Rising Indirect Costs Threaten Research

From Yale To Stanford, Universities Are Thoubled Shortfalls in overhead, depreciation, and other indirect costs can tear apart faculties and bring strong provosts to their knees. Indirect costs aren’t glamorous. They won’t solve the mystery of dinosaur extinction or find the charm in quarks. But whisper those two simple words in the ear of virtually any president or provost of a major research university, and you may see a strong person blanch. The reason: Indirect costs are rising, contributing to an existing shortfall of cash that threatens the very foundations of research. No one at a university "especially not scientists toiling in their labs, can escape these costs, which cover everything from maintenance and operations to depreciation and administration. The issue of who pays has torn apart researchers and their university administrators. It has led to strife among faculties, pitting scientists who cover their share against those who do not. It may skew the actual types of science that are done and put some universities at a competitive disadvantage in the battle for grants. The morass of indirect costs, Stanford president Donald Kennedy sighs, has taken more of his time than any other federal issue. "Indirect costs are like taxes," says Rick Biedenweg, vice presi- dent for information resources at Stanford, who has just completed a two-year study on the subject. "Nobody wants to pay them." But when the bills are not fully paid, dire things happen. Testifying in Senate hearings last month, for example, Yale president Benno Schmidt described three cases in which deteriorating equipment or leaky roofs destroyed important experiments or forced costly delays in research. Finding the money to cover maintenance and operation of research facilities, said Schmidt, "is a matter of tremendous concern not only to me but broadly among the presidents of institutions like Yale." The problem of meeting these indirect costs is quietly growing. Historically, the federal government subsidized construction of many college buildings in the 1950s and early 1960s. But between 1965 and 1984, federal funding for building laboratories, faculty offices, and other research and development facilities at colleges and universities dropped from more than $350 million to approximately $50 million per year (see chart, page 11). As this support declined, the burden shifted to universities, which naturally tried to make up the shortfall by charging everyone from federal agencies to foundations for depreciation on research facilities as part of the individual research grants. The amounts of money are not trivial. Depending on the university, indirect costs range from $32,000 to $99,000 for every $100,000 requested in direct funds for research. Nevertheless, getting funding agencies to ante up has been partly successful. At Stanford, for example, "indirect cost recovery, contributes no less than 35% of the unrestricted general funds in the university’s annual operating budget of more than $320 million. But universities say that this still falls far short of their expenses. "Insufficient recovery of indirect costs means that someone not the funding agency, is subsidizing the conduct of research," says Robert Rosenzweig, president of the Association of American Universities. Federal agencies simply don’t have the kind of money it takes. "Over the course of time, the NSF and other agencies have not received the kind of budgetary increases they needed to keep up with the quality of research or the cost of doing research," points out Stanford chemistry professor John Bramnan, a member of a faculty task force studying Biedenweg’s report. Yet miserly federal budgets aren’t entirely to blame; in many cases, universities intentionally don’t ask for everything they need. Stiff competition for federal funds provides a strong incentive to underestimate actual overhead when applying for grants. The pressure to under-report is especially strong at private universities. They must compete for grants with state universities, which typically charge lower rates for indirect costs (see chart, this page) because of government subsidies. Furthermore, says Vanderbilt University provost Charles Kiesler, the system really hits universities as opposed to private research, which enjoys full indirect cost reimbursement The inequity is especially unjustified, says MIT host John Deutch, since universities usually conduct research far more economically than national laboratories or industry. To make the whole situation worse, indirect research costs are rising. According to the Stanford study conducted by Biedenweg, the indirect cost rate (indirect expenses measured against such direct costs as salaries) has jumped 10 to 15 points at most major research universities over the last 10 years—representing as much as $10 million to $15 million in additional costs. At Stanford, the climb has been even more dramatic; 27 points—a 58% increase, since 1973. Another 13-point climb is expected over the next five years because of the construction of a new $250 million, 41-acre facility for science and engineering research. Stanford faculty fear that this may put them right out of the ball park when it comes to competing for research dollars with colleagues from universities with lower rates. For most universities the biggest chunk of the increase comes from expenses associated with laboratories and other facilities. According to Biedenweg’s study, for example, Stanford experienced a total real growth of 68% in operating, maintenance, and depreciation costs between 1978 and 1985. Rising energy costs and an aggressive building and renovation program (which dramatically increased depreciation) were the main culprits. The bottom line, of course, is that the same, amount of money buys less actual research than it ever did before. And the result at Stanford, and at many research universities caught in the bind, is a push-pull struggle between administration and faculty. His administration’s relentless desire for growth is a mistake, argues Stanford physicist Sebastian Doniach, because it just drives up indirect costs. "The university is shooting itself in the foot by not recognizing universities caught in the bind, is a push-pull struggle between administration and faculty. His administration’s relentless desire for growth is a mistake, argues Stanford physicist Sebastian Doniach, because it just drives up indirect costs. "The university is shooting itself in the foot by not recognizing the facts," he says. If the trend continues, adds another researcher, who requested anonymity, "we’re going to have this marvelous place and everybody’s going to be discouraged and drawn away." For faculty, he explains’ the rising indirect cost rate creates “a zero-sum game." Grant awards for his research have remained constant, he says, so that less and less money goes to actual work. "And that means you have to go out and get more awards, and we’re decreasingly successful the more of those we have to get," he says. Such conflicts between faculty and administration are inevitable. "The institutions quite rightly are trying to recover costs of research and the faculty members quite rightly are trying to do research," says Brauman. A related problem is that the burden falls unequally across the sciences. Basic research in chemistry, biology, and the social sciences, typically funded by small government grants, is especially feeling the squeeze, says Stanford economies professor Roger Noil, another member of the faculty task force. But "big science," physics, defense research, and computer science—can usually find plenty of funding, while its expensive facilities and equipment jack up the indirect costs for everyone’s research in the university community. "Society has decided that high-tech research is important," says Doniach. "So the university is effectively taking money from the people who have either constant dollars or decreasing dollars and using it to pay for the high-tech stuff. We’re objecting to the little guys are feeding the big guys." The mathematician who uses just paper, pencil, and a small office, for example, must charge NSF the same overhead, as a percentage of his grant, as does the high-energy physicist, whose sophisticated and expensive facilities cost a fortune to run. "The people who feel most done-in by the system are those who do not place very high demands on their university," says Noil. Solutions to these problems are elusive. A number of scientists have proposed that universities simply give up trying to recover all of their indirect costs. One effect may be to force efficiency onto these oft-times wasteful institutions. "Burgeoning administrative empires, should be curbed," suggests one researcher. The university’s, basic missions of research, scholarship, and teaching, suffer, he says, as the result of huge increases in administrative programs from which, as far as he can see, work like his fails to benefit. But universities, of course, would rather have more money. One recommendation of the Stanford task force is setting up a consortium of leading research universities to negotiate higher indirect cost rates with the government. Another idea, proposed by Senator Christopher Dodd (D-Conn), would earmark additional federal funds specifically for renovating and maintaining science facilities. But most observers say that the first approach has little chance of success, and the second provides too little money to really solve the problem. Says Rosenzweig, "The question doesn’t have any fully acceptable answer." Ray Spangenburg and Diane Moser are freelance science and technology writers in the San Francisco Bay area.

Rising Indirect Costs Threaten Research

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