Pity the universities: cash cows aren’t what they used to be. Alumni largesse is drying up in the recession. Parents are in revolt over rocketing tuition rises. The NCAA is pulling the plug on lucrative sports-TV contracts to punish schools for rules violations. Despite such setbacks, chief financial officers know there is still one sure way to close a budget gap: piggyback on the research scientists who get millions of dollars in government grants.
The beauty is that this is perfectly legal. Suppose Professor Enzyme figures that the annual costs of a few graduate students and bottle washers, some reagents and solvents, plane tickets to conferences and other assorted research needs come to about $1 million. But, his head in a cloud of diethyl-this and hexapenta-that, he doesn’t know what it costs the university to supply him with a library, janitors, electricity, mowed grass and all the other extras that make a university–and his lab-run. The treasurer’s office tells him. He then tacks onto every grant request a fixed percentage for “overhead.” The rate varies. Harvard Medical School asks the most-88 cents of overhead for every dollar in research money. And next year Harvard Med hopes to get 96 cents. Yale and Johns Hopkins universities ask for something just over 60 percent. The Massachusetts Institute of Technology charges 57.5 percent: that $1 million grant now costs the feds $1.575 million. The result is a windfall that can mean the difference between red ink and black. Fully two thirds of MIT’s total budget comes from federal research grants.
This lucrative practice ran into trouble last year when a new federal auditor questioned some of Stanford’s overhead items, such as flowers and a 19th-century Italian fruitwood commode for the president’s house. The school retracted a charge for depreciation on a 72 foot yacht, donated by an alumnus to the sailing club, citing an accounting error. It even gave back $600,000 for costs that were technically allowed. But the Office of Naval Research, which determines Stanford’s overhead rate, was not satisfied. Last week it rejected Stanford’s suggestion that its rate be raised from 74 percent to 78 and instead slashed it to 55.5 cents on the dollar. The permanent rate will be determined next year, but in the meantime the difference will cost Stanford $19 million.
Other schools are trying to head off a similar catastrophe. MIT announced last week that it would return $731,000 that it had “inappropriately” charged for “research costs” between 1986 and 1990. The bill included dinners, flowers ($13,600 worth), official trips (including a $1,535 jaunt to Barbados) and legal expenses for former professor David Baltimore, who got caught up in a case of scientific misconduct (NEWSWEEK, April 1). Earlier in April, Harvard Med said it would withdraw $500,000 from its request for reimbursement of indirect costs incurred in fiscal 1991; the school admits that it may not have been proper to charge the government $3,100 for a dean’s retirement party and $140,000 for upkeep on the president’s house and a dean’s office.
Both MIT and Harvard argue quite correctly that there are no other sources of money to maintain the scientific infrastructure and that the charges are not illegal. Just as taxpayers claim every deduction they’re legally entitled to, so schools charge everything they can to overhead. Yet “given the questions that have been raised, even some of the allowable charges no longer seem appropriate,” says John Shattuck, Harvard’s vice president for government relations.
Stanford president Donald Kennedy promises that “programs of instruction and research [will] not sustain serious damage” because of the overhead cut, even though the school already pared $25 million from its $700 million academic and operating budget. More cuts will be announced this week. Yet some researchers see overhead reform as a blessing. Although scientists bring in the lion’s share of indirect costs-historians don’t turn over royalties from their latest treatises even though they, too, benefit from libraries and mowed grass-they claim that they suffer for their rainmaking. Stanford engineering professor William Spicer says that when he submits a grant proposal, the funding agency determines a “fair price [for the research], based on the total cost including overhead. If overhead goes up, the amount they give you doesn’t.”
If Congress does not like the bills universities submit, it could change the rules. Under any system, Washington will continue to support research, for “universities have no capacity to subsidize research more than they already do,” says Robert Rosenzweig, president of the Association of American Universities. “If government sponsored research doesn’t pay its own way, it won’t be done.” The overhead question is different; Congress could create a separate account for universities to petition, along with all the other supplicants for federal aid. That would be more direct, but then again, it might jeopardize the one sector of American education that continues to be a success.
Criticism about universities’ indirect research costs has prompted some to withdraw bills or return money to the government.
Withdrew $925,000 in costs charged to the government over 10 years. Had typically added 70 cents for overhead per $1 of research costs. The feds slashed that to 55.5 percent.
Withdrew $500,000 in bills submitted over the last four years. Its overhead rate of 58 percent is one of the lowest among top schools.
Knocked $731,000 off its bill for overhead costs incurred between 1986 and 1990, a figure expected to rise. Low overhead: 57.5 percent.
Withdrew $500,000 from its 1991 request for indirect costs. Wants overhead rate, now 88 percent, to increase to 96 percent.
