MIT will have to make some dramatic changes in its budgeting procedures to meet the future expenses associated with operating a world-class university devoted to science, engineering and management, Provost Robert A. Brown told the faculty at the November 18 faculty meeting.
The 10-year financial plan includes some changes in the way the Institute uses money from its endowment, which, thanks to aggressive fundraising and a strong securities market, has snowballed from about $1 billion in fiscal 1990 to $3.6 billion this year.
Provost Brown, the Warren K. Lewis Professor of Chemical Engineering, reported that the MIT Corporation has approved an increase in income from the endowment to provide for three things that have been labeled "core needs" -- doing away with summer tuition for graduate students who are doing only research, increasing graduate fellowship support, and adding funds for renovation and renewal of facilities.
President Charles M. Vest discussed the rationale underlying these institutional priorities in his annual Report of the President issued earlier this fall. His report will be distributed to the MIT community by the end of this month.
Moving forward, budgeting will continue to be a challenge because there is more need for money than there is money to spend, Professor Brown and President Vest said at the meeting.
The budgeting process must be flexible enough to respond to changing external factors as well as changing priorities within the Institute. "We need to be more dynamic if we are going to move forward in an aggressive way," Professor Brown said.
The plan provides for a normal growth rate of 5 percent a year in the annual disbursement from the endowment to departmental and general accounts. There also will be an additional distribution from all accounts to be used for partial funding of the three core needs.
As an example, Professor Brown showed that by fiscal 2004, there will be $26 million from restricted funds slated for the three core needs. He said there shouldn't be any problem in using some of the income from restricted accounts, which are allotted to specific purposes by donors, because these initiatives support all faculty by attracting and supporting graduate students and renovating research and teaching facilities.
The money is not being used for the Institute's ongoing operating costs, but for these new initiatives that "will make MIT a better place," he said.
MIT is one of very few universities to charge graduate students summer tuition even when they are not enrolled in classes for the summer. And unlike other institutions, MIT has no "all-but-dissertation" status. In addition, the Institute has relatively few funds for graduate fellowships.
The result is that MIT is not providing a financially competitive package for graduate students, Professor Brown said.
To address these issues, the Institute will do away with summer tuition for graduate students who are research-only (resulting in a loss to MIT of about $15 million a year in revenue), will increase graduate fellowship support and commit significantly more funds for facilities renovation and renewal.
As background for his comments on the financial plan, Professor Brown explained that MIT's main sources of revenue are tuition, direct and indirect costs associated with research, and gifts and endowment income. In the past decade, the balance of revenues has shifted substantially to more reliance on gifts and the endowment, which has more than tripled since 1990.
Now, as in the past, tuition contributes about 22 percent of the budget.
Although MIT had one of its best years ever in federal research budgets this year, overall support from government sources has been declining as a result of changes in federal policy governing reimbursement for indirect costs associated with graduate education and research. MIT now pays more than $50 million per year in such costs that used to be supported by the government.
The effect of this shift in research support for the Institute was evident as a shift in the percentage of the operating revenues generated by direct research support and facilities and administration charges to that research. Research support accounted for approximately 56 percent of the operating revenues at MIT in 1980 and has now dropped to about 37 percent. Although research is still a very major portion of the MIT budget, the difference in revenues has had to come from gifts and income on the endowment.
Professor Brown also pointed out that today MIT is paying more than 96 percent of faculty academic-year salaries. In 1970, more than20 percent of faculty salaries were charged to research.
Since last January, a small group of administrators and four members of the Corporation have struggled with how to balance the Institute's near-term and long-term needs, President Vest said. They decided "the important thing was to support the faculty -- to let the faculty lead the charge to define the new directions. It was also essential to look at elements that everyone benefitted from, " he said.
Because of the Institute's increasing reliance on private support, a future capital campaign will aim to raise $1.5 billion, with the money to be allotted to setting new directions for research and education, faculty support, graduate fellowships, undergraduate scholarships and renewing physical infrastructure, among other things.
A version of this article appeared in MIT Tech Talk on November 25, 1998.