In February of this year, the National institutes of Health (“NIH”) notified Cornell and other university grant recipients that, going forward, a grant recipient will be permitted to add a standard 15% markup to the dollar amount of its grant to cover indirect overhead expenses for facilities and administration (“F & A”) in lieu of separately negotiated markups for each grant. In April, the Department of Energy (“DOE”) also announced that it is capping reimbursement for F & A expenses at 15%, and the National Science Foundation (“NSF”) followed suit on May 2d.
Federal regulations define F & A expenses to include such things as depreciation on buildings and equipment, interest on debt, operations and maintenance expenses, and the general expenses of administrative staff. In its announcement, the NIH noted that, in Fiscal Year 2023, it disbursed approximately $26 billion to cover direct costs for scientific research, and approximately $9 billion to cover the overhead markups charged by grant recipients.
In their announcements and follow-up statements, the NIH, DOE and NSF stressed their legal obligation to carefully manage grant awards and oversee their administration to ensure that taxpayer dollars are used in ways that maximize benefits for the American people. They noted that, since indirect costs are not readily assignable and are therefore difficult to oversee, it is vitally important to ensure that as many budgeted funds as possible go toward direct scientific research costs rather than administrative overhead.
The NIH further noted that the markup for grant recipient overhead has recently averaged between 27% and 28%, with some recipients charging over 50%. In contrast, the NIH reported that many of the nation’s most prominent private foundations cover the overhead costs of their grant recipients at much lower rates than the NIH has done. For example, the maximum overhead reimbursement rate for the Gates Foundation is 10%, and the Robert Wood Johnson Foundation is 12%.
Indeed, the NIH reported that, of 72 universities recently surveyed, 67 universities were willing to accept research grants from private foundations that had zero percent indirect cost coverage. Harvard required 15% indirect cost coverage. Cornell has reacted strongly to the NIH, DOE, and NSF caps on indirect overhead expenses. Interim President Kotlikoff and other university officers have issued official statements asserting that the reduction to overhead markups will, if not reversed, irrevocably harm U.S. research and financially destabilize Cornell and universities
across the nation, and irreparably harm American competitiveness and curtail the scientific breakthroughs that benefit society.
Cornell has joined other universities to file suits against the NIH, DOE, and NSF alleging that the reduction to overhead markups violates federal grant regulations and administrative law, and also asserting that the cap on overhead markups will harm research, disrupt ongoing projects and the training of future scientists, and threaten the nation’s leadership in scientific innovation.
Time, and the detailed information made public through the litigation process, will tell whether the comments made and positions taken by Cornell leaders were justified, and whether their decision to plunge into a legal assault on the NIH. DOE, and NSF was in the long-term best interests of the university that they are privileged to lead. In litigation, Cornell will have to address the statistical data referenced by the federal agencies. And the university will have to explain why its own overhead markup rates for on-campus research projects are so high. According to its own reports, (https://finance.cornell.edu/sites/default/files/dhhsrateagreement.pdf.) Cornell overhead markups have recently run from 37% up to a whopping 64%!
These above-market overhead charges support an enormous administrative bureaucracy. According to the College Fix, (https://www.thecollegefix.com/cornell-has-1- administrator-for-every-2-undergrads-analysis-finds/) Cornell has over 7,750 full-time administrative and support staff on the payroll, up by more than 1,000 new positions in the last decade. With approximately 15,500 undergraduates, Cornell has close to one administrator for every two undergraduates!
It costs a great deal of money to attend Cornell University. Parents and students pay substantial amounts in the expectation that the university will provide a first-rate education and will do so in a cost-efficient manner and with a relentless focus on those things that are essential to providing a first-rate education, including one in the Sciences.
Every dollar spent on administrative overhead is potentially a dollar that could have been more productively spent directly on scientific research, teaching, and other forms of intellectual endeavor and instruction. Those privileged to lead Cornell should see the actions of the NIH, DOE, and NSF, not as an occasion to fight for the status quo but as a welcome opportunity to conduct a thoroughgoing transparent review of its operations, and to make any adjustments needed to ensure that its grant applications, and all its intellectual endeavors, are as economically cost-effective and competitive as possible.
Cornell can always use more good white coats on campus. It should recruit them and reward them well for the valuable professional contributions they make. Cutting the overgrown ranks of white-collar administrators to make room in the budget and to win more competitive research grants is a great way to pursue this worthy goal.
