A sweeping Trump administration policy to cut grants awarded to research universities by the National Institutes of Health could have substantial ripple effects through local economies that are largely dependent on the life sciences sector.
The NIH announced on Friday that it would cap administrative overhead expenditures, also known as indirect costs, at 15% of all existing and new grant allocations, effective immediately. The move effectively slashes $4 billion from the agency’s research grant budget.
Acting NIH Director Matthew Memoli said in a memo announcing the change that the cap “will ensure that as many funds as possible go towards direct scientific research costs rather than administrative overhead.”
Although the Trump administration says the reform is necessary to reduce waste in the federal budget, critics and even some senators from both parties fear the economic fallout for state and local economies.
Heather Pierce from the Association of American Medical Colleges told the Washington Examiner that funding for institution-wide resources, ranging from building maintenance to ethics review boards, is paramount to conducting the direct scientific research specified in each federal grant project.
“What these facilities and administrative costs are is an acknowledgment from the federal government that, taking into account all the circumstances of this exact institution, we understand that a certain percent of the funding on top of the direct grant is absolutely essential to allow the institution to carry out the research that the government wants it to carry out,” Pierce said.
The measure is on hold for now, pending review following a judge’s order after 22 state attorneys general sued the Trump administration over the abrupt change. The judge’s temporary restraining order was extended to all 50 states because of a lawsuit brought by the AAMC and several other biomedical advocacy organizations.
The NIH awards over 60,000 grants to universities and research institutions annually, supporting more than 300,000 researchers from over 2,500 institutions across the country. The NIH estimates every $1 of grant funding equates to $2.46 in economic activity, generating nearly $93 billion in economic activity for fiscal year 2023.
Pierce said that the 15% cap’s consequent curtailing of biomedical research programs across the country will not only “slow down the progress of science” but also substantially harm the economies of the cities and towns that universities and medical centers call home.
“The community that that institution sits in is drastically affected by the loss of jobs, the loss of access to research, and then the promise of that research is no longer realized if you can’t do it the same way,” said Pierce.
Local economies hang in the balance
Pittsburgh, Pennsylvania, is one of the cities that will likely be most affected by ripple effects following substantial NIH cuts.
The University of Pittsburgh receives the sixth-most NIH funding of any institution in the United States. Over half of the school’s $1.2 billion research expenditure is derived from the NIH to the tune of more than $660 million.
For fiscal 2025, Pitt has more than 160 active NIH grants, 139 of which have indirect cost allotments over the new 15% cap. Of those, 75 grants have indirect costs over 35%.
Health and technological innovation have become the foundation of western Pennsylvania’s economy since the fall of domestic steel production. This is in part due to the expansion of the University of Pittsburgh Medical Center, or UPMC, the research arm of which is connected to the university even though it largely operates as a separate entity.
Between Pitt, Carnegie Mellon University, and other medical centers in the city, life science research accounts for $3.4 billion in the city’s economy and nearly 16,000 jobs, according to the Pittsburgh Life Science Alliance.
Olga George, press secretary for Pittsburgh Mayor Ed Gainey, a Democrat, told the Washington Examiner that the NIH funding reduction “poses a significant challenge to the region’s economic development.”
“The Trump administration’s funding cuts, including NIH investment, cause economic uncertainty for our region,” a spokesperson for the Allegheny Conference on Community Development, which represents Pittsburgh, told the Washington Examiner. “It harms our innovation economy and its security, jeopardizing catalytic projects, new technologies, and the ongoing operations of our vital institutions.”
NIH reform and government efficiency
The sharp funding cuts at NIH come amid a government-wide overhaul of fiscal outlays, as President Donald Trump has partnered with billionaire Elon Musk in the auditing effort labeled the Department of Government Efficiency.
Musk has been highly critical of universities with multi-billion dollar endowments claiming indirect costs on NIH grants, calling the practice “a ripoff” on his social media platform X shortly after the cuts were announced.
In addition to improved government efficiency, overhauling the NIH in the wake of the COVID-19 pandemic has been a priority of the Trump administration, including the nominee for Health and Human Services Secretary Robert F. Kennedy Jr.
Shortly after Trump won the election in November, former NIH Director Monica Bertagnolli led an NIH panel that launched a yearlong project to revitalize the agency’s mission, the status of which is unclear with the change in administrations.
During the meeting, Bertagnoli stressed that the agency needed to make crystal clear how much of NIH’s funding goes directly to universities across the country, connecting the agency’s scientific breakthroughs to economic gains and job opportunities.
“I come back to tie it to what matters to them,” said Bertagnolli. “What matters to them is more local than national.”
Statewide concerns across the nation
Senators from both parties have raised fears that the policy change would harm commerce in their states.
Sen. Katie Britt (R-AL) told reporters on Monday that she is concerned about losing a sizable chunk of the nearly $42 million in NIH grant funding allotted for the University of Alabama Birmingham this year.
“We’re taking a look across the board at everything and making sure that we’re being efficient with taxpayer dollars,” Britt told reporters. “I also understand the importance of NIH and the research it does, and the work that is done that ultimately saves lives. I want to make sure that that important research can continue in an effective and efficient way.”
Sen. Bill Cassidy (R-LA), chairman of the Senate Health, Education, Labor, and Pensions Committee, also told reporters Monday that he has heard from constituents about the problem. Tulane University and the University of Louisiana, both with main campuses in New Orleans, have a combined total of more than $16 million in NIH funding on the line.
Sen. Patty Murray (D-WA) has also been highly critical of what she calls an “illegal and arbitrary” funding cut.
Washington state will receive $195 million from NIH in fiscal 2025, most of which funds 182 projects at the University of Washington.
“This will derail major breakthroughs by forcing research institutions—like the Fred Hutchinson Cancer Center and the University of Washington in my state—to now scramble to make up this massive shortfall, almost certainly forcing layoffs across the country,” Murray said on Friday.
Pierce said that her goal is to advance bipartisanship for continued federal support of biomedical research.
“We don’t know the trajectory or the direction of these policies, but note that all of those who lead these extraordinary institutions have a robust and extraordinary history of many decades of scientific progress that is specifically because of bipartisan support for NIH and federally funded research across any administration,” Pierce said.