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Journalists Can’t Count

Bloomberg breathlessly reported (as did the Valley News) that four of the Ivies posted deficits in their most recent fiscal year:

At least half of the eight Ivy League schools ran budget deficits in the past fiscal year, reflecting cuts to federal research funding and difficulty in controlling operating costs.

Of the seven schools that have released audited annual reports, Harvard University, Yale University, Cornell University and Dartmouth College posted gaps in the year that ended in June…

Harvard, the world’s richest school with a $32.7 billion endowment, said last month it posted a $33.7 million deficit in the year ended in June, up from a $7.9 million shortfall a year earlier…

Yale, whose $20.8 billion endowment makes it the second-wealthiest university, said it had a $39.2 million gap in fiscal 2013 following a surplus the prior year…

Cornell University, based in Ithaca, New York, posted a $31 million deficit, according to its annual report. It said more than $20 million of the shortfall came from paying for interest-rate swaps that it used in an attempt to lock in the borrowing cost for bonds that it later decided not to sell…

While Dartmouth posted the smallest gap of $1.8 million, the college in Hanover, New Hampshire, is “committed to a cultural shift toward rigorous financial discipline” based on expectations that “federal funding for education will diminish, endowment growth will slow, and the cost of tuition must stabilize,” Justin Anderson, a spokesman, said in an e-mail.

The papers are missing an important point. Running a deficit or a surplus at these schools is in no way a measure of financial health. College financial reports are not akin to a corporate profit and loss statement; after all, the goal is not to make a profit. The bottom line figure in an academic institution’s financials merely reflects how a school did relative to its budget forecast. As the start of the year, certain estimates were made about revenue: tuition, financial aid, alumni giving, the draw from the endowment, etc.; and forecasts were also prepared about expenditures on everything from faculty and staff compensation to outside services, purchases, taxes and depreciation. As you can from the College’s below figures, its is impossible to hit these estimates spot on.

In fiscal 2013, the College had a deficit of $1,782,000 out of total expenses of $835,273,000 — a deficit in percentage terms of a minuscule 0.21.%. I’d say that this is pretty good forecasting:

Dartmouth 2013 Accounts Comp.jpg

Note also, despite Dartmouth’s ongoing parlous financial situation, the College had a surplus of $27,417,000 during the previous year.

The respective percentage deficits of the other in-the-red Ivies were as follows: Harvard: 0,79% ($33,700,000 of out expenses of $4,248,371,000); Yale: 1.3% ($39,254,000 of out expenses of $2,976,132,000); and Cornell: 2.8% (actually $89,351,000 — Bloomberg got this figure wrong — out of expenses of $3,232,192,000)

More incisive reporting would have noted the real story: total expenses at Dartmouth jumped 7.7% last year (from $775,788,000 in 2012 to $835,273,000 in 2013; see above); at Harvard 5.5%; at Yale 5.8%; and at Cornell 3.8% — all figures well above the consumer price index’s growth of 1.51%, which means that college costs once again far outstripped families’ ability to pay for education.

Addendum: To his credit, Phil Hanlon set the context correctly in a comment to Jim Kenyon, quoted in the latter’s column in the Valley News:

“Obviously, we’d love to have revenues exceed expenses, but a ($1.8 million loss) is not a concern,” Dartmouth President Phil Hanlon, who arrived in Hanover this summer, told me in an interview Friday. “A whole bunch of predictions go into (budgeting). We never expect to hit it on the dollar.”

However, Phil did not comment on the unsustainable growth in the College’s spending in 2013, and Kenyon did not ask about it.


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