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Wednesday, June 16, 2010

Wednesday, June 16, 2010

The Coverage This Week

Coverage of UC this week included a story in the Sacramento Bee on how the University's stated poverty hasn't prevented it from raising salaries at the top. The Los Angeles Times decided that the leading idea from the Monday meeting of the Commission on the Future meeting was changing the term "fee" to the term "tuition."  UCOP has spent much of this crisis year pitching on-line education, but this idea got attention only in its coverage of itself.  It's pretty obvious that on-line ed will have only a marginal, incremental effect on UC's very large educational and financial problems, and it should now be given back to the people who already know something about how it works.

The big financial story was the size of the shortfalls in UC's coverage of its research costs. We've often covered this issue (around UCOF's recs, from a lab perspective, as a pay equity issue, in its administrative details, etc.)  The theme has been that research doesn't make money, but costs money.   A 2003 Senate report demonstrated this, the Council on Governmental Relations has long had non-circulating data on the subject.  Urban legend has convinced generations of scientists that through their grants they were the university's major breadwinners.  For reasons best known to themselves, research administrators let them think this, though they have always known that gross income was accompanied by net loses, and presented that data to each other at professional conferences.  See a particularly good primer, this one from UCSB, that states, "It is less well known that the university provides about 25% of the actual cost of facilities and administrative support for extramurally funded research, over and above what it collects in indirect cost return."

The crisis has for some reason finally caused this news to erupt out of UCOP.   The  size of the loses is remarkable. "UC receives about $3.5 billion a year in research grants and about $780 million to cover indirect expenses such as paying the electricity bill in labs and other facilities. But the actual indirect costs are about $1.5 billion, a $720 million shortfall."  This is a huge number, and it also means that UC provides 48% of the actual costs of facilities and administrative support over and above reimbursements.  Obviously this internal support for research is unsustainable.

Getting the money back is important, but will be easier said than done. Gerald Barnett and I, writing in the Chronicle of Higher Education, suggested a blanket, short-term increase in federal indirect cost recovery rates while real costs get sorted out.  The odds of this happening are rather low. The political question is even more awkward.  Two weeks ago, UCOP said it could cut $500 million in expenses with administrative reforms. Now it turns out it's been losing another $750 million a year in research costs it didn't pursue. This undermines UCOP's right to lecture the campuses about their alleged inefficiencies, weakens public confidence in UCOP's managerial abilities, and gives the legislature no reason to increase state appropriations.  Sure enough, the leg split on the restoration of the one-time $305 million cut, with the relevant Senate committee agreeing only if state revenues are $2 billion greater than the forecast in the May Revise (p 32).

The good news is that the media is starting to realize that UC's businesses aren't doing much for UC education.  In its story, "UC: Millions Lost in Research Costs from Grants,"  (on its way to becoming the title of all UC news titles of the future - "UC: Millions-Billions Lost"), the authors note,
As state funding declines, UC is relying more heavily on private sources of funding such as research grants and hospital fees. Those income sources fuel the university system's medical and research enterprises, and aren't used to pay for basic undergraduate education, which relies on student fees and the state's general fund.
Sorry, that was from the negative Sac Bee story about UC's high end salaries.   But it raises the possibility that the public will increasingly realize the value of direct public funding of the campuses themselves -- if they can be sure education, including research, is what the money will go for.

To inspire such confidence, UCOP will have to be much more straightforward.  On ICR, that would mean saying, "we took losses for two reasons.  First, we did it as a service to our faculty and to the state, because unless we paid indirect costs lots of great research wouldn't get done. Secondly, we took loses because our sponsors forced us to, from federal agencies who short us and require matching payments on some kinds of grants, to industry, which expects the public to subsidize high-risk research. It was great while it lasted, but we can't afford it anymore  We'll have a new proposal for cost recovery in a month."


Gerry Barnett said...

To add to Chris's comments, UCOP's own written policy requires research to fully recover its costs, but UCOP has ignored this requirement for years. Perhaps this is one reason UCOP hasn't been forthcoming in showing its losses from research awards.

Cross subsidies also come into play--leading the grant-receiving departments to believe they are subsidizing core instruction--a subsidy that is made visible, when it appears that an even greater subsidy has been quietly flowing the other way, to the grant-receiving departments--which apparently has not been so visibly reported.

As the state funding falls away, it becomes apparent that UCOP would rather continue to avoid reporting and addressing the losses and instead would rather prop up university research as business as usual by going after tuition increases rather than, say, reform of sponsored research administration. If the state wants UC to bring in the federal research, then that--rather than poor poster students needing a hand toward that law degree-- would be a compelling reason for the state to provide the supplementary funding. But that proposal can't begin to happen if UCOP won't admit the extent of its research losses.

Harry Nelson said...

On Indirect Cost Recovery (ICR), there is more to the story that is now getting lost. The costs (administrative, building maintenance, etc) used to justify the statement that research loses money are actually not usually paid in the UC system by the Indirect Cost funds that are recovered. In fact, the ICR is used as unrestricted funds... who knows where it ends up, but not on the items the studies you quote use to justify the claim that research loses money. Further, a fair amount of administrative costs are de facto shifted back onto the PIs and researchers by the antiquated accounting systems at UC... many people have to keep all their own accounting books to track their research expenses and report back to their granting agencies.

Additionally, many non-Federal sources of research funds pay far less in indirect costs than federal sources.

Gerry Barnett said...

Here's some reading: http://www.ucop.edu/raohome/cgmanual/chap08.html

Note under Regulation No. 4 all costs of research for extramural sponsors are to be recovered; the fastidious complexity by which UC has to implement Circular A-21 to determine indirect costs in federal awards; the effort to make orderly the exceptions to the F&A policies that anticipate *reductions* in F&A charges but not *increases*.

Section 8-810 lays out how federal F&A is to be spent. Some Garamendi funding for debt service and building maintenance, then 20% "off the top" from the rest for campus government relations offices and spos, among others; then "opportunity funds" at 45% of remaining F&A, mixed with other funds from investments and used for "high priority" research and instruction; and 55% making up the rest mixed into the General Fund with the state allocation.

UCOP does not want to say research loses money. It is very willing to say instruction loses money. UCOP is not willing to make the case to the state that $3b/yr in research should be leveraged by state subsidies as a modest investment in a huge public success. UCOP is willing to put out that student fees should go up a lot, to let the state off the hook for public education as a priority. It is not willing to propose an increase in industry or foundation F&A, even in a time of fiscal emergency. This must be part of its "families first" policy.

If Charles Schwartz is right, then student fees fully cover the cost of UC instruction. If research is really truly fully recovering its costs, both direct and indirect, per policy then what is left? Okay, I get it.

JB said...

Does the university make a net profit on extramurally supported research?

I know the accepted answer here is "no", but . . .

As was pointed out in a comment a few weeks ago, UC charges graduate fees to research grants as direct costs. This gets put into the system as student fees and pays for educational expenses. However, many comparable institutions provide waivers for graduate student researchers. Furthermore, the costs to the university of graduate students is minimal to nil.

Although the university may not make a net profit on extramurally funded research grants, I would venture that they make a substantial profit on graduate education. And without the extramurally funded research program, the graduate education would shrink.

Michael Meranze said...


I'm not really sure how the University makes a "substantial profit" on graduate education. Grad Ed is, after all, quite labor intensive (which is the way that these things tend to be calculated. Why are the costs to the university of graduate students "minimal to nil"? I realize that your comments are based on the sciences (extramural grants in the humanities and social sciences don't tend to pay for grad student fees) but I am not sure I follow where your assumptions are from. Thanks.

JB said...

Yes, I'm speaking of the sciences. A typical PhD student in the biological sciences spends 5-6 years at the university. Of these 5-6 years, they probably only are in a classroom for the first year. The other years are spent in the laboratory. Their only contact with faculty is with their thesis adviser, who probably considers most of this contact as "research time". Thus, the fees paid in those years cost the university essentially zero dollars, aside from the faculty salary.

Furthermore, in some departments faculty are expected to pay a substantial part (even 100%) of their salary through research grants. The salary money is retained by the departments and put to other uses, usually hiring staff.

Michael Meranze said...


Thanks for this--that helps.

Two things though: First the whole question about how much labs cost is where the ICR and other costs come in. Just because Grad Students are in labs doesn't mean they aren't costing anything but the faculty salary.

I would be interested if that is true across the physical sciences as well and how it relates to all the recent building for life sciences on different campuses. We would then need to figure in all the debt service etc.

It is the fact that we don't have transparency on all of this stuff (or on cross-subsidization) that makes it so hard to really determine what actually makes a "profit."

Harry Nelson said...

Indeed, the complexity of the streams of revenue must exist because good reasons have caused or supported that complexity... the more complex the more oxen are gored by a change, and the more the resilience to transparency.

However ICR are spent, the spending is clearly not closely tied to the way the ICR funds are justified. Those with federal grants that pay the full ICR rates thus feel a bit wounded when the items used to justify those rates (such as building infrastructure and accounting services) are neglected. The claim that in addition federal grants actually lose money... when the ICR money isn't even being spent on the items used to calculate that loss... feels like salt in the wound.

Just another visit by Charlie Foxtrot.

cloudminder said...

ah, yes
those proposals with those pesky
percent time effort disclosures that are fudged
and key personnel lists that include PI girlfriends/boyfriends
and the pushing around of SPO to sign off on it all
make sure the indirect costs are only a certain percentage because you know the folks on the review committee and they only want it to be a certain percentage
play with the numbers and then play with the numbers some more

-- has anyone mentioned APM 025 yet?

it is all a great big joke

Gerry Barnett said...

Harry Nelson captures it well: the spending is not tied to the justification. This is the essence of the failure of the administration's pitch to everyone--the federal government, the legislature, the faculty, the unions, the public....

You would think that if UCOP did nothing but reform this particular behavior, the way forward on many fronts would become clear. Not saying undifficult.

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