I must confess, I never thought I would be writing a post on OTB about indirect costs, but here we are. As most readers may recall, the last eight-plus years of my time working for a university was in the role of Dean of Arts and Science. One of the things I had to learn about was the indirect costs associated with grants and contracts (sometimes referred to as overhead). When a professor gets a research grant, for example, the budget includes the money for the actual research project (the direct costs) but also includes money for other costs associated with the research (administrative costs, the use of other university equipment and resources, etc).
If, for example, a biology professor is awarded a grant to study a specific aspect of a specific cancer, there will be money in the grant for direct costs, like to purchase specific materials needed to do the research. But in addition to those specific costs, the university incurs facilities costs, administrative costs, and other related equipment costs that the grant’s indirect costs are meant to cover in a way that is proportionate to the grant’s overall dollar amount. Just maintaining a lab wherein such grant-funded research can be done is expensive, and the costs are ongoing.
Just having a grant, let alone dozens if not hundreds, creates accounting and other administrative costs to the university as well. None of this is so simple as just transmitting funds from the NIH to a given researcher.
While I kind of understood this in the abstract, I came to understand very rapidly the importance of indirect costs as an administrator. And I was working at a school that was way down the scale in terms of the level and prowess it or its research activities, but it did give me a glimpse into a much wider world. Now, to be clear, I am not saying that there is some sacrosanct percentage that is the correct one. Nor am I saying that the federal government can’t change the rate. But the notion that this can be done on the fly is reckless and irresponsible, which has been a hallmark of Trump administration actions over the last several weeks.
Indeed, different agencies/foundations/companies use differing indirect rates. Often the type of grant or contract would dictate the rate. And yes, the federal government tends to be the most generous in this arena. It is part of how the US government funds major research institutions.
There is no doubt that major research universities rely heavily on indirect costs to fund their overall operations and that they have budgeted based on the rates in the grants they have been awarded.
All of which leads me to this from AL.com: Katie Britt vows to work with RFK Jr. after NIH funding cuts cause concern in Alabama.
Alabama’s junior U.S. senator said she will work with President Donald Trump’s health secretary nominee Robert F. Kennedy, Jr. to “ensure our nation remains at the forefront” of innovation, research and care after funding cuts announced Friday night by the National Institutes of Health.
“Every cent of hard-earned taxpayer money should be spent efficiently, judiciously, and accountably — without exception,” U.S. Sen. Katie Britt said on Saturday.
“While the administration works to achieve this goal at NIH, a smart, targeted approach is needed in order to not hinder life-saving, groundbreaking research at high-achieving institutions like those in Alabama,” Britt told AL.com.
On Friday night, the NIH announced it was cutting payments toward overhead costs for research institutions that receive its grants, a policy that could leave universities with major budget gaps, The Associated Press reported.
Currently, some universities receive 50% or more of the amount of a grant to put toward support staff and other needs, but that would be capped at 15%, according to AP.
Many thoughts occur, including that I don’t think that Britt needs to worry about RJK, Jr. as much as she does Elon Musk and people like the new head of OMB, Russell Vought.
Another thought is that this strikes me as a situation wherein a conservative politician likes to rail against federal spending until that spending starts to be cut off to their constituents. It is like when members of Congress want to vote against infrastructure spending but then take credit for it when it passes.
It should be noted that while I am sure most readers think more about football teams than research when universities in Alabama come to mind, the reality is there is a lot research that happens in the state, with the University of Alabama at Birmingham (UAB) being a central actor in biomedical research, among other fields (including a massive NASA project to aid research conducted on the International Space Station).
UAB alone has received more than a billion dollars in NIH funding in recent years, AL.com’s John Archibald reports. UAH also receives NIH funding, university spokesman Russell Nelson said Saturday but couldn’t say how much.
Steve Ammons, president of the Birmingham Business Alliance, said he was unsure of the specifics of the cuts, “but certainly any reduction in funding would be a hit to UAB since they were in the top 30 for 2024 for NIH funding. Certainly something we need to watch and make sure we advocate for the state’s largest employer.”
In terms of many of Britt’s constituents, we should note the following.
Birmingham Mayor Randall Woodfin also said he was trying to assess the impact. He said the cuts would first hurt UAB’s ability to save lives, now and in the future, and potentially stifle technological growth that not only makes us healthier, but sustains the economy.
“People need to be reminded that UAB is not just the largest employer in the city, it’s the largest employer in the state,” he said. “So as it relates to our state’s GDP, as it relates to our economic growth, as it relates to our future around genomics, personalized medicine, and where health care is going, NIH research dollars play a massive, significant role. And without a doubt, without knowing numbers yet, I can tell you this early, just receiving the information, those in the UAB family have a right to be concerned.”
More on UAB, which is just one example nationwide, here (also via AL.com): NIH cuts threaten UAB, Birmingham and beyond.
And it’s not just UAB. According to United for Health, NIH grants in Alabama in 2023 alone supported 4,769 jobs for an economic impact of $909 million and went to institutions from Mobile to Huntsville and in between. They impact almost 13,000 jobs at more than 1,200 businesses. Including HudsonAlpha.
People losing their job won’t make eggs cheaper, by the way.
More on the indirect cost issue from CNN: Researchers decry ‘disastrously bad idea’ as NIH slashes payments for research infrastructure.
The US National Institutes of Health is lowering the maximum “indirect cost rate” that research institutions can charge the government, the agency said late Friday – a move that scientists said could be devastating for the nation’s position as a research leader.
The average NIH grant to an institution has typically had about 30% earmarked for infrastructure costs such as facilities, maintenance and security; some institutions charged up to 60% or more. The new NIH policy will cap that indirect cost rate at 15%, effective immediately.
“Effective immediately” is rather important, as we are talking about already set budgets and plans that will now have to be radically rethought. This is highly disruptive. And, again, these are already appropriated funds.
See, also, Heather Cox Richardson.
NIH is the nation’s primary agency for research in medicine, health, and behavior. NIH grants are fiercely competitive; only about 20% of applications succeed. When a researcher applies for one, their proposal is evaluated first by a panel of their scholarly peers and then, if it passes that level, an advisory council, which might ask for more information before awarding a grant. Once awarded and accepted, an NIH grant carries strict requirements for reporting and auditing, as well as record retention.
In 2023, NIH distributed about $35 billion through about 50,000 grants to over 300,000 researchers at universities, medical schools, and other research institutions. Every dollar of NIH funding generated about $2.46 in economic activity. For every $100 million of funding, research supported by NIH generates 76 patents, which produce 20% more economic value than other U.S. patents and create opportunities for about $600 million in future research and development.
As Christina Jewett and Sheryl Gay Stolberg of the New York Times explained, the authors of Project 2025 called for the cuts outlined in the new policy, claiming those cuts would “reduce federal taxpayer subsidization of leftist agendas.” Dr. David A. Baltrus of the University of Arizona told Jewett and Stolberg that the new policy is “going to destroy research universities in the short term, and I don’t know after that. They rely on the money. They budget for the money. The universities were making decisions expecting the money to be there.”
I recommend the whole thing, but the numbers she cites are worth noting, as is the notion that the 2025ers (like, I would note, Vought) is really launching an ideological battle (“leftist agendas,” oh my!) and not just cost-cutting.
These actions are damaging to a key US resource. This is not making America great. It, like all of this haphazard nonsense, is going to damage American greatness, power, influence, and reputation.
