Fourth in a series of articles about James O. Freedman.
In the shadow of a national economic slowdown, Dartmouth's finances under James Freedman proved strong enough to provide confidence in this President's ambitious hopes for the College.
Colleges and universities across the country are facing smaller returns from endowments, reduced federal support for research and financial aid and education costs that are rising faster than inflation.
At a time when many prestigious universities are experiencing budget deficit crises that have forced deep cutbacks of academic programs and neglect of maintenance needs, Dartmouth has maintained a balanced budget and is proceeding with several bold moves in financial planning: the new curriculum; a reaffirmation of need-blind admissions; a blitz of building construction and campus development; and -- to pay for it all -- the most ambitious fund-raising effort in the College's history.
And though fund raising was not his top priority when he took over the President's office, the College's financial health is the key to the Dartmouth education of today and Freedman's hopes and goals for the future.
Earlier this month, the College's bond credit rating was upgraded to the highest level possible shared by a group of ten universities considered most financially sound in the nation.
Early in his presidency Freeman formed the Planning and Steering Committee, a group of administrators, faculty and students charged with charting the course for Dartmouth to enter the 21st century.
The committee produced a 150-page report recommending substantial changes to the College, including major campus development north of Baker Library and a comprehensive review of the curriculum.
Five years later north campus development construction is underway and the new curriculum has been approved. But neither is cheap.
The curriculum will cost $1.5 million a year and its implementation has been delayed a year so that the College can come up with the money. North campus building development and construction alone will cost the College more than $50 million.
Both will be paid for by The Will to Excel, the College's $425 million capital campaign now underway.
The campaign has already provided the largest gift ever in the College's history -- $25 million from John Berry '44 to expand Baker Library -- but other prospective projects still await funding.
The capital campaign was first planned before Freedman came to Dartmouth, but the effort took shape under his leadership and was planned parallel to the Planning and Steering Committee report.
Billion dollar capital campaigns are underway at Columbia, Yale and Penn, which have more alumni and as large research universities attract more corporate sponsors.
When The Will to Excel was launched, The New York Times reported that based on the size of the student body, Dartmouth's campaign was as ambitious as Cornell's $1.25 billion goal and Stanford's completed $1.1 billion drive.
All large-scale college fund-raising campaigns start out in full force after a significant portion of the goal -- called a "nucleus fund" -- has been obtained. Freedman announced The Will to Excel in October 1991, after $128 million had been pledged by donors.
After the collection of the nucleus fund, the College raised $122 million in the first third of the public campaign, a pace which, if kept up, would reach the campaign goal well before the target date of June 1996.
Dartmouth's last capital campaign ended 11 years ago, surpassing its goal of $160 million by $44 million.
The Will to Excel has already paid for the new Burke chemistry building and the Tuck School's new Byrne Hall. Renovations to the Collis Student Center and to the old Mental Health Center, which will become the new Sudikoff computer science laboratory, are underway -- paid for by capital campaign funds.
Contributions to the capital campaign earmarked for the College's endowment will pay for the new curriculum, which requires 16 additional professorships. To cover these expenses, the campaign must raise $31 million for the endowment.
Overall, the campaign has raised more than $250 million, 60 percent of the goal, in less than half the time.
A Balanced Budget
In the economic boom of the 1980s, colleges and universities expanded programs but never cut or replaced them. During that time undergraduate, graduate, professional and research programs grew tremendously at many larger schools.
According to Associate Treasurer Win Johnson, Dartmouth's budget was saved by its intense focus on undergraduate education.
"It was our adherence to a central and clear mission -- undergraduate education with related and strong graduate programs," he said. "We are smaller and more focused, and that helped us."
Dartmouth's operating budget is $270 million; twice that of Amherst, half that of Princeton, and less than a third that of large research universities like Harvard and MIT.
During the '80s, Dartmouth's operating costs did grow fast, requiring correspondingly large tuition hikes. That decade tuition grew at an average annual rate of 9.5 percent, well above inflation.
According to Freedman, the Trustees mandated a balanced budget when he arrived in 1987. Dartmouth faced its first budget crisis two years later.
That year, the Treasurer's Office added three--year budget projections to the yearly planning process. Prior to 1989, the budget was balanced on a yearly basis. "Each year we'd struggle to keep it balanced. We'd think we were home free, and the next year we'd be back in the soup," Johnson said.
That first three--year projection forecast budget deficits of $5.8, $7.1 and $8 million in fiscal years '91, '92 and '93.
The task of balancing the budget was further complicated by a new tuition policy handed down by the Trustees that year. Concerned about the economy and the effect of tuition increases on the middle class, the Board made a three--year commitment to keep the rate of tuition growth more closely aligned with the rate of inflation.
The Trustees made it clear that they would set tuition rates before the budget was balanced, and would not allow tuition increases to cover all expenses.
To meet the budget challenge, Freedman formed a budget committee of the College's six senior officers, himself; Provost John Strohbehn; Lyn Hutton, the treasurer; Skip Hance, the Vice President for Development and Alumni Affairs; Dean of Faculty Wright; and then-Dean of the College Ed Shanahan.
With the Trustees constraining tuition, the College's chief source of annual revenue, the financial planners concentrated their efforts on reducing spending. The most dramatic cuts were made that first year. Since then more cuts -- focused on limiting administrative positions -- have been made each year to keep the budget balanced.
The smaller tuition increase mandated a smaller budget increase; since then the tuition increase has dropped to 6 percent and the annual increase in spending has remained under 6 percent.
But as budget allocations grew more slowly, expenditures in some areas grew quickly, forcing cuts to the base budget.
Some of the fastest-growing areas were protected by the five guiding principles for budget cuts which Freedman established to reflect his priorities for the College.
The five protected areas were core academic programs; tenure-track faculty positions; need-blind admissions; competitive faculty and staff compensation; and the improvement of inadequate academic facilities.
Protection of these areas satisfied the Planning and Steering Committee recommendation that budget cutting be selective, rather than across-the-board.
Across-the-board cuts, the committee felt, would reduce the quality of all programs. Selective cuts force the College to set priorities and protect the programs it considers most valuable.
"It takes good guiding priorities," said Treasurer Hutton, hired by Freedman in 1990. "That's what Jim Freedman brought. He's led that process and done so very well."
Dartmouth's peer institutions on the large university side have faced far greater deficits -- in the tens of millions of dollars -- and have been forced to divert funds from their endowment, defer urgent maintenance needs and slash academic departments.
All three are happening at Yale, where the university must spend $1 billion over the next decade to repair aging buildings and was in uproar last year over a proposal to reduce the size of its faculty by 11 percent.
On the small college side, Dartmouth's peers avoided the severe cutbacks forced on research universities, but cannot plan for the future with a capital campaign of Dartmouth's scale.
Young Dawkins, who was director of major gifts when the capital campaign began, is now head of development at Oberlin College in Ohio.
"Coming to a smaller college like Oberlin, which is one of the finest small liberal arts colleges in the country, makes me realize how strong financially Dartmouth is," Dawkins said. "It's a privileged institution. People have taken extraordinary care of it for a long time."
One of the greatest strains on the operating budget is financial aid, the fastest growing item in the budget during Freedman's Presidency.
During the '80s the federal government reduced aid for students at private colleges, forcing Dartmouth and other schools to increase tuition and to commit a higher percentage of unrestricted operating funds to financial aid.
Freedman says the biggest challenge for the budget in the future is maintaining need-blind admissions. Freedman points out that while the alumni fund has not increased significantly since 1987, he has seen the financial aid budget balloon from $12 million to $19 million in that time.
The federal indirect costs audit
Dartmouth emerged relatively unscathed from federal auditing of charges for government-sponsored research, auditing that left the budgets of some big research universities in shambles.
Dartmouth kept more careful records than those institutions and used more conservative interpretations of vague federal regulations. That difference is one reason Stanford cannot modernize many of its facilities in the near future, while Dartmouth is proceeding to do just that.
After Stanford was probed by the Defense Contract Audit Agency in 1990, newspaper headlines reported on luxury items improperly charged to the government as the indirect costs of research. Dartmouth was among the next schools reviewed by federal auditors.
The DCAA currently asserts that Stanford improperly charged the government $252 million and wants that money back. By comparison, the Department of Health and Human Services objected to $180,000 in costs presented in Dartmouth's 1991 reimbursement proposal. Two years of auditing eventually revealed no improper costs charged by Dartmouth before or since 1991.
That year the government conducted its audit, and the national media reported a political scandal.
The charges found objectionable included staff parties and dinners at Freedman's house, the chauffeuring of Freedman and Trustees and legal expenses for defense against a suit brought against the College by The Dartmouth Review. After the government objected, the College withdrew the expenses from their proposal.
According to Johnson, the limousine trips and dinners at Freedman's house were working affairs, and legal expenses were considered appropriate under the government rules.
Freedman and fund-raising
During Freedman's Presidency, levels of total alumni giving increased steadily and were boosted to record levels by the high-profile Capital Campaign, but by comparison, returns from the alumni fund were disappointing.
The alumni fund is reserved for unrestricted current use and is consumed by the operating budget each year. Total alumni giving is about twice the level of the alumni fund.
Total alumni giving and the alumni fund reached a peak in 1987, due to the dual effects of a new tax law and the stock market crash.
According to Skip Hance, the tax reform act of 1986 caused a drop in charitable giving after an increase in 1987 before the law took effect. The stock market crash in October 1987 occurred in fiscal year 1988, causing major drops in giving to all U.S. colleges and universities that year.
In 1987 total alumni giving was $29 million and the alumni fund stood at $12 million.
Since the drop in 1988 total alumni giving recovered rapidly and reached a record level last year, boosted to $39 million by the Will to Excel campaign.
During that time the alumni fund was stagnant for five years until last year, when it outpaced inflation and grew to a record $12.8 million.
According to John Hays, director of development, the average growth rate of Ivy League annual funds since the crash has been only 2 to 3 percent.
According to Hance, college alumni funds are prone to periods of growth and stagnation. "We were pleased with the result last year," Hance said. "We'd like to see that growth continue."
Only two Ivies measure an alumni fund reserved for unrestricted current use; Dartmouth and Princeton. While Dartmouth's fund was stagnant, Princeton's grew from $16 to $21 million.
Although Dartmouth's fund has not matched the pace of what he calls Princeton's "unique period of growth," Hance asserts that "We've maintained a degree of stability most institutions would be envious of."
Alumni participation in Ivy League fund-raising remained highest for Dartmouth at 60 percent last year, compared to 55 percent at Princeton and below half for the others.
Alumni Fund Director Stan Colla attributed the alumni fund plateau to the slowdown of the national economy.
Colla said that on the whole, alumni have responded positively to Freedman.
But others claim the lack of growth in the alumni fund reflects alumni disapproval of Freedman.
Hance said the alumni fund may have been affected by the turmoil at the College in the mid-1980s over divestment from South Africa, which occurred just before Freedman's predecessor resigned.
Freedman maintains that for most conservative alumni, political gripes have been outweighed by pride for Dartmouth's rising academic reputation, which he says continues to grow stronger.
Freedman says the Trustees' first priority when selecting him was to elevate Dartmouth academically and intellectually, and that his main focus is the educational process. "Fund raising is a necessary concern, but well down on the list."
Nevertheless, the capital campaign takes him on tours through major U.S. cities several times each month.
Freedman said he met with John Berry three times before he made the largest gift in Dartmouth's history. Dawkins said Freedman played a vital role in Berry's donation.
"It wouldn't have happened without Jim Freedman," he said.
"The President made very clear to John Berry that a new library would be something special and significant for Dartmouth College. John and the President agreed on that," Dawkins said.
"A good part of the success of the Capital Campaign is Jim Freedman's ability to articulate the vision. Without that effort Dartmouth would not be enjoying its successful campaign. He is the foundation and the key reason for its success."
