Letter to Members of the MIT Faculty and Staff, November 19, 2002
From President Charles M. Vest

© Massachusetts Institute of Technology, 2002. To reprint or excerpt for publication, please contact Laura Mersky at mersk@mit.edu.

November 19, 2002

To Members of the MIT Faculty and Staff:

I am writing to comment on MIT's recent accomplishments and on its financial challenges in the current slow economy.

We have had an exceptional beginning to this academic year, highlighted by the opening of new residences for undergraduate and graduate students, the new sports and fitness center, the launch of the OpenCourseWare pilot, a National Medal of Science, and yet another Nobel Prize celebration. These are some of the most recent achievements in a decade or more of progress, which has been made possible by our outstanding faculty, staff, and students.

MIT has never been more vital. All around us we see innovations in teaching and learning; faculty are inventing and discovering the future in a remarkable array of fields; research funding is growing again; our management infrastructure is better than ever; we achieved our $1.5-billion campaign goal two years ahead of schedule; and our campus—while still something of a construction site—is a campus to be proud of.

About our financial condition: during the decade of the 1990s, MIT's endowment grew dramatically to over $6 billion. This significant increase made it possible for us to make major investments in those areas deemed most important by the faculty: supporting graduate students (including eliminating summer tuition for thesis students); supporting virtually all academic year faculty salaries from Institute funds rather than partially from research grants; renovating existing buildings; and con-struct-ing academic facilities needed for the 21st century.

These investments are paying off, and MIT has never been more dynamic or more needed by our nation and world.

Like every other institution and individual in our country, however, MIT has been affected by the slowdown in the economy. Our endowment, which now funds about one-third of our operations, declined in market value by $1 billion over the past two years. As a result, we must manage wisely within the resulting financial constraints, while maintaining the quality and momentum of our programs.

Many of you have heard from Provost Bob Brown, Chancellor Phil Clay, or Execu-tive Vice President John Curry about budget planning for the next fiscal year. There are two ways in which the decrease in endowment will affect the budgets of everyone at the Instte.

First, activities that are funded from the endowment, including the Institute General Budget as well as funds held by faculty and departments, will not increase next year. Therefore, much of the revenue normally used to cover salary increases and inflation-related costs will not be available in Fiscal Year 2004.

Second, the MIT pension plan—a major employee benefit—is experiencing negative investment returns. In order to meet our obligations to present and future retirees, we must raise the employee benefit rate from the current 18 percent to 22 percent. The effects of this will be borne by funds, contracts, grants, and the Institute General Budget.

To deal with these effects on the Institute General Budget, all of us will have to make adjustments—keeping a clear focus on our highest program priorities. This means making some real choices about what we do and how and when. We are not seeking to resolve our budget problem with mandated layoffs. However, we cannot altogether avoid reducing the number of staff positions. Some units may reduce the number of positions after assessing their program priorities and operations. In addition, vacancies offer an opportunity to achieve savings through attrition. We have set no Institute-wide goal in this regard and will look to the individual units to assess priorities and make decisions about programs and staffing.

Addressing our budget situation will be a shared effort, with reductions balanced across academic and administrative units. The Provost and the Executive Vice Presi-dent have worked out a plan for the coming year with the deans, vice presidents, and other senior officers. This plan includes specific programmed reductions in expenses in the Institute General Budget and reductions in the revenue normally expected by organizational units.

First, reductions in expected revenue:

Second, reductions in expenditures:

As we go through this process, it is imperative that all budget proposals be grounded in our most important program priorities. In addition, all of us—faculty, administrators, and staff—should use this budget challenge as an impetus to look for new, more effective, and more efficient ways to accomplish our program goals. We welcome your ideas on how to achieve savings and your assessment on whether everything currently being done still needs to be done or at least done in the same way.

Some of you have asked why we are engaged in such an extensive building pro-gram if we have a budget problem. Because of the way in which our campus construction projects are financed—through a combination of private support and tax-exempt borrowing—and because of the revenue they generate through rents and recovery of the indirect costs of research, these campus construction projects have only a modest impact on our operating budget, but they have everything to do with our ability to provide a world-class environment for education and research.

And that is what we are all about: improving the world by educating the best and the brightest and by generating important new knowledge. I am confident that together we can work our way through this slow economic period while we continue to build the campus community, make the discoveries, and create the new ways of teach-ing and learning that make MIT such a remarkable place.

Sincerely yours,

Charles M. Vest