What is F&A?

1. Facilities & Administrative (F&A) Cost Recovery ReportApril 22, 2009Carol Hollingsworth, Director, Grants & Contracts Financial Services & Janet Parker, Associate Vice President, Financial Affairs

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” 1

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. 2

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, subcontract costs in excess of the first $25,000, rent, scholarships, fellowships, tuition. • F&A is recovered as the sponsor’s funds are expended (and billed) for direct cost items allowed per the project budget. 3

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6. 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. 5

7. F&A Cost Rate Agreement 6

8. 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 7

9. F&A Rate-Actual vs. Negotiated 8

10. 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) 9

11. F&A Net Effective Rate We are subsidizing ~50% of the negotiated cost of overhead for restricted research (69% of cost study developed costs) 10

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 UTSA F&A Revenue - 5 Year History $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 F&A revenue grew by $3.1M over the last 5 years, an increase of 103% 11

13. F&A Revenue Recovery by Source 95% of F&A is from federally sponsored activities. 12

14. Sources of F&A FY07 Revenue 13

15. Sources of F&A FY08 Revenue 14

16. FY08 F&A (Federal) Sources 15

17. F&A Recovery by Area 16

18. F&A Recovery by Area 17

19. 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 change pending. • Transparent 18

20. Allocations to Generating Units • The MOU currently 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. • Provost & VPR are reviewing alternate models to assure strategic usage of the funds. 19

21. Debt Service A significant amount of F&A recovery is pledged towards servicing debt: • 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 20

22. 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. • Estimated remaining payments are: FY09 $1,383,495 FY10 1,251,908 FY11 924,722 FY12 34,795 21

23. Building Maintenance, Leases & Capital Improvements • Reserve for capital requirements, leases 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. 22

24. VP Administrative Overhead • The following VPs receive a base budget allocation to support salaries & related administrative overhead in support of research: • Academic Affairs • Research • Business Affairs 23

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27. FY 10 Budget Outlook • FY10 Budget will be set 2.5% higher than FY09 (1.6% higher than FY08 actual recovery) • New allocation will cover a portion of the estimated utility costs for the new Engineering building. • Each VP area will receive an increased base budget allocation: • VPR $ 95,000 • Academic Affairs $100,000 • Business Affairs $ 60,000 26

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