Interview with MIT Corporation Chairman John Reed in MIT Faculty Newsletter

From an interview with MIT Corporation Chairman John Reed:

"FNL:One of the issues that has been of concern to a pretty good set of faculty is the plan to build commercial office buildings in the East Campus. We believe that came as quite a surprise to most faculty. And it’s not clear to us how open the discussion has been. Certainly it’s been very controlled inside MIT, but prior to it becoming common knowledge was it under discussion in Corporation, or approved, or what?

JR: I think it’s been well discussed at the Corporation level. I’ve been on the MITIMCo [MIT Investment Management Company] board on and off for many years. When I became chairman, I became a member of the board again, ex officio.

MIT has always been an acquirer of real estate in Cambridge. We have always had a clear delineation of the sort of space that could be useful for academic purposes, and could be part of the campus. Then there’s other space in Cambridge that only would have a distant value to us.

MITIMCo only has dealt with this second category of space. In other words, the space that MITIMCo owns is part of our portfolio, and is developed for financial reasons, not for academic reasons. Those properties are acquisitions that were made that are outside of the envelope that was identified as being for short- or medium-term academic purposes.

The whole development of Tech Square is probably the biggest such example. It’s not far from campus, but it never was seen to be a natural sort of expansion of academic space. And we pay taxes on the commercial space; it doesn’t get the benefit of being an academic enterprise.

Kendall Square was never seen as a place for academic expansion. Yet nearby we built the new Sloan School building because that was academic space.

Now if we had looked at it from a financial point of view, we should have built the Sloan building on the West Campus, because their current location would be economically valuable. But it always was in the academic envelope; it never was part of MITIMCo. And therefore it was developed academically.

So what’s happened here, is we now have MITIMCo developing things that actually touch the campus. And the faculty responded by saying, whoa, what’s going on here? There are a number of faculty who live in Cambridge, and hence participate in the discussion at the Cambridge level. But it’s been quite open. We’ve had academic committees looking at this and they’re even redoing the design. I think there are four new design proposals, and all of this has been reported to the Corporation. No one has ever asked the Corporation to make a decision as to what should or shouldn’t be academic – we’re not in any position to do that.

FNL:But the East Campus is indeed part of the campus. If you build commercial office buildings within the 501(c)(3) campus, that’s not a trivial change.

JR: True, but the land that they’re talking about developing was held by MITIMCo, not for academic purposes. Now you could change your mind and say, let’s move this parcel into Pool C, which is where they would hold land for academic purposes, and take it out of MITIMCo.

When you do that, you have to make sure that you take it out of MITIMCo at full value, because if MITIMCo has something that’s worth $100 million, you can’t transfer it to MIT for $50 million, because that’s basically taking money from the endowment.

And you know, the City of Cambridge is of a mixed mind. They love us and they hate us. They’d miss us horribly if we weren’t here. But on the other hand, they’d much prefer we built low-cost housing and gave up everything else.

And I’m sure that Cambridge knows exactly how much land we own, because they have the records. But I doubt that they know what our needs are. For example, there’s a big lab that’s going up right here on Mass Ave, I believe it’s Novartis, and we gave them a 40-year lease, but then it reverts to us, with the building and everything else. And that’s simply because the administration decided that we’re not going to use that land for 40 years, but you know it may not be bad to have it back again, at that time.

100 Memorial Drive is going to come back to us very shortly. And that’s going to be interesting, because 100 Memorial Drive is right on the East Campus. I don’t personally know whether it’s in MITIMCo or Pool C. I would guess Pool C. And I’m sure that will open up a lively debate with the City.

FNL:One of the things about the Faculty Newsletter is that our editorial board is the only committee of the Institute that’s elected entirely by the faculty with no administration oversight. It’s not like all the other committees that are joint administration/faculty committees. So, we have a little more independence.

And people come to us when they have issues where they’d be unable or uncomfortable going through more regular channels – a department chair, a dean, etc.

JR: So you act kind of as a conduit.

FNL:Exactly. We don’t have any specific authority, but we’ll suggest writing an article or a letter, or perhaps raise the issue anonymously in an editorial. This happens particularly with concerns by junior faculty, postdocs, and graduate students – those who feel at risk by being too public.

So one thing that we know very, very clearly, is that there’s been quite a high level of angst among graduate students for many years about the problem of housing. And the grad students feel that their views are not given serious attention.

JR: They have certainly caught the administration's attention. A report on the subject has just been released. Let me tell you my point of view on this question of graduate student housing. But note it's my point of view. The administration will decide what to do.

I was a grad student here and I did live off campus. I also left graduate school with a level of debt that was equal to my starting salary. 100% of my starting salary. So, I understand that you could be poor and may have to live off campus.

But most of the issue is economic. We subsidize dorms, in round numbers, $10-12,000 per year/per bed. The question is very simple. We have limited resources, we have a budget, and we currently are spending about $150 million a year from the budget, not from endowed funds, to support students.

The bulk, by the way, being grad students. Grad students are more expensive. We also have more endowed funds for undergraduate support, and much less for grad support. But anyway, so you know, $10,000 a student.

So if you go to the faculty and ask do you want to house another thousand students, hundred students, you choose a number, but the money is going to come out of our discretionary funds, and do you want to have flexibility in the budget or do you want to have student housing, that’s the economic question.

There’s also a social issue which says by the time you’re a grad student, should you be old enough to go out and find an apartment to live in and live like the rest of America lives? Or are we going to say, since you’re a student, which we all assign value to, we’ll protect you from the realities of life? So, that’s a social question. And you know, depending on one’s age, you’ll get different points of view.

FNL:Well, I respectfully say that that’s a social question from your point of view.

JR: Yes.

FNL:But from someone who runs a research lab and competes nationally for research funds, and has to publish or perish, when you have graduate students who spend two hours a day commuting, it’s not a social issue. It’s a fundamental inefficiency.

JR: It is an inefficiency, but most of the world wastes that time going to and from work. So there are choices you have to make. Now, I’m not making that argument, but there are two arguments. One is pure money. The other is social/cultural.

From the financial viewpoint, we have to recognize that we’re not going to get more money in the endowment because we decide to build dorms. So, we’re talking about how we allocate our resources. Do you want to hit the budget, our discretionary funds? You tell me how many graduate beds you want to build. A thousand? I mean, there are at least a thousand students who claim they’d rather live on campus.

And you know, it’s $10-12,000 per bed/per year that won’t be available for other uses. No one can say MIT’s hoarding money, that we have money and we’re failing to use it. I mean, we have two-and-a-half billion dollars of deferred maintenance. And you know, there are people who say we’re failing to get new, young professors because of the current condition of our buildings.

FNL:What else would you use that money for?

JR: What’s the marginal use of the money?

FNL:For many of us, the graduate students are the most valuable resource that MIT offers the nation. Graduate students and postdocs. So, I can understand that they’re expensive, but it’s not clear to me there’s a better way of investing $12,000.

JR: Well, that’s the question, if you believe that, but then what are we going to take it from? We have a constrained budget. The thing we’ve chosen not to do, presumably because it’s the least important, is maintenance. And so, we have $2.4 billion in deferred maintenance. And we have buildings that are in pretty crummy shape, and we get complaints that you can’t attract young faculty because of the condition of our labs and things of that sort. What we’ve done is we’ve failed to maintain the campus, and I think we’ve reached the point where we now think it’s having an impact on our ability to attract students and faculty, and therefore we’re trying to rectify it.

We are going to rebuild the freshman chemistry lab after 50 years of not having done so. We’re going to build a nano facility, because we have a lot of people whose research requires more clean space than we currently have available. These are the things that we’d have to push back on if we wanted to subsidize graduate student living conditions.

It might be cheaper for us to pay the grad students more money because the cost of renting places that are closer to campus probably is cheaper than the cost to us to build new space. Probably. But the point is you could simply up the stipend $5,000 a year and maybe the grad students would feel better. I don’t know.

Obviously we could say that we’re going to provide 100% space for everybody who’s admitted as a student here, and it’s simply a cost issue.

But the point is, everything we do here loses money.

FNL:What about the overhead on research funds? What fraction of that is the total operating cost?

JR: It’s been $127 million as I recall and we treat that as revenue for research, we don’t treat it as an offset. In other words, research doesn’t cover its costs, either. In our estimate, research dollars cover about 80% of the cost.

FNL:So expanding the research endeavor doesn’t solve the problem.

JR: It would if we were private sector research. So, take the Energy Initiative, for example. That is significantly funded by the private sector, and they’ll pay us greater overhead. We charge them differently.

FNL:Right, gotcha.

JR: But, you know, I don’t blame the government. They’re a monopoly funder and so they can exercise monopoly power, and the taxpayers are on their back about the budget. And so, the last thing they want to be accused of is being overly generous with NIH grants and so forth. And they’ve gotten pretty tight.

There was a period of time when things were different. We even have a dorm that was built, I think, by the Department of Defense and given to us. There was a time when money flowed much more easily. But it doesn’t now. And there was an article that appeared in the Newsletter about graduate student dorms, in which there was a throwaway sentence that we have the money in the endowment, but that was just an uninformed comment.

We have $11 billion in the endowment, but we also have to fund the shortfall between expenses and revenue. And saying we have the money in the endowment is just wrong. You know, what we need in the endowment is approximately four to five billion more than we have. If we had an additional four to five billion, instead of 11 billion, say 15 billion, then the earnings on the endowment would allow us to catch up with the deferred maintenance, give us needed flexibility, and certainly look at new living space. But we’re not there.

So as far as graduate student housing goes, there it is. If you were an economist only, and you didn’t care, you’d increase their stipend and not build the dorms. The administration will balance all those issues and decide. We will see."