House Committee on Science, Space, &Technology hearing: examining the overhead cost of research

 

This week, the U.S. House Science, Space, & Technology subcommittee on research and technology held a hearing on the overhead cost of research being funded by agencies, including the National Science Foundation and National Institutes of Health.

Witnesses included:

  • Dale Bell, division director of institution and award support at NSF;
  • John Neumann, director of natural resources and environment at the U.S. Government Accountability Office;
  • James Luther, associate vice president of finance and compliance officer at Duke University and chairman of the board at the Council on Governmental Relations; and
  • Richard Vedder, distinguished professor of economics at Ohio University and director of the center for College Affordability and Productivity.

U.S. Rep. Barbara Comstock, R-Va., opened the hearing by highlighting the American Innovation and Competitiveness Act and 21st Century Cures Act as recent legislation led by the subcommittee to implement better practices that address inefficiencies and increase transparency in research funding.  Last year the NSF and NIH spent 20 percent and 27 percent, respectively, of their extramural research budgets on indirect costs.

“In a time of tough budgets when only one out of five recent grant proposals are funded, which we all know is too little, we  must look at whether or not those overhead funds are being spent efficiently, because we want to make sure more of those projects can be funded,” said Comstock. “There’s no question that there are legitimate and necessary overhead costs for conducting the best research in the world.”

Comstock continued by pointing out that, since the 1960s, institutions negotiate indirect costs with the federal government directly. She questions if this system creates an environment of haves and have nots, with some institutions receiving less than 1 percent and others more than 60 percent.

U.S. Rep. Beyer, D-Va., emphasized the importance of the nation’s science Agencies in spurring innovation, economic growth and technological advancements. “I’m a small business owner, and I understand that indirect costs/overhead are still costs that have to be covered and funded,” Beyer said. “Of course, we must strive to improve the management of federal research grants and of course we must search for effective and efficient methods to spend and oversee these funds. But should we drastically cut federal funds for science agencies that lead innovative technological discoveries, as the Trump administration has proposed? Absolutely not! These would be foolhardy decisions that would jeopardize our economic competitiveness, our ability to develop important national security technologies and make vital medical and other scientific advancements.”

Beyer expressed his concern by the administration’s budget proposal to drastically cut funding to the nation’s scientific agencies. “This short-sighted abandonment of our investments in science can only harm our economy, our health, our world leadership and our ability to innovate in the middle and long-term,” he said.

Bell’s testimony gave the committee an overview of the indirect-cost negotiation process at the NSF.  Negotiations for all colleges and universities, according to the Office of Management and Budget’s uniform guidance, are largely conducted at either the Department of Health and Human Services or the Department of Defense’s Office of Naval Research. In fact, the NSF negotiates indirect costs for only 5 percent of the institutions that the agency funds.

During Vedder’s testimony, he argued that the federal government indirect costs policy is flawed.  He supports a fixed level of support for all institutions. “I think the current system incentivizes universities to pad their bureaucracies and have excessively fancy buildings,” said Vedder.

He offers two alternative approaches.  First, adopt a uniform national reimbursement rate. (This proposal was unsuccessful during the Obama administration.)  Second, make funding decisions partly by cost of proposed projects using a point system.  “Greedy universities with extraordinary cost requests would likely get fewer grants, while frugal universities willing to except modest overhead provisions would gain some advantage,” concluded Vedder.

Comstock questioned the witnesses on how the federal government can be fair when there are institutions such as Harvard University, with a 60 percent rate of indirect cost reimbursement but some of the largest endowments in the country.  She also wanted to know how nonprofits, including the Gates Foundation, can set a cap at 10 percent but institutions receiving federal funds get more.

In response, Luther noted that one of the reasons costs vary is geography. Housing the exact same research center in San Francisco versus constructing and running it in Middle America, price-wise, is vastly different.  A second reason is that different types of research require different levels of support to conduct.

Luther also pointed out that foundations cover things that the federal government does not pay.  Additionally, much of the funding received from foundations accounts for off-campus work, which should be compared to indirect costs covered by the federal government that occurs off campus that is also on the lower end of the percent covered by federal agencies.

Vedder added that the federal government should consider looking at how countries provide research funds with public dollars.

U.S. Rep. Lipinski, D-Ill., asserted that universities are making a profit on indirect costs.  In response Luther mentioned that funds received cover administrative support to allow faculty to focus on research and not administration as well as new compliance requirements that require more investment of dollars each year as new regulations are implemented.

From a building perspective, Luther stated, universities lose money and do not recoup the cost of the building.  He rejected the allegation that the bulk of overhead goes into “marble floors” but said it actually covers the cost of state-of-the-art equipment and other expenses required to manage that research.

Beyer raised the question of if having a cap on indirect costs unfairly benefits larger institutions over smaller ones, like HBCUs and state schools.  According to Bell, imposing a cap would result in some intuitions under recovering indirect costs. Some institutions are in better positions to absorb this under recovery, which could include endowments or raising tuition. However, those that are unable to absorb these costs would not be able to actually participate in the research enterprise.

Beyer continued his questioning by asking if universities provide “kickbacks” to faculty who successfully obtain grants and if a 30 percent cap on indirect were is imposed then would universities still submit proposals for funding.

Luther stated that these “kickbacks” do return to the department though they are used to buy things like computers, fund postdocs and graduate students, which aren’t always funded by grants. Additionally, Luther seconded Bell’s point that we wouldn’t have the breadth of the research institutions that we do now if a cap is imposed.

In 2016, improper payments to indirect costs amounted to $133.7 billion.  U.S. Rep. Palmer, R-Ala., wondered if there was anything that the government could do to eliminate those improper payments.  Neumann suggested having data on actual expenditures as a way to identify anomalies as well as being consistent with implementing guidance for indirect costs rates and having the ability to review this data when they come in.

During Lipinski’s last line of questioning, he asked what would happen if funding decisions were more aligned with costs of research. In response, Luther cautioned that focusing on cost in decision making would reduce diversity across institutions and result in less robust science.   “A concern that I have is that you start a race to the bottom,” added Lipinski.

Though members of the committee remained skeptical of the impact that an indirect cost cap could have, all members expressed their support for scientific research as a direct benefit to the nation.

On Tuesday, the Trump administration released a 2018 budget proposal that slashes funding for all of the major science agencies.  In response to concerns from the committee, Comstock stated “The administration’s budget proposal, like every other president’s, is just a proposal, and Congress gets to decide on that… This committee has had a very strong record on supporting science and research.”

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