In response to state budget cuts for higher education and new laws regulating the selling of academic patents, universities since 1980 have increased their spending on research. Although many people believe that research brings extra revenue to these institutions, a recent study reveals how research activities rarely cover their true costs. In “Understandingthe high Cost of Success in University Research,"Karen Holbrook and Paul Sanberg show how in the case of two university systems, “the findings demonstrated that 40 cents was spent from university funds for each one dollar of external funding received.” If we apply this same math to the University of California’s research budget of $5.2 billion, we can assume that UC had to find an additional $2 billion from other sources to make up for the additional costs.
One of the main reasons why research grants rarely cover their full costs is that the federal government only allows 26% of the indirect costs to go to administration, but this amount rarely covers the full administrative cost: “In 1991, the administrative component of the F&A rate was capped at 26% for universities only. Now, more than 20 years later, the 26% remains as a cap even though virtually every research university can easily document the real cost of administration at a significantly higher level.” As we know from the UC system, over the last thirty years the salaries and number of administrators has grown significantly.
Another reason why grants do not pay for their own activities is that universities, like the UC system, tend to receive much of their funding from sources that do not pay even the average federal rate of 52%: “A significant consequence of accepting a large number of awards with low F&A rates of reimbursement is that the effective F&A rate for universities is nowhere close to their federally negotiated rate. The effective rate for top research universities nationally is in the range of 20–25% of awards.” In fact, in a study of UC research, it was found that state and corporate grants bring the average UC indirect cost recovery rate to 26%.
Research also loses money because of the need for new technology and increased regulation: “the costs continue to escalate with more federal and state mandates for compliance with new regulations and with the general rising costs of facilities and equipment, personnel support, and the need to turn over high-tech equipment that is rapidly outdated.” Due to the arcane nature of university budgeting, these escalating costs are rarely acknowledged.
Another related issue is the question of what is considered to be the direct costs versus the indirect costs of a grant: “many of the activities that are necessary to support research (such as administrative and clerical support, computers, postage, subscriptions, telephone service, and office supplies), once covered among the direct costs of a research grant budget, can no longer be considered direct charges and must be paid for by the overhead dollars (indirect costs) that accompany a grant award or by some institutional source.” Thus, as the definition of what can be called a direct cost changed, universities were forced to spend more of their money on indirect costs, but these indirect charges were unable to keep up with the real costs.
Meanwhile, as states cut their funding for higher education, money that was formely used to support research has disappeared: “A survey conducted by the Association of Public and Land-grant Universities (APLU) (5) revealed that reduced state appropriations impact several areas of the research enterprise: loss of faculty and staff, diminished ability to maintain campus infrastructure, limited support for graduate students, reduced support for public/private partnerships, and cuts in externally supported research, as well as ongoing research projects.” In a perverse feedback loop, the more states cut their funding for research, the more universities look for funding from outside sources, which results in the research mission losing even more money.
The conclusion from this study should not be that we abandon the research mission of research universities, but we need to find ways of paying for it, and non-transparent budgeting does not help the process. Some possible solutions are to negotiate a much better indirect cost recovery rate for all grants. Another needed reform is to reduce the number of highly paid administrators attached to the research mission.