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Why Is the College Coy About Numbers?

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

Transparency.jpgYesterday we had no choice but to estimate certain components of Dartmouth’s finances because the College did not release all the numbers that it has in its possession. As we saw, for the administration to announce the net increase in the endowment between 2010 and 2011 (from $2.998 billion to $3.415 billion), it had to know down the to the last dollar how much it had received in “gifts,” “transfers,” and “other changes”; and most importantly, the College’s accountants had to have calculated the amount of money that Dartmouth drew from the endowment to support operations in fiscal 2011. It didn’t share. Transparency anyone?

Why did it not do so? As in so many other areas, the PR mindset is also at work in the College’s financial communications. Trumpeting an 18.4% investment return brings praise from the uninformed observer; admitting that the draw from the endowment was once again around 7% lets slip that the administration is failing to effectively cut costs and prudently manage the College’s finances.

What is the real effect on Dartmouth from over-drawing on the endowment? Between 1991-2001, the endowment grew from $597.6 million to $2,414.2 billion — a gain of 304% in a period when inflation totalled 30%. Quite a performance. In that period, the College drew prudently from the endowment each year, usually in the area of 4.0%-4.5%

However, between 2001 and 2011, the endowment grew from $2,414.2 billion to $3,415.0 billion — a gain of only 41.5%, when inflation was 28%. Why the low net growth? When you leave money in the endowment, it can grow each year, and the amount by which it grows can itself grow in subsequent years. This phenomenon is what Warren Buffett calls the “miracle of compounding.” But if the College draws 7% out of the endowment, as it seems to have done in the past few years, then there is that much less money left over for the endowment’s managers to work with.

This effect is exacerbated by the College’s rising debt burden (which grew from $288 million in 2001 to $945 million in 2010, and probably increased again in fiscal 2011). Repaying the loans that the College took out to finance irresponsible spending is bleeding Dartmouth’s finances. Repayments will continue to be a burden for many years by withdrawing money from the endowment — which could otherwise grow much faster to benefit future generations of students.

At some point, I hope soon, the Trustees will be obliged to stop papering over the ongoing financial crisis. At that point a resolute administration will make the necessary cuts to restore real growth to the endowment. And there is only one place to do so. True budget reductions won’t come from sourcing cheapo photocopiers and saving money on trash bags; and we can’t put the burden on students by ramping up tuition and DDS charges any higher than they are. The Board of Trustees must publicly acknowledge that Dartmouth just has too many people on staff, and they are receiving excessively generous wages and benefits. Serious adjustments will then have to be made. We can’t go on this way.


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