Get rich and stay rich: Dartmouth's financial evolution

by Victoria McGrane | 10/31/01 6:00am

Deception. Thievery. Protest. Outrage. High stakes wheeling and dealing. And a little good old-fashioned luck: Welcome to the history of Dartmouth College finances.

To those who thought talking about college finances involved dry figures detailing percentage returns on the endowment or dollars donated by alumni, think again. Consider, for example, how the now-legendary Eleazar Wheelock scraped together money to begin his new educational venture.

"Basically, the money was stolen," history professor and College historian Jere Daniell explained in an interview with The Dartmouth.

To get the funds he needed to jump-start the College, Wheelock sent "his star Indian pupil," Samson Occom, to England to raise money for the purpose of educating American natives. Occom returned with 11,000, which Daniell called "a lot of money" for 1768.

That money was stolen in the sense that Wheelock, in writing the charter for his new school, provided an inaccurate statement of purpose to his investors. The Englishmen in control of the purse strings, a group that included Lord Dartmouth for whom the College would be named, were under the impression that their funds would be used to educate Indians. Wheelock had something different in mind.

Wheelock's previous Indian educational experiment in Lebanon, Conn. taught him that his original plan to teach Christian values to the natives before sending them back into the wilds "to convert their brethren" did not work.

Natives that returned to their tribes either reverted to their pre-Christian ways or "proved ineffective in spreading Christian doctrine," according to Daniell.

Looking for alternate means of achieving the same object of Christianizing native Americans, Wheelock decided his new school should educate white missionaries to carry out this task instead.

Yet Wheelock still needed the confidence and backing of his English investors, so he kept his real intentions for the money more or less hidden and "wrote what he knew his benefactors ... wanted to hear," Daniell said.

Wheelock's son and successor, John Wheelock, was equally adept at finagling funds for the College. Calling him one of Dartmouth's "unsung heroes," Daniell said that this Wheelock "conned that state of New Hampshire into giving the College grants of land," which helped to fund Dartmouth after the initial trust ran out, exhausted by the start of the Revolutionary War. The first of these grants was immediately sold, and today is the town of Clarksville, N.H. The Second College Grant, as it is sometimes called, is still owned by the College.

Tuition from students played an important role in financing the College during this period, as did money from the state. In fact, Dartmouth's first medical school was build from monies provided by the New Hampshire government.

"Bottom line: it was a real scramble," Daniell explained.

Streamlining College finances

While there may have been, in Daniel Webster's words, "those who love it," Dartmouth was not really noteworthy -- financially or pedagogically -- throughout most of the 19th century. The College's "success story," as Daniell characterized it, began with the presidency of William Jewett Tucker in 1893.

"Tucker was both lucky and skilled and imaginative" when it came to financial matters, Daniell said.

In one instance of good luck, for example, Tucker, class of 1861, was paired to live with Edward Tuck, as roommates were assigned in alphabetical order at that time. Tuck, for whom the Business school is named, became very wealthy after graduation, and Tucker was able to count on his old friend for generous donations to their alma mater.

Not only did Tucker have money at his fingertips, but he was a very shrewd fundraiser. In fact, it was his idea to establish a regularized pattern of alumni giving -- known today as the Alumni Fund, which provides significant support for the College's general operating costs, financial aid, faculty salaries, athletics, and most aspects of College life.

He was also a "great risk taker," Daniell said, who correctly predicted that higher education was going to become as normal during his generation as secondary school had become for the previous generation.

Based on that prediction, Tucker decided that Dartmouth needed to grow as an institution. So, under his influence, construction projects began in earnest. And to finance these projects, the College needed more tuition funds, so it boosted the size of its student body.

Financing co-education

More recent decades have seen their share of finance-related controversy and upheaval. The advent of coeducation in 1972 brought its own financial particularities. During the 1960s, as many colleges and universities began to admit women, the Dartmouth community split down the middle on the issue: the faculty strongly supported coeducation while the majority of alumni did not, and the Board of Trustees was reluctant at best.

College President John Kemeny came into office in the spring of 1971 strongly committed to devising a coeducation deal the alumni could swallow. Up until this point, the Trustees had dodged the issue by claiming the College couldn't afford to admit women without reducing the number of men on campus, a move the alumni would not support.

Enter the infamous D-plan. Kemeny's proposal for year-round operation allowed the College to admit women as 25 percent of each freshman class without decreasing the number of students on campus at any give time during the year.

"The student body could be increased ... without having to build new dorms," Daniell explained.

Monetary roadblocks

Co-education provides just one example of the College's historical reluctance to finance projects that might be risky or expensive.

Daniell said Dartmouth's reluctance to spend for "residential plant" has ramifications we can still feel today.

Historically, "one area Dartmouth has been remiss in is failing to build" the necessary space for its students, and we now see the College trying to "catch up."

Another campus controversy linked to financial matters occurred in 1986, when students erected shanties on the Green to protest the College's investment in companies that conducted business in South Africa.

Fueling the fire, members of The Dartmouth Review, an off-campus conservative newspaper, destroyed the shanties with sledgehammers, earning the College national media attention and a campus-wide protest that had faculty and students occupying Parkhurst Hall, classes cancelled and a 1,000-person discussion on racism, violence and diversity at Dartmouth.

Despite the tumult, not until 1989 did the Board of Trustees vote to completely divest from South Africa. Asset managers were restricted from holding stock or securities of companies that conducted business in the country.

The Board decided to reinvest in South Africa in 1993.

That same year, however, the Trustees restricted College investments once again, marking the second -- and thus far, final -- time it has done so for reasons of social concern.

In 1993, the Trustees ordered the College to divest its $6.8 million in holdings in Hydro-Quebec, a Canadian hydroelectric company, following criticism that the company's Great Whale River project was threatening the environment and human rights of the natives in the area.

Modern means

Understanding modern-day College finances requires slightly more advanced economic jargon than was necessary to grasp historical finances, but it is no less significant for the future of the College.

In the last nine years, thanks to a bull market and some aggressive endowment investing, Dartmouth's endowment soared, growing from $744 million to roughly $2.4 billion.

Most of these extra millions came from "some of the hottest initial public offerings of the decade, including AskJeeves, and Yahoo!" in which the College's money-management firms had it invested, Jamie Heller '89 reported in a recent article in Dartmouth's Alumni Magazine.

The coffers bursting, the Trustees decided in early 1998 to alter their financial policies, increasing the percentage of the endowment to be spent for 1999 from 4.25 percent of its average market value over the prior three years to 5.25 percent of that value.

In other words, the Trustees hiked endowment spending by $19.8 million.

They increased endowment spending again for the fiscal 2001 budget, up to 5.5 percent of the three-year market value. All in all, according to Heller, spending out of the endowment more than doubled from 1988 to 2001, rising to more than $100 million.

When the market soured, the College's endowment investments plunged with it.

As reported in The Dartmouth this week, last year saw the endowment's first negative annual take in over 10 years.

"We're not really making any dramatic changes," Dartmouth's Director of Investments Jonathon King told The Dartmouth. He stressed the difficulty in predicting what will happen to the market in coming months, saying "nobody knows what's going to happen."

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