The Trump administration wants federal funds for cancer and Alzheimer’s research to go to finding cures rather than subsidizing campus bureaucracies. In response, college leaders have gone to court to stop the National Institutes of Health from reducing taxpayer subsidies for campus slush funds, with matters in the balance due to a federal injunction.
The Trump administration has directed the NIH to slash the amount it pays to universities for “overhead” expenses. Previously, for every dollar universities received for research, the NIH gave them an additional 39 cents for overhead — now, it can’t be more than 15 cents. This means that out of the $35 billion NIH provides in grants, the amount devoted to overhead for things such as administration and facilities would be cut from $9 billion to $4.6 billion. If the injunction currently halting the NIH plan is lifted, the total amount of research funding will remain unchanged, but $4.4 billion will shift from administrators to researchers.
The bellowing from university leaders and hand-wringing headlines might suggest that this effort to combat campus bloat constitutes an all-out assault on science. One of the more telling was the American Prospect article titled “What Trump Could Learn from Hitler on NIH Funding,” which compares Trump to Hitler but laments that he loves science less than Hitler did.
To those more interested in medical advances than media narratives, this fight is bizarre. After all, the NIH isn’t doing anything radical here. The directive the agency issued explained that the move simply sought to ensure that “as many funds as possible go towards direct scientific research costs rather than administrative overhead” — not especially Hitlerian rhetoric, at that.
Why the campus outrage? Well, universities have long treated overhead, also known as “indirect costs,” as a slush fund. Indeed, Columbia University’s “Stand Columbia Society” unapologetically argued that indirect-cost recovery funds “are critical to the financial stability of American universities.” This is because, you see, “While [these funds] are officially earmarked for ‘overhead,’ institutions have considerable discretion in their use. In practice, because money is fungible, many universities use ICR funds to free up other funds to support areas that do not cover their own costs, effectively cross-subsidizing diverse academic programs.”
Such uses are a flagrant violation of federal law. Indeed, the NIH explains that “indirect costs” are to be used specifically for “facilities” or “administration.” The “facilities” category contains expenses such as “depreciation on buildings,” “equipment and capital improvements,” and “operations and maintenance.” Administration means “expenses such as the director’s office, accounting, [and] personnel.” None of this grants universities a free hand to cross-subsidize gender studies, underwrite expansive employee benefits, or fund doctoral programs writ large.
After World War II, the United States deliberately made higher education a pillar of the nation’s approach to research and development. Uncle Sam spends tens of billions of dollars annually to support research at higher-education institutions. The American Association for the Advancement of Science has previously calculated that federal dollars account for roughly 60% of all university-based R&D funding.
In the early decades of the Cold War, universities needed to charge overhead to build out the facilities and support staff that could shoulder the new emphasis on research. Over the decades, that investment should have produced an installed base — one that becomes cheaper to maintain after initial outlays have been made. The exact opposite has happened: As federal spending on university research has risen over the decades, universities have dramatically increased their overhead rates. Meanwhile, the institutions that receive the most federal funding actually charge higher overhead rates than do institutions with fewer grants. Overhead rates are being manipulated by deep-pocketed research universities to extract even more in subsidies from taxpayers.
Prior to the NIH directive, universities had no incentive to lower their administrative costs. Instead, they devised new ways to shift expenses—often unrelated to research — into the “overhead” category. If the Trump administration prevails in court, universities will no longer be able to rely on such tactics. This will force universities to pare down cross-subsidies for doctoral students in the humanities and campus bureaucrats. It will also force them to itemize more of their expenses and ensure that research funds actually fund activities directly related to research. And it will ensure that they are not asking federal taxpayers to pay a second time for infrastructure that donors or state legislatures have already funded.
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University leaders say this policy will force them to shutter important research projects. They’re bluffing. Universities were long able to produce research at much lower rates of overhead. Research institutions have a mission to conduct this research, and many have accumulated massive endowments based on that work, and with the understanding that donors want to help it continue. Researchers should be grateful that taxpayers are willing to provide extraordinary resources for research. This largesse should not be mistaken for an entitlement.
Threatening they’ll stop trying to cure cancer if taxpayers reduce subsidies for administrative bloat is no way for unpopular institutions to regain public trust. Here’s hoping they find a way to do better.
Frederick M. Hess is the director of education policy studies at the American Enterprise Institute.
Jay P. Greene is a senior research fellow at the Heritage Foundation.