Original Article: http://dartreview.com/archives/2003/05/12/concealing_the_budget_oops_forgot_to_carry_the_one.php
Monday, May 12, 2003
The $200,000-a-year swimming and diving program exists only through the generosity of alumni.Sanborn Library is closing. Offerings in humanities courses have decreased.The history department cannot afford to buy new books this term. Et cetera.
Although the past year's extensive budget cuts here at Dartmouth have received no shortage of attention from students and faculty, one small incident at a meeting between administrators and faculty shed new and mysterious light on the controversy. 'We were told that there had been a problem—a 'glitch' in the algorithm' used to calculate endowment spending, says anthropology professor Hoyt Alverson. 'The college would have to pay back funds inappropriately allocated to the operating budget from the endowment because of an inappropriate algorithm.' This statement by the administration remains just as ambiguous now as it was then.What follows is a brief portrait of a faculty kept in the dark, a student body at the whim of a red pen, and an administration altogether lacking in accountability.
The twenty-first century has been a rocky ride for corporate America and for financial fortunes worldwide. Riding high on the booming markets of the late 1990s, many were unprepared for the sharp downturn in 2001 and have had to cut costs by mass layoffs and by trimming superfluous expenses. Meanwhile, corruption in the highest echelons of major businesses has led to a push for corporate financial transparency, putting CEOs and accountants across America under the microscope. Congress has passed nearly thirty proposals aimed to ensure the integrity of financial statements and accounting practices. Robert Leeds, a professor of international finance and director of the Center of International Business and Public Policy at the Johns Hopkins University School of Advanced International Studies, writes that 'There are two key concerns magnified by the Enron revelations. The first is the quality of corporate financial transparency...The public must have confidence that their decisions are based on accurate and complete information.' Long before the emphasis on accountability and transparency reached its current level, some colleges, including other Ivy League institutions, took steps to ensure that their financial practices met the toughest standards. At Dartmouth, these measures have been conspicuously absent.
In his February 1, 2003 article 'Dartmouth's Budget Crisis Could Have Been Averted' in the Valley News, Dick Ramsden, former trustee and chief financial officer of Brown University, wrote, 'In the 1970s Princeton, Brown, and many other universities established advisory committees that allowed budget procedures to become more open and accountable.' These committees, among the primary planning bodies for their schools' annual budgets, are composed not only of the administrators regularly in charge of budget planning, but also of faculty, graduate, and undergraduate students. Thus, representatives of every sector of the college play an active role in molding the most detailed levels of the college's financial policies. By making this sort of information available to the entire college—administration, faculty, students—this structure facilitates complete financial transparency and accountability, an essential feature found to be woefully lacking here at Dartmouth, where, writes Mr. Ramsden, 'the budget process is opaque and notably different from some of its Ivy League peers.' To illustrate this disparity, one need look no further than the separate efforts of both Professor Alverson and myself to procure basic information Dartmouth's budget and the elusive 'glitch' in the algorithm.
The Dartmouth Review: When was the last time the faculty had input into planning the budget?
Hoyt Alverson: I don't remember that ever successfully happening...
Prof. Alverson, concerned by the way the budget has been handled, decided last term that he would try to find out the roots of the financial difficulties the college now faces. On January 10, 2003, he sent an open letter to President James Wright expressing his concerns, marking the beginning of a twisting and largely fruitless road of inquiry. Of particular interest, he claimed that recently the College has failed to meet the stipulations of the Organization of the Faculty of Arts and Sciences, which states that the administration must present its budget plans in 'preparation of the annual institutional budget and its relationship...to the allocation of resources...and those commitments or expenditures of capital funds which have a significant effect on operating budgets [emphasis added].' Alverson accused the administration—namely President Wright and Provost Barry Scherr—of meeting with the faculty to inform them only of what had been decided, not to discuss what would be.
In an interview with TDR, Prof. Alverson characterized the budget meetings between the administration and the faculty as 'announcements, not consultation.' For example, in October of 2002, the administration met with the faculty to present the budget for fiscal year 2001-2002, which had ended on June 30. 'The administration doesn't have much interest in faculty input,' said Prof. Alverson. He stated that the general feeling among the faculty is that they do not have enough information, and many have 'serious questions' about how the College's money is being spent. 'The administration is steeped in a culture of secrecy, a necessary condition for power,' he said. In decades of service to the College, he claimed that the faculty has never received the proper and necessary information in time to have an influence on planning of the annual budget.
Perhaps equally revealing was Prof. Alverson's brief analysis of the percentage increases in spending in various areas in the College between 1999 and 2002. Although the administration routinely cites across-the-board raises in faculty salaries—necessary to stay competitive in the market—as a major and indispensable recent expense, spending in faculty and instructional salaries only rose by 20.6% during those three years; spending in the 'all other salaries' area rose by a whopping 40.2—an increase of ten to fifteen million dollars over that allocated to faculty salary increases over the same period. Student scholarships and awards, another area where the College likes to boast of justifiably increased spending, only rose 13.2% during the period. 'Most of this increase in 'other salaries' is traceable to (a) gearing up for the capital fund drive and (b) growth in the 'Dean of the College area', notably the 'Student Life Initiative,'' states Prof. Alverson in his letter. The capital fund drive, the College's latest major fundraising campaign, accounts for close to half of that increase. As Prof. Alverson notes, the counterintuitive nature of cutting existing programs to finance a fundraising campaign is somewhat puzzling. The Provost could not provide him with an estimate of the expenditures, but Prof. Alverson writes that the Student Life Initiative is 'a large, if indeterminate, portion' of the 40.2% increase in non-faculty salaries.He asks a poignant question: what are we buying with all that money?
A Culture of Secrecy
Prof. Alverson's letter to Pres. Wright predictably generated dialogue between him and several senior officials in the college administration. Responding to Prof. Alverson's assertion that the Subcommittee on Budgets and Priorities was not appropriately involved in the planning of the budget, Pres. Wright wrote in a January 16 email to Prof. Alverson, 'You suggest in your message that [the Subcommittee] believed that they have not been involved in budget discussions. I do hope that they would correct this misunderstanding.' Colin Calloway, a professor in the Native American Studies department and chair of the Subcommittee on Budgets and Priorities wrote on January 17 to Prof. Alverson that 'The problem of course was that the [Subcommittee] involvement this academic year in the process came after cuts had been decided in the summer, a situation no one wanted,' but that somehow was not avoided. Prof. Calloway admits that the current standards of consultation with faculty are less than ideal: 'That is where we see need for improvement: regular consultation with the [Subcommittee] early in the process...well in advance of, in this case, cuts...The President, Provost and the [Subcommittee] all agree we need to get the process in better shape.'
Perhaps the most notable correspondence, and the most illustrative of the difficulties encountered by those who attempt to unearth details of the budget, are emails exchanged between Prof. Alverson, Dean of the College James Larimore, and Provost Scherr regarding Prof. Alverson's attempt to find out just how much money is devoted to the Dean of the College area and the SLI. In an email to Provost Scherr that predates his open letter to Pres. Wright, Prof. Alverson explicitly asked how the increase in 'other salaries' was allocated—specifically towards the capital fund drive, the Dean of the College area, and general administrative growth; he received no response. After Prof. Alverson's letter to Pres. Wright, Dean Larimore wrote to him in a January 14 blitz that, in fact, 'Incremental allocations to the Dean of the College area for SLI-related items account for a relatively small proportion of the 'other salary' category,' and that in his time he had 'become accustomed to faculty members beginning their inquiry with the assumption that administrative and student service areas have consumed more than a reasonable portion of available resources.' Prof. Alverson's response is unambiguous:
"Now what I asked Barry [Scherr] for on 18 December and was told I would receive in a few days and still have yet to receive is that very information you yourself allude to in the above paragraph (but don't quantify).
"So I made a STRENUOUS EFFORT to do just what in your experience faculty usually don't do. So I would ask you to prevail upon the administration TO BE RESPONSIVE to faculty requests which DO flow from efforts to get at the facts.
"The problem as I see it is PARKHURST SECRECY, not cavalier faculty attitudes towards administration budgets, and getting the facts.
"So, now, why don't you tell me the following and I'll happily pass this on to the faculty:
"What is the total salary and program budget including and/all SLI tagged items for the whole of the Dean of the College area for FY 1999, and what is the counterpart dollar figure for FY 2002?"
Dean Larimore wrote back on January 15, 'Since I know that you've asked Barry for the budget information noted above, and as he is the Chair of the College's Budget Committee, I should respect his role and let him respond to your specific request...I'll touch base with Barry and encourage him to share what information he is able.' Prof. Alverson has yet to receive the requested information.
Why such interest in the SLI? After all, total SLI expenditures pale in comparison to the amount spent on faculty salaries and compensation, which amounted to $280 million in 2002. The catch is that a hike in faculty salaries was indisputably necessary; only after a 20% increase from 1999 to 2002 does the average salary for a Dartmouth professor rival institutions of similar stature.
The SLI, on the other hand, is no stranger to controversy. The student uproar upon its announcement was deafening, and according to Prof. Alverson, 'some [faculty] feel that it's a money sink, a sop to the faculty and students' because of its preoccupation with making changes to the Greek system. There exists an attitude among a substantial proportion of the faculty that the products of the SLI have not been proportional to the investment. When cuts are being made to essential programs, the questionable must be examined even closer.
I suppose I should have realized that my personal inquiries into the matter would be even more frustrating than Prof. Alverson's—certainly far less interesting at least, as usually I received brief and elusive responses, not actual conversation. All of my questions regarding a 'glitch' or a 'mistake' in the endowment algorithm were met with vague, uninformative answers.The tone of the ordeal was set on the first day, when I walked into the office of Executive Vice President Julie Dolan.
TDR: My friend was told by an administrator that there had been a slight problem with the algorithm used to calculate endowment spending, and that it had been blown way out of proportion, but we were still curious about it.
Julie Dolan: Well if it was blown way out of proportion, there's no need to talk about it, is there?
The trend continued, as Ms. Dolan was the only administrator to agree to offer any answers to some of my questions, although she wrote that 'As for spending within the SLI, that's a question for the Dean of the College.' Unfortunately, Mr. Larimore did not respond to either of my two emails. Provost Scherr said that, since he worked so closely with Ms. Dolan, his responses to my questions would be the exact same; when I blitzed him additional questions, he simply forwarded them to Ms. Dolan, who did not respond.
Adam Keller, acting Treasurer, agreed to an interview, but his secretary did not respond to my repeated attempts to schedule one; Colin Calloway said I should talk instead to Barry Scherr. And so on. So, in our collective attempts to find a dollar figure for annual SLI spending, Prof. Alverson was sent from Larimore to Scherr—a dead end—and I was sent from Scherr to Dolan to Larimore—another. It is no wonder that Professor Alverson said in our interview that, in matters regarding the budget, 'The faculty are treated condescendingly.'
Where did all the money go?
One of the most peculiar aspects of Dartmouth's budget difficulties is the stellar performance of the College's endowment funds in the past decade. Dick Ramsden wrote in his aforementioned article that 'over the three-, five-, seven- and ten-year periods ending June 2002, Dartmouth's investment performance ranks in the top ten of 150 leading college and universities.' Clearly the endowment's fortunes in the plunging markets cannot explain why we are suffering such drastic cuts when so many other institutions are not. In fact, the College should be applauded for its investment savvy; who knows what would have happened had the endowment not performed so well. According to Mr. Ramsden, the root of Dartmouth's budget troubles lies instead in 'the extraordinary growth of endowment spending since 1998.'
Until 1999, Dartmouth followed the almost universal standard of spending 5% or less annually of the endowment's average market value over the previous twelve quarters. During the 1998-1999 fiscal year, however, the College raised the rate of endowment spending from 5% to 5.25%, then to 5.5%, a formula Mr. Ramsden calls 'excessive and myopic.' Based on the bull market of the previous twelve quarters, this 0.5% increase amounted to $10 to $20 million dollars every year (coincidentally, about the same increase Alverson found in the 'other salaries' area). With seemingly disposable income at an all-time high, the College spent freely, only to find itself in a bind when the market fell in 2001 and the bubble burst. Was this excessive spending the 'glitch' in the algorithm? Was it calculated to increase spending? Which programs would go?
Interestingly, Middlebury College has employed nearly the exact same formula as Dartmouth in the past few years and now also finds itself in financial trouble. Although Robert Huth, Middlebury's treasurer, refused to specify exactly what the rate of annual endowment spending was, he admitted that it was over 5%, 'something that we're in the process of bringing down over a period of several years.' Middlebury's response, however, has been notably more restrained. Some winter-term foreign study programs have been curtailed, and competition for prestigious guest lecturers has been lessened. 'We've looked for inefficiencies and opportunities for cuts in non-academic areas, such as grounds maintenance and catering...We want to make sure our academic programs remain robust. Nothing so draconian as cutting the swim team,' said Huth.
Where We Go from Here
We still do not know exactly what the administration meant when they referred to a faulty algorithm. As it stands, Dartmouth College is at a crossroads in its financial fortunes; the perils of its ways have manifested themselves in campus-wide cuts that have left students and faculty stranded. Will the endowment spending policy undergo reform? Mr. Ramsden suggests following the example of Yale, who devised 'an elegant endowment spending formula that combined the best of the automatic increase and market value approaches to endowment spending,' much different in structure from our current formula. But much more importantly, the administration must decide whether to open itself up to scrutiny and suggestions from faculty and students, or to remain a closed and secretive sector of our college. Had financial transparency existed here at Dartmouth, perhaps informed faculty and students would have objected to the spending spree of the past four years. Perhaps the budget crisis could have been avoided. But for now, while the rest of the College is forced to sit idly by, the opportunity to change for the better is in the hands of the Administration.