Financial Crisis and Educational Sector

These are the letters to the MIT community, which is one example of educational sector in US. It is said to be one of the strongest engineering graduate school in the world. This may give us insights about how they manage in this economical crisis.


Letter to the community on MIT finances
November 17, 2008

To the 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.

Sincerely,

Susan Hockfield
President

L. Rafael Reif
Provost

From: http://web.mit.edu/newsoffice/2008/letter-1117.html


Letter to the community on Institute budget process
December 11, 2008

To the Members of the MIT community:
We are writing to update you on the Institute's planning process in response to the contracting economy and to the strains we anticipate it will place on our traditional revenue sources.

As outlined in last month's community letter, in anticipation of a decline in our revenues, we plan to reduce General Institute Budget (GIB) expenses by $100-150 million (i.e., 10-15% of the GIB) over the next two to three years. During the past two weeks we have met with the Academic Council and the Academic Department Heads to discuss inclusive collaborative ways to achieve our budget reduction targets. In addition, Chancellor Phil Clay and Vice Chancellor Steve Lerman have met with student leaders to brief them on the situation and solicit their input. These conversations have helped shape a process that includes both near-term and long-term plans.

Near-term
We have asked the leaders of academic and administrative units to plan for fiscal year 2010 (FY'10) budget reductions totaling $50 million (i.e., 5% of the GIB). We have provided each unit with a target budget and will work with them to achieve the required reductions by July 1, 2009. The goal of this near-term process is to explore ways of optimizing the operations within each academic and administrative unit.

Long-term
To meet the long-term target, future years will require additional budget reductions. This financial challenge gives us the rare opportunity to assess how we carry out MIT's mission and to consider ways to make improvements while reducing expenses. For this purpose we will launch an Institute-wide Planning Task Force that will bring together faculty, staff and students to address these goals in an integrated manner.

The Task Force will draw upon the academic planning exercise led by the Deans during the last year. Their work revealed many opportunities for collaborative activities among departments, schools and other units. The Task Force is charged to explore these opportunities and identify new ways to increase the efficiency and effectiveness of our operations. We (the provost, the chancellor, and the executive vice president and treasurer) will lead the Task Force, and a coordinating team will oversee planning groups focused on academic, administrative and student life areas.



The Task Force will also explore revenue enhancement opportunities. Given the broad range of topics under review, the Task Force will seek input from our whole community. Task Force members will be announced shortly, and will commence their work this January. The Task Force will focus on recommendations for implementation in FY'11 and FY'12, as well as identify those that could be phased-in in FY'10. The goal of this long-term process is to recommend ways to optimize the operations of the whole Institute.

Communication
We will provide the community with periodic reports from the Task Force and updates from senior Institute officers. We plan to convene the Institute's faculty, administrative and student leaders early in the spring term to discuss innovative ideas for the complex task at hand. We will also reach out to the community by reporting periodically at meetings of the faculty, the Administrative Council, the Administrative/Financial Officer group, UA/GSC and other groups.

To foster an inclusive process, we have created a website (web.mit.edu/institute/budget-planning/) that will serve as a resource in the months ahead. In addition to providing up-to-date information about the Task Force, the site will include all announcements, reports and news related to MIT's budget planning. You may also use the website to submit comments directly to the Task Force. As soon as the Task Force members are announced, we will launch new features on the website to encourage dialogue, share ideas and leverage technology's ability to bring communities together.

We have complete confidence that this opportunity to rethink how we perform our mission will stimulate the innovation and creativity that will result in a much stronger MIT.

Sincerely,

L. Rafael Reif, Provost

Phillip L. Clay, Chancellor

Terry Stone, Executive Vice President & Treasurer

From: http://web.mit.edu/newsoffice/2008/letter-1211.html