Economists broadly define capital as durable goods that are used in the production of goods and services. In the business world, this generally entails purchasing new offices and factories. Naturally, senior management has to incorporate a plethora of data (such as office space and consumer demand) in deciding to write large checks to construct these new facilities. Similarly, the President of the College, the Dean of Faculty, and the Provost need to balance the needs of different departments for offices and laboratories and lecture halls.
Former President Jim Kim and Provost Carol Folt, of course, made decisions to balance the needs of students living in the dilapidated Choates cluster and the academic requirements of our undergraduates by splurging a princely $41.6 million on renovating the Hanover Inn. Apart from the clear academic value of running a luxury hotel on the corner of Wheelock and Main, the decision-making process involved is indicative of the missteps the College has made in capital spending: inefficiency, unrealistic timing demands, and a propensity for unnecessary alterations that would put the Pentagon to shame. (In the film Pentagon Wars, armchair generals order the Bradley Troop Carrier’s designer to make the glorified taxi-cab into a scout vehicle; add a turret with a cannon; add portholes so the men can shoot out; make it amphibious; and install anti-tank missiles, to which the beleaguered colonel can only reply, “It’s a troop carrier, sir,” before reluctantly acquiescing.)
Joe Asch, the prolific Dartblog author and former Bain consultant, expounded on the College’s capital spending strategy, or lack thereof. As a business owner, Asch worked with people in construction. “They’d say, ‘Dartmouth was really inefficient in planning.’ They would constantly be changing aspects of the buildings. A builder would build a wall and they would get it taken down. … [The planners] are making changes, but the people who are going to be in the buildings are asking the Dartmouth buildings people to make all sorts of changes because they haven’t worked through the construction process properly.” Construction companies would then mark up the bill to get compensation for the time and resources lost in fulfilling Dartmouth’s “change-orders.”
Another issue is that the College, much like some of its granite-brained inhabitants, views important projects as rush jobs. “You can do anything in construction in a limited period of time, as long as you’re willing to pay for it,” Asch explained. President Kim had wanted the Inn’s renovation completed in time for commencement, leading to a compressed schedule of six months instead of eighteen. “When you’re paying overtime to people, it’s very expensive. … You don’t have time to really go through the bids that you get very carefully.” While the $40 million was certainly prodigious (compared to the $10 million cost of constructing and furnishing the Sixth South Street hotel, about two-thirds the Hanover Inn’s size), more than mere money was lost in the race to finish the Inn. “In fact, a guy was killed in an accident that was due to the rush on the project … instead of working at a comfortable and safe pace.”
What can be done to avoid overpaying for potentially dangerous endeavors? Dartmouth’s planners should take time to look at all the possibilities and avoid blundering about blindly in the world of investment. “The people in Facilities Operations and Management should be carefully reviewing the bids, looking to see what people are charging for things, working that through,” Asch advised; comparison shopping can save quite a bit of money.
The idea of sober fiscal planning seems to have taken some root in Parkhurst, improbable as it may seem. The Review spoke briefly with Rick Mills, the College’s Chief Financial Officer (CFO), whom President Hanlon appointed last spring. He was forthcoming about how his office would approach capital projects in the future. “Philosophically, Mike [Wagner; VP for Finance] and I will be working closely with the Provost’s office, who’s the chief economic officer, and Lisa Hogarty, who’s the new VP for Facilities, to build a capital project process, both in the delivery of capital projects, and in the budgeting; moving forward where there’s faculty input … around which projects advance and get funded. … In the project delivery phase, [we will] be as rigorous and accountable as we can … I certainly wouldn’t want to see on my watch a history of capital projects delivered with lots of change-orders.”
A sign of this shift in the College’s fiscal policy may be seen in how Mills is dealing with the North Campus Academic Center (NCAC). The Kim Administration announced plans for the 122,000 square-foot building in 2011, which would house new classrooms, the Dana Biomedical Library, and three social science departments. The plans, finalized by the Board of Trustees in 2012, would cost $150 million—over three Hanover Inn renovations. It has been on hold, however; Mills explained, “We’re actually taking this year—both capitalizing some of the expenses that were incurred [and] some implementation expenses that were utility relocation and other things. … We’re also writing down some of the planning expenses, because as originally conceived, it’s not moving forward in that capacity.” According to Mills, completely new plans for that site are “going through a completely new process of evaluation” that the Dean of Faculty is discussing with President Hanlon and the Board of Trustees. The plans will have to take into account “the external science funding environment for what we can expect from NIH and other places [and] that the Williamson Translational Research building is under way … Phil and the Dean of Faculty will be working through the new academic priorities for the College,” like his Society of Fellows and the Cluster Initiative.
One initiative that would show dedication to fiscal discipline, if successful, is the creation of a revenue stabilization fund of about $75 million. As VP Wagner explained, research funding and investments and philanthropy can face severe downturns in recessions. “[We looked at] how much do we want to try to build up in a reserve fund … so we wouldn’t have to take dramatic steps during that downturn; we’ll have the funds to support operations.” Wagner mentioned plans to fill the rainy-day fund with surpluses, which, according to Mills, “with the best of intents, were typically spent to do more programs because you had the revenue.” Time will tell if, as Mills mentioned, the College has truly learned the lessons of 2008, and The Review wishes Parkhurst the best of luck in establishing fiscal discipline.