Facilities & Administrative (F&A) Cost Recovery March 5, 2009

1. Facilities & Administrative (F&A) Cost Recovery March 5, 2009

2. What is F&A? • OMB Circular A-21 term for what was formerly referred to as indirect cost recovery. • Also known as “overhead” • Cost recovery mechanism – not a “tax”

3. What is F&A? • Facilities & Administrative (F&A) costs are • “Costs incurred for common or joint objectives and, therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.” • Not Direct Costs – direct costs are specifically identified to individual research projects, instructional programs or other major functions. • Examples: Salaries, fringe benefits, travel related to project, lab supplies, subcontracts, etc.

4. F&A Cost Basis • Universities that receive $10M+ from federal sources must use a modified total direct cost (MTDC) basis for calculating F&A. • MTDC includes all project costs except equipment, renovations and subcontract costs in excess of the first $25,000. • F&A is recovered as the sponsor’s funds are expended (and billed) for direct cost items allowed per the project budget.

5. How are F&A Rates Calculated? Calculation is a ratio of: F&A costs allocated to Organized Research divided by Organized Research Modified Total Direct Costs

6. F&A Rate Calculation • Rate Calculation Process • Each indirect cost pool is allocated to major functions (Instruction, Research, etc.) based on Cost Allocation methods • Amount allocated to each major function is divided by a ‘base’ – direct operations of the function • Resulting % is the indirect cost rate for that function

7. F&A Cost Pools F&A Rate ComponentExamples General Administrative Costs Central administrative offices (Payroll, accounting, disbursements, purchasing) Department Administration Academic Departments/Colleges Sponsored Administration VPR / Grants & Contracts Financial Services Operation & Maintenance Repair & maintenance, utilities, custodial, grounds, police Building and Equipment Depreciation Standardized asset classifications and lives Interest Costs on Building & Equipment Debt Service on certain buildings Libraries Capped at 26% Administrative Facilities

8. F&A Rates • F&A Costs are recovered based on F&A Rates • Rates are developed based on cost studies. • UTSA contracted with Huron Consulting Group to develop our most recent cost study. • Significant effort. • Proposals are submitted to cognizant federal agency for review, audit, negotiation & approval. • Once approved, rates are applied to each grant & contract to determine the amount of indirect costs to be charged/recovered.

9. F&A Cost Rate Agreement

10. F&A payments as a % of total NIH awards was stable at 28.5% for FY03-05 accdg to GAO. Recent COGR survey: F&A rates have held relatively constant at ~51% for the past 6 yrs! F&A Cost Rate Agreement FY06 NSF survey showed that universities contribute more than $9B of their own funds to support R&D activities or nearly 20% of total R&D expenditures. 2000 Rand study estimated that universities were subsidizing between $700M and $1.5B of F&A

11. Comparison of Cost Study to the negotiated rate Administrative Costs are capped at 26%; the Facility rate component is negotiated down to less than half the computed ‘actual’ costs.

12. Why is F&A Recovery Important? • Supports the cost of conducting research • If sponsors don’t pay, someone else must • Important new revenue source to UTSA $6,055,402 $7,000,000 $5,703,051 $6,000,000 $5,201,496 $5,000,000 $3,933,801 $4,000,000 $2,978,543 $3,000,000 $2,000,000 $1,000,000 $- FY 04 FY 05 FY 06 FY 07 FY 08 UTSA F&A Revenue - 5 Year History F&A revenue grew by $3.1M over the last 5 years, an increase of 103%

13. Net Effective F&A Rate The net effective F&A rate is computed as follows: TOTAL F&A Recovery Revenue divided by Restricted Sponsored Program Expenditures (Net of F&A)

14. F&A Net Effective Rate We are subsidizing ~50% of the negotiated cost of overhead for restricted research (69% of cost study developed costs)

15. F&A Revenue Recovery by Source 95% of F&A is from federally sponsored activities.

16. Sources of F&A FY07 Revenue

17. Sources of F&A FY08 Revenue

18. FY08 F&A (Federal) Sources

19. F&A Recovery by College, Institute, Center, Program

20. How is F&A Allocated? • In FY07, the VPs for Research, Business Affairs and Academic Affairs entered into a formal Memorandum of Understanding (MOU) to document the allocation of F&A. • The MOU is: • Flexible - has been amended twice with another pending. • Transparent

22. Allocations to Principle Investigators, Colleges, Centers and Institutes • The MOU allocates 10% of actual F&A recovery to PI’s, Colleges, Centers and Institutes based on prior year actual earnings. • These funds are allocated on a one-time basis • Not part of the recipient’s base budget due to year-to-year fluctuations in earnings. • Funds are currently treated as discretionary incentive.

23. Debt Service 29% of FY08 F&A recovery is pledged to debt service: • Renovations to West Campus (Margaret Tobin) Lab Facility financed through bond series 2006B • will be retired August 15, 2036: FY07 debt service paid $665,350 FY08 debt service paid $667,600 FY09 payment due $666,000

24. Debt Service Faculty Start-Up Costs • Beginning FY04, faculty start-up costs were financed with F&A to service the debt. • All debt under this program will be retired August 31, 2012. • Remaining payments are: FY09 $1,383,495 FY10 1,251,908 FY11 924,722 FY12 34,795

25. Building Maintenance & Capital Improvements • $300,000 set aside as a reserve for capital requirements and building maintenance for research related facilities. • In FY08, funds were used for previously pledged faculty start-up costs to forego incurring additional debt. • Unused balances roll forward to reserves.

26. Center for Infrastructure Assurance & Security Lease Costs • During FY09, up to $222,000 of the annual lease costs will be paid from F&A to allow CIAS to move off campus (near Main campus). • Allocation is subject to annual escalation of 3%. • Allows TRIO to move to ITC • Allows Business Affairs staff to move from JPL to University Heights • Funds are not allocated directly to CIAS. • Lease term is 5 years.

27. VP Administrative Overhead • The following VP areas receive a base budget allocation to support salaries & related administrative overhead: • Academic Affairs $875,000(14% of FY08 Actual) • Research $855,580(14% of FY08 Actual) • Business Affairs $522,200 (9% of FY08 Actual)

28. FY 10 Budget Outlook • FY10 Budget will be set 2.5% higher than FY09 (1.6% higher than FY08 actual recovery)