The Federal Stimulus Should Support Research at Public Universities

By Christopher Newfield and Gerald Barnett
A year into the federal stimulus, state economies continue to
stagnate or sink. Large industrial states like California and Michigan
are in particularly bad shape, and if recovery fails in such places, it
will damage the economy of the entire country. It is particularly
unfortunate, therefore, that the federal research stimulus is not only
putting too little money into public universities, but is putting it
there in a way that makes the problems of those institutions worse.
Higher education split $100-billion in stimulus support with
elementary and secondary education in the final American Recovery
and Reinvestment Act legislation. About half of that was given to the
states to distribute with considerable latitude, and the final impact
on universities was modest. In most cases, the federal stimulus
funds did no more than keep cuts from being even worse.
The act also provided $21.5-billion of one-time money for research,
about half of which is being spent at universities. So far so good, and
last year the federal government spent more than $50-billion to
support university research. That support came in the form of direct
costs—the budgets proposed by university investigators—and
“indirect” costs—the expensive facilities, general services, and
administration upon which research depends. It is with the indirect
costs that the stimulus’s negative impact on universities begins.
Those indirect costs, called “facilities and administration,” or “F&A,”
are fees calculated as a percentage of the amounts directly budgeted
for research, less some adjustments. For universities, they usually
are 45 percent to 65 percent of direct costs—meaning that for every
dollar spent on direct costs, the government spends an additional 45
to 65 cents for research infrastructure.

Each university negotiates its indirect-cost rate with a designated
federal agency on a multiyear cycle. A typical negotiation involves
the university’s compiling extensive financial data to demonstrate
that it is incurring costs of, say, 62 percent of the modified total
direct costs of federal research, and the federal agency granting the
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university an F&A rate of, say, 58 percent. In the vast majority of the
specific instances we have seen, there’s been a shortfall between the
university’s reported indirect costs and those provided by federal
grants.
How substantial is that shortfall? In a recent year, Harvard
University said that indirect costs ran about 73 cents for every dollar
of direct costs, but it actually recovered 67 cents, using a rate set by
the National Institutes of Health. That means that Harvard had to
supply 6 cents of its own money for every dollar it received.
Analogous figures at other institutions were: the Massachusetts
Institute of Technology, 69.2 vs. 65 cents; the Johns Hopkins
University, 67.7 cents vs. 63.1 cents; and the University of
Washington, 64.4 vs. 56 cents. And, in an extreme case for an NIH
grantee, the University of California at Davis’s numbers were 71.2
cents vs. 52 cents—or almost 20 cents on the dollar.
What does that mean in terms of actual losses? If an “average”
campus has $200-million in research, and the gap between actual
and recovered costs is “only” 5 percent on a 50-percent negotiated
indirect-cost rate, that campus needs to find nearly $7-million a
year of its own money to cover the costs of conducting the
extramural research that it is legally obligated to perform ($73.3-
million at 55 percent, not the $66.7-million it receives).
Federal indirect-cost rates are the best-case scenario. Most
nongovernmental sponsors pay lower rates. One institution has
estimated that its own contribution to research costs across all types
of sponsored projects, above what it collects in indirect-cost return,
is not 5 percent, but 25 percent. In that case, our hypothetical
campus would have to come up with $33-million of its own money
to support $200-million in research grants.
Yet the sources for money to make up research shortfalls are few.
Private universities can use endowment and tuition income. Public
universities depend on state support and tuition. From the
mid-1950s through the mid-1970s, when baby-boom public
universities and Sputnik-inspired research were growing by leaps
and bounds, state governments understood that they were expected
to cover some research costs—particularly involving the
construction and maintenance of facilities—because most of the
immediate benefits of the research were local.
Once those booms ended, wealthy private institutions were still able
to use their continuous tuition increases and endowment gains to
set a breakneck pace for research investment. During the same
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period, however, state universities saw their public support reduced.
The University of California lost 35 percent of its per-student,
inflation-adjusted income between 1990 and 2007, and an
additional 20 percent in the last year and a half.
If extramural sponsors do not pay the full costs of research, where
can public universities turn? The only remaining source of funds is
tuition, which must continuously rise to help close the gap in
research support. Thus, although it may seem like a technical issue,
inadequate indirect-cost recovery is now endangering the core
public mission of affordable undergraduate access.
Students and parents might agree to subsidize research on the
grounds that it improves undergraduate education, but they have
not been asked, nor been told that they already do. Researchers
rightly chafe at the inadequacy of the indirect-cost monies returned
to them and don’t want to be put in competition with students, yet
they have been.
How can we untangle at least that part of the political and financial
snarl that involves research support? Only the federal government is
in a financial position to help stabilize higher-education finances or
to reinvest in research infrastructure. Thus our recommendations
focus on federal agencies:
Government agencies should suspend for at least two
years any “matching requirements.” The U.S. Department of
Energy, for instance, is supporting a three-year grant at Arizona
State University to increase the efficiency of photovoltaic solar cells.
The agency provides almost $896,000 but requires a “cost share” of
more than $240,000—or about 80 percent of the indirect-cost
money that the university receives for the grant. Unless the
university has obtained a private outside source providing the
cost-sharing money, the cost share is likely to come in the form of
an internal allocation of indirect-cost funds. That requires the
university to draw more money away from instruction, raise tuition,
or dip into its endowment. The stimulus should reverse that trend
and make research programs sustainable and self-sufficient.
Remaining stimulus funds should be set aside to support
upgrades in research infrastructure. Universities receiving at
least $20-million in extramural federal grants as of July 1, 2009,
should receive a supplement of 10 percent of their total federal
awards to be used as research infrastructure and development
funds. Those funds would not go into the existing indirect-cost
pools, where they are likely to disappear—used to resolve immediate
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budget problems, retain key faculty members, and meet other
status-quo needs. Rather, they would be set aside to be spent on
projects that develop research infrastructure with clear and specific
public outcomes.
For example, infrastructure money could provide support for
innovation and entrepreneurship, technology-based economic
development, and industry training in advanced research
techniques. Such areas are of vital importance to realizing public
benefits from research and are chronically undersupported in
federal grant proposals and university budgets alike. Universities
would be accountable for the use of such infrastructure funds; they
would have to report publicly how they have used the money and
their progress toward the completion of projects, just as they are
required to do for research.
All federal agencies should increase indirect-cost rates by
at least 10 points for two years. That across-the-board increase
would avoid complicated recalculations and renegotiations. It would
close most, if not all, gaps between the full costs of conducting
research and what sponsors now cover. And it could be done
immediately. There is no point in extending the number of projects
that an agency supports if each award incrementally hurts the
universities involved.
The federal government should lift the veil of secrecy
surrounding indirect-cost rates and recovery. Few areas of
university budgeting are less transparent, more confusing, or create
more ill will and mutual suspicion. The general belief in all
departments that their activities are subsidizing ungrateful others
has been worsened by a combination of opacity and repeated cuts.
The federal government should publish the stated indirect costs of
all universities, the rate it actually provides, and explain the
differences. Federal agencies should also publish overhead rates for
their large number of industry contractors, whose rates are
generally much higher than those of universities—and again explain
the differences. Universities should be able to decline awards that
they literally can no longer afford, and they need public data to
justify those decisions.
Without such changes, the federal stimulus of university research
will deepen the very public-university budget crises that it seeks to
reduce. The stimulus, as it is, will also increase the unwanted
tension among the university’s different missions of teaching,
research, and public service. Without the changes that we suggest,
public universities will be forced to continue to rob Peter to pay
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The Chronicle of Higher Education 1255 Twenty-Third St, N.W. Washington, D.C. 20037
Paul, drawing funds away from instruction and public service and
pulling money from the broader economy in the form of
substantially higher tuition paid by millions of middle- and lowerincome
families.
These changes are relatively simple and will go a long way toward
making the stimulus a productive effort with positive outcomes.
Federal stimulus programs should support higher education and put
more money to work in the economy. They should not create
incentives to reduce instructional outlays and create more debt
burden for the people in this country who are seeking educational
opportunity.
Christopher Newfield is a professor of English at the University of
California at Santa Barbara. Gerald Barnett is the director of the
Research Technology Enterprise Initiative at the University of
Washington.
Copyright 2010. All rights reserved.
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