Budget Successes and Shortcomings

In a late-October speech, President Phil Hanlon ’77 outlined a five-point budget plan designed to enhance the discipline and accountability of spending at Dartmouth.

Over three months before he addressed the same audience with Moving Dartmouth Forward, Hanlon presented ideas in which innovation was both a central topic and an exemplified notion. A new policy requiring every administrative department to identify their least productive spending from the previous year and reallocate it toward “new initiatives” prompted the Wall Street Journal to call Hanlon a “good role model.”

The WSJ further compared Hanlon to former Indiana Governor Mitch Daniels, who has helped Purdue University keep student expenses on the decline since he assumed the presidency there in 2013. But is Hanlon’s policy, placed innocuously second in the list of five, actually aimed at cutting budgets?

In Hanlon’s words, this policy is intended to “Bring greater rigor and discipline in all aspects of our budgeting, campus-wide. Develop a culture of prioritization and reallocation. Towards this end, we introduced a 1.5% reallocation mechanism, where each unit needed to identify the 1.5% of their spending that was least effective and how they would put it towards new initiatives, and that will continue.”

The reality of the policy is somewhat different. Professor of Mathematics Scott Pauls, the Chair of the College’s Committee on Priorities informed faculty of the Arts and Sciences department in a letter that they were to identify $1.8 million, or 1.5%, of their budget for reallocation. Most of this will not be cut.

Two-thirds of the money will be directed toward new initiatives, while the remaining six hundred thousand will be redirected to a pooled fund. Proposals that advance excellence in the academic mission, address compliance issues, impact the institution broadly, or result in cost-savings or efficiency gain will compete for the pooled funds.

The effectiveness of this policy in decreasing waste and yielding a more efficient, economical, and innovative campus is difficult to evaluate. One detail is in specific need of clarification. Since 1999, tuition has doubled to more than $63,000, and, demonstrating that the WSJ’s portrayal of Hanlon as in kind with reformers like Scott Walker and Daniels is not based on his results.

President Hanlon is implementing budgetary policy as a means of maximizing innovation, not as an effort to cut down on student expenses. In economic terms, the inflated price tag of colleges nationwide—and particularly those of elite reputation—can be explained simply by looking at the demand. Application numbers tower over the available spaces, keeping the school’s precious acceptance rate low. However, do budget costs necessitate this price increase?

Plainly put, they do not. A 2012 article in the Wall Street Journal found that as total U.S. university expenses rose by 35% in the early 2000s, 61% of that increase stemmed from costs associated with non-academic personnel: “In 1975, colleges employed one administrator for every eighty-four students and one professional staffer—admissions officers, information technology specialists, and the like—for every fifty students” wrote reporter Benjamin Ginsberg. “By 2005, the administrator-to-student ratio had dropped to one administrator for every sixty- eight students while the ratio of professional staffers had dropped to one for every twenty-one students.”

Since 1997, administrative hiring at Dartmouth has increased in every department. Dartblog reports that, “If you examine the evolution of Dartmouth’s personnel directory from 1997 to 2007, you will find that every administrative office has increased its headcount dramatically. In 1997, the President’s Office numbered 6.5 full-time employees; 10 years later there were 10. During that time period, the Dean of the Faculty Office went from 14 to 28 full-time employees. The Dean of the College Office went from 16 to 26; the Provost’s Office went from 6.5 to 11.5; and the combined headcount of the First-Year Office, the Office of Student Life and the Office of Residential Life went from 26.5 to 47.”

This spendthrift approach to administrative hiring is an ongoing trend. In March of 2014, Dartmouth hired 115 staffers, including 25 “Community Service, Legal, Arts, and Media Occupations,” 21 “Office and Administrative Support Occupations,” and 25 “Other Educational Services.”

These figures point toward non-academic spending as the money hungry mechanism driving up tuition costs. Some analysts justify the leap in tuition by pointing to adaptive measures that universities had to take in the early 2000’s in the wake of pervasive new technology. But these necessary expenditures are not enough to permanently increase the price tag of an education. Furthermore, funding for these tech projects came mostly from donations rather than tuition hikes according to a WSJ study.

Hanlon neglects to address this inflated area of spending, choosing to fiddle with budgetary policy in the tenuous and vague pursuit of innovation.

Hanlon’s emphasis on innovation does not end here. He emphasized this year’s spending figure on new initiatives, $10 million, and ensured that the College will “always maintain robust investment in innovation and excellence.”

Another exciting revelation of Hanlon’s speech was the Dartmouth reserve fund, created in anticipation of the next economic downturn. In 2008, a diminished return on investments caused by the economic downturn limited Dartmouth’s budget growth, and Hanlon wants to avoid a repeat: “ Over the last year we’ve already made very significant progress towards building a reserve fund, which, when the next economic downturn comes, which it surely will, that we will be better prepared than for the last one.”

Hanlon’s fourth budgetary measure was a promise to increase access and affordability at Dartmouth by investing “more meaningfully” in financial aid while keeping the student cost growth within a percent of the national growth in total compensation: “Over the last year, you may know that our tuition increase was 2.9%, that’s the lowest since 1977, whereas our growth in the financial aid budget was 5.9%” Hanlon recalled. “That margin is what helps us address access and affordability.”

The final policy was a strategic recalibration of endowment spending based on predicted declining annual returns. “I think all the investment experts believe that the 8% return that we have counted on as an annual return is unlikely to be achievable in the future, and it’s probably going to be more like 7% or 6% going forward” Hanlon speculated. “So we need to make sure that we adjust our payout so that the buying power of the endowment doesn’t decline.”

These policies are innovative in and of themselves. President Hanlon sees budgetary policy as a means of encouraging and implementing new ideas, evolving the Dartmouth education as opportunities by forcing his faculty to adapt and explore unique ideas. But the metric for measuring the success of these policies is unclear.

It is difficult to accurately calculate the effect of implementing budgetary restraints. Ideally, departments will efficiently identify the fat that can be trimmed in their budgets and collaboratively work to invest in ventures that have great potential yields. These policies will work in conjunction with Hanlon’s strategy to increase experiential learning announced in Moving Dartmouth Forward.

Hanlon identifies a distinction between two categories of education: learning information and knowledge about the world, and learning skills to be used in the world. He argues that with the rapid development of information technology, and sees the former category cheapening while the latter becomes ever more valuable: “We’re at the point where knowledge is going to be a free public good. When I think about our strategy as a higher education institution, I think this availability of information allows us to really focus on the skills of our students.”

Consequently, Hanlon encourages faculty to adapt their curriculum to include more hands on learning and real-world skill building. The annual implantation of innovative and untested programs is risky, especially without a clearly defined method of measuring program success. Does Hanlon have the right to use students as guinea pigs in testing experimental education methods?

I argue that he does. The College must inevitably adopt untested methods for academic innovation, and Hanlon has taken on the role of pioneer in driving the current scholastic transition. The mandated 1.5% departmental cut is a healthy step, keeping spending frugal and ensuring that new programs are allocated spending annually. But these measures should not be confused with cost cutting, which Hanlon has not addressed, despite its importance in sustaining educational reform.