University Overhead Under SiegeMarch 22nd, 2013
There was a fascinating article in The Boston Globe this week on an attempt by the Obama administration to curtail the high rates of research funding doled out to elite universities as overhead. Overhead, formally called “indirect costs”, is typically awarded as a percentage of the funding for a research grant. The purpose of indirect costs is to compensate the institution for expenses that are difficult to ascribe to any single project—e.g., the cost of electricity, water, administration, maintenance, building/instrument depreciation, and more. Each institution negotiates its overhead rate (as a percentage) with the government, and some of the most prestigious universities have huge rates. For instance, Harvard has a rate that stands at 69%, while the national average is 52%. These funds simply enter the universities’ general budgets; once awarded, there is no requirement that they go towards funding expenses associated with research.
Last year, the Obama administration attempted to curtail high overhead rates by setting a single rate for all universities, but the largest schools were successful in protecting their lions’ share by lobbying against the proposed changes. From the article:
Demands for a fairer system have been issued for years, the inequities cited in numerous reports. Vedder and other critics contend the varying overhead reimbursement rates contribute to a widening gap between rich and poor schools. And smaller, less prestigious schools around the country are tired of being shortchanged, particularly when the prime beneficiaries are extremely wealthy schools like Harvard, which has a $30.7 billion endowment.
Bin Guo, a cancer researcher at North Dakota State University who wrote to the government in support of an overhaul, said he supports a flat rate set between 40 and 50 percent. North Dakota State receives a 44.5 percent overhead rate.
“This will eliminate the waste of federal funds at many large institutions that spend the indirect cost on nonresearch-related programs,” Guo said. “If the NIH can save this extra money, they can support more research grants.”
Harvard received $656 million last year in federal research funding, and about $175 million of that was overhead compensation. Harvard maintains that its rate is high because the type of research that is done there requires high-tech facilities and equipment, in addition to being located in a region with high labor and construction costs.
It was interesting to learn that after World War II, when the U.S. government started funding university research in earnest, the rate for overhead was 8%. It rose to 20% by 1965, when the government started allowing individual institutions to negotiate their own rates. Some schools’ rates rose past 90% before coming back down when government audits revealed inappropriate spending (like on sports tickets).
It certainly makes sense for the government to pay indirect costs, but I don’t see a good reason why a school like Harvard should get much more than another school in the same geographic area. Harvard will already secure more in indirect costs by virtue of their professors’ winning more grants. Of course, the main reason for Harvard’s sky-high rate is probably that the school paid for a better team of negotiators and budget planners. It’s another example of the rich getting richer.
When I transitioned from college (at NYU) to grad school (at Harvard), I was amazed at how much more administration there was at my new school. At Harvard, every professor had an administrative assistant (some had more than one), while at NYU, such assistants were rare. At Harvard, the department’s mail room was staffed by two people (not counting the guys in shipping). Harvard’s financial office had an army of people, and each major instrument facility (NMR, MS, X-Ray) had a dedicated staff member. At NYU, these staffers serviced multiple instruments. I was also amazed that professors at Harvard only had to teach one course per year, and when doing so, could lean heavily on an army of teaching assistants. In hindsight, one wonders how much of this excess (relative to smaller R1 schools) is necessary or worthwhile.