01/05/93

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Proposed changes in research rules would create financial burden

STANFORD -- Federal efforts to simplify the system of reimbursing universities for research costs are commendable, according to Stanford Chief Financial Officer Peter Van Etten, but many of the proposed changes could have a negative impact on Stanford and other research universities.

In a Dec. 23 letter and detailed response to proposals published in the Federal Register on Dec. 9, Van Etten said that many of the suggestions would have "negative effects on the financial viability of the research programs at large research universities." They would require significant modifications to existing accounting and information systems, and one proposal would have cost Stanford more than $11 million in fiscal 1992, he said.

On the positive side, Van Etten praised the government for encouraging federal agencies to move in the direction of multiyear predetermined rates, one of the primary recommendations of a group of Stanford faculty, deans and administrators last summer.

Other government proposals, some of them anticipated earlier, include:

• Eliminating the practice of treating graduate student tuition as a fringe-benefit cost.
• Continuing an existing 26 percent cap on administrative costs but expanding the category to include student services. Because Stanford's administrative costs already exceed the cap, the university in essence would lose government funding for any student services.
• Reorganizing the existing seven cost pools into two broad categories: administration and facilities. Libraries would be included in the facilities category, which would not have a cap.

The Bush administration intends to institute the changes before it leaves office Jan. 20, Van Etten said in an interview. Whether that actually will happen depends on the feedback they get, he said. The comment period ends Friday, Jan. 8.

One of the primary objectives of the new guidelines - to achieve consistency among universities, according to the government - "appears unrealistic to us due to the fundamental differences" among the institutions, Van Etten wrote to the Office of Management and Budget, which proposes the changes in "Circular A-21 - Cost Principles for Educational Institutions." A-21 is the document that spells out policies relating to reimbursement of universities' research costs.

Van Etten said institutions focusing on more undergraduate instruction would feel the impact "to a much lesser degree than institutions in which research is proportionately a much larger component of their overall activities."

In Stanford's submission, Van Etten said that several proposed changes are "extremely problematical":

• Departmental administration - The government proposes that administrative and clerical salaries be charged as indirect costs, even for employees who work solely on research projects.

Van Etten responded that large projects, such as Gravity Probe-B at Stanford, typically employ administrative and clerical personnel specifically assigned to those projects, and that those costs meet the definition of direct charges elsewhere in the A-21 document. The changes also will harm small projects that require direct administrative and clerical support, he said.

Because Stanford and some other large research institutions already exceed a 26 percent cap on administrative expenses imposed by the government last year, shifting the salaries of such research employees to the administrative pool "would make such costs unrecoverable."

Van Etten said that administrative costs at Stanford now exceed the cap by $6 million to $8 million annually.

He estimated that the change would have cost Stanford an additional $11 million or more in the last fiscal year. He also warned that the proposal may force scientists to take over some administrative tasks, to the detriment of their research.

The proposal has the "unintended effect of making A-21 internally inconsistent and contradictory," Van Etten said in Stanford's submission. "Many universities would simply be unable to recover these otherwise allowable costs if the proposed language is adopted."

He proposed that salaries of technical, administrative and clerical staff be treated as an indirect cost only if their activities either benefit more than one institutional function or cannot be identified directly with a single activity.

Van Etten told Campus Report that he is confident the final language will be changed to address the issue. Management and budget officials seem "very sympathetic" to the concerns of major research universities. "They had not realized the impact of the proposal," Van Etten said.

• Administrative cap - In addition to proposing retention of the 26 percent administrative cap, the government proposes including costs for student administration and services in the administrative category.

Van Etten responded that the cap is "arbitrary and fails to recognize real cost differences between universities."

It does "nothing to reduce administrative requirements and it lends itself to political manipulation for purposes of meeting budget targets," he wrote. "Further, the cap ignores the increasing burden and cost of compliance with government regulations, which are real and continuing."

Van Etten also said that assigning additional expenses to the pool without changing the cap makes the costs unrecoverable.

"Student service costs will not be eliminated simply by placing them under the cap," he said. "They still must be paid, even if the government is unwilling to bear its portion of the cost."

He suggested that increasing the cap by two-thirds of a percent - to 26.6 percent - would offer a fair level of reimbursement for average student services expenses at universities.

• Transition of tuition remission - Van Etten and officials of other universities continue to support tuition remission, the system of charging tuition of graduate students who work on research projects to the faculty-staff benefits pool, but "clearly we have lost that argument," he told Campus Report.

The government is directing Stanford and three other institutions that use the system to charge those tuition costs on a direct basis after Oct. 1, 1997.

Van Etten said he is pleased with the transition period offered by the government. In his letter, he asked the Office of Management and Budget to clarify specifics for phasing out the practice so that institutions would not be required to account for the tuition in multiple ways on different grants and contracts.

In preliminary estimates last year, officials said the change could cost the university as much as $12 million annually and jeopardize the status of one-quarter of Stanford's graduate students.

However, Van Etten said yesterday that he believes the $12 million figure is too high.

And Charles Kruger, recently appointed as vice provost and dean of research and graduate policy, said he and his colleagues have no intention of allowing a substantial reduction in the number of graduate students.

"Whatever arrangements are worked out," Kruger said, "we will keep central in our plans the importance of graduate education at Stanford."

Kruger said he plans to initiate in the next few days a review of the tuition remission situation, building on ideas developed in the past.

In the university's response to the A-21 proposals, Van Etten also addressed suggestions relating to rate-setting methods, definitions of research, fringe benefits and sabbatical leave, depreciation and use allowances, interest rates, internal controls, the "predominant use" standard, and the effective date of the revisions.

Copies of the government's proposals and Stanford's response are available from Van Etten's office at 725-8714 or Kruger's office at 725-4421.

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