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MIT will layoff about 250 employees, shut down the campus during winter break and maintain a salary freeze in a drastic effort to reduce annual operating costs by $34 million as the school’s endowment continues to drop for a third straight year.
MIT President Charles M. Vest announced that due to an almost $1 billion drop in the endowment since 2000, the university has been taking steps since July 1 to reduce its operating budget this year—and plans to cut it by around $70 million next year.
As part of the effort to reduce costs, the MIT campus—except for a laboratory complex—will be closed over the winter break, from Dec. 25 to Jan. 5, to save money on heating, electricity and other maintenance costs over the holidays, according to Vest’s announcement.
“The bottom line is this: If we make no course corrections now, an unacceptably large gap between our expenses and our revenue will develop in 2004-05,” Vest said in a prepared statement. “We must put together budgets for next year that will eliminate this gap. This will be difficult, and for some parts of the Institute, it will be painful. But there is no way around it, and I am absolutely confident that together we can work through this period and begin a recovery in the following year.”
MIT’s woes come as Harvard remains guardedly optimistic about its finances. After two years of decline, Harvard’s endowment enjoyed a fourth quarter surge last fiscal year to come in at an all-time high of $19.3 billion this summer.
Harvard’s budgets remain tight, but are still projected to grow, with planned payout from the University’s endowment to nudge up by 2 percent for the fiscal year that begins next July.
MIT Executive Vice President John R. Curry and Provost Robert A. Brown announced that MIT will freeze salaries for all faculty and staff members whose base annual salary is $55,000 or more. Employees who earn less than that will still be eligible for minimal pay increases.
According to Curry and Brown, promotions are still in effect, and pay increases due to promotion are unaffected by the above measures.
Brown and Curry said that the salary freeze will help limit the number of jobs that are cut next year to around 250.
“If it weren’t for the salary freeze, which will save approximately $10 million, a much larger number of jobs would have to be eliminated. In other words, the salary freeze saves jobs,” they said in a statement.
Vest also outlined in his statement a number of other measures the university will take to meet its reduced budget.
The university will limit the provost’s ability to fund new initiatives, reduce the number of graduate fellowships, consolidate the administration, reexamine purchasing practices, establish a more effective energy conservation program and utilize space more effectively.
Vest said that while the endowment has increased from its value a decade ago, the recent economic downturn has hit the university hard because of its increase in dependence on gifts and endowment income in the past ten years.
MIT’s endowment grew 57 percent in 2000, but has since dropped from $6.5 billion in 2000 to $5.4 billion in the 2001-2002 fiscal year—and fell again in the 2002-2003 fiscal year, according to Vest.
Increased costs for health care and pension benefits has led to a further disparity between revenues and expenditures, MIT’s website said.
“We have planned substantial belt tightening for next year, after which we will return to a steady growth in our operating budget,” Vest said.
Despite the cutbacks, MIT administrators said the university is by no means in dire financial straits.
Vest noted that net tuition has grown modestly and the university met a $1.5 billion capital campaign goal two years early.
Brown wrote in a press release that campus research funding has grown to $470 million.
“MIT has never been stronger in terms of the quality of our students, faculty and staff, our academic programs, the excellence and world-wide impact of our cutting-edge research and scholarship, the evolution of our campus and its infrastructure and our underlying financial strength,” Vest said. “MIT has great momentum, but we are hitting a large bump in the road and must make major near-term adjustments.”
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