Kennedy Resigns As Indirect Costs Controversy Mounts

Although the timing was a coincidence, the simultaneity of the activities symbolized Kennedy's inability to quell, through personal response, the indirect costs controversy that has plagued the U.S. academic world for the past several months--a controversy that Kennedy and his institution principally precipitated. His peers in academe note that failure even as they give expression to their sympathy. "The events of the past year are a sorry climax to a brilliant career," says Richard Atkinson, chancellor of the University of California, San Diego. In the opinion of Donald Langenberg, chancellor of the University of Maryland, "it's terribly unfortunate that a concatenation of events, including indirect costs, led him to conclude that it would be best to step down." And Derek Bok, who recently retired after 20 years as president of Harvard University, issued a statement saying that "the difficult events of the last year should not obscure the great contributions that Don Kennedy has made to Stanford and to higher education. He remains among university presidents one of the most articulate spokesmen and enlightened leaders, and higher education will miss his presence." A biologist who came to Stanford in 1960, Kennedy has been involved in many controversies prior to his role as the central figure in the government's investigation into what Stanford was billing the government for conducting some $240 million annually in federally funded research. Since becoming president in 1980, whether debate centered on a half-billion-dollar expansion of the campus, increasing the role of non-Western thought and culture in the freshman curriculum, or his own well-publicized divorce and remarriage, Kennedy spoke his mind and confronted his critics head-on. Several government agencies are now examining the practices of some two dozen research universities regarding indirect costs. The Office of Management and Budget (OMB) is sifting through comments on its proposal to cap administrative expenses and to require universities to set aside some funds for renovation and repairs, and Congress is mulling over several bills intended to accomplish the same ends. Despite the fact that equally prominent institutions such as the Massachusetts Institute of Technology and the California Institute of Technology have returned hundreds of thousands of dollars in inappropriate charges, and dozens more have admitted similar accounting mistakes, Stanford is clearly the school most tarred by the brush of scandal. The university was the focus of March hearings before the House energy and commerce investigations subcommittee, chaired by Rep. John Dingell (D-Mich.). The sensational nature of its indirect costs charges--including such items as a yacht and a trustees' retreat--combined with the $1.35 million that the school subsequently refunded, has given Stanford an unsavory reputation for taxpayer-financed greed. That image has raised doubts in the minds of students, faculty, and administrators about the school's ability to carry on with its work of education and research. And it was that uncertainty, Kennedy said, that convinced him to resign. "As we have engaged these problems during the recent months," Kennedy wrote to the university's board of trustees, "I have been acutely conscious of how distressing and difficult it is for my colleagues to labor constructively in an environment that is so uncertain and so permeated by critical outside attention. . . . What actions on my part are most likely to relieve ambiguity about our direction, to heal internal differences and, thus, add to the momentum for change and improvement?" The answer, he concluded, was to resign, effective next summer, and return to a tenured faculty position to work on issues relating to the environment and public policy. But Kennedy says he doesn't want anybody to interpret his resignation as an admission of guilt or wrongdoing. He contends that Stanford is just the easiest, not the most worthy, target of federal investigators examining how institutions have gone about recovering the costs incurred in conducting federally funded research. "We were the first penguin off the ice floe, and we didn't find it fun," he said at a news conference the day after his resignation was announced. "I have to tell you that I have yet seen no significant difference in the pattern of cost accounting here than has been seen here." Whether or not that is the case, those procedures have begun to change. In May, OMB declared that such charges as flowers for the president's home, luxury travel accommodations, and other items not directly related to the support of research would no longer be allowable. Members of Congress introduced bills to accomplish the same end. OMB launched a preemptive strike against congressional action. On June 27 it published in the Federal Register a proposal that would cap the administrative portion of total indirect cost reimbursement at 26 percent and would create a separate facilities fund to make sure that institutions spent sufficient sums on repairs and renovations of their physical plants. It put the proposal on the regulatory fast track, giving institutions barely a month to comment and declaring that the new rules, once adopted, would go into effect October 1. Despite facing such a tight deadline, institutions responded en masse and in detail to the two-page description of the proposed revisions to what is known as Circular A-21, the cost-accounting principles for educational institutions. Overwhelmingly, they criticized the changes on three grounds: The cap was arbitrary and a breach of the long-standing federal policy of reimbursing institutions for the full cost of doing research; the facilities fund was unnecessary, hard to implement, and possibly counterproductive in encouraging universities to spend adequate sums on repairs and renovations; and the timetable for implementing the new rules was too short and ignored existing agreements between institutions and federal agencies. Several universities complained about the financial burden it would place on them, warning that the loss of millions of dollars would force them to cut back on research and jeopardize existing jobs. "I understand at my own university the proposed cut would reduce income next year by about $4 million," wrote M. Granger Morgan, head of the department of engineering and public policy at Carnegie Mellon University, in his response to the proposed regulations. "In anticipation of a possible sudden cut, our president has rescinded recently announced salary increases and instituted what amounts to a university-wide freeze on faculty salaries. Many department heads are concerned about losing first-rate people." Cornell University's controller, John Ostrum, also was concerned about the effect of the proposal on the educational consumer. "Any failure of the federal government to fund research in full imposes a penalty upon the other aspects of the institution's not-for-profit educational purposes," he wrote. "In practice, the major revenue source that can be adjusted on a discretionary basis is tuition." Only a handful of the approximately 150 respondees saw much merit in OMB's proposed revisions. Most of the responses came from professional societies, whose scientists expressed hope that the changes might yield a few extra dollars for investigator-initiated research. "We support the proposed limitation of 26 percent . . . although we urge OMB to monitor the situation carefully," wrote Howard Schachman, chairman of the Public Affairs Committee of the American Society for Biochemistry and Molecular Biology. But even some supporters of the changes conceded that OMB's actions were driven more by short-term politics than by the need to address the underlying question of how best to sustain academic research. "We accept the 26 percent cap as an interim measure," wrote Marc Kirschner, president of the American Society for Cell Biology. "We recognize the need for such interim actions to contain administrative costs and to restore public confidence in the management of biomedical research and the institutions in which it is conducted." This summer, the House voted for a cap on administrative overhead costs as part of separate bills that authorize programs at the National Science Foundation and the National Institutes of Health. However, opposition to other, unrelated parts of each bill make it unlikely that the bills will become law, according to political observers. In recent weeks, moreover, several influential members of Congress have apparently taken to heart the complaints of university administrators that OMB is moving too quickly. In a letter to OMB director Richard Darman from the entire Michigan delegation, which includes Rep. Dingell, members note that "there are honest differences of opinion within our delegation as to the timing and necessity of caps on administrative costs. . . . We all agree, however, that placing an immediate and inflexible cap on indirect costs for agreements currently in effect could cause undue hardship for a number of research universities around the country." Rep. Edward Roybal (D-Calif.), dean of the California delegation and a staunch supporter of biomedical research, wrote, in a letter to Darman, that a cap was "premature" given the investigations by various government agencies. He also noted that the creation of a facilities fund would force some universities to spend money that they didn't necessarily have. "The University of California is required to return over half of the net overhead recovered to the state," he wrote in conjunction with a response from UC chancellor David Gardner. "This is true of many state-supported research universities. Therefore, this requirement would create a conflict between the university and the state." Roybal also noted that investigations to date of the various UC campuses had found "no material misallocations of charges to the federal government" and, thus, that the entire research community was being punished for the errors of a few institutions. That theme of injustice is being repeated often by university administrators--Maryland's Langenberg wrote OMB that the office's solution "is akin to throwing a bomb into a crowd in the hope of picking off any miscreants in the room"--and the idea is echoed in the reaction of colleagues to Kennedy's resignation. "There's an overreaction here," says Charles Hosler, acting provost and dean of the graduate school at Pennsylvania State University. "There was a lot of flexibility in A-21, and a few folks at Stanford pushed it to the limit. But it's a shame that a man of Kennedy's quality would be so affected by the actions of people several layers under him. "If I had been advising him, I would have told him: `You've stuck it out this long. Stay with it. This, too, shall pass.'"

Kennedy Resigns As Indirect Costs Controversy Mounts

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