If you thought Day Hall has a rough going of it these days, apparently Parkhurst Hall in Hanover, NH is in full-out battle mode, facing a $100MM structural deficit out of a total budget of $735MM. That's 13.6% of Dartmouth College's total budget. By comparison, Cornell's Ithaca campus currently has a structural deficit of $68MM out of a $1.9 B budget. That's around 3.6% of the University's budget. Seems like there will be a lot more staff lay-offs and cost-cutting in Hanover than Ithaca. The interesting question is how Dartmouth got into this mess, and it seems to be a confluence of two related factors: 1) gross financial mismanagement, and 2) an over-reliance on endowment funds. MetaEzra's counterparts at Dartblog are on the case: To put things another way, between 1998 and 2001, the College more than doubled its draw off of the endowment (from $48.7 million to $106.3 million). Then between 2001 and 2009, the amount of drawn money more than doubled again (from $106.4 million to $229.6 million). That’s an increase over 11 years of 371%, while the College’s spending grew by 122% over the same time period (from $329.8 million to $735.5 million). Conclusion: the College’s other revenues could not keep pace with spending.It’s not complicated: the previous administration had long had the College on an unsustainable spending jag. The growth of expenses outpaced revenues for many years and the only way to make up the difference was to draw an ever greater amount of money from the endowment. As President Kim pointed out, over the past few years the College’s draw on the endowment went from below 5% to over 7% (the highest in the Ivy League) — and this figure grew even as the endowment itself was growing robustly: a 77% rise between 2003-2007.
So Dartmouth was paying out 7% of its endowment per year to sustain its operating revenues.
By comparison, Cornell was never paying out close to 7% of its endowment value per year. At the peak of the bubble, it was paying out 5.1%; today it is paying out at a 5.5% rate.
Where Dartmouth has done better is in its overall endowment performance -- Dartmouth's endowment has fallen around 25 percent from its 2007 peak levels, whereas Cornell's fell a bit less than 30 percent.
But that's of little help when fully one-third of Dartmouth's operating budget was based off of endowment revenues, compared to Cornell's more modest 11 percent.
