NRC Committee on the Future of America’s Research Universities: Possible Implications for the University of Oklahoma

1. NRC Committee on the Future of America’s Research Universities: Possible Implications for the University of Oklahoma Kelvin K. DroegemeierOffice of the Vice President for Research Friday, 11 February 2011

2. Not a New Topic…

3. …But Getting a New Look • On 1 July, NRC formally established a 22-person Committee on Research Universities • Driven by Senators Lamar Alexander and Barbara Mikulski (Members of Appropriations Committee and other key committees) and Representatives Ralph Hall (Chair of House S&T Committee) and Bart Gordon (former Chair) • Principal task is to answer the following question: • “What are the top ten actions that Congress, the federal government, state governments, research universities, and others could take to assure the ability of the American research university to maintain the excellence in research and doctoral education needed to help the United States compete, prosper, and achieve national goals for health, energy, the environment, and security in the global community of the 2 • Committee Chair: Chad Holliday, Chairman of the Board, Bank of America, retired chairman and CEO, E.I. du Pont de Nemours and Company • Consensus report expected in May, 2011

4. Selected Other Members • C.W. Paul Chu, Former President, Hong Kong University of Science and Technology [NAE] • Francisco Cigarroa, Chancellor, The University of Texas System [IOM] • James Duderstadt, President Emeritus and University Professor of Science and Engineering, University of Michigan [NAE] • John Reed, Chairman, New York Stock Exchange (retired), and Chairman and CEO, Citigroup (retired) • Peter Agre, Johns Hopkins [NAS/IOM] • William Frist, Vanderbilt University, and US Senator (retired) • Walter Massey, President Emeritus, Morehouse College, and Chairman, Bank of America (retired) • Cherry Murray, Harvard School [NAS/NAE] • John Reed, Chairman, New York Stock Exchange (retired), and Chairman and CEO, Citigroup (retired) • Sidney Taurel, Chairman and CEO, Eli Lilly & Company (retired) • Padmasree Warrior, Chief Technology Officer, Cisco Systems  

5. Additional Information • Principal committee focus: • research and doctoral programs carried out by research universities and associated medical centers; • basic and applied research in research universities, along with collaborative research programs with other components of the research enterprise (e.g., national and federal laboratories, federally-funded research and development centers, and corporate research laboratories); • doctoral education and, to the extent necessary, the pathways to graduate education and research careers; and fields of study and research that are critical to helping the United States compete, prosper and achieve national goals for health, energy, the environment and security, with a focus on science, engineering and medicine.

6. Additional Information • Other committee activities: • describe and assess the historical development, current status, trends, and societal impact of research universities and the “ecosystem” of this set of institutions in the United States, placing these institutions in the context of the nation's research, innovation, and industrial enterprises and the nation's system of higher education; • assess the organizational, financial, and intellectual capacity of public and private research universities in the United States, including reference to research universities internationally to the extent possible with existing data; and • envision the mission and organization of these diverse institutions 10-20 years into the future and the steps needed to get there.

7. Why Should We Care? • Recommendations made by this committee • Likely will receive a lot of attention on the Hill and in the White House (as much as the “Rising Above the Gathering Storm” report that led to the America COMPETES Act • Could have very significant implications for individual faculty at OU and elsewhere • How much time you spend on research grant administration and compliance • How much money OU has to spend on offices that support reporting and compliance functions • How much money is available for direct costs in grant budgets • How much money is available to OU for investing in new programs, facilities, equipment, cost share on grants, etc

8. One Component of the Community’s Voice: AAU Task Force • AAU Task Force was established in summer, 2010 to provide information and suggestions to NRC Committee • COGR and APLU assisting as well • Heavily data-driven • Substantial communication with OMB, OSTP • Two meetings of NRC Committee held to date • Sen. Alexander (former governor, UTenn President, Secretary of Education) has put a finer point on the NRC charge • How do we fix over-regulation, under-funding, and never-changing? • Recommend 10 actions that cost nothing and 10 that do • Be specific and prioritize, keeping things simple • There’s no place the Committee shouldn’t go • Things that make universities great: autonomy, choice, excellence

9. Backdrop at the State Level • Wave of Republican gubernatorial elections: reduce the size of government and reduce regulations •  Reduce state regulation of universities and increase their autonomy (construction, personnel, purchasing, interactions with industry) • Colleges & universities truly partner with states in economic development – concern about the fundamental mission of higher ed • Plusses and minuses

10. Backdrop at the Federal Level

11. The Funding Burden on Universities What’s Driving the Increase? Continual Increase in Number of Unfunded Compliance Mandates Arbitrary Agency Limitations on Indirect Cost Recovery Grant Cost Sharing (even if IDC is reduced or not paid at all)

12. Some OU Research-Related Costs • VPR Office • Office of Research Services • Faculty start-up • Facility renovation • Equipment purchase and maintenance • Research space rental • Debt service on research buildings • IT infrastructure • Faculty retention • Mandated grant proposal cost sharing • Internal seed funding (Research Council, SRI, FCGP, Travel) • Special programs to enhance research success (e.g., CRPDE) • Strategic research initiatives

13. The Value of Strategic Investment

14. Initial AAU Task Force Focus • Regulation and Compliance • F&A (Overhead or Indirect Cost) Recovery

15. Initial AAU Task Force Focus • Regulation and Compliance • F&A (Overhead or Indirect Cost) Recovery

16. Regulation and Compliance New Regulations for Research Since 1991

17. Regulation and Compliance • Universities are funded by 25 different Federal agencies • Each has its own approach to regulation and compliance • ~42% of faculty research time spent on administration and compliance • Numerous regulations implemented during past 20 years • Some of the regulations are essential • Human subjects research and IRB • Animal welfare • Export controls • Biosafety • Conflict of interest • Responsible conduct of research • Some of the regulations are unnecessary, inapplicable, or ineffectual • Time and effort reporting • ARRA reporting  Permanent FFATA • Sub-recipient monitoring • Cost accounting standards that already are documented in Federal regs • NO ADDITIONAL FUNDING IS PROVIDED TO COVER ANY OF THESE!

18. Regulation and Compliance • Costs for meeting regulations is significant but must be documented to make the case for reform • Some examples from universities across America • IRB: $5K/protocol/year • Animal Research: $200K/year • Export Controls: $200K/year • Effort Reporting: $350K/year • Sub-recipient monitoring: $100K/year • ARRA/FFATA financial reporting: $150K/year • Conflict of Interest: $200K/year • Hazardous Materials: $100K/year • Responsible Conduct of Research Training: $100K/year • This is only a sampling of the full suite of mandates

19. Some Early Suggestions by the AAU Task Force • Harmonize Federal compliance regulations among the 25 agencies that fund universities; eliminate duplication • Provide special exemptions for research universities (e.g., regulations for chemical plants, high-security facilities) • Pay-as-you-go system for new regulations and compliance requirements as they’re added; allow institutions to track and charge for the costs • Eliminate regulations that add zero value and do not enhance accountability, for example • Time and effort reporting for faculty • Monitoring of research institution sub-contractor compliance • Prohibit voluntary cost sharing across all Federal agencies (NIST example) • Ensure that meaningful regulations are meeting their intended purpose

20. Some Possible Implications for OU • No real “down side” to this topic! • Reduction in administration and compliance burdens placed upon faculty  more time to conduct research and to teach • Limited growth in research-related staffing levels in Compliance Office, Legal Counsel, Export Controls, Office of Research Services • Less need for external counsel • Institution decides how to spend its money (e.g., elimination of cost sharing)

21. Initial AAU Task Force Focus • Regulation and Compliance • F&A (Overhead or Indirect Cost) Recovery

22. Facility and Administrative (F&A) Costs (aka Overhead, Indirect Costs) • Perhaps one of the most mis-understood concepts in American society!....by agencies, academia, industry, states, private foundations • How you feel about F&A depends upon the hat(s) you wear! • Office of Management and Budget (OMB) • Federal agencies • State agencies • Faculty • Private foundations • Private companies • University administrators – paying the bills

23. Facility and Administrative (F&A) Costs: What and Why Are They? • Rewind to post-WWII and creation of the academic-government research enterprise (founding of NSF in 1950) • Vannevar Bush: Government should fund research at universities for the public good • “Mutuality of Interest” on research grants – both the government and academia benefit, both should pay • Government funds costs directly attributable to projects (faculty salaries, students, post docs, some equipment, travel) • University funds other part of faculty salary, buildings, classrooms, administration, etc • Government and university share other costs that cannot easily be accounted for project-by-project (payroll services, general admin/accounting, purchasing, student records, utilities, repairs/upkeep, depreciation, etc) • This was codified in law in the 1950s – Federal government was prohibited from paying the full cost of research grants to universities • Not true for private companies  confusion!!! • Not true for contracts  confusion!!!

24. Facility and Administrative (F&A) Costs: What and Why Are They? • Indirect costs consist of two parts: • Facilities • Building depreciation • Equipment depreciation • Interest • Operations and maintenance • Library • Administration • General administration • Sponsored Programs administration • College and departmental administration

25. Facility and Administrative (F&A) Costs: How is the Rate Set? • Every few years, the Federal government evaluates our costs based upon a great deal of internal analysis (how all space is utilized…teaching, research, shared), utility costs, etc. • Two agencies do this: Health and Human Services (ours), Office of Naval Research • They then “negotiate” a rate to be applied • Think of it as an equation Total Cost of Supporting the Research (F&A Costs) Total Cost of the Research (MTDC) X 100% = F&A Rate

26. Facility and Administrative (F&A) Costs: How is the Rate Applied? Faculty Salary $20,000 Grad Students $40,000 Fringe Benefits $ 8,000 Travel $10,000 Equipment $50,000 Tuition Remission $ 7,000 Total Direct Costs $135,000 Modified Total Direct Costs $78,000 (less equipment, tuition) IDC (50% of MTDC) $39,000 Total Budget (Direct + IDC) $174,000 Note that IDC is a RATE, and in this example the IDC recovery represents 22.4% of the total grant budget, not 50%!

27. Facility and Administrative (F&A) Costs: KEY POINTS!!!!! • Key points that cause a lot of confusion…. • Indirect costs are REAL COSTS associated with the conduct of externally-sponsored research • You know this because of the many services and resources on which you rely at OU (ORS, Financial Support Services, Payroll, Personnel, HR, Partners Place buildings, rent…) • Indirect costs are a REIMBURSEMENT for University money already spent on items shown in the previous slide • Thus, IDC use is unrestricted • Example: Replacing your hail-damaged roof • The indirect cost RATE IS NOT the percentage of a grant’s total budget that is allocated to IDC

28. So What’s the Issue??? • Inconsistent practices by HHS & ONR in setting IDC rates (recent GAO study) • Rate negotiation isn’t a negotiation!! Rather, it depends upon the previous rate and arbitrary judgments • The Administrative Component (A) of the F&A rate has been capped at 26% since 1991 despite a HUGE increase in compliance mandates. • Universities have had to “eat” these costs • In 1993, agencies began prohibiting the direct charging to grants of administrative and secretarial costs, relegating them to F&A • Federal agencies often arbitrarily limit IDC recovery in certain programs (Department of Education, USDA, NSF in programs like IGERT, NIH, etc) • States and private foundations won’t pay IDC at all, or often will pay only part, yet they expect cost sharing in most cases

29. The F&A Challenge Componentsof the NC F&A Rate in 2007 Facilities Building depreciation 4.48% Equipment depreciation 4.70% Interest 3.09% Operations and maintenance 15.63% Library 1.73% Subtotal facilities (F): 29.63% Administration General administration 11.44% Sponsored Programs administration 7.92% College and departmental administration 11.70% Subtotal administration (A): 31.06%

30. The F&A Challenge Componentsof the NC F&A Rate in 2007 Facilities Building depreciation 4.48% Equipment depreciation 4.70% Interest 3.09% Operations and maintenance 15.63% Library 1.73% Subtotal facilities (F): 29.63% Administration General administration 11.44% Sponsored Programs administration 7.92% College and departmental administration 11.70% Subtotal administration (A): 31.06% ACTUAL Organized Research F&A Rate 60.69%

31. The F&A Challenge Componentsof the NC F&A Rate in 2007 Facilities Building depreciation 4.48% Equipment depreciation 4.70% Interest 3.09% Operations and maintenance 15.63% Library 1.73% Subtotal facilities (F): 29.63% Administration General administration 11.44% Sponsored Programs administration 7.92% College and departmental administration 11.70% Subtotal administration (A): (CAPPED at 26%) 31.06% ACTUAL Organized Research F&A Rate 60.69% Rate adjusted to A cap (only applied to univs) 55.63%

32. The F&A Challenge Componentsof the NC F&A Rate in 2007 Facilities Building depreciation 4.48% Equipment depreciation 4.70% Interest 3.09% Operations and maintenance 15.63% Library 1.73% Subtotal facilities (F): 29.63% Administration General administration 11.44% Sponsored Programs administration 7.92% College and departmental administration 11.70% Subtotal administration (A): (CAPPED at 26%) 31.06% ACTUAL Organized Research F&A Rate 60.69% Rate adjusted to A cap (only applied to univs) 55.63% “Negotiated” Rate 48.00%

33. Actual F&A Recovery with 50% Rate

34. A Quadruple Whammy • Our actual F&A rate is 60.7% • The 26% cap on the “A” component reduces the rate by 5 points • The negotiated rate is much smaller yet (7.7 points) • The actual recovery is far less (~18 points) than even the negotiated rate because of arbitrary agency limits and cost sharing

35. We‘re Not Alone!!

36. How Do We Compare? OU OU

37. What OU is Leaving on the Table • Norman Campus un-recovered IDC on sponsored research in science and engineering (NSF definition) • Overall, universities are paying between $2.1 and $3.8 billion in costs that should be reimbursed by F&A • How would the unrecovered money be used at OU?

38. How the VPR Budget Works E&G Budget to VPR Office is Set Equal to Indirect Cost Recovery ($16.8M in FY10) Note: This is not IDC Money, but E&G Money

39. How the VPR Budget Works Education & General (E&G) ($6.9M in FY10) IDC Pool ($9.9M in FY10)

40. How the VPR Budget Works VPR Office Operations, Building Rent and Debt Service, Core Labs, Faculty Services E&G VPR Office ($5M in FY10) E&G to Main Campus ($1.9M in FY10) IDC Pool ($9.9M in FY10) Programmatic Support to Faculty

41. http://vpr-norman.ou.edu or http://research.ou.edu

42. Facility and Administrative (F&A) Costs: Investments at OU

43. http://vpr-norman.ou.edu or http://research.ou.edu

44. How Do We Decide?

45. Some Early Suggestions by the AAU Task Force • Fully enforce recovery of allowable indirect costs and require Federal agencies to adhere to the Federally negotiated rate • Allow administrative and secretarial support to be charged directly to research grants • Adjust the 26% cap upward to allow for reimbursement of Federal compliance costs; or add a third component (“C” = Compliance) to the rate • Eliminate mandatory cost sharing (F&A already represents institutional cost sharing!) • Ensure consistency among practices by HHS and ONR in setting the F&A rate

46. Some Possible Implications for OU • The “up side” to these changes • OU and everyone else gets reimbursed for their actual F&A costs • These monies can be directed to support faculty research in all the categories shown earlier, as existing F&A recovery already is… • …but need to disconnect perceived linkage between F&A recovery and university investment in research • The “down side” to these changes • In zero base budgeting, higher “A” rate means less direct cost $. This is extremely troubling in the current Federal research budget climate • Less money for direct research costs  less money for students  lower research productivity  reduction in US and Oklahoma competitiveness  less technology for economic development • More time spent by faculty writing proposals instead of teaching and performing research

47. In Summary… • The NRC study is extremely important to all of us, especially given the Federal research budget outlook • Community input is being obtained in a variety of ways (town halls, AAU task force, professional societies) • The varying views on these issues are well understood • I’ll keep you apprised of developments on the new VPR Blog • Please monitor as well and send your thoughts to the NRC

48. For More Information • http://www8.nationalacademies.org/cp/projectview.aspx?key=49219 • http://aau.edu/ • http://www.aplu.org/ • http://cogr.edu/