Stanford Abuses Spur Action On Curtailing Indirect Costs

Revelations of the school's squandeing of funds have overwhelmed those who until now had managed to avert arbitrary caps WASHINGTON--The political fallout from Stanford University's questionable use of overhead charges for its federally funded research projects appears likely to achieve what a decade of pressure from the White House could not do: place a cap on how much universities can spend on the administrative portion of their indirect costs. Welcome news for scientists is that such a cap would, in theory, free up an estimated $100 million or more that the government could then plow into greater support for research. At the same time, the imposition of a cap would signal a serious defeat for lobbyists representing the research-intensive universities where many of those scientists work. Administrators at those universities have opposed past attempts to impose such a cap on the grounds that their institutions need full reimbursement of indirect costs to afford the laboratories, buildings, and support facilities required by today's research teams. Without such funds, they say, some universities could be forced to bow out of the federal research game. In the works is a proposed 26 percent cap on the administrative portion of indirect costs paid to universities as reimbursement for federally funded science being done by their faculty. Last month the Office of Management and Budget (OMB) announced it would propose revisions to federal rules governing indirect costs that contain provisions for such a cap. The same cap can be found in two bills moving through separate congressional committees that oversee the National Institutes of Health and the National Science Foundation, the government's two leading funding agencies for academic research. The 26 percent represents the average of what more than 200 institutions now receive from the federal government for administration. It excludes maintenance and depreciation of equipment and buildings essential to the conduct of research, which on average add another 25 percent to the total indirect cost rate. For observers with long memories, the 26 percent cap is familiar. OMB proposed it in 1986 as part of an unsuccessful effort to curb rising indirect costs. The budget agency justified the number by citing a report from the White House Science Council, whose vice chairman at the time was D. Allan Bromley, now President Bush's science adviser. The council listed it as one of several recommendations--most of which fell on deaf ears--to improve federal support for academic research. OMB's proposal inflamed university administrators, who complained that the idea broke the government's covenant with academia to reimburse schools for all legitimate costs of hosting research. Those costs cover such functions as supplying electricity and adequate libraries and providing the support staff and building the laboratories that scientists need to do their work. Without those funds, insist university administrators, their institutions could not afford to do the type of world-class research that undergirds the nation's scientific enterprise. "Under a cap, the government says to universities: `We will tally up your costs, but we're only going to give you this much,' " says Carol Scheman, head of government relations for the Association of American Universities (AAU). "It ignores all the factors that affect these costs, for instance, the amount of animal research that is done on that campus, or the amount of hazardous waste that must be stored or shipped. "I've been working on this issue for 12 years, and I can tell you that there are still a lot of people who have a hard time understanding the fact that research costs differ greatly from institution to institution." A massive lobbying effort, coordinated by the 58-member AAU, succeeded in burying the 1986 OMB proposal for a 26 percent cap. In fact, universities even emerged with a small victory--a favorable change in the system of reimbursement for the time that faculty spend on general administration. The change allowed universities to claim a flat 3.6 percent rate for the faculty component of administrative costs without having to maintain detailed records to justify the figure. Faculty rejoiced as well, because it meant an end to onerous logs recording time spent on a particular project. But that allowance was granted four years before Congress began hearing that yachts, antique commodes, and flowers for the president's house were included in a list of items that officials at Stanford and other universities claimed were allowable expenses in carrying out faculty research funded by the government. Uncovered by investigations begun last fall and continuing today, these and other abuses relating to parties, travel, and other nonresearch expenses have received prime-time TV coverage and generated front-page newspaper articles and a host of editorial cartoons. A Lost Battle The revelations appear to have overwhelmed all attempts by university administrators to assure Congress of the need for full reimbursement. The battle they had fought for so long seems lost. "What you're seeing is a good example of a high-powered lobbying group losing control of an issue," says one veteran administrator from the OMB. Referring to AAU and other organizations representing higher education, the official adds, "Those people get paid a lot to make sure this sort of thing doesn't happen. But this time they failed." In fact, many politicians contend that the university community has betrayed a public trust. And they're not happy with that situation. "A partnership is supposed to be a two-way street," says Tom Scully, associate director for health programs at the OMB. "But what we've seen is mostly one way, with universities trying to claim as much as they can get away with." Some lawmakers are turning their unhappiness into legislation, as what was once an arcane issue among accountants and auditors has mushroomed into a national debate about whether the government is getting its money's worth from the billions it spends each year on academic research. "The university community would like to have nothing change. They are comfortable with the present system," says Rep. Rick Boucher (D-Va.), chairman of the science subcommittee of the House Committee on Science, Space, and Technology. "But given the outright abuses that we have seen, things are going to change." Indeed, last month the full committee approved an authorization bill for NSF that includes an amendment from Boucher that would impose the same 26 percent cap on NSF grantees. A second committee, this one with jurisdiction over NIH, earlier this month approved a bipartisan amendment offered by Rep. William Dannemeyer (R-Calif.) and Rep. Henry Waxman (D-Calif.), the latter chairman of the health panel of the House Committee on Energy and Commerce. This amendment, in addition to the 26 percent cap, would allow NIH to rechannel refunds for inappropriate indirect costs charges into a pot that would support first-time grantees. In some ways, say those who have tracked the issue, the current debate recalls arguments first made during the Eisenhower administration and updated by those who served under Reagan. "I remember a proposal in the late '50s to set a fixed rate of 35 percent for all indirect costs," says Elmer Staats, a former U.S. controller general. "But the more we discussed it, the more it became clear that it wasn't possible to apply a flat rate without ignoring the obvious differences among institutions." Instead, in 1958 the government issued a document, called Circular A-21, that established the principles upon which universities could be reimbursed for all research costs. It originally imposed a ceiling of 15 percent, which was raised to 20 percent in 1963 and then removed in 1966 in favor of a system by which institutions collected their share of what were deemed to be allowable costs. But Staats and others agree that those past debates lacked what one OMB official calls "the Stanfordization" of the issue. "We never talked about any of the abuses we're hearing today," says Staats. A former career official at OMB, now working at a major research university, confirms that the tenor of the discussion has changed. "The debate in the mid-'80s was driven by the constraints of a tight budget and the desire to demonstrate cost savings," recalls this official. "There was never any talk of racheting down the rate because of any scandal." The disclosures at Stanford and here have changed the nature of that discourse. Now, at the same time politicians express support for academic research, they also talk about the need to make sure that government funds are spent properly, and to keep a closer eye on how universities maintain their accounting records. The amendment proposed by Dannemeyer and Waxman, for example, would require a university president to certify that the school's indirect costs charges are legitimate. It also would require NIH to swear that any new building for which indirect costs are sought is essential for the conduct of biomedical research. Likewise, the Boucher amendment would require universities to earmark whatever money they receive for depreciation or use of facilities and equipment only for those purposes. In addition, both the NIH amendment and the OMB-proposed rules would require the university to give the government its "best deal," meaning that institutions could not accept a lesser rate of reimbursement for research paid for by a private foundation or company. A Fragmented Movement Given the range of proposals and the mix of heated responses they are eliciting, it is clear that the movement to reform the indirect costs structure is by no means cohesive. "We prefer the venue of OMB rather than a legislative solution," says AAU's Scheman. "And we're convinced that the number will have to change year by year, which would be much harder [to do] if it required new legislation." On the other hand, Boucher says he offered his amendment because of OMB's past failures. "OMB's approach to this issue has been characterized by inattention," he says. "It has not performed well, and I have no confidence that it will do a better job in the future." Mike Franc, an aide to Dannemeyer, says that the congressman is willing to revise his NIH amendment if OMB goes ahead with its 26 percent proposal, scheduled to be published this month in the Federal Register for public comment. "But they only touch on the cap portion," Franc says, "so we'd still want to move ahead with the other parts of the bill." As far as most government officials are concerned, the 26 percent rate is a maximum, not a minimum, figure. "It's not going up," asserts OMB's Scully. "If anything, it's likely to be going down in the years to come, once we get a better handle on exactly how this will affect research." Boucher agrees. "I haven't heard anything that suggests it needs to increase," he says. "In fact, if the Congress eventually agrees to a facilities program like the one that our committee has authorized, then indirect costs could be reduced significantly." Franc says that the congressman rejected a 20 percent rate because "the 26 percent rate, being a median, was easier to defend." But he adds that the current proposal "is the best deal that the universities are likely to get." The documented abuses at Stanford have served a positive function, say some observers, by focusing attention on an issue that has remained in the shadows for too long. The now-defunct White House Science Council noted more than five years ago that "the controversy over administrative costs is quite simply over which costs should be considered reasonable and necessary." While many university administrators say that the government has failed to spell out those costs, it's also true that the incidents of wrongdoing have given academic research a black eye. "We're not trying to save money," says Scully. "We want more money to go into research. But each year we put more money into NIH, and we keep getting fewer grants out. "The size of the grants keeps going up, fueled by rising indirect costs. It's clear that a lot of universities are gaming the system."

Stanford Abuses Spur Action On Curtailing Indirect Costs

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