Liner Note 18. Fighting the Research Funding Disaster: the Case of California

UC Santa Barbara on February 11, 2014

The necessary long-term strategy has been nicely outlined by Eric Reinhart and Craig Spencer at the Boston Review. The public is more likely to support research funding that has direct and visible public benefits, like affordable treatments, rather than today’s funding that serves as an input to Big Pharma mega-profits and maximized care rationing for patients. They are completely right to say, “The path forward cannot be simply to defend the pre-Trump status quo; we must go far beyond it.”

 

The same also goes for the short-term strategy. The courts have stayed the NIH cut of indirect costs to a flat rate of 15%.  It’s good that universities are explaining what indirect costs are and that they are real costs. The Editor-in-Chief of the Science journals, Holden Thorp, wrote a strong editorial (“A Direct Hit”) saying how these costs work and suggesting that “these cuts should be a rallying cry for higher education to come together to make the case for the American system of research and teaching.” 

 

That case, however, will have to include direct public benefits of research that cut through the monopoly profit system—Reinhart and Spencer’s point—while also explaining the necessary public funding contribution to the initial research. People don’t know why the funding should be public rather than corporate and also how much money is required. 

 

There’s now been some progress on the public funding issue.  Universities and their organizations are starting to contest the core Republican narrative about research grants. That narrative is that grants make big money for the rich universities that have them. The conclusion is that lowering the research profits at universities won’t hurt them and will increase fairness and efficiency for the taxpayer.

 

The narrative is nonsense but university managers have never properly taken it on.  They aren’t comfortable with the reality they must disclose, which is that universities lose money on sponsored research, and plenty of it.  Big science is a big loser for universities.  If you were running universities as a business you’d get rid of sponsored research. In other words, you’d do what most businesses have done.  But universities aren’t businesses, though their leaders haven’t wanted to stress this point to a misinformed public.

 

I’ve stressed at length in many places—most recently in Liner Note 15 and Inside Higher Ed – that this has been both a data and a strategic disaster. No doubt university managers have worried than disclosed research losses would encourage voters to cut research in a (neoliberal) culture in which pecuniary gain is the measure of all things.  It’s a rational fear, but a bad policy. The result has been decades of miseducating people, politicians, business executives, and their own campus scientists, leading to general confusion about how expensive research actually is and why it depends on public funding and not just on Nvidia, Microsoft, and OpenAI.

 

The truth was always out there, but buried in obscurity. The Council on Governmental Relations (COGR), an association of research universities, has long published an annual report called “Finances of Research Universities.”  There they would regularly observe that much of a given university’s research expenditures comes from the university’s own “institutional funds.”  

 

For example, in 2008, COGR wrote, “According to the 2006 NSF Survey, Institutional Funds account for 19.0% of all R&D expenditures, compared to 12.0% of all R&D expenditures in 1976” (author’s files).  The real story of federal funding is that the share of total costs pushed onto universities has doubled to around 25% over the past fifty years.  

 

COGR is now getting more company.  Duke University officials have disclosed a potential loss to their NIH indirect cost recovery of $194 million, which is nearly the same as their NSF “institutional funds” disclosure (Table 22).  (Such reports encourage me to stick with my higher calculation of losses (I ran UCSFs), in contrast to than those from The New York Times’  national data base of institutional losses that relies on calculating indirect costs on every single NIH grant in 50 states.  I commend their heroic effort of public education on this key infrastructural issue even if I think they’ve come in rather low.  Dan Mitchell compiled their lower figures for UC campuses.)

 

In the past, universities have taken the hit rather than make a public issue out of it, and now in the current emergency they are now backed into a corner.  But the truth is slowly groping towards the fore. 

 

Another example: if a nerd like me reads the declarations in the lawsuit that led to the temporary stay on the NIH cuts, one can read the following from a Brown University official: 

Importantly, if NIH’s indirect cost rate is reduced to 15%, Brown cannot simply make up for the resulting gap in funding through alternative means. Brown’s full cost of research is already significantly more than what is covered by sponsored direct costs and indirect cost recovery. In the 2022 fiscal year, for example, Brown’s full cost of research was estimated at $315 million, which was $66 million more than sponsored direct costs and indirect cost recovery. Brown made approximately $37 million in additional investments, including through research incentive programs, cost-sharing, and other programs. And Brown took on $28 million in “unrecovered” indirect costs.

 

Great.  It’s paragraph 23 of one of many declarations and it goes on to say something confusing that I don’t quote here.  But it’s a lot better than nothing.

 

Meanwhile, COGR has moved into getting the word out with video animations.  The result is very good, and I encourage everyone to watch it if you need to refresh yourself on the basics. Here are two key moments.

 

Figure 1.

 

“Wrong” means the idea that Congress covers all research costs. “F & A” means “Facilities and Administration,” which have been capped at 26% for decades, regardless of actual costs. The key figure is the big number universities hand over.

 

Figure 2

 

Emptying the piggy bank is right.

 

It should go without saying that money-losing STEM research is not subsidizing the arts, humanities, and social science fields who mostly don’t have extramural funds in the first place. But apparently it doesn’t, so I’ll do a separate post on this later.

 

We can see this as too little too late, or as better late than never.  My heart says the former, since I’ve known this for 25 years, going back to a time when the country had a good chance of fixing the problem were it to have admitted its existence. But my head goes with better late than never—we now need to mad dog this issue and that means universities everywhere coming clean. 

 

Here we get to the next huge issue: the (public) university piggy bank didn’t have money in it.   Their money comes mainly from student tuition and state funding. Neither of these sources are large enough, and have been for quite a while.

 

I just watched the most recent University of California Board of Regents budget presentation (January 2025, Board, Finance and Capital Strategies Committee, 1’58” to 2’04”, discussion to 2’14”). it’s a good example of what I’m talking about. 

 

Knowing perfectly well that Trump was trouble, California Governor Gavin Newsom cut public higher ed anyway.  Here’s a UC Office of the President (UCOP) slide that sums up the breaching of the latest “Compact” that was supposed to assure reliable funding.

 

Figure 3.

 

This is some pretty dumb futzing around with the University by a state with a $230 billion budget. Newsom also insists that UC must take additional resident undergraduates even as he declines to pay anything for them.  The state has done this off and on for years.  There’s always room for more sacks of turnips on the turnip truck. 

 

The UCOP presenters noted that UC campuses have structural deficits, and the state is assuring they will increase.

 

Figure 4.

 

 

Even if the state funds what it says it will, UC has a half-billion-dollar deficit in 2025-26. And that’s before the NIH cuts were announced.

 

This confirms what campuses already know in the form of hiring freezes, grad admissions suspensions, course overcrowding, and systemic shortfalls in professional resources.  

 

And it also means that UC is not able to backfill the federal cuts with state money, not for one month, to say nothing of covering the coming cuts across the entire Trump administration.

 

The original federal research deal---1950s, 1960s—was that states would fund some of the research done at their universities because they got direct and indirect benefits.  State residents got jobs and paid state taxes, and also got skilled graduates and new knowledge. The past 30-40 years of flat or falling state funding (depending on the state) destroyed that tacit cost sharing.  

 

UC’s budget VP through most of the period 1985-2010, a shrewd and likeable guy named Larry Hershman, had decided that state legislators didn’t know what research was and had no reason to care.  So he never brought it up when lobbying for funds—it was always undergraduate education.

 

Throughout the 2000s, those of us on the Academic Senate’s Planning and Budget Committee (UCPB) literally begged Hershman on a monthly basis that he had to teach them about research. All of us classroom teachers face “don’t know and have no reason to care” in Day 1 in every course we have ever taught—it’s the proverbial “teachable moment.” Hershman always said it was hopeless and wouldn’t (and didn’t).  This meant that the state funding and student tuition cross-subsidy of research has remained the invisible part of the funding iceberg that sleeps beneath the surface. 

 

So now no one in state government seems to be in a position to understand the damage their permanent austerity budgets have done to UC teaching and research.  The Legislative Analyst Office’s new comment is a good example. Stop pretending you’re going to increase UC funding, they say to the legislature, and just don’t increase it.

 

The UC Board of Regents don’t understand either.  Their budget presentation lasted a total of 6 minutes.  The only real questions came from graduate student regent Josiah Beharry and another young person I couldn’t identify. Beharry pointed out that the university needs to rethink the compact with the governor if it’s “hurting us rather than helping us right now.” No comment from UCOP.  The other regents sat in total silence.  

 

16 minutes after the presentation began, Regent and committee chair Michael Cohen, formerly Gov Jerry Brown’s budget director, closed the session.  Cohen noted that the Board may need to look at campus budget problems more than it has in the past, but don’t forget the state has a deficit. So UC needs to focus on “long term ways to reduce our costs.”  In other words, Cohen is offering the University more cuts!  

 

The lack of engagement with decades-old campus budget problems is Board malpractice.  The refusal to deal with resulting quality problems is completely irresponsible. This is a frozen governance crisis, and UC finances won’t improve at all until faculty, staff, and students can find a way to overcome it.

 

The lowest estimate of UC’s losses to NIH cuts adds $427 million, bringing 2025-26’s shortfall to about $1 billion.  However, UCLA’s CFO told a town hall that $1 billion is the potential loss from various Trump threats just for that campus.   

 

So what is the real estimated problem? Official figures would be nice. In the meantime, here are mine.  

 

UC campuses spent $4.6 billion in federal research funds in FY2023. If we average indirect cost recovery rates at various campuses at 58% (UCSF’s NIH rate is 64%), UC campuses received something like $1.69 billion of that in the form of indirect costs [x=(4.6b/1.58)0.58].  One can easily come up with a scenario in which UC’s 2025-26 budget deficit is $2 billion.

 

Just to focus the mind, this comes on top of an existing shortfall in which campuses in FY2023 also spent $1.9 billion of their own “institutional funds” to support federally-funded research. (This and the previous paragraph are calculated from Table 22).  That has been covered with (inadequate) state funds and student tuition in the main. 

 

This all sounds crazy because it is. This is how the US funded research has been before Trump came along.  It’s not a normal we want to restore, and disclosing it is the only way to get to something better.

 

The regents can’t really see how bad the long term state trend is from Figures 3 and 4, which is what they get in meetings. UCOP sometimes has longitudinal charts in the Budget for Current Operations, but they need to be part of the live meetings where UC people and journalists sometimes attend. 

 

Here’s  the updated version of the state general fund trend (for background see The Essential Charts).

 

Figure 5. 

 

 The blue line is a benchmark, tracking growth in state per-capita income.  This measures the strength of the economy as it exists in people's pockets.  It goes up 4-5 percent a year most of the time.  If a state wanted to fund an agency in an average way, it would make that agency's revenues rise at the same rate as per-capita income. In such a case, the legislature isn't treating it as essential or special, but just letting UC or CSU or public health or transportation grow with the state.

 

The yellow line takes the per-capita income benchmark and corrects it for actual UC student growth.

 

The purple line is the California state budget (right-hand scale).  State government--health, corrections, transportation, K-12 education, etc.--has grown at around the same rate as personal income.

 

The red line tracks the state's actual general fund allocation to UC. 

 

None of this is corrected for inflation.

 

The chart shows that UCOP and the Board of Regents have failed over many years to keep UC’s state resources on par with state growth.  Regent Cohen is completely wrong to look for still more reductions.  The University has the opposite problem--lagging pretty much everything  associated with state government throughout the 21st century.  And this substandard funding when California is supposed to be a world-leading knowledge society.

Now,  when state funding is needed to fill in for some likely federal cuts, Cohen and the rest of the Board of Regents have left UC unprepared.

 

UC is certainly not alone in this.  Across the country, universities are enduring a “phony war” period like Christmastime 1914: World War I on research funding has started, mass firings are happening, agency leads are capitulating to the Trump administration, staff are furious and demoralized, review panels and grants have been blocked, and confusion has settled over the national pride and joy that is STEM research.  

 

While the cuts are still suspended, universities need to launch a massive campaign to explain public good research and its sources in public funding.  I’d like to think UC people could help show the way.