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Provost outlines what to expect (in budget)

(Following is the text of a letter to the community outlining the next steps in reducing the budget by Provost Mark S. Wrighton.)

As you know from earlier communications from President Vest and me, MIT's finances have been under intense review this year, owing to concerns stemming from a major gap between our operating revenues and expenses, which is projected to be $16 million for FY93. Earlier this spring I announced proposed budget reallocations and reductions, and some changes in policies, affecting the academic and research units of the Institute. In this letter, I would like to discuss three topics:

��������� the results of the financial planning process for the coming academic year, FY94, which begins on July 1, 1993;
��������� the consequences of changes in the budget for the administrative support as well as the academic areas; and
��������� some of the significant issues that remain and how they are to be addressed.

As a preamble to this report, I would like to emphasize that I believe the quality of MIT's programs and people has never been higher, and that it is our concern with sustaining this excellence that drives our efforts to improve our financial condition.

The FY94 Budget

The Institute's FY94 budget proposal was approved by the Corporation Executive Committee on May 7, 1993. It includes the following highlights:

The total projected operating budget is $1.13 billion for FY94, compared to the projected FY93 budget of $1.11 billion.

Projected growth in gross revenue is about $18 million, compared to the $20 million growth in gross expenses from FY93 to FY94.

The operating gap in FY94 is projected to be $17.85 million, an increase from the projected operating gap in FY93 of $16 million. The operating gap is the shortfall in revenue needed to fund the operations of the Institute. This gap must be funded with unrestricted funds and gifts.

Commitments for salaries and benefits for employees across the Institute will grow by about $25-27 million; in addition, there will be an increase in benefits expenses of about $9 million annually to fund post-retirement medical benefits. The total salary and wage base in FY93 is about $471 million, with benefits costing an additiona$174 million.

Net budget reductions in the support areas amount to about $1.6 million. Gross reductions in these areas are nearly $4 million, but only $1.6 million affects the Institute's "bottom line." The remainder represents reductions in indirect costs charged to research contracts. The totaFY94 budgets for the Senior Vice President, Vice President and Secretary of the Corporation, Vice President for Financial Operations, Vice President for Resource Development and Treasurer, Vice President for Information Systems, and the Alumni Association will be about $173 million.

Net reductions in academic areas total about $1.2 million. Gross reductions are about $1.6 million. Other policy changes in academic areas yield a combined projected unrestricted income or savings totaling another $2 million of net improvement for the bottom line. These savings come mainly from the changes announced earlier in connection with income on Pool C accounts. The $3.2 million net improvement in the bottom line in academic areas is on a total budget for the academic areas of about $187 million.

Consequences of FY94 Budget Changes

Despite efforts to reduce costs, the dismaying fact is that, from a budget perspective, we will be no better off, indeed we will be somewhat worse off, at the end of next year. It is important to note, however, that our planning has been guided by several important institutional goals, some of which will place greater pressures on our budget. These goals include: lowering the growth in tuition while maintaining need-blind admissions, increasing the use of Institute funds to support faculty salaries, and increasing salaries of our employees. We have been able to stay on course with regard to these and other key goals, but the financial situation remains a concern.

Academic Areas. In the academic areas, the changes associated with the FY94 budget are having some immediate effects. Most, but not all, of these effects can be categorized as lost flexibility. For example, using some of the income from Pool C funds for more general Institute purposes, rather than distributing all of the income to individual accounts, is immediately felt by departments and faculty who hold Pool C accounts. In addition, resources formerly held by departments in connection with "to be appointed faculty" are reduced, and 15 faculty openings have been eliminated. No current faculty are affected by these decisions. However, eight positions in the Libraries have been eliminated. Fortunately, the staff members affected have been offered other positions within the Library system. While the number of positions lost overall is small and attrition has allowed us to avoid layoffs in the academic areas to date, these changes will have their effect, primarily in reduced flexibility for individual units and faculty.

The FY94 financial plan provides support for a number of new program initiatives. Support is being provided for the new biology requirement, establishment of the Leaders for Manufacturing Program (a highly successful five year experiment), the new Master of Engineering degree program, and for hardening faculty salaries in physics and engineering. In addition, a number of academic initiatives are being supported as non-recurring activities in the form of experiments. Some of these will doubtless be successful and compete for recurring budget commitments in ensuing years.

We have also made commitments to build or renovate academic facilities. These include the construction of the Jack C. Tang Center for Management Education, which will provide the Sloan School and the School of Humanities and Social Science with modern classrooms and other facilities. We are modernizing classrooms and equipping them with audio-visual equipment for use in the School of Humanities and Social Science, and spaces are being prepared for music education and practice. A multi-phase project leading to the Design Studio of the Future is underway in the School of Architecture and Planning.

We continue to attract the world's best faculty, including many in scientific and engineering areas requiring access to state-of-the-art laboratory facilities and instrumentation. This is costly, but recruiting and retaining faculty remains a top priority. In particular, resources for recruiting women and members of underrepresented minority groups remain strong and our special efforts in this arena are beginning to show dividends.

We also continue to attract an outstanding group of students to the Institute, and are committed to maintaining our policy admitting students solely on the basis of their academic merit, without regard to their families' ability to pay. This policy, together with our efforts to constrain the growth in tuition, is also costly, but we are rewarded by students of uncommon ability and achievement.

Support Areas. In the support areas, Senior Vice President William R. Dickson has worked this spring with the other vice presidents to achieve FY94 budget reductions that are similar in magnitude to those in the academic areas. Initial reduction targets of $4 million gross and $1.6 million net have been essentially met. Note that the larger gross reduction has the additional favorable effect of holding down the indirect cost rates for sponsored research grants and contracts.

Budget reductions in the support areas will have more serious effects than lost flexibility, including some changes in services and some immediate consequences on employment.

With regard to employment, at this time it appears that it will be necessary to lay off about 20 staff members during FY94. Beyond that, about an equal number of unfilled (or "to be appointed") positions will be eliminated. With a total employment of about 2,500 in the support areas, a layoff of 20 is quite modest, but this is no consolation to the individuals affected. In certain instances, of course, individuals will be qualified to take up other Institute positions. There are some specific functions being eliminated, however, that involve individuals with unique skills and capabilities who may not be able to find other employment within MIT. Supervisors will work closely with affected people to assist them in identifying placement opportunities.

As noted, there will also be some changes in services as a result of budget reductions and reallocations in the support areas. For example, the dining facilities in McCormick Hall and Macgregor House will be closed, saving an estimated $300,000 per year. On the positive side, there are increased commitments to improve campus security, including, for example, expanded Safe Ride services.

It is important to emphasize that there have been remarkable achievements from all of the areas defined as "support areas." These include the development and maintenance of our extensive Athena computing environment (now involving about 6,000 individual log-ons each day); a very successful fundraising campaign and continued high generation of revenues by Resource Development; more efficient use of utilities from Physical Plant (resulting in about $100 million in avoided costs in the past two decades); superb response by the Financial Operations area to a variety of government inquiries regarding use of research funds; timely and wise financing of the capital projects by the Treasurer's Office and Financial Operations; maintenance (with fewer people) of far more space today by Physical Plant than in 1970; and a Medical Department that provides outstanding services to the entire MIT community.

Our overall aim is to improve the value of all of the services we provide. There are many other examples of remarkable accomplishments in our support areas. And yet we must continue our efforts to improve what we do in every area. Several of the support areas are undertaking workshops and developing programs to take advantage of experiences in the business community which have resulted in improvement of processes ranging from publishing to personnel information, fundraising, and purchasing procedures. The efforts are just beginning, but the experiences of others shows that there is improvement possible in even the best organizations and with the best people. Often such efforts to improve services can be accompanied by cost reductions. For example, our proposed steam/electricity cogeneration plant slated for construction by the end of FY95 is a project that willower energy costs while reducing emissions that threaten the environment.

Plans for the Future

The financial outlook for FY94 means that we must continue to work over the course of the summer and through the next five-year planning cycle to reduce the operating gap. Several steps must be taken, including continuation of plans initiated this past fall to work toward two percent reductions in FY95 and FY96. These reductions are not adequate to close the gap, however. In addition, we must rely on the continuing work of the four task forces formed during the past year by the Academic Council. These task forces have prepared preliminary reports that identify a number of opportunities for MIT to enhance its revenue streams and to reduce its expenses. Many of these recommendations require more extensive development and an evaluation of their consequences not only for MIT's finances, but for our educational and research mission.

A specific, and very serious, issue affecting our core mission has to do with the support of graduate students as research assistants and teaching assistants. New federal guidelines regarding tuition payments will very likely be implemented beginning in FY98. Currently, we estimate that the new guidelines will result in the loss of about $12-15 million in revenue for research assistant and teaching assistant tuition. The Ad Hoc Committee chaired by Professor Robert Weinberg has been struggling with options for coping with this change. Their work is guided by the conviction that the graduate programs at MIT must remain strong and that the faculty must remain in a competitive position to continue to attract and support the very best students.

As we have worked on these financial and planning issues this year, it has become increasingly clear that better, and perhaps more, communications on these matters are needed. It is evident, for example, that there has been growth during the past 15-20 years in the number of people in both the academic and support areas, even though the faculty size has remained roughly constant. Some areas of growth are easily identified, for example computer support resulting from Project Athena. In the academic areas, it is clear that there has been some growth in administration and even larger growth in other academic staff, but the costs and benefits of growth in these areas need further assessment. In any event, we need to document all areas of Institute growth in more detail--including the rationale as well as the financial consequences of such changes. These issues will be addressed more fully in a subsequent communication.

In closing, it is evident that MIT is maintaining its excellence. However, it is equally evident that sustaining this excellence wilrequire continued attention to fiscamatters. Much work lies ahead, and your help wilbe appreciated. Many thoughtfuand usefuideas and suggestions have already come to me via For example, there have been questions regarding the number, cost, and use of MIT publications. There is now a review team, chaired by Stephen Immerman, addressing this issue. The MIT maisystem is another area in which concerns have been raised, and a committee, chaired by Katherine Cochrane, wilundertake a review of this system. I welcome your input as we continue the work of our task forces and engage more members of the MIT community in these efforts.

A version of this article appeared in the May 19, 1993 issue of MIT Tech Talk (Volume 37, Number 33).

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