Deficit Higher Due To Re-engineeringBy Shang-Lin Chuang
The Institute finished fiscal year 1995 with a deficit of $10.1 million -- $1.2 million more than projected last year. The fiscal year ended June 30.
The main reason for the larger-than-expected shortfall was extra costs associated with the ongoing campus-wide re-engineering effort, according to Treasurer and Vice President for Finance Glenn P. Strehle '58.
However, continuing cutbacks in government subsidies and research funding were also to blame for the gap, Strehle said.
The shortfall came despite a decrease in the two major categories of expenses -- salaries and benefits and goods and services, Strehle said. While these are growing under the rate of inflation, the unexpected increased costs of the re-engineering project and the less-than-expected recovery of indirect costs of research from the federal government offset the balance, he said.
The Institute will balance the budget with money from an Institute fund known as the Research Reserve, Strehle said. The $31.5 million left in the reserve after compensating for the deficit will be used toward the endowment.
MIThas operated under a deficit for the past several years.
Re-engineering to pay off in future
The cost of the installation of a computer-based accounting system as part of the re-engineering project accounted for the one of the main factors of the increased deficit, Strehle said.
Total expenditure for the project -- which aims to save the Institute money by streamlining administrative processes -- was $10.6 million, he said.
Re-engineering is expected to have an overall $30 million non-recurring expense, but will pay back $40 million each year in on-going savings beginning in 1998, said Director of Finance John A. Currie '57.
"The benefits of re-engineering will be realized in the future," Strehle said. "It is an investment in the future."
Government support declines
The federal government traditionally subsidizes MIT for a portion of its indirect costs of research through various individual contracts, Strehle said. The costs include staff, operational costs, and services available to research.
Research has been growing very slowly, Strehle said, meaning that MIThas had to pick up a increasing amount of the indirect costs.
The government pays for 61 percent of the indirect costs now, but the amount continues to decrease due to the changes made by the government in these cost-recovery ratios, Strehle said. He estimated the percentage might eventually bottom-out at 50 percent.
Additionally, "the U.S. government wants to reduce its share in the expenses," Strehle said. "These [cuts] have been and will continue to affect us.
More gifts needed
The Institute needs a stronger flow of gifts in order to help it out of its financial problems, Strehle said.
Tuition has traditionally accounted for half of the Institute's revenues. The other half is made up of gifts, fees, investments, and various other sources.
"There is a one-third less money contributed to the endowment and similar funds than it would have if there were no deficit.
"MIT needs to find new sources of revenue" to maintain its commitment to students and faculty, Strehle said.