By Aryeh Weinberg, August 2007, The Institute for Jewish & Community Research
Even as the fight for reform in higher education heats up and calls continue for oversight over federal money for higher education, the academy remains opposed to the most basic expectations of the non-profit world.
Recently, the Defense Department put forward a proposal requiring that grants made to higher education not exceed 20% in overhead costs. The presidents of the Association of American Universities, National Association of State Universities and Land-Grant Colleges and Council on Governmental Relations issued a joint statement criticizing the requirement and threatening not to adhere to it. Until now, universities have basically been given free reign to exceed their grant, piling on fixed costs that they then simply forward to the federal government. Overhead of 33%, 50%, and 70% are common.
In the rest of the non-profit world, even the 20% overhead allowed by the Defense Department is generally considered too high. Moreover, whatever guidelines a donor sets for a grant are not up for negotiation. One simply chooses whether to apply for a specific grant or not. Colleges and universities retain the multi-hundred dollar toilet seat mentality that government is itself trying to shed.
Only within the fiefdom of higher education do none of the common rules apply. In higher education, it seems, recipients set terms of grants and donors must meet the guidelines of an acceptable gift. This must change. Only when universities begin to understand that their funding is tied to product and that they are answerable to their funders, public and private, will true reform take place.
House Approves Defense-Spending Measure That Would Lower Overhead Reimbursements on Grants
By Jeffrey Brainard, August 6, 2007, The Chronicle of Higher Education
The U.S. House of Representatives approved a bill early Sunday to finance defense research in 2008. The measure included a provision, strongly opposed by universities that would reduce Pentagon reimbursements for overhead costs on basic-research grants.
The House held the unusual weekend vote as it wrapped up work before recessing until early September. The measure (H.R. 3222) passed 395 to 13. The Senate has yet to write its version of the bill.
University officials remained mystified last week about why the language had appeared in the bill when it was unveiled earlier in July. Observers wondered, however, whether the move reflected a long-standing gripe about research universities by Rep. John P. Murtha, a powerful Pennsylvania Democrat who leads the subcommittee that wrote the appropriations bill. During a previous confrontation on overhead costs, Mr. Murtha proposed a sharp reduction but then backed down.
The disputed provision would lower to 20 percent the overhead, or "indirect cost," rate on Pentagon research grants -- a sharp decline from current rates, which for many universities range from 40 percent to 60 percent. An overhead rate of 50 percent means that for every dollar that a university receives for the direct costs of a research project, it can charge the federal government only an additional 50 cents for overhead.
Those reimbursements cover support costs associated with research, including laboratory buildings, administrative help, and utility bills (The Chronicle, July 27).
But universities have long argued that existing overhead rates for all federal research grants were too low to recover the full amount of the costs and that such rates cost each institution millions of dollars annually (The
Chronicle, August 5, 2005). Since 1991 the federal government has capped the indirect-cost rate for administrative expenses at 26 percent while increasing regulations of university research -- for protecting human subjects, for example. (The 26-percent cap is included within the overall indirect-cost rate.)
The Chronicle sought comment last week from a spokesman for Representative Murtha and a spokeswoman for the House Appropriations Committee about the proposed 20-percent cap on Pentagon grants, but received no response.
Piqued at Universities
A 13-year-old dustup might offer some explanation. In 1994, Representative Murtha held the same chairmanship of the House Defense-appropriations subcommittee that he holds today. (He lost that job when Republicans won control of the House in 1994, but he regained the position when Democrats won the majority last fall.)
Thirteen years ago, the congressman proposed cutting by at least $800-million Pentagon spending for university research, more than half of such spending overall (The Chronicle, June 29, 1994). Mr. Murtha was reportedly angry at universities because he thought they had not expressed their appreciation for his past support of academic research. Mr. Murtha also reportedly thought that universities had not voiced adequate public support for Congressional earmarks. Those set-asides for specific constituents, including colleges, were under fire then as wasteful spending, and the criticism continues. Mr. Murtha has strongly defended the practice. He was also said to have told a colleague he needed to respond to reports of research misconduct by university scientists.
The final version of the defense-appropriations bill for 1995 -- which represented a compromise between the House and the Senate, and which Representative Murtha helped write -- did not include the $800- million cut that he originally proposed.
The episode suggests that Mr. Murtha was willing to take a strong position at the subcommittee level in order to make a point and to get people's attention, said Daniel R. Pearson, a staff aide for the House Committee on Science and Technology. Mr. Murtha is probably doing the same thing again, Mr. Pearson said. (In 1994, Mr. Pearson was an aide to the committee's chair at the time, Rep. George E. Brown Jr., a California Democrat who strongly criticized earmarks for research.)
Representative Murtha's subcommittee proposed no such large cut in the 2008 version of the Pentagon spending bill: Basic-research dollars, most of which flow to universities, would total $1.55-billion, a reduction of less than 1 percent compared to this year.
In a report about the bill, the House Appropriations Committee offered only a few sentences explaining the 20-percent cap. The panel said it had learned, through testimony and information from the Defense Department and "third-party groups," that the percentage of research-grant money allocated to overhead costs had "grown to unwarranted levels."
Who Shoulders the Costs
That assertion surprised higher-education officials because the overhead rates have actually declined slightly in recent years. (Although the rate has declined, universities have collected higher indirect-cost reimbursements because the total research base has grown.)
The Council on Governmental Relations, a Washington-based advocacy group for research universities, surveyed its members in 2001 and found their average overhead rate was 51.5 percent. A 2006 survey discovered that the average had declined slightly, to 51.2 percent. (Every three years, each university that receives federal grants negotiates with the government a single, indirect-cost rate, which is based on the institution's actual, recent overhead costs. Most federal agencies then apply the rate to all of the research grants they issue to that institution.)
"There's certainly no indication that costs are growing out of control, or that there are any abuses," said Anthony P. DeCrappeo, the group's president.
What is more, Mr. DeCrappeo and other higher-education officials said they had been unable to identify any Congressional hearings that had explored overhead reimbursements on Pentagon grants.
And Robert J. Trew, who was the Pentagon's director of research from 1997 to 2001, said overhead reimbursement "really wasn't a serious issue" while he held that job. The topic hasn't come up in his conversations with department managers since he entered academe, said Mr. Trew, who now heads the department of electrical and computer engineering at North Carolina State University. "It's an accepted part of the cost of doing business," he said. Some federal agencies have already capped overhead rates for some types of research grants at levels far below the regular rates negotiated by universities. Research grants from the Department of Agriculture provide an overhead rate of only 19 percent. And grants provided by the National Institutes of Health to train biomedical researchers offer a rate of only 8 percent.
Officials at research universities have said those types of limits force them to cover overhead costs from the institutions' own funds, which in turn can take away money from student programs and lead to higher tuitions.
However, some research universities enjoy the largest endowments in academe, and critics of overhead reimbursements argue that those institutions could choose to devote a larger percentage of their endowment- interest income to cover such costs without much pain.
Among the 25 universities that received the most basic-research dollars from the Pentagon in 2005, 10 had endowments that ranked among the 25 largest endowments for universities in 2005-6, according to an analysis by The Chronicle. Four more institutions were campuses of the University of California system, whose endowment ranked eighth.
Together, those top 25 collected about half of all Pentagon dollars awarded for basic research that year. However, a total of 361 colleges and universities, some of them with small endowments to fall back on, received at least some grant money from the Defense Department.