1995 deficit is higher than expected


MIT ended fiscal year 1995 with a higher-than-budgeted deficit of $10.1 million and balanced the budget by using income and some capital from a reserve fund.

The deficit, $1.2 million more than anticipated, increased because revenues, particularly the recovery of indirect costs of research from the federal government, "were less than budgeted," said Glenn P. Strehle, vice president for finance and treasurer.

The budget deficit was about $4 million higher than in the previous year, but was almost identical to the deficit two years ago. In a report to the Academic Council, Mr. Strehle noted that the two major categories of expenses-salaries/benefits and goods/services-"are growing very slowly and compare favorably with the budget both in absolute terms and relative to similar periods in the two previous years. The conclusion is inescapable: MIT is operating under very tight operating budgets and the expenses compare favorably with both the amounts budgeted and the amounts expended in the year-earlier period. The modest growth in expenses is well below the rate of inflation and average salary increases."

The deficit was covered by using funds from the Research Reserve-$1.6 million in investment income and $8.5 million in capital. After those transfers, the Research Reserve had a market value of $31.5 million and continues to be part of the funds functioning as endowment.

Mr. Strehle explained that about half of the budget shortfall in indirect-cost recovery (about $3 million) was caused by changes made by the government in cost-recovery ratios and audits. This, he said, "has an adverse impact on current and future-year operations."

Other factors that contributed to the increased deficit, he said, were lower-than-expected unrestricted gifts, the ongoing reengineering costs, and the net costs of employee benefits. Total gifts increased by more than 18 percent, but the portion available as unrestricted gifts did not rise.

"On the positive side," Mr. Strehle reported, "total expenses in certain academic and support areas were less than budgeted."

Other highlights from the report:

RESEARCH

Direct campus research revenues were $271.2 million, an increase of $1.7 million. Ninety-two percent of campus direct research revenue involves the School of Engineering and the School of Science or the interdepartmental laboratories. Those three groups ended the year with research revenues of $251.5 million, an increase of $3.6 million. All other campus research, $19.8 million, was down $1.8 million. When adjusted for inflation, the report notes, "it is clear that campus research actually declined modestly."

Lincoln Laboratory direct research revenues increased $2.2 million to $318.2 million.

EXPENSES

Total expenses, $1.183 billion, were $10 million lower than budgeted. Academic expenses, $858.6 million, were $7.2 million below budget. More than half of the underexpenditure resulted from salary expenses being less than expected.

Support and other expenses, $324.3 million, were $2.8 million below budget.

Reengineering expenditures were $10.6 million. The financial plan for the next four years assumes that reengineering will have a net adverse impact through 1997, then turn to a net gain in operations.

Between 1994 and 1995, the growth in salaries and employee benefits moderated to just 1.4 percent, which was less than the percentage available for 1995 salary increases. "Both the small increase in actual expenditures and the decline in employee head count bear out this trend towards reduced staffing," Mr. Strehle said.

A version of this article appeared in MIT Tech Talk on October 18, 1995.


Topics: Administration

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