figures: $20.2 million.

Finally, other changes probably added another $5.4 million, if we also take the average of the last two years.

In summary, wise investing of the endowment generated a net investment return of $551.6 million, to which we can add $45.0 million of gifts, $20.2 million of transfers, and $5.4 million of other changes. That totals up to $622.2 million.

Yet, as we saw above, the endowment only grew by $415.0 million. So where did the difference — the remaining $207.2 million — go in fiscal 2011?

To the College’s operations, for course. That’s a sum pretty close to the distributions for spending noted in the table above: $229.6 million in 2009; and $204.5 million in 2010.

And how good is that result? In a word: bad. Why? Well, it is a long way from the targeted draw of $165 million that insiders say was the administration’s goal. But more importantly, that level of draw on the endowment represents an inflated 6.9% of the endowment distributed for spending in President Kim’s second full year as our leader — when the Trustees have set a goal of a 4.5%-5.5% draw, a figure that is recognized as sustainable in the non-profit world. A 6.9% draw is the highest in the Ivy League, and it is unbelievably high in light of the many spending cuts that the administration made to the College’s academic program over the last several years. I wonder if fiscal 2012 will be any better.

Given these results, the faculty was quite right to be highly skeptical of the figures put forward by the administration in May. To this observer, and it seems to many people on the faculty, Dartmouth’s spending is still out of control. Though the Folt/Kim team has made many cuts, clearly savings have not occurred according to plan in many areas, and the administration continues to spend money irresponsibly in others.

Addendum: Alert readers will have noted that there is an element of estimation in the figures above. The College’s final audited figures for fiscal 2011 will be published in 4-5 weeks. We’ll update this post at that time.

Note: Another area that we’ll look at closely in the 2011 accounts is the College’s indebtedness. As we have seen, between 2001 and 2010 the College’s total debt grew from $288 million to $945 million. As politicians in Washington teach us every day, it is easier to borrow money and spend it today than it is to run an efficient operation in order to have the funds one needs. For a decade now, the Trustees have disguised Dartmouth’s over-spending by quietly borrowing enormous sums. It seems that they have decided that it’s easier to let future generations of students and faculty bear the burden of repaying loans than it is to make the hard cuts that are needed today.

Addendum: A thoughtful observer adds:

The College barely squeaked by in fiscal 2011, but it is ill-placed to survive another downturn in the market. Huge cuts are still needed to get Dartmouth’s fiscal house in order. Kim needs to get serious, and now. He and the Trustees can’t play PR games with the longterm health of the entire institution.


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