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Brown v. Board of Trustees: A Financial Tale of Two Schools

Brown Dartmouth logos horizontal.jpgWe’ve commented before that the College has acquired a doleful reputation for financial mismanagement. At a conference for academic Chief Investment Officers held at Cambridge Associates in June 2009, a speaker referred to Dartmouth as “the poster child for over-spending.” Our endowment growth has gone from best to worst in the Ivies over the past two decades; and our debt level is ballooning. Let’s circle back and examine today how the College’s finances could be better managed by comparing #15 Brown’s finances with our own (we rank #11 in U.S. News). The results aren’t pretty.

Brown has about 46% more undergrads than Dartmouth, and it has 36% more students:

Brown v Dartmouth 1a Students.jpg

As one would expect, it has more faculty members than the College; however it has almost 10% fewer non-faculty employees:

Brown v Dartmouth 2a Staff.jpg

Providence, a city of 1,630,956 in the overall metropolitan area, has a higher cost of living than Hanover (11,260 people), and Rhode Island levies income taxes and a 7% state sales tax. Despite having more students, and being in a higher cost environment, Brown’s total annual expenses are 10% lower than Dartmouth’s — a difference in 2011 of $75.8 million:

Brown v Dartmouth 5 Expenses_Page_1.jpg

The difference is only partially due to sponsored research. Dartmouth’s grant-sponsored research budget is only 6.7% higher than the Brown’s ($11.3 million):

Brown v Dartmouth 6 Research_Page_1.jpg

Brown shares some of the results of its good management with its students. Last year, tuition, room and board, and fees for Brown students were 5% lower than at Dartmouth. Brown’s cost puts it in the middle of the Ivies; Dartmouth is the second-most costly school after Columbia:

Dartmouth v Brown Tuition.jpg

Brown has smaller endowment than Dartmouth’s, but despite Brown’s larger student enrollment, it draws less from its endowment than Dartmouth (a difference of $73.1 million last year), and also less as a percentage of its endowment. As a result, Brown’s endowment has been growing over twice as fast as Dartmouth’s in this century. At the current pace, Brown’s endowment will be larger than ours by about 2025:

Brown v Dartmouth 8 Endowment.jpg

Between 1990-2000 Brown had the fifth-ranked endowment in the Ivies in terms of growth; between 2000-2011, it was the sixth-ranked school. Dartmouth had the fastest growing endowment in the Ivies between 1990-2000, and the slowest growing one between 2000-2011.

One area of weakness for Brown: it has tried to play catch-up by borrowing money almost to the extent that Dartmouth has. For every dollar of endowment, Brown now has 30 cents debt; Dartmouth has 33 cents. Dartmouth has the second worst record in the Ivy League in this area; Brown is the third worst.

Brown v Dartmouth Debt.jpg

Total salaries and wages at Brown are virtually the same as at Dartmouth, even though Brown has more high-salary faculty members. However the cost of benefits at Brown is $42.6 million lower than at Dartmouth. Some cuts have been made in Hanover over the past year, but these changes barely brush the surface of the problem:

Brown v Dartmouth 9 Wages.jpg

Beyond benefits, wages at Brown for line workers — despite Providence’s urban cost structure — are significantly below those for the staff in Hanover. Both Brown and Dartmouth have workers in the SEIU union; Brown’s baseline workers are paid almost 20% less than Dartmouth’s workers, and Dartmouth’s workers’ wages rise more quickly (after nine months on the job; at Brown base wages only go up after two years):

Brown v Dartmouth 10 Cooks .jpg

The above numbers lead inexorably to the conclusion that if Dartmouth’s next President could cut the College’s cost structure to a level resembling Brown’s (and please note that I have not said that Brown is well managed; I expect that it is just less badly managed than Dartmouth), resources would be freed up to greatly improve the quality of a Dartmouth education. We have too many people on the payroll, we pay them too much, and their benefits are too high.

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