An Open Letter

From: Hoyt Alverson, Professor of Anthropology

To: The Dartmouth Board of Trustees, The Administration, and the Faculty of Arts and Sciences

Re: Vox Clamantis

There has been much reporting and commentary in local media but rather little discussion or
other reaction on campus concerning the impact of the recent economic downturn on Dartmouth College
and its decision, in response, to eliminate activities, freeze salaries, and cut jobs. Early in 2003, I wrote an
“open letter” to the faculty describing some of the reasons for Dartmouth’s then fiscal problems and
suggested ways, other than freezing and cutting, by means of which the College might return to financial
health. At that time the College had in my view imprudently overspent and overgrown since the bursting
of the cyber-bubble in the late 1990’s. My suggestions in 2003 for remedy included restraining or
postponing growth in certain already mushrooming sectors of the administration and adopting a “safety-
first” and “save for rainy days” fiscal strategy.

Since 2003, an international credit-and-debt-stoked faux-boom over the subsequent five years
appeared to resolve the College’s earlier financial worries by ballooning the endowment with economic
fruit and froth. Now in 2008-09 we are in another even more severe economic slump, coping again by
means of precipitous retrenchment. In light of this yo-yo history of busts and cuts, I find it reasonable to
ask of Dartmouth, or any other institution, whether it attends to, heeds, and learns from its own very
recent past. Not learning from history likely destines one to repeat it. However, if an institution does
recognize past mistakes and proceeds to repeat them within a half decade expecting to have better
outcomes the next time, then one is dealing not with ignorance of history, but rather with some kind of
obdurate denial of it.

Selected Lines from the Dartmouth College Operating Budget for

Fiscal Years 2003-04 and 2007-08

Totals (in ‘000’s) for fiscal years

ending 30 June:
Category of Operating Expenses 2004 2008 Percent
Increase
(1) Total (College) Operating Expenses 567,318 725,923 28%
(2) Total Income to Operations 567,897 659,571 16%
(including distribution for spending
from endowment)
(3) Student & Academic Programs 291,090 378,062 30%
(4) General Institutional Services 111,084 174,505 57%
(5) Total (College) Salaries & Wages 244,481 300,612 23%
(6) Academic Salaries 135,323 174,835 29%
(7) Administrative Support for 26,780 47,398 77%
“Institutional Services”
(8) Plant Operation & Maintenance 57,351 90,483 58%
(9) Utilities, Taxes, & Occupancy 20,028 42,850 114%
(10) Fellowships & Scholarships 5,401 7,716 43%
(11) Depreciation, Interest, & 40,353 57,237 42%
Amortization
And from the capital budget:

(12) Interest Expense on Debt Used to 9,353 16,817 80%

Finance Facilities
(13) Total Bonds, Mortgages, and Notes 411,233 542,809 32%
Payable
(All figures are in current dollars and taken from the 2004 and 2008 Independent Auditors’
Reports, “Statement of Operating Expenses”)

Data displayed in the accompanying table illustrate much of what is at issue here, and what might
be re-learned from how the College is dealing with its current financial problems. First, since 2005 the
College has imprudently been running a significant deficit. See for example the difference between lines
(1) and (2) for fiscal year 2008. Coping with a downturn when in the red is a lot harder than when in the
black. Why over the period 2005 – 2008 with the endowment growing by leaps and bounds should we
have a “structural deficit”? The answer is simple. Dartmouth, viewing the future through very rosy
glasses, purposely undertook more than it had the means at hand to pay for. It, like the economy as a
whole, borrowed heavily from itself and others against the hope that over the long run under good
management one’s assets would grow faster than one’s undertakings.

In what areas specifically has improvident spending brought us low? The answer is: in the very
ones, which drove the College into budget problems five years ago. Contrary to some recently published
allegations, it has not been Dartmouth’s academic programs, faculty salaries, or student activities that
have been the major drivers of budget growth or of the deficit either today or five years ago. The overall
rate of growth of the operating budget over the past five years has been 28% (line 1). Student/academic
programs (3), total College wages (5), and academic wages (6) have each grown proportionately to the
overall budget. Those areas/activities, whose growth has greatly exceeded the growth of the overall
budget, are: (4) “general institutional services”, (7) “administrative support for institutional services”, (8)
“plant- operation”, (9) “utilities, taxes, occupancy”, (10) financial aid, and (11 & 12) financing costs.
Their growth over the five years ranges from 42% to 114%.

If salaries as a whole and “academics” as a whole are growing proportionately to the overall
budget, while other lines have grown disproportionately, shouldn’t the areas of fastest growth be
examined to see if their outsized growth can be justified with outsized arguments/explanations of their
relatively greater importance or at least inelasticity? More specifically, disproportionate growth seems to
have been elective, not necessitated, in the areas of “administrative/institutional services” (lines 4 and 7)
and in certain aspects of facilities’ costs -- new construction, refurbishment, occupancy (lines 8, 9, 11, &
12). Unit purchase price for energy is probably an uncontrollable contributor to this 114% increase in line
9, but total “energy use” and “occupancy” certainly are controllable, if only by restraining construction. A
lot of building and remodeling has been going on around campus at a furious pace. While those much of
those costs are in the capital budget, a significant portion is also in the operating budget. And, unlike with
employees, one can’t “rif” or freeze facilities if they get put up too fast, are too fancy, or cost more to
operate than one counted on. The same goes for debt service (line 11), whose growth tracks closely
construction, remodeling, maintenance, and occupancy. (The 80% increase in debt service -- versus a
stated 32% increase in debt -- reflects a forward interest rate swap for financing new construction
executed in 2006.) As in 2003, “administration” in certain areas (lines 4 & 7) has grown much faster than
has the totality of that administered (line 1). How is this justified? While fellowships/scholarships (line
10) have grown at a rapid rate (43% in five years) it is not a very big absolute part of the operating budget
(less than 1%).
 One lesson Dartmouth can learn from its recent history is that living within one’s means requires
that rates of institutional growth comport with the cost requirements of preparation for uncertain futures.
Boons in boom times should in substantial measure be set aside against reversals of fortune. This does not
mean simply that income be saved as a hedge against inflation and the financing of future growth. Rather,
a substantial portion of asset growth should be set aside as funds used to sustain hard won achievements
in difficult times. This self-insurance against future risk and uncertainty should be considered a big part of
what an endowment and its growth are for. On the contrary, cutting productive jobs and activities is prima
facie evidence that some portion of financial accumulation, which went to “expansion”, should have gone
instead to husbanding accomplishments.

Recommendation: in the short term we should borrow, tax and spend: (a) borrow against future
growth to secure the present rather than to expand and (b) self-tax collectively in the form of across the
board salary cuts for those earning above some negotiated thresh-hold, to limit those borrowing costs.
Then for the long term we should rethink and re-model from the ground up what it means to plan for,
insure against, and finance highly uncertain futures. Many other cost-saving measures are now available,
but as yet have not been implemented. For example, instead of engaging in the usual year-end race to
spend down money on hand before June 30 (converting cash to stuff and fluff), we might be permitted
and “incentivized” to carry over funds from this to the next fiscal year.

In the Katrina flood, it was not simply nature’s high water that caused the socio-economic
devastation, but the decaying infrastructure, dysfunctional institutions, sclerotic decision-making, and
general lack of preparation, which explain the location, scale and character of destruction. So it is when
dealing with -- insuring against -- a financial tsunami. Roiling macro-economic floodwaters alone do not
explain a person’s, an institution’s, or society’s fiscal problems. It is also the lack of solidity and
preparedness of the fiscal house itself. The long-term adaptation and survival of any biological system
require that it be able to capture and convert required energy (whether caloric or fiscal) in both extreme
and in typical environmental conditions.

Hoyt Alverson
Professor of Anthropology
Dartmouth College
6047 Silsby Hall
Hanover, NH 03755
Tel: (603) 646-3336
Fax: (603) 646-1140