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Sunday, January 3, 2010

Sunday, January 3, 2010

A View from a Science Department: Parts 3 and 4

This post continues Part 1 and Part 2
Part 3:  Does extramural research pay for itself?

Extramurally funded research has sometimes been described as "revenue generating".  In fact, the leaders of our research unit have argued to higher administrators that we should not suffer further budget cuts because we provide a large amount of indirect cost recovery (ICR) to UC (so far this argument has not been successful).  Does extramurally funded research actually pay for itself?  My guess is that the answer depends on how costs are counted and what is considered to be a payoff.  It turns out that our research unit currently generates more ICR for UC per year than we receive from UC in core funding per year, so by that limited measure extramurally funded research does come out positive.  But does it pay for itself when ALL costs are considered, such as building construction and maintenance, libraries, staff to do the contracts and grants paperwork, etc.?  That seems less likely.

Even if extramurally funded research were a net financial positive for UC, I doubt that it could be a long-term benefit to the general budget.  Faculty who bring in considerable outside funding do not do so to subsidize the rest of the system -- if they are squeezed too much, they will leave for another institution that provides more resources.  Moreover, it seems that those faculty members who are effective at getting more funding from sources outside UC also happen to be quite effective at getting more discretionary funding from within UC.  For this reason, I think the question of whether extramurally funded research is a net positive or negative is immaterial -- any positive can never be of general benefit, except in the short term.  What really matters is whether the research is worth the cost to UC in the long term.

Of course, it would be beneficial if UC could raise the indirect cost rate on federally funded research above ~54% (but at least that is considerably higher than the 10% rate I've received for state funded research).  It would be interesting to know why private research universities are able to negotiate higher indirect rates than public universities.  I calculate that UC income from federal research would increase by 8% if we were to receive the Harvard indirect cost rate (67%), corresponding to an additional $180 million for UC, thus filling in a large portion of the cut in state funding.  On the other hand, it will be difficult for UC to argue for a higher indirect rate to cover the full cost of research when UC is currently using a substantial fraction of ICR as discretionary funds rather than reimbursing the actual indirect costs of research.  The return of only one third of ICR to our research unit is not sufficient to maintain the infrastructure, but at least one third is higher than the fraction we used to receive.

If there is no direct financial payoff to extramurally funded research, why is everyone, including historically teaching-only institutions, trying to do more of it?  Extramural funding has a perceived indirect payoff in that it is reputation-enhancing, both by direct measure of the funding level and by the increased research that it supports.  Institutions with greater reputations can attract more private donations and find more students willing to pay higher tuition.  This system of seeking after ever more extramural funding is not sustainable, however.  The number of institutions, PIs, and grant proposals increases faster than the federal science budget, thus yielding diminishing returns on invested time and effort.  There will be a big crunch the next time the federal science budget goes flat.


Part 4:  Privatization?

There has been much talk about the "privatization" of UC (e.g., substitution of student tuition for state support).  Our research unit is explicitly following that path, except that we are attempting to substitute private philanthropy for state support.  Our long-term goal is to become as well endowed as other research institutions in our discipline that were built up without previous years of generous state support.  It's true that the market goes down at times, but at least it comes back up again.  State support, especially for research, only goes down.  For example, when UC finally managed to get the legislature to restore a cut in state research funding several years ago, it was line-item vetoed by the governor.

Increases in UC tuition do not affect our graduate students because their tuition is paid by grants and a few other sources.  Tuition increases are a slight burden on grants, especially when they unexpectedly occur midcycle, but we have been able to handle it so far.  Since the tuition paid for our graduate students does not return to us, we have no incentive to raise it, aside from the fact that it will increase revenue to UC overall.

Some faculty have expressed the desire to somehow disaffiliate from UC, reasoning that we would be better off alone because the ICR we generate for UC exceeds the core funding UC provides to us.  Considering all the factors, though, I'm not certain the numbers would work out in the black (putting aside the issue of ownership of the land and buildings).  But this sentiment does illustrate the deep dissatisfaction over the low level of service and infrastructure maintenance we receive for all the ICR we provide to UC.  UCOP is especially disliked since it skims off a large amount of money without providing much obvious value in return.

From what I've heard, our faculty support the values of "maintaining excellence" and "encouraging entrepreneurship" because they believe our unit will fare better under those criteria.  We've been disappointed, however, that the reality has not yet matched the rhetoric and that cuts have been applied across the board at the system-wide and campus level rather than selectively directed at particular units (other than ourselves).  Our fear is that cuts will be applied to our unit at a rate faster than we can accommodate and that we will lose our excellence in research -- followed by loss of top-notch colleagues and high-quality graduate students and diminishing extramural funding and private donations.

11 comments:

Bob Samuels said...

If it is true that the average indirect cost recovery is 26% in the UC system, and federal grants average around 50%, the first solution is to make sure that all grants and endowment pledges pay a higher percentage. However, there also needs to be pressure put on driving down costs. Like the case of healthcare, if you don’t contain costs, you will never balance the system.

One of the biggest drivers of costs is the increase number and compensation of administrators and staff. Much of the indirect costs go to pay for these positions, and if you keep on adding more administrators and giving them higher compensation, all of the indirect recovery money will be consumed by the cost of bureaucracy. Since 65-70% of all UC revenue goes to compensation and benefits, the best way to make research profitable is to rein in excessive pay.

A typical administrator is paid out of student fees, state funds, indirect costs, and service profits, and this means that revenue from different sources is always being mixed together. The result of this complex system is that it is impossible to have a transparent budget, and no one can tell if a particular grant is making or losing money. On the one hand, the UC is constantly pooling its money, and on the other hand, the system pretends that all of the money is tightly controlled and regulated.

One solution would be a state audit of the funding of administrative positions and discretionary funds. This type of analysis, if done correctly, would clarify where the money goes and who controls the flow of cash. We could also better determine which funds are unrestricted, and if external research grants turn a profit or not. Without this type of budgetary transparency, we are just feeling around in the dark and making guesses about important issues.

Anonymouse said...

When I get into less charitable moods, I'm often tempted to to say to those who want to "somehow disaffiliate from UC" to go ahead and do it. After all, since they're so willing to abandon what they see as irrelevant parts of a system that has greatly benefited them, maybe I should admit they're right and we all walk away from an intimate relationship none of us realized we were engaged in.

But then I wonder, what does that even mean? On a practical level, where will people go?

This is a sincere question, since I've heard grumblings of the "we'll go elsewhere" sort from the beginning of this fiscal mess. Sure, *individual researchers* often have the ability to move to other institutions and take some of their research programs with them (funding, students, data, maybe some equipment but certainly not all of it, and obviously not labs and other necessary physical plant), but common sense says that there is a real (and probably low) limit to how much mobility there is for entire departments or whatever collective "we" is making the threat. Is it possible that some private universities can absorb an entire department -- or 10! -- without much fuss? Moreover, if another alternative is breaking out of the university structure entirely and going the private research institute route, that entails a loss of physical infrastructure, at least at the start, and many of the real and symbolic benefits a university affords -- a ready pool of graduate student workers, the ability to grant degrees (and thus attract those students), libraries, meeting facilities, maintenance staff, parking structures, restaurants, etc. There's plenty of stuff that could be marked "unnecessary", but there's lots more that can't. Is this really a viable option?

Maybe I'm misunderstanding the position of those whose arguments lead quickly to the realm of abandoning the university (and I don't think the author him/herself is making that case), and if I am misunderstanding it, I'd like to be corrected. But it seems to me that the university structure in general, and the UC structure in particular, as a complex education/research system has a huge positive impact on the doing of research in all disciplines. The effects may not be readily observable or tangible without reflection, but hey, that's nothing new. When I was in school I learned that science itself was about exploring the natural world beyond what we think to be true, and to challenge received knowledge in order to refine it. Treating the university as a money-in-research-out machine makes sense on a purely self-interested level and resonates with our everyday experience, but when you take a close look at it, that's not actually what makes it work well.

Anonymous said...

The writer makes a great point that seeking after ever more extramural funding to replace declining State funding is not a reliable or sustainable strategy for UC in the long run, especially in light of all the problems looming on the Federal budget horizon.

As other universities across the nation try to do more an more extramurally-funded research to replace declining State funding, the marginal returns for these efforts is bound to decline. This is already occurring, as evidenced by the fact that the average number of proposals needed per awarded grant has been shooting upwards in recent years. Obtaining a single awarded extramural grant which in the past might have required on-average writing three grant proposals might today require submitting ten proposals. Nothing about the Federal budget situation suggests that this trend will do anything but worsen. The State budget situation in the out years is of course no less bleak.

To weather the tough economic decade ahead it seems clear that the University needs to do at least the following three things:

1.) Improve accounting transparency, so that at least we know which projects or activities are generating losses. We need to stop moving revenues and costs around like the pea in the proverbial shell game. It's this lack of accounting transparency and the lack of ability to associate costs with associated revenue streams which permits our well-meaning but wasteful UC bureaucracy to flourish.

2.) Leverage technology to reduce administrative personnel costs. Our research administration systems are hopelessly labor-intensive and antiquated. The amount of manual effort required by Fund Managers and others to process and oversee each expenditure on a grant is simply ridiculous. The business offices are still maintaining the same amount of manual oversight of transactions as though this were still the 1960's, and far too much personnel time is spent processing and reviewing each transaction. Of course this is the fault of the system designers and not the fault of the individuals doing the work, who are simply doing the jobs they were hired to do, but nonetheless UC needs to make better use of technology in order to significantly reduce the labor costs required to administer it's funded research. It's not that the University hasn't been willing to invest in administrative information systems; it has. But it hasn't insisted on concomitant reductions in administrative labor costs.

3.) Eliminate unnecessary duplication of administrative effort. Within our current splintered administrative systems we end up paying many administrative employees to duplicate one another's efforts. Where opportunities to save money via consolidation of administrative tasks exist, these opportunities need to be aggressively pursued. For example, does each campus really need to maintain its own manual for the care of mice? Does personal computer maintenance for administrative personnel need to be managed at the departmental level? Would it be economical to centralize our expertise on NSF grant requirements rather than distributing that responsibility across hundreds of separate Fund Managers in different departments and campuses. Where these administrative functions can be gainfully centralize, they should be.

Of course its very easy to propose blanket changes but very difficult to implement them in a gargantuan organization like UC. However one would hope that the University could at least begin to implement some pilot projects or demonstration projects to explore possible ways to enhance the transparency and efficiency of the research enterprise. Perhaps this experimentation could include granting greater fiscal autonomy to selected ORU's on a trial basis, allowing these ORUs to function more like autonomous fiscal entities or medical practices in order to determine whether this method of organization might be more cost-effective and transparent.

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