A Message from VCR Pramod Khargonekar on proposed cuts to NIH funding of University indirect costs

This letter has been adapted from a letter created by the AAU

July 12, 2017

Dear Colleagues,

I write today to bring you up to date about a disturbing proposal that is being discussed in Washington that could have serious repercussions for federal agencies with which we partner to conduct research vital to the wellbeing of our citizens and our nation, and for our ability to conduct research.

Recent discussions within the White House Office of Management and Budget (OMB) and the U.S. Department of Health and Human Services (HHS) have suggested that the federal science budget could be dramatically reduced by slashing facilities and administrative (F&A) cost reimbursements to universities. This proposal—which some in Congress may endorse—should concern all of us.

There is much at risk if the federal government drastically reduces F&A reimbursement to universities without any meaningful reduction in regulations and administrative compliance costs. Currently, our F&A reimbursement for the investments we have already made in laboratories, physical, and administrative infrastructure totals about $48 million annually. If these funds are not forthcoming from the federal government, we have few alternatives. It is not feasible to increase tuition or to use restricted purpose endowment funds to cover these costs. A reduction in UCI’s federal F&A reimbursement would negatively affect cost sharing, graduate student tuition subsidies, lab renovations, faculty salaries, startup packages, benefits, and beyond. Almost every aspect of how our university supports research would be seriously limited. Difficult choices would have to be made about whether it is feasible to accept federal funding for certain research areas or at all.

Federal research funding for universities includes two major components. First, grants or contracts to universities award direct costs that can be attributed to individual projects. These would include items like salary support, research staff and students, supplies, equipment, travel, and publication costs.

The other component of a grant or contract is the facilities and administrative cost rate (F&A or “indirect” costs). These costs cannot be assigned to a single project because they are items like laboratory space, heat, lights, IT infrastructure, animal care facilities, hazardous waste disposal, power, insurance, and the support staff required to ensure compliance with a myriad of federal and state regulations (e.g., human subjects protections, export controls, conflict of interest). In negotiating its F&A rates with the federal government, the University includes only those resources actually used to support the conduct of research. Independent analyses have demonstrated repeatedly that the federal government only partially reimburses universities for these expenses, many of which have been invested prior to the awarding of a grant. Therefore, these are actual costs that would not be incurred if UCI were not a research-intensive institution.

Faculty colleagues often have questions about how the F&A rate is calculated and who does the negotiation. UCI’s current F&A rate is 54.5%. The rate is set through a comprehensive process guided by strict OMB rules, calculated on the basis of the university’s actual F&A expenditures based on prior years and apportioned to research, instruction, or other activities. After our actual rate is determined through this process, it is then reviewed and analyzed by staff from the U.S. Department of Health and Human Services (DHHS).  During the DHHS review process, their staff negotiate with University representatives, which leads to a final F&A rate approved by the DHHS.  Because the negotiated rate (54.5%) is lower than UCI’s actual calculated rate (currently 63%), the University subsidizes a portion of its research enterprise infrastructure costs.  After the F&A rate is set, the federal government annually audits compliance with the rate, as well as the OMB and funding agencies’ rules regarding F&A reimbursements. Importantly, certain direct cost items (such as tuition remission, equipment, major renovations or repairs) are excluded from the base used to determine the final F&A reimbursement.

It is also very important to understand that our university is already subsidizing the F&A costs that federal research grants incur. This is due to two factors. The first is that since 1991, the federal government has imposed a 26 percentage point cap on the total F&A rate for administrative costs. At the same time, the cumulative number of regulatory changes relating to research with which universities must comply has dramatically increased. Ensuring compliance with these additional regulations, whether associated with animal care, export controls, human subject protections, effort reporting, conflict of interest, scientific fraud, and misconduct investigations requires that UCI employ administrative staff to fulfill its obligations. The independent General Accounting Office (GAO) has estimated that universities like ours are already contributing about 25% of total dollars in support of faculty led research projects.

Another question faculty often ask is why we accept funding from foundations that do not pay the federal F&A rate. There are several explanations. For some foundations, what would normally be considered an F&A expense may be charged as a direct cost since foundations are not required to use federal rules. In other instances, university funds are used to cover these costs. Finally, total funding from private foundations amounts to about 5-6% of research volume so that universities may be able to absorb these costs. Federal funds, however, account for about 57% percent of our university funding.

It is necessary to do all we can to protect and sustain the phenomenally successful 70-year university–federal government partnership for American science. While my peer Senior Research Officers, AAU, APLU, and I have been working diligently to educate all the relevant sectors about the importance of sustaining the partnership through robust funding of research and F&A reimbursement, we welcome your support and help. It can be especially helpful for individual faculty members to understand the threat to the research enterprise and to speak out to others (particularly to elected officials and those in industry) to encourage their support.



Pramod P. Khargonekar, Ph.D.
Vice Chancellor for Research