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MIT to Face Deficit Of $35M Next Year

By Beckett W. Sterner

NEWS EDITOR

MIT faces a budget shortfall of $35 million for next year, despite cost savings of $34 million this year, MIT President Charles M. Vest said in a letter to faculty this week.

Provost Robert A. Brown said that based on the strong consensus of investment advice MIT has gathered, next year (FY05) “will be the bottom” of the endowment’s drop in recent years.

Brown said that the endowment has dropped this year, but the exact amount will not be announced until the October MIT Corporation meeting. Because MIT receives part of its income from returns on investments, a drop in the endowment’s value means a drop in MIT’s budget.

The cost of MIT’s defined benefits pension plan is also increasing because the cost is usually subsidized by an investment fund. This year, the drop in returns led to an extra $18 million expense in the general budget and will lead to expenses next year as well.

MIT is considering at least three possible responses to the budget shortfall, including freezing salaries above a certain level for one year, reducing new faculty hiring by 10 to 15 positions next year, and decreasing funds for renovations or renewal.

Brown said that the administration was committed to not reducing support staff for faculty and research, based on the negative consequences of cuts in the 1990s.

Exact cuts still being decided

Brown said that in the next month, leading up to the October meeting of the MIT Corporation, he will “convey the amount of expense savings” that MIT will need in total to the deans and each department.

The exact cuts will not be micro-managed, he said, but will be made in direct consultation with the departments. But, he said, “at the end of the day, the senior officers will decide” which cuts to make.

“We’re making all the right conservative efforts,” he said, and the past two years of decreases in the endowment are the first in many years.

On average, MIT has seen a fairly constant return rate of about 10 percent on investment, of which about six percent is usually put back into the endowment fund. In general, at least four percent needs to be put back in the endowment fund every year to keep MIT fiscally stable in the long term, he said.

If any of the three possible cuts were to be implemented, he said that they would only last for one year. In the long term, a freeze or lower hiring rate for one year would give lasting savings in the budget.

Cambridge cost of living a concern

In a presentation by senior administration on Wednesday, Brown listed the high cost of faculty housing in Cambridge, the cost of living for graduate students, the rising cost of graduate students on research contracts for MIT, and the drop in fellowship support last year, especially the Presidential Fellowship, as important concerns for next year.

He said that while a committee had reported several recommendations for ways to subsidize faculty housing in August, it seemed unlikely any of them would be implemented with the current budget shortage. The cost of a house in Cambridge is well beyond the spending limit of a new faculty member.

Graduate students have also faced sharply rising costs of living in the past year, with MIT health insurance fees going up by 60 percent and rent increases at some dormitories.

At the meeting, Brown said that if the current trend continues, the discretionary income of MIT’s graduate students would reach and fall below zero.

He reminded faculty that departments are allowed to set stipends up to about 10 percent higher than the amount stated by MIT, but that the current trend has been to fall to the bottom of the range allowed.

In general, MIT graduate students are among the most expensive to maintain in the country, in part because of the high cost of living, but also because MIT’s relatively small size leads to higher per student overhead costs, Brown said.

MIT’s tuition subsidy will decrease from 65 percent to 50 percent next year, increasing the amount of grant funding provided by research groups by about $4,000 per research-funded student. The graduate students’ incomes will not be affected. Overall, the subsidy decrease will save MIT about $12 million dollars.