Joe Asch ’79 | May 5, 2011
A sad, sad story.
I paid for old Mother Darty’s all-expenses-covered nursing home apartment in 2001 and left her with strict instructions: Mind your finances! She had a savings account, a credit card, and a penchant for making promises to help old friends with their retirement expenses.
On the day that I left her that year, she had $2,414 in her savings account; she owed $288 on her credit card; and she had promised to pay out $50 to her friends over the coming years. I explained that her worth was really only her savings account minus her borrowing on her credit card and her promises. All told, her net worth was $2,076 ($2,414 — $288 — $50). She should be prudent with her money, I said. I also told her that inflation was something to keep in mind.
I came back to see the old girl in the fall of 2010, and I was happy to see that the cash in her savings account was up to $2,998. Way to go, Mother Darty! But after that, things went downhill. Her credit card debt had climbed to $949 (from $288), and the value of the promises to her friends was now up to $326 (from $50). By doing the same calculation as before ($2,998 — $949 — $326), we saw that her net worth was down to $1,732.
And when I looked up the rate of inflation between 2001 and 2010 at the Department of Labor’s website, I told her that in those nine years, inflation has robbed the dollar of 23% of its purchasing power — so her $1,732 was really only worth $1,326 when stated in 2001 dollars, a reduction of 36.1%. What a disaster! She had spent money like crazy since I had last seen her. I told her that if I were a ratings agency, I’d lower her credit rating!
She testily replied that she was managing her money every bit as well as an Ivy League college that she knew!
Perspicacious readers will have already determined that Mother Darty in the above fable is actually the College, and that above numbers are entirely real, though in Dartmouth’s case, they all have six zeros after them. All of the figures were drawn from the College’s 2001 and 2010 accounts.
While the endowment has increased in value since 2001, the College has borrowed a great deal of money (funds that it could have taken from the endowment, but did not in order to disguise its spending), and its pension obligations are soaring. To wit:
The first decade of the 21st century was a financial disaster for Dartmouth College. If President Kim sincerely wants to get the College’s fiscal house in order, he has not yet begun to cut.
Note: The extent of the College’s financial predicament is apparent when you consider the following: if a donor walked through the door tomorrow with a $1 billion gift ($770 million 2001 dollars), the College’s real net worth would still be only what it was ten years ago. This is one of the reasons why Moody’s Investor Services downgraded the College’s credit rating in 2009 from the top-ranked Aaa rating (held by HYP and Columbia) to A1a.
Addendum: A ratings agency would evaluate Dartmouth’s financial health somewhat differently from the family pocketbook calculation used above. Among other ratios, Moody’s or S&P would look at the ratio of debt to the sum of the College’s debt plus its unrestricted net assets. By this measure (or any other one for that matter), the College’s financial health has declined seriously over the past decade.
Addendum: A stellar member of the faculty has written in to observe that I was remiss in not noting that between 2004 and 2009 the College took in approximately $1.3 billion from the Campaign for the Dartmouth Experience.
™¬ Where has all the money gone? ™¬ Lots of spending. ™¬
™¬When will they ever learn? ™¬ When will they ever learn? ™¬
