 |
|
 |
|
|
|
 |
|
| From the issue dated August 5, 2005 |
The Ghosts of Stanford
Have federal constraints on reimbursing overhead for research grants gone too far?
|
|
| |||||||||||||
Fifteen years have passed since Stanford University made headlines for charging pricey items -- including an antique commode and depreciation on a yacht -- to federal research grants under the rubric of "administrative overhead." The scandal led Congress to investigate whether other colleges were stuffing that accounting category with unreasonable charges. In 1991 the government cracked down, imposing a cap on such payments.
Stanford settled with the U.S. Navy a few years later for a total of $3.4-million, far less than the $185-million that the university was originally accused of overbilling. Since then no college has faced allegations of overbilling the government that are as colorful or as extensive.
Nevertheless, colleges still feel the pinch. Campus officials say the cap on administrative payments that persists from that era is an increasingly unjustified burden. The costs of complying with new and expanded federal regulations governing certain areas of research -- such as human-subject studies and laboratory work with microbes that could be used for bioterrorism -- are defined as administrative and are typically counted as overhead, not research costs. As a result, expenses at many colleges exceed the cap, forcing them to cover those costs out of their own pockets.
Research universities are losing about $2-million annually, on average, that they should otherwise have been able to collect for these "compliance" costs, according to a study of 25 representative institutions by the Council on Governmental Relations, an association of research universities. And each is losing an additional $5-million, on average, because of other limitations on reimbursements.
"What I see is just more unfunded mandates coming down the line," says Arthur I. Bienenstock, vice provost and dean of research and graduate policy at Stanford.
To be sure, the unreimbursed costs represent only a fraction of the overall research spending at large universities. But, officials argue, they eat into institutional funds that colleges might otherwise use to finance additional research or subsidize tuition.
There is little appetite among either federal agencies or faculty members for increasing the reimbursement rates. Both parties want to maximize the amount of each grant that goes directly to research work. And pressure may grow on colleges to assume even more overhead costs, because total federal support for research has leveled off, while the demand for grants is stronger than ever. Indeed, colleges sometimes accept less than they are formally entitled to for overhead costs, just to get the grants.
"We have to change the rules or think of some new way to approach the partnership" between colleges and the government, says Michael Amey, associate dean for research administration at the Johns Hopkins University School of Medicine.
Arcane Accounting Rules
Even experienced research administrators concede that overhead rates are an arcane area of financing that can be difficult to understand. An overhead rate of 52 percent, for example, means that for every research dollar that a college receives for direct costs, it can charge the government as much as 52 cents for overhead costs associated with that research.
Each college negotiates a rate with the government that determines how much money from each grant goes to help pay overhead costs -- the electric bill, photocopying, accounting. A complex set of rules determines the kinds of expenses for which colleges may seek reimbursement. (Alcohol for social functions is a no-no, as is lobbying.) The portion of the rate that pays for administration is limited by the cap of 26 cents on the dollar.
The downward pressure on reimbursements is reflected in a review of current overhead rates by The Chronicle. The average rate at the top 100 research institutions in 2005 was 51.8 percent, representing only a tiny increase over the 1997 average. Those institutions received the most federal research funds for the 2003 fiscal year, the most recent for which the National Science Foundation provided data. Some of the growth in the average rate occurred because it included a component for facilities, such as laboratory buildings and utilities, which is not capped.
The average for private institutions actually declined several percentage points during that period, to just over 57 percent. Historically, private colleges have had higher rates than public colleges because state legislatures help to underwrite the costs of research buildings at public colleges, relieving some pressure on them to seek high overhead rates.
The cap on administrative expenses is only one of several factors that limit colleges' abilities to bill the government for overhead costs.
Another constraint is that some agencies, as a matter of policy, require colleges to accept less than the total overhead rate for certain kinds of grants. Agriculture Department grants, for example, provide overhead of just 20 percent of direct costs for competitively awarded grants. National Institutes of Health grants for career development of young scientists are capped at 8 percent of direct costs.
In other cases, colleges are complicit in the underpayment. To make their grant applications more competitive, they agree during the merit-review process to take less than the negotiated rate. "Almost every day I get an e-mail from someone who's gotten an award from a federal agency" that proposed paying less, says Anthony P. DeCrappeo, vice president at the Council on Governmental Relations. "It happens more now when budgets get tight."
Colleges Cover the Shortfalls
Those underpayments can add up: In 2000, the RAND Corporation estimated that they amounted to between $700-million and $1.5-billion annually for all academic institutions receiving federal funds. That shortfall was as much as one-third of the amount that the institutions would have recovered had they been fully reimbursed, the report found. The shortfall represented a significant chunk of the $5.9-billion of their own money that colleges reported spending on research that year.
What's more, the estimate did not include the effect of the 26-percent cap on administrative costs. Almost all of the top 100 research institutions have administrative costs beyond those reimbursed under the cap, according to the Council on Governmental Relations.
The council estimated in a 2003 report that the top 100 research institutions would spend on average $200-million annually for the increased costs of complying with new federal regulations from 2000 to 2005.
Shortfalls in reimbursements are occurring even as colleges' total receipt of federal research funds has risen, spurred by the doubling of the National Institutes of Health budget from 1998 to 2003. While that increase lifted reimbursements for overhead costs, at some colleges those increases were outpaced by higher costs for research oversight, the council found.
For example, the cap left the Johns Hopkins University with $8-million in unreimbursed compliance costs in 2000. The total value of its federal research grants expanded by almost 26 percent over the next two years, bringing in an additional $17-million in overhead reimbursement. However, compliance costs increased by $19-million over the same period.
Besides oversight tasks like protecting human subjects, colleges have had to more closely monitor the security of their research since the terrorist attacks of September 11, 2001. The following year Congress approved new rules for the monitoring of "select agents," or illness-causing pathogens, that some academic researchers study to develop countermeasures against bioterrorism and naturally occurring disease.
Colleges have also had to shepherd visa applications for foreign students working on federally financed research projects. And now campus officials face new rules barring foreign researchers from working on sensitive technology in American laboratories unless they receive permission from the federal government.
Unpalatable Trade-Offs
Although college officials worry about the shortfalls in overhead reimbursement, they sometimes struggle to describe the resulting impact on their campuses -- which may be one reason that the issue of unreimbursed costs generates lots of talk but little progress. Mr. Bienenstock, the Stanford vice provost, says that when colleges have to cover those costs themselves, they are left with less money to start new research projects, including interdisciplinary or emerging fields of research not adequately supported by federal agencies. But he and other officials are hardpressed to cite examples of research programs not started, or outstanding faculty members not hired, because of the reimbursement shortfalls.
Mr. Bienenstock and others also suggest that the unreimbursed costs are to blame for rapid increases in undergraduate tuition. Any such effect from the under-reimbursement of overhead appears to be small, however, says Ronald G. Ehrenberg, director of the Cornell Higher Education Research Institute.
Mr. Ehrenberg and his colleagues found that a sample of 228 colleges they studied had tripled the amount of money they spent per faculty member on research from 1978 to 1999. Some of that money, which came from the institutions' own coffers, was spent to cover unreimbursed overhead costs, although the increase also reflected the growing number of institutions conducting more research with the goal of increasing their prestige or generating economic development.
The Cornell researchers found, however, that had those research funds not been spent, tuition at private research universities would have been at most $500, or 3 percent, lower in 1999 than the actual average of $17,450. And he found no statistically significant impact on tuition at public colleges.
One explanation is that tuition is not the only source of revenue for college research; endowment and gift income are others.
Even so, Mr. Ehrenberg says in an interview, the unreimbursed costs of overhead are helping "to ratchet up the whole cost structure of universities."
Nevertheless, college administrators have an uphill battle to persuade the government to make any change.
An increase in overhead reimbursement rates would sap federal funds for research itself, making the idea unpopular not only among officials of federal agencies who manage research grants, but also within colleges' own ranks, among faculty members.
"Many of our faculty see indirect costs and how these costs are used as a black box," says Robert S. Decker, a professor of medicine and of cell and molecular biology at Northwestern University. "It's very difficult for a faculty member to identify what role these costs actually play in helping him conduct his research."
The White House Office of Management and Budget, which sets federal policy on cost reimbursement, declined to comment for this article. But the office is seen as squarely opposed to changing policy on overhead reimbursement if doing so would have the net effect of increasing federal research spending. That is especially true now that Congress and the Bush administration have emphasized other fiscal priorities, like the war in Iraq and maintaining tax cuts.
A change in policy on overhead costs might entail its own set of unpalatable trade-offs. To improve overhead reimbursement while maintaining current spending levels for the direct costs of research, the government could cut the number of research grants it makes. But scientists want more grants, not fewer. Research-grant applications to the National Science Foundation grew from about 20,000 in 1999 to more than 30,000 in 2004.
Not Making Waves
Even if federal spending on research goes up, the limits on overhead reimbursement may remain. When the government was pumping more money into academic research during the doubling of the NIH budget, federal officials did not try to tackle the issue of unreimbursed overhead.
Nor has there been new discussion of these costs since the White House Office of Science and Technology Policy asked colleges in 2003 for comments about how to improve federal policies on research management. Two dozen institutions submitted letters, many of which suggested lifting the 26-percent cap on administrative costs as a key priority. But the office says that issue is not currently on its agenda.
As much as college administrators dislike the status quo, they also worry that pestering the government for change may backfire.
"You open yourself up, whenever you raise this issue, to both positive and negative outcomes," says Anthony M. Boccanfuso, director of sponsored programs and research at the University of South Carolina at Columbia. Fifteen years after the Stanford scandal, some Congressional staff members still remember that episode and view overhead costs with suspicion, he says.
"Even though these numbers are defensible," he says, "what's to say [the cap on administrative costs] won't go to 20 percent, or there won't be a cap on facilities costs?" Sometimes, college lobbyists suspect, it is better to leave well enough alone.
|
An overhead rate of 52 percent means that for every dollar that a university receives for the direct costs of a research project, it can charge the federal government as much as 52 cents more for the overhead costs associated with that research. Thus, such a rate does not mean that 52 percent of every federal research dollar goes to overhead. The overhead rate includes two components: one for administrative costs, which is capped at 26 cents on the dollar, and one for facilities costs, like laboratory buildings and utilities, which is uncapped. Those components are also known as "facilities and administration rates" and "indirect costs." The rationale for calculating those expenses as a separate category is that it would be difficult for colleges to apportion those types of costs to the direct expenses of individual research projects. For example, crews would have to install a meter in each laboratory to measure its electricity consumption. |
|
OVERHEAD RATES FOR FEDERAL RESEARCH GRANTS: A STEADY STATE While research costs have climbed in the last 15 years, 100 academic institutions receiving the most federal money for research have seen little change in the "overhead rate," the portion of a grant that helps reimburse colleges for costs of facilities and administration.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
http://chronicle.com
Section: Government & Politics
Volume 51, Issue 48, Page A16