The Tech - Online EditionMIT's oldest and largest
newspaper & the first
newspaper published
on the web
Boston Weather: 33.0°F | Overcast

Institute Faces Belt-Tightening

By Jeremy Hylton
Contributing Editor

Faced with the prospect of a $20 million gap in the Institute's operating budget by fiscal year 1996, President Charles M. Vest and Provost Mark S. Wrighton have initiated efforts to cut costs throughout the Institute and find new sources of revenue.

In a Jan. 8 letter to the MIT community, Vest described the budget gap as "a serious problem regarding MIT's finances. ... one that is growing rapidly."

Wrighton detailed the current status of MIT's finances and efforts to improve them in an article in Tuesday's Faculty Newsletter. "MIT's underlying financial health is good, but we do face some problems," he wrote.

Both Vest and Wrighton were unavailable for comment this week.

The poor financial prognosis is based on concerns that MIT will continue to face budget deficits through at least 1997. In fiscal year 1992, which ended June 30, the Institute posted a $6.3 million deficit after spending nearly $7 million in gift funds to cover expenses.

MIT has spent more than $50 million in unrestricted gifts to meet budget deficits over the last four years; in the past, these gifts have been added to the endowment.

Expenses should continue to outpace revenues next year, according to Wrighton, resulting in a $16 million gap.

To combat the growing deficit problem, Vest and Wrighton established four task forces to look for ways of trimming expenses throughout MIT and for new sources of revenue. The task forces, each headed by a high-ranking administrator, are "charged with involving and informing broader segments of the MIT community," according to Vest's letter. They will look to reduce the budget deficit within the next three to five years.

Wrighton is also looking to make immediate cuts in operating expenses. "I asked all individuals reporting directly to me to provide a scenario for coping with a 2 percent per year reduction in budget in each of the next three fiscal years," he wrote.

According to James J. Culliton, vice president for financial operations, the task forces hope to make cuts in administrative services rather than cutting across the board. "There have been cautions about affecting student support services," he noted.

"Our hope would be that undergraduates would see very little detrimental change," Culliton said. "One of the hopes is to moderate tuition over the next few years."

Wrighton's article stressed MIT's commitment to need-blind admissions. It also expressed a desire to limit increases in tuition and the self-help level, which at $6,600 is among the highest in the nation.

However, Wrighton hopes to close the fiscal year 1993 gap quickly. "The point now is that we are rapidly expending our financial flexibility, and this is occurring at such a brisk pace that we must now consider changes in what we do and how we do it," he wrote. "The ideal situation would be to close the operating gap in FY93 by $16 million."

It is likely that some jobs will be eliminated by budget cuts. "We can't rule out the possibility of layoffs," Culliton said. "Our hope would be that improvement can be made that would make attrition a better approach."

The four task forces are: revenue enhancement, headed by Vice President Glenn P. Strehle '58; academic activities, headed by Associate Provost Sheila E. Widnall '60; administrative functions, headed by Culliton; and support services, headed by J. David Lister PhD '65, vice president and dean for research.

Economy contributed to problems

The sagging economy and the changing relationship between the federal government and major research universities are largely responsible for the Institute's continuing budget woes, according to Wrighton's letter.

The poor state of the economy has led to needier undergraduate students who require more financial aid. At the same time, federal financial support for financial aid has declined. The net effect on the fiscal year 1993 budget is an $8.5 million shortfall.

The availability of research funds has also been adversely affected by the economy. Lincoln Labs, funded primarily by the Department of Defense, lost $60 million in sponsored research between 1990 and 1992. Other federal agencies, including the National Science Foundation, have reduced support of MIT research.

Tumbling profits at companies like IBM and Digital Equipment Corp. also affect research funding. IBM cut its contributions to nonprofit organizations and universities to approximately $120 million last year, down from a 1985 high of $189 million. Similarly, DEC's contributions fell $5 million last year to $25 million.

Nevertheless, research funding increased last year. The rate of growth of research funding declined, however.

Changes in the rules governing the recovery of the indirect costs of research from the federal government resulted in the loss of $2 million in fiscal year 1992.

Many major universities faced similar problems over the last few years, but MIT was better equipped to weather the declining revenue than most universities, Culliton said. Reductions in support costs made in the early 1980s by then-President Paul E. Gray '54 and Provost John M. Deutch '61 allowed the Institute "to kind of coast into this period well, without the growing major concern" seen at other universities, he said.

The success of the recently-completed Campaign for the Future fund-raising effort, which raised $710 million for the endowment, also helped MIT increase revenues.

Though the final 1992 budget gap of $13.1 million represents a small fraction of MIT's final $1.1 billion budget, more than $700 million of this money is sponsored research funding, which can not be used to reduce a deficit. The $370 million core operating budget is the only money available for deficit reduction. These funds are dominated on the expense side by salaries and benefits and on the revenue side by tuition.

Wrighton remains committed to maintaining "the Institute's position as the leading institution of its kind in the world," he said. Because tuition is the largest source of income in the core budget, however, efforts to maintain competitive faculty salaries are tempered by the desire to keep tuition increases small.

Continuing MIT's policy of need-blind admissions has become increasingly expensive in the last four years. Financial aid costs increased from $12.4 million in 1988 to a projected $25 million in 1993. MIT aims to maintain its "highly successful admissions policy, despite its considerable cost," Wrighton wrote.

MIT must continue to offer competitive salaries in order to attract top-flight personnel, Wrighton said. Thus, salary freezes or small raises must be avoided