November 17, 2008
To Members of the MIT community:
Ambitious forward motion is MIT's signature; we celebrate initiative, innovation, relentless improvement and creative change. Yet as the world’s financial markets continue to decline, they forecast a global reduction in resources. In that context, our challenge is clear: together we must chart a financially prudent path forward, but one that sustains and fosters the essential character of MIT.
As we reported in late September at the State of the Institute, MIT has the latitude to approach the current financial realities in a deliberate way, because of three recent significant advances: we begin from a balanced budget, we smooth our endowment payout to distribute the effects of market volatility over several years, and, across the Institute, we have carefully accumulated cash reserves that can buffer a tough economic period. These facts cannot fully insulate us from the chill of the markets, but they do afford us the time to make thoughtful, coordinated choices. Through the fall, we have steadily responded to the rapid economic flux; for example, as market conditions worsened in October, we recognized that delaying the renovation of the W1 residence hall offered an important opportunity to preserve financial flexibility.
Today, as market uncertainty continues, we want to share with you the further steps we will take to reduce spending, while protecting and fostering the creative, dynamic and stimulating environment that defines MIT.
The impact on Institute revenues
The global economic contraction will likely compromise all of the Institute’s major revenue streams: endowment, tuition, gifts and research. Market declines have affected even the most diversified portfolios, including MIT’s investments, which will reduce the endowment funds available to support our operations. In addition, we anticipate a decline in net revenue from tuition; we will retain our commitment to need-blind admission and need-based undergraduate financial aid even as we expect that some students and their families may feel the weight of new financial difficulties. (Please consult the Financial Aid office for more information.) And, while MIT’s donors have remained staunchly generous through past downturns, some may now be constrained in their giving. We also expect that pressure on the nation’s budget will lead to continued stagnation, if not declines, in federal funding for research. As we plan, we must incorporate all these anticipated revenue reductions.
Planning for financial constraint
The continuing uncertainty about the length and depth of the economic downturn makes accurate predictions impossible. However, we must take action now to plan for a protracted period of financial constraint, while at the same time remaining flexible for a future in which the economy may improve or worsen.
Taking all these factors into account, we can reasonably anticipate the need to decrease spending by about 10-15% over the next two to three years. In the current budget planning cycle for FY10, we will plan for a base budget reduction of 5%. Future years will undoubtedly require additional cuts by all units. As all of you who manage budgets know, achieving a base budget reduction of this magnitude is a very serious exercise; we will tackle it together, through a careful three-year implementation plan, beginning with a number of practical short-term actions.
Practical steps in the short term
In the coming weeks, we will present specific steps to launch the planning process. In the meantime, we encourage each of you to think about the most effective ways we can cut spending while advancing our core strengths in support of MIT’s mission.
In the very near term, it obviously makes sense for every part of the Institute to look hard at each expenditure. We must be very cautious in hiring, relating each hire to core needs, and we should take particular care in making decisions that create long-term financial commitments. At present, we do not expect mandated spending cuts for the current fiscal year. However, achieving significant savings this year can help prevent more painful future choices; early savings will compound, so that a dollar saved today gives greater long-term budget relief than one saved a year from now.
Developing a long-term approach together
As we plan for the longer term, given the budget reductions we anticipate for FY11 and beyond, we can and will use this moment to tailor our financial choices to better position the Institute to seize emerging opportunities. To that end, we will set in place a broad, deliberate, inclusive process, in which all branches of the Institute will work together in the coming year to reassess our priorities and the use of our resources.
The past year has included an ambitious and vitally important process of planning for MIT’s future; integrating that planning work with new fiscal constraints will make the Institute stronger, more efficient and more effective. The world values MIT for its unrivaled education, pioneering scholarship and real-world innovations. Together, we need to design new operating strategies that draw on more limited financial resources, without sacrificing our values or our mission of world-changing education, research and service.
In approaching this challenge, we have actively consulted with the Academic Council and department heads, as well as with other faculty and administrative leaders. To further define the budget planning process described in this letter, we will continue these discussions. As plans develop and the global situation evolves, we will keep the MIT community involved and up to date.
The months ahead will test us all. But they also present an opportunity for us to demonstrate our deepest strengths as a compassionate community, driven by innovative thinking and action.
L. Rafael Reif