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04/05/94

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Congress considering a 'pause' in indirect-cost recovery

STANFORD -- Congress, when it reconvenes the week of April 11, will take up consideration of a one-year "pause" that would freeze indirect-cost reimbursements to universities at 1994 levels.

Proposed by the Clinton Administration, the change would save the federal government $130 million by not allowing any university more for indirect costs on government grants and contracts than it receives this year.

The measure is part of the 1995 budget resolution passed by the House of Representatives. Since it was not in the corresponding Senate bill, it will be considered by a Senate-House conference committee when Congress returns from recess.

Stanford officials already had estimated that Stanford's indirect-cost recovery would remain flat in the coming year because the federal Office of Management and Budget last spring imposed new regulations limiting major categories of reimbursement.

The proposed "pause" therefore would not affect the university in 1995, but it could set a dangerous precedent, according to Stanford officials.

"We expect this would not have an immediate negative effect on Stanford," said Charles Kruger, vice provost and dean of research and graduate policy. "However, we are concerned that a 'pause' might become a longer-term freeze. This kind of budgeting for research is not good science policy."

Peter Van Etten, Stanford's chief financial officer, said the proposal should be seen not as an attack on universities but as part of federal desperation to cut the budget. It is, he said, "a concern, but not a catastrophe for Stanford. It's an example of how the federal budget quagmire is undermining the ability of universities to carry out their mission."

Based on last spring's revised federal regulations, "Stanford officials already had budgeted a revenue reduction for next year," Van Etten said.

The Association of American Universities, a consortium of more than 50 leading research universities, has reacted strongly to the proposal.

In a March 8 letter to officials at the Office of Management and Budget and the president's Office of Science and Technology Policy, AAU President Cornelius Pings urged the administration to "stop this ill-considered move," which he said was "bad science policy, bad public policy and flawed budgeting."

If cuts are needed, he suggested, they should be taken off the top of direct research funding rather than being limited to indirect costs. The government spends about $17 billion a year on research, of which $4 billion goes to reimburse universities for overhead costs such as libraries, utilities and general administrative costs.

Pings warned that the one-year freeze could amount to a "clear breach of contract with a large number of universities."

"If the action prevails," Pings wrote, "you will have reneged on your own OMB published regulations; you will have substituted a rule both arbitrary and gratuitous; and you will have done so without consultation, leaving a clear sense of cavalier underconcern for the impact on the universities and the nation's science program."

The pause, he said, would not create savings but rather would "shift the burden for real costs from the federal government to individual universities."

It also would punish success, he said. An institution with flat or decreasing research volume would be untouched, but one with increasing volume would have to bring in the marginal research with "zero indirect costs reimbursement."

Because of revised federal regulations released in spring 1993, payment to universities "already were severely reduced," Pings said.

"I know of no university that is recovering anything approaching the full cost paid out in pursuit of federally sponsored research," he wrote. "The federal government could not get such a bargain in research elsewhere - certainly not from industry and certainly not in its own laboratories."

Van Etten said that what concerns him most is the possibility that the "pause" would become permanent.

He also said he is concerned about facilities costs being capped, which could prevent Stanford and other universities from recovering costs of constructing buildings for research. "That's a fundamental change on the part of the government and has very serious implications for the future," he said.

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