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College Costs: A DAM Shame

DAM College Costs.jpgLet’s say I asserted that the first half of the 20th century was a peaceful time, and then I cited statistics noting that there were relatively few military casualties in Europe between 1920-1940. You’d scratch your head and ask me why I had chosen a restricted period of time to support my contention, one that did not include either WWI or WWII. Once you had finished scratching year head, you’d think a moment longer, and you’d realize that I was purposely obscuring the truth about that period. Armed with that principle, let’s look at the Alumni Magazine’s analysis of Why Does Dartmouth Cost So Much?

The Magazine’s cover piece — written by C.J. Hughes ‘92, who is not a financial journalist — is replete with the same kind of statistical cherrypicking and intentional obfuscation. One has to wonder whether the end result is the responsibility of Hughes, his editors, or the administration that furnished him with carefully chosen facts and figures. A few examples:

Non-Faculty Staffing: Let’s start off with a statistic in the article that wins Dartblog’s Obfuscation of the Year award:

Hiring seems to drive no small portion of the hike in spending. From 2003 to 2013 the number of faculty swelled by 16 percent, according to official College figures presented in one budget class session. During the same period the number of grad students went up by 30 percent, the data show, but the undergrad population climbed just 4 percent.

Staff levels, meanwhile, appear to have climbed about 4.5 percent from 2003 to 2013, according to College data. Although this may not appear excessive on its face, viewed across a longer span of time, the College can seem to be piling on non-teaching employees, who, as noted, make about 75 percent of its total payroll.
[Emphasis added]

The bolded assertion is true, but only as far as it goes. Let’s review hiring over a longer period and in more detail. According to the Dartmouth Factbook, from which I have taken screenshots, when Jim Wright became President in 1999, the College had 2,408 non-faculty employees (including about 75 people at the Hanover Inn). Over the next several years, until a recession took the wind out of his sails, Wright engaged in a hiring binge unlike anything ever seen in Hanover. He increased the non-faculty payroll by close to a thousand new positions: the next data provided by the Factbook show non-faculty payroll in 2005 at 3,342 positions — an increase of 38.8%. Over the following five years staffing rose and fell, dropping to as few as 3,056 non-faculty staffers in 2010, after Wright had trimmed the budget in preparation for Jim Kim’s arrival — a level still 26.9% over where the number of administrators had been in 1999.

Since 2010, binge hiring has been back, and staffing has risen each year. The total is now up to 3,503 staffers, a figure that does not include those 75 Hanover Inn employees, who were calved off to the Inn’s new private operator. The number of staffers on the payroll has risen 17.5% since 2010. More down to earth: the College has hired 447 staffers since 2010, and in the same time period we have added only 35.8 professors to the teaching ranks. That’s 11.6 new staffers for each new professor.

In short, with a correction for the Inn change, the number of non-faculty staffers at the College rose by 48.6% between 1999 and 2014, a figure an order of magnitude greater than the 4.5% figure cited in the DAM article, which cherrypicked a more limited time frame.

Our Endowment Wealth: The DAM does little better in describing Dartmouth’s endowment wealth relative to our sister schools:

While the endowment may be growing nicely, the $4.5 billion Dartmouth has under investment now is next to lowest in the eight-school Ivy League and just No. 22 in overall college endowment rankings, according to the National Association of College and University Business Officers and the Commonfund Institute, an investment firm. Only Brown’s endowment, with $2.9 billion, is smaller. Schools such as Notre Dame ($8 billion) and Washington University in St. Louis ($6.6 billion), for example, are Nos. 12 and 17.

Looked at another way—by endowment per student, a popular measure of an institution’s financial stability—Dartmouth is also behind. That measure can matter, as demonstrated by Princeton and Harvard being able to underwrite more financial aid by drawing on their larger funds. Dartmouth’s endowment breaks down to $710,000 per student, based on current enrollments. Washington University, meanwhile, has $1.05 million per student, and Grinnell, despite finishing at No. 48 in the endowment rankings, claims $1.14 million per student. [Emphasis added]

So the article would have us believe that we are next-to-last in the absolute size of our endowment, and as regards endowment per student, we are not only behind Princeton and Harvard, but also Wash U. and Grinnell. Poor, poor Dartmouth. Are we enlightened now?

Actually not. The figure we should be looking for is how we do against all of our Ivy sisters. Those numbers will help us understand why our tuition is so high: as the DAM article states, “within the Ivy League… Dartmouth ranks most expensive behind only Columbia (and 14th most expensive nationally).” Here’s how we stand versus the other Ivies and other wealthy schools in endowment per student:

Endowment Per Student.jpg

First off, though we lag well behind HYP, we are far wealthier than Penn, Brown, Columbia and Cornell. Our endowment per student is more than double all of these schools, except for Penn. More important than that observation is how this difference translates into support of the budget each year. As the DAM article notes:

Today, endowment reserves are drawn on sparingly, much as individual investors access their retirement funds. Dartmouth is no exception: It withdraws about 5 percent a year to fund operations, following a rule of thumb in higher education.

Let’s see how that 5% figures translates into the annual endowment draw on a per student basis: Cornell: $14,050/student; Columbia: $15,750/student; Brown: $17,400/student and Penn: $19,450/student. Before I tell you Dartmouth’s per student figure, recall that Cornell, Brown and Penn (and HYP) all charge a lower tuition each year than the College on the Hill.

Dartmouth: $35,250/student. That’s a difference of between $15,800/student and $21,200/student compared to Cornell, Columbia, Brown and Penn. Where does all that money go? It surely is not being used to keep our tuition at a reasonable level. ‘Nuff said.

Managing The Endowment: The DAM article includes statements of fact that are just plain wrong, as anyone with even a vague sense of Ivy League finances would understand:

…in FY 2014 the endowment, which is divided into a fairly standard 60/40 stock-to-bond ratio, had a banner year, up more than 19 percent, with an annualized return of about 12 percent. [Emphasis added]

A “60/40 stock-to-bond ratio” might have been true for a college endowment thirty or more years ago, but one doesn’t have to be aware of the controversy about all the money that the College places with Trustees in their hedge funds and private equity vehicles to know that this statement is in error. After all, the College’s annual accounts lay out the overall distribution of the endowment’s investments on Page 13:

Endowment Level 1-3.jpg

Stocks (“Global Equities”) and bonds (“Fixed Income”) amount to 37.4% of the endowment, and of these assets, more than half are held by outside managers and are only redeemable in ninety days or more. The remaining money is in other types of investments like hedge and private equity funds, venture capital placements and real estate holdings.

Teaching Loads: The DAM article edges into reportorial parody when discussing the number of courses that Dartmouth professors teach each year:

There’s also the argument that professors who carry a light course load, as they do at Dartmouth, provide “a smaller bang for the buck than teachers at other schools, who tackle several sections at a time,” says Bill Hall, the chief financial officer for Salve Regina University in Newport, Rhode Island, who has worked in higher education for decades. His far-less-funded school “couldn’t survive if our guys were teaching one class a semester,” Hall says. Even some Dartmouth professors, who did not want to give their names out of worries about reprisals, agreed with Hall’s assessment: Dartmouth profs, who don’t typically utilize teaching assistants, don’t teach as many courses as profs do at many other schools. In Hanover, profs typically teach three or four courses a year; at schools such as Salve Regina it is double that. [Emphasis added]

By what measure of intellectual rigor does Hughes limit his comparison of the College with Salve Regina University, a school that ranked #50 in U.S. News’ “Regional Universities (North)” category? While I might want our faculty to teach more, too (because so many Dartmouth professors are honestly devoted to their students), we must remember that the College is in a competitive market for faculty, and many Dartmouth professors are regularly offered positions at other high-ranking schools (and by that I don’t mean places that rank # 50 in the “Regional Universities (North)” group) where they would teach less than in Hanover.

The Cost of Doing Business in Hanover: Hughes writes:

Dartmouth officials are quick to disabuse critics of the notion that doing business in rural New Hampshire means that basic goods and services cost less than they would in a city. “At first blush, you would think things would be cheaper up here,” says Mills, who was previously employed by Harvard. “But there’s a scarcity. Many test tubes, for instance, need to be shipped from Boston, which adds to their cost. Similarly, to have a plumber around who can respond quickly to emergencies, Dartmouth has had to put some on staff. It would be far too risky to rely on freelancers.”

I like Rick Mills a lot, so I am going to assume that he was misquoted here, but if we take his comment about test tubes on its face, it is laughable. Most test tube companies — and anyone else for the matter — offer free shipping; it is not as if Harvard profs can walk to a test tube store in Harvard Square, but Dartmouth profs have to drive down to Cambridge to stock up. However, there is one difference between the College and Harvard that cuts entirely the other way: if the folks there buy their test tubes in Massachusetts, the sales tax is 6.25%; in New Hampshire the tax is 0%. All the other Ivy schools pay sales tax as well.

As for the plumbers, sure we might keep plumbers on the payroll, but if Hughes had looked at the hourly rate charged by plumbers in large cities versus the Upper Valley, she’d have seen that Dartmouth does very well by being in a low-cost-of-living environment. I know. I have a business in the Upper Valley, too.

Employee Benefits: Hughes glosses over the issue of benefits:

The impact of employee benefits packages remains to be seen. Although critics of the College’s budgetary policies, such as Dartblog’s Joe Asch ‘79, have complained that employee packages are too generous, the College shrank its contributions to employee retirement programs in 2008 and eliminated a retirement healthcare subsidy for those hired after 2009. Indeed, the share of healthcare premiums employees kick in now is about 31 percent, according to College figures, up from 24 percent in FY 2009. Similarly, for employees aged 35 to 39, for example, the College now chips in 7 percent of total salary as a retirement benefit, down from 10 percent, the data show—generous, but hardly out of line with competing New Hampshire employers. Many University of New Hampshire employees pay only 16 percent of their healthcare premiums and UNH has a standard retirement account contribution level of 10 percent against a 6-percent employee contribution.

DAM Spending Per Student.jpgHe notes that the College charges employees more than it used to and its pension contribution is less generous, but then he assumes that the medical insurance coverage provided by UNH is equivalent to the Cadillac plan offered by Dartmouth. A fairer comparison would be with another Ivy like Brown, a school with about the same number of full-time employees as Dartmouth (even though it has one third more professors and one third more students), and one that is embarrassingly more efficient that Dartmouth, as the table on the right from the DAM article shows. In 2014 Brown spent $95,299,000 on benefits and $313,076,000 on salaries — total employee compensation added up to $408,375.000. Smaller Dartmouth paid out $122,428,000 on benefits and $369,404,000 in salaries and wages — a total of $491,832,000. Dartmouth paid $27,129,000 more for benefits than Brown and $56,328,000 more in salaries and wages. That’s a total difference versus Brown of $83,457,000.

Brown’s thriftiness produces benefits for students: in the coming academic year, tuition, room and board, and fees in Providence will be $62,046; at the College they will be $63,744. That makes Brown $1,698/year cheaper than the College.

Conclusion: I could go on and on in finding errors and foolishness in C.J. Hughes ‘92’s piece. In short, he spent 4,818 words to confuse you. Don’t be. Dartmouth is a rich institution that has been managed for several decades for the comfort of the staff rather than for the students, the faculty, and for the excellence of its endeavor. That’s what Hughes should have written, but, of course, there is a capital campaign on the horizon, and nobody wants the heavy hitters to think that the College is, to use Reagan Budget Director David Stockman’s (father of Victoria Stockman ‘10) famous term, “a sinkhole of waste.”

That said, let me clarify the reason Dartmouth is so expensive: too many administrators earning too high salaries with extravagant benefits. If Phil could reduce the cost/student of a College education to Brown’s level, we could wipe out tuition and hugely increase the size of the faculty.

Addendum: Although the DAM article hid or misled more than it revealed, it did offer up some interesting information that I have verified independently:

— $127 million went toward sponsored research. Although tens of millions of dollars in grants from private foundations and government agencies such as the National Institutes of Health underwrite much of the cutting-edge work done by faculty with student assistance, the College says it has to kick in to cover the balance. [Emphasis added]

Translation: the College loses money every time it gets a research grant; a grant’s allocation for overheads does not cover the full cost of supporting research. That’s funding that comes from students’ tuition/r&b/fees, alumni contributions and the payout from the endowment.


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