Radcliffe Uses Deficit Dollars To Raise Money

While deficit reduction is currently all the rage in Washington, Radcliffe College appears to be following a different philosophy.

Over the past four fiscal years, Radcliffe has run high deficits while rapidly increasing its administrative expenditures, according to recent financial reports.

Radcliffe officials acknowledge that the college is engaging in deficit spending, but say that such expenditures are part of a calculated strategy to provide for the college's future.

The large deficits have been incurred primarily through investments in the college's capital campaign, Radcliffe officials say. They predict the campaign will earn Radcliffe $100 million by the year 2000.

The financial reports also show that administrative costs have risen dramatically in the same period. This was caused, officials say, by the college's creation and centralization of departments which they say will be vital to Radcliffe in the next century.

In the Red

In each of the last three fiscal years, Radcliffe, according to its Reports of Financial Operations, has run deficits of over $2 million, although its total income has never been greater than $19.1 million.

In FY 1993, Radcliffe's deficit was approximately $2.2 million. The deficit reached about $3.5 million in FY 1994.

In the most recently-documented fiscal year, FY 1995, Radcliffe's expenses were $21.6 million and its earnings $19.1 million, resulting in a deficit of $2.5 million.

Over this three-year period, the lowest figure for Radcliffe's deficit as a percentage of its income was 13.3 percent. In FY 1994, the year of the highest deficit, Radcliffe's deficit as a percentage of its income was 20 percent.

Harvard's deficit levels over the past three years contrast sharply with Radcliffe's.

Although the University's deficits have ranged from $3.3 to $21.1 million over the three year period from FY 1993 to 1995, Harvard's deficit as a percentage of income has reached at most 1.6 percent.

But even Harvard's relatively minimal deficit is less than ideal, according to Vice President of Finance Elizabeth C. "Beppie" Huidekoper.

"Academic institutions want to be at break-even or better," she says. "You certainly don't want to be in deficit."

Director of the Budget Office Lawrence R. Ladd concurs.

"On average over many years, you have to have equal income, equal expense," he says.

Huidekoper further notes that if Harvard found itself running deficits proportionately as high as Radcliffe's, it would try to "understand what factors contributed to the deficit" and then "work towards getting back to break[ing] even as soon as possible."

But Ladd says an academic institution might incur a high deficit if it is "making investments to increase revenues in the future."

The Capital Campaign

According to Radcliffe administrators, the current deficit is the result of precisely such an investment--the college's capital campaign.

"The deficit is a planned strategy to draw on the assets of the College," says Lyn Chamberlin, Radcliffe's director of communications. "It's an investment, absolutely."

"A campaign costs money, and we're in the midst of a campaign of large proportions by Radcliffe's standards," Chamberlin adds.

Radcliffe publicly kicked off the campaign last May, but Chamberlin says funds for the campaign were required before that time.

Chamberlin says Radcliffe has been planning the campaign since Linda S. Wilson became president of the college in 1989.

Wilson refused to comment for this article, referring all questions to Chamberlin.

Radcliffe's director of development also could not be reached for comment.

Data from Radcliffe's financial reports are consistent with Chamberlin's assertion that the capital campaign has required significant financial outlays.

From FY 1992 to FY 1993, Radcliffe's expenditures on the capital campaign rose from $29,815 to $512,373. In FY 1995, Radcliffe budgeted $652,268 for the capital campaign.

Radcliffe's overall budget for institutional advancement rose from about $2.5 million in FY 1992 to about $4 million in FY 1995.

While Chamberlin is unsure of how much longer Radcliffe will continue to run deficits, she says "it's time-limited."

"Nobody around here wants a deficit either," she adds.

Chamberlin further challenges the use of the term "deficit" to describe Radcliffe's spending patterns.

"We're really spending reserves," she says. "We're not creating a deficit."

Chamberlin explains that Radcliffe has been using unrestricted reserve money, referred to as quasi-endowment, to cover the gap between its income and expenditures.

Quasi-endowment "can either be spent for current use, or it can be put toward the endowment," according to Chamberlin.

"The Trustees can decide how to deploy it," she says.

Little Professor of Business Administration Charles J. Christenson says that although Radcliffe cannot continue to spend its quasi-endowment funds indefinitely, the college's current policy is not in violation of the capital donor's intent.

Christenson adds, however, that the college's original classification of the funds as "quasi-endowment" suggests the college would have preferred not to utilize this capital.

Chamberlin draws a distinction between spending quasi-endowment funds and dipping into the college's income-producing savings.

"It's not the same as spending from the endowment," she says.

A senior partner from Coopers and Lybrand, the accounting firm which audits Radcliffe's financial records, "tested the college for financial health and found us appropriately managing our resources," Chamberlain says.

In the letter which accompanies Radcliffe's financial statements, Coopers and Lybrand reports, "In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Radcliffe College."

But Jack McCarthy, the partner at Coopers and Lybrand who works on the Radcliffe account, refused to comment as to whether the firm endorses Radcliffe's "financial health."

One expert in business administration says that Radcliffe's current policy of spending quasi-endowment funds to support its capital campaign is a legitimate practice that might help to boost the college's fundraising effort.

"Running a deficit might actually be a good way to generate outside funds," says Amy P. Sweeney, assistant professor of business administration at the Business School.

Sweeney further notes that Radcliffe, as a not-for-profit organization, is not subject to the same standards of fiscal responsibility as for-profit groups. Radcliffe, she says, might reasonably engage in deficit spending if such a policy benefits its students.

Other Expenses

In addition to capital campaign expenditures, Radcliffe's general and administrative expenses have grown markedly over the past few years, while its educational costs have increased at a slower rate.

In FY 1992, Radcliffe spent about $1.5 million on general and administrative expenses, excluding debt service. By FY 1995, that number had reached $2.5 million, a 67 percent increase.

Over the same time period, Radcliffe's educational expenditures rose from $6.2 to $7.6 million, a 21.8 percent increase, a rise only one-third as rapid as that of the administrative costs.

But Ladd notes that burgeoning administrative costs are a problem beyond the gates of Radcliffe Yard.

"For a variety of reasons, administrative costs have risen at all universities and colleges," he says.

"It's [administrative expenditures] something we're looking at and doing our best to contain at all levels within the University," says Huidekoper.

Still, Huidekoper notes that Radcliffe's rapidly rising administrative costs do make it somewhat unique.

"We would not see a similar trend within the University," she says. "There may very well be a reason that has driven up their [Radcliffe's] administrative costs."

One reason that Chamberlin suggests for the increase in administrative costs is the modernization of the human resources and information technology departments at Radcliffe.

According to Chamberlin, Radcliffe has created a human resources infrastructure "that never existed before. It seems like money well spent."

Radcliffe's director of human resources did not return phone messages.

Robert M. Kuhn, Radcliffe's director of information technologies (IT), explains that while his office's expenditures technically qualify as administrative costs, much of IT's spending goes to academic programs.

"There is a fuzzy line between what is administrative expense and what is spent on academic programs," he says.

He notes that Radcliffe is still spending its IT money on education, although the money is now funneled through a centralized, administrative base rather than through academic programs.

"Some of what you are seeing as a rise in administrative expense is actually a shift in expense from the academic programs," he says. "It represents more support for the programs."

"The focus of Radcliffe IT endeavors is the academic programs," Kuhn says.

Kuhn also notes that while Radcliffe as a whole can afford to hire an IT expert like himself, no individual academic program would be able to do so, and that Radcliffe's IT program operates on lower costs per computer than other IT departments at Harvard.

As Radcliffe's rate of increase of administrative expenses outstrips its increase in educational expenditures, the firings which accompanied last year's reorganization of the college have made some funds newly available.

The Office of the Dean of Radcliffe College, which received $313,768 from the educational budget in FY 1995, has been eliminated.

Radcliffe Career Services (RCS), which was also closed under the restructuring, received $415,484 in FY 1995 from Radcliffe's public policy budget.

Chamberlin says the money formerly allocated to the dean's office will go to the office of undergraduate programs, which was newly created under the reorganization.

RCS's budget "is being reallocated throughout our educational programs," she says.

But Chamberlin states that the reorganization has neither cost nor saved Radcliffe any money. When the restructuring of the college was first announced last fall, Radcliffe officials said that its purpose was to redirect Radcliffe's capital to its students.

"Reframing was not driven to raise money," Chamberlin says. "Reframing was mission directed."

Radcliffe Finances  FY 93  FY 94  FY 95Total Expenses  18.2  20.8  21.6Total Income  15.9  17.3  19.0Deficit  2.2  3.5  2.

But Ladd says an academic institution might incur a high deficit if it is "making investments to increase revenues in the future."

The Capital Campaign

According to Radcliffe administrators, the current deficit is the result of precisely such an investment--the college's capital campaign.

"The deficit is a planned strategy to draw on the assets of the College," says Lyn Chamberlin, Radcliffe's director of communications. "It's an investment, absolutely."

"A campaign costs money, and we're in the midst of a campaign of large proportions by Radcliffe's standards," Chamberlin adds.

Radcliffe publicly kicked off the campaign last May, but Chamberlin says funds for the campaign were required before that time.

Chamberlin says Radcliffe has been planning the campaign since Linda S. Wilson became president of the college in 1989.

Wilson refused to comment for this article, referring all questions to Chamberlin.

Radcliffe's director of development also could not be reached for comment.

Data from Radcliffe's financial reports are consistent with Chamberlin's assertion that the capital campaign has required significant financial outlays.

From FY 1992 to FY 1993, Radcliffe's expenditures on the capital campaign rose from $29,815 to $512,373. In FY 1995, Radcliffe budgeted $652,268 for the capital campaign.

Radcliffe's overall budget for institutional advancement rose from about $2.5 million in FY 1992 to about $4 million in FY 1995.

While Chamberlin is unsure of how much longer Radcliffe will continue to run deficits, she says "it's time-limited."

"Nobody around here wants a deficit either," she adds.

Chamberlin further challenges the use of the term "deficit" to describe Radcliffe's spending patterns.

"We're really spending reserves," she says. "We're not creating a deficit."

Chamberlin explains that Radcliffe has been using unrestricted reserve money, referred to as quasi-endowment, to cover the gap between its income and expenditures.

Quasi-endowment "can either be spent for current use, or it can be put toward the endowment," according to Chamberlin.

"The Trustees can decide how to deploy it," she says.

Little Professor of Business Administration Charles J. Christenson says that although Radcliffe cannot continue to spend its quasi-endowment funds indefinitely, the college's current policy is not in violation of the capital donor's intent.

Christenson adds, however, that the college's original classification of the funds as "quasi-endowment" suggests the college would have preferred not to utilize this capital.

Chamberlin draws a distinction between spending quasi-endowment funds and dipping into the college's income-producing savings.

"It's not the same as spending from the endowment," she says.

A senior partner from Coopers and Lybrand, the accounting firm which audits Radcliffe's financial records, "tested the college for financial health and found us appropriately managing our resources," Chamberlain says.

In the letter which accompanies Radcliffe's financial statements, Coopers and Lybrand reports, "In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Radcliffe College."

But Jack McCarthy, the partner at Coopers and Lybrand who works on the Radcliffe account, refused to comment as to whether the firm endorses Radcliffe's "financial health."

One expert in business administration says that Radcliffe's current policy of spending quasi-endowment funds to support its capital campaign is a legitimate practice that might help to boost the college's fundraising effort.

"Running a deficit might actually be a good way to generate outside funds," says Amy P. Sweeney, assistant professor of business administration at the Business School.

Sweeney further notes that Radcliffe, as a not-for-profit organization, is not subject to the same standards of fiscal responsibility as for-profit groups. Radcliffe, she says, might reasonably engage in deficit spending if such a policy benefits its students.

Other Expenses

In addition to capital campaign expenditures, Radcliffe's general and administrative expenses have grown markedly over the past few years, while its educational costs have increased at a slower rate.

In FY 1992, Radcliffe spent about $1.5 million on general and administrative expenses, excluding debt service. By FY 1995, that number had reached $2.5 million, a 67 percent increase.

Over the same time period, Radcliffe's educational expenditures rose from $6.2 to $7.6 million, a 21.8 percent increase, a rise only one-third as rapid as that of the administrative costs.

But Ladd notes that burgeoning administrative costs are a problem beyond the gates of Radcliffe Yard.

"For a variety of reasons, administrative costs have risen at all universities and colleges," he says.

"It's [administrative expenditures] something we're looking at and doing our best to contain at all levels within the University," says Huidekoper.

Still, Huidekoper notes that Radcliffe's rapidly rising administrative costs do make it somewhat unique.

"We would not see a similar trend within the University," she says. "There may very well be a reason that has driven up their [Radcliffe's] administrative costs."

One reason that Chamberlin suggests for the increase in administrative costs is the modernization of the human resources and information technology departments at Radcliffe.

According to Chamberlin, Radcliffe has created a human resources infrastructure "that never existed before. It seems like money well spent."

Radcliffe's director of human resources did not return phone messages.

Robert M. Kuhn, Radcliffe's director of information technologies (IT), explains that while his office's expenditures technically qualify as administrative costs, much of IT's spending goes to academic programs.

"There is a fuzzy line between what is administrative expense and what is spent on academic programs," he says.

He notes that Radcliffe is still spending its IT money on education, although the money is now funneled through a centralized, administrative base rather than through academic programs.

"Some of what you are seeing as a rise in administrative expense is actually a shift in expense from the academic programs," he says. "It represents more support for the programs."

"The focus of Radcliffe IT endeavors is the academic programs," Kuhn says.

Kuhn also notes that while Radcliffe as a whole can afford to hire an IT expert like himself, no individual academic program would be able to do so, and that Radcliffe's IT program operates on lower costs per computer than other IT departments at Harvard.

As Radcliffe's rate of increase of administrative expenses outstrips its increase in educational expenditures, the firings which accompanied last year's reorganization of the college have made some funds newly available.

The Office of the Dean of Radcliffe College, which received $313,768 from the educational budget in FY 1995, has been eliminated.

Radcliffe Career Services (RCS), which was also closed under the restructuring, received $415,484 in FY 1995 from Radcliffe's public policy budget.

Chamberlin says the money formerly allocated to the dean's office will go to the office of undergraduate programs, which was newly created under the reorganization.

RCS's budget "is being reallocated throughout our educational programs," she says.

But Chamberlin states that the reorganization has neither cost nor saved Radcliffe any money. When the restructuring of the college was first announced last fall, Radcliffe officials said that its purpose was to redirect Radcliffe's capital to its students.

"Reframing was not driven to raise money," Chamberlin says. "Reframing was mission directed."

Radcliffe Finances  FY 93  FY 94  FY 95Total Expenses  18.2  20.8  21.6Total Income  15.9  17.3  19.0Deficit  2.2  3.5  2.