Kim presides over layoffs, cuts

by ANGIE YANG and EMILY FLETCHER | 8/11/11 10:00pm

Editor's Note: This is part two of a series chronicling College President Jim Yong Kim's first two years at Dartmouth.

When College President Jim Yong Kim took office in July 2009, he faced the worst endowment performance in over 30 years, largely due to the economic crisis of 2008, Chief of Staff David Spalding said in an interview with The Dartmouth. Kim took "strategic" measures to reduce the budget gap, and two years later, College officials say they are "on track" to close a $96 million budget gap in fiscal year 2012.

"The approach that President Kim decided to take was to move more aggressively to reduce immediately to meet the projected budget gap," Spalding said. "Get that done in a 12-month period of time so that we would then be in a strong position if the markets recovered but also in a reasonably good position if the markets didn't recover."

Kim was charged with cutting $100 million out of a projected budget of $900 million, Spalding said.

In order to make these cuts, administrators instituted the strategic budget reconciliation and investment process, led by Provost Carol Folt and Vice President and Chief Financial Officer Steve Kadish.

Folt and Kadish expanded the College's budget committee to include more faculty members, Spalding said.

College administrators worked with the budget committee to minimize the number of involuntary staff layoffs, Spalding said. Faculty and student feedback reflected an urge to reduce layoffs, he said.

"We tried to make sure that everyone who was going to continue to work for the College would share some of the burden," Spalding said.

This acted as an impetus for College officials to decrease employee benefits, Spalding said.

Benefit cuts produced between $7 million and $8 million in savings, Kadish said. College officials implemented 38 involuntary layoffs in inefficient areas of the College, Spalding said.

"We did all of our changes to really look at and minimize any kind of layoff," Kadish said in an interview with The Dartmouth. "The changes in benefits [are] a great example of the Dartmouth community together saying we can do something that has some impact to us individually but has an unbelievable impact when you add it up across the board and think about the number of jobs that it saved."

Students Stand with Staff and the Services Employees International Union have critisized and protested the College's use of layoffs to combat its budget shortfalls over the past two years.

Kadish added that the cuts in employee benefits saved between 90 and 100 jobs.

In March, College officials announced a 5.9-percent increase in tuition, room, board and fees effective for the 2011-2012 school year. This increase helped close the budget gap by roughly 15 percent, according to Spalding.

In a May faculty meeting, religion professor Ronald Green proposed a resolution requesting a more detailed breakdown of the budget cuts from the administration. The resolution passed unanimously by the faculty was followed by a second, with faculty members requesting further information and expressing continued dissatisfaction with the transparency and detail of the College's presented accounting report.

In response, Kim, Folt and Kadish said in an June 8 email to the faculty that they would present the faculty with several budget updates over the summer that would include details on specific budget issues like expense reductions and new revenues for the arts and sciences. They also promised to schedule meetings in the fall to accommodate faculty members who are away for the summer in the email.

The report presented at the May faculty meeting broke down the $100-million budget cuts into six categories: $11.4 million from financial aid, $29.7 million from administrative and programmatic support, $15.6 million from reorganization and restructuring, $12.7 million from benefits and compensations, $15.1 million from other savings and adjustments and $14.1 million from new revenues and initiatives.

Kim has faced the largest financial challenge Green has seen in his more than 40 years at the College, Green said. Although former College President James Wright was also forced to make budget cuts, the cuts were smaller and Wright's position as a long-time member of the Dartmouth community gained him more trust from those at the College, according to Green. Kim arrived as a newcomer at the College in the midst of a crisis, which created a "show-me attitude," Green said.

"It was a very dramatic crisis, a new team, and we'd all like to be much more sure that everything that has been done is really in place and has been accomplished," Green said. "I don't think we're questioning the sincerity of President Kim and his senior people, but we'd like the numbers to be looked at with a good analytical eye and we don't have the information to permit that yet."

Green said that while faculty members understand the announced programs, they would like more details concerning policy implementation and results.

"The point of view we have is that we applaud the progress that has been announced but we really want to see in black and white how that has been accomplished," Green said.

Throughout the budget restructuring, the College continued construction on the Class of 1978 Life Sciences Center, the Visual Arts Center and the Class of 1953 Commons.

"We felt that, strategically, all three of the major building projects we had underway were very important to the institution," Spalding said.

College officials saved "significant dollars" by rebidding some of the construction work, Kadish said. The College also undertook additional fundraising efforts for the projects, but the construction was already built into the budget as expected debt, he said.

Some faculty members have expressed concern that the budget cuts that came in the last two years would not withstand another major economic downturn impacting the endowment.

"The major concern is that the cuts have not gone far enough and are based on an overly optimistic view of how the economy and hence the endowment will perform," economics professor David Blanchflower said in an email to The Dartmouth. "I warned at a recent faculty meeting that there was every prospect of further financial crises and stock market falls, which has occurred over the last week or so along with [Standard & Poor's] downgrade of the U.S.'s AAA credit rating. The worry is that we are going to have to see a further round of cuts."

The College's budget is currently on track to close a $96 million budget gap in fiscal year 2012, a $114 million gap in fiscal 2013 and a $122 million gap in fiscal 2014, according to Kadish.

"We're in a good position to react should there be a major change, that's one thing that I think we're prepared okay for," Kadish said. "There's still a potential for some actions that would need to be taken should we have a market situation like 2008."

If market returns are significantly lower than expected values at the end of the fiscal year, College officials would be concerned about the market's effect on gifts to the College, research costs and the College's returns on cash investments, rather than the market's impact on the endowment, Kadish said.

However, College officials are not planning for a market crisis like the one in 2008, Kadish said.

"We have some contingencies in place to cover some drop in the market," he said. "But if there's a huge change like that, then we'll address it then."

Kadish said that the College's financial challenges provided Kim with a positive learning experience.

"I think it gave him a tremendous chance to learn in a way that he wasn't expecting," Kadish said. "When you're faced with a problem with the magnitude of this that has to be addressed, it was powerful to see him go so deep into the details of so many different parts of Dartmouth that I don't think, in normal times, he would have had the opportunity or to the need to know."

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