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Institute Posts $5.3M Budget Deficit

MIT completed the fiscal year that ended June 30 (Fiscal 1992) with a deficit of $6.3 million-$2.2 million higher than projected-and will experience deficits for the foreseeable future unless there is "expense reduction and/or revenue enhancement," James J. Culliton, vice president for financial operations, has reported.

Noting in his annual report that MIT had modest budget surpluses in Fiscal 1984-1988 and modest deficits in Fiscal 1989-92, he added:

"Projections indicate that we still remain in a deficit pattern in future years because of continuing pressure on the operating budget from resource constraints as MIT attempts to maintain its academic excellence and pursue new opportunities.

"It continues to be difficult to meet all objectives of reasonable growth in tuition and self-help levels, competitive salaries for faculty and staff, and need-blind admissions.

"Despite efforts to control costs, there are both unexpected and necessary Institute-related events that add to the imbalance in the operating budget. Recent examples include legal fees, less than projected indirect cost recovery, and an increased demand on undergraduate financial aid from unrestricted sources."

While the underlying financial strength of the university remains sound, Mr. Culliton said, "We must bring the operating budget into balance."

He said the imbalance in operating revenues and expenses "will continue to require judicial and well-planned implementation of cost containment measures in both academic and support programs and continued rigorous budget control.

"It is appropriate, in view of the financial constraints facing MIT, particularly relating to decreasing research funding and support, to begin the planning to achieve constructive reduction in expenses as well as properly develop the central and departmental administrative structure for the future."

He said this planning already had begun and that efforts "are currently underway to lower these projected future deficits through expense reduction and revenue enhancement, and to plan for funding adverse exposure items should they materialize."

"The results of this budget balancing effort will be brought to the Executive Committee [of the Corporation] in a revised budget later this year," he said.

Mr. Culliton said the operating budget for Fiscal 1992 was $1,083,360,000, down about $4 million (0.2 percent) from $1,085,568,000 the year before.

Mr. Culliton said the Fiscal 1992 deficit was held to $6.3 million by using $6.8 million of unrestricted gifts, grants and bequests.

The remaining $6.3 million was funded from a series of current funds and earned income on various reserves, most notably the research reserve.

Thus, he said, no funds functioning as endowment, only earned income on reserves, were used to meet the deficit.

The 1992 deficit exceeded the projected figure of $4.1 million because of a variety of factors, he said.

Some of these "adverse effects," totalling $9.7 million, he said, were:

-A decrease in indirect cost recovery, including growth in instruction compared to research ($3.5 million).

-An increase in undergraduate student financial aid, resulting from more needy students and less than projected income for scholarships from current gifts ($3.2 million).

-Less than expected tuition revenue, primarily because of students completing degrees early ($1.8 million).

-Employee benefits that included a one-time life insurance catchup payment based on the last three years of experience ($1.2 million).

In the category of student financial aid, Mr. Culliton said scholarships and fellowships in Fiscal 1992 totalled $58.8 million, an increase of 15.8 percent over the Fiscal 1991 total of $49.5 million. Of the total, $29 million went for undergraduate student financial aid and $29.8 million for graduate student aid.

In the category of gifts, grants and bequests, the total for Fiscal 1992, both unrestricted and restricted (not including equipment gifts), was $89.9 million, down $2.5 million, or 2.7 percent, from the $92.4 million received the year before.

Mr. Culliton said the final accounting for the recently completed Campaign for the future showed gifts and pledges of $710 million, surpassing the increased goal of $700 million and some 29 percent higher than the original goal set five years ago.

In the category of research, the on-campus volume for Fiscal 1992 was $322.3 million, compared to $315.8 million in Fiscal 1991, an increase of $6.5 million, or 2.1 percent.

The largest increases among the major sponsors of campus research were the National Aeronautics and Space Administration (13.6 percent) and industry (10.7 percent). The Department of Energy lost its position as the leading sponsor of campus research, finishing second to the Department of Health and Human Services.

Lincoln Laboratory research volume for the Institute's FY 1992 was $364.2 million, a decrease of $25.3 million, or 6.5 percent, from the $389.5 million the year before.

Mr. Culliton said total federal research support "remained flat" while non-federal research support increased by 8.1 percent.

"Research funding levels both on and off campus are expected to be limited in growth over the next few years," he said. The reasons, he said, include "reduction and redirection of the Defense Department budget, general government budget constraints, redirection of research funding to other universities (public university or geographical considerations), and the adverse effects of the economy on industrial and foundation support of basic research."

Additionally, he said, alluding to the ongoing controversy over indirect cost recovery, "the political climate for reimbursement of expenses for indirect costs could significantly alter our past practices of recovery of sponsors' (primarily the government) fair share of indirect cost. Many changes entered into jointly between MIT and the government are now being questioned with the possibility of unilateral changes."

Finally, Mr. Culliton said it was important to note that the continuing imbalance in operating revenue and expenses "masks the underlying financial strength of the Institute as restricted academic funds continued to grow from endowment income that is not spent, and as many gifts.flow into current funds or endowment funds."

Other measures of financial strength also are favorable, he said, including a 39 percent increase in the market value of all investments in the past five years to a new high of $1.9 billion, and AAA debt ratings both by Moody's and Standard and Poor's on collateralized issues.

A version of this article appeared in the September 30, 1992 issue of MIT Tech Talk (Volume 37, Number 8).

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