Among the many unpleasant surprises in the recently proposed federal budget framework is a cap of 10 percent on facilities and administrative costs for awards from the National Institutes of Health. The cap represents a dramatic reduction in the recovery of “indirect costs” universities incur to support research and to maintain safe and productive research environments for their faculty, staff and student investigators.

“Indirect costs” are perhaps an inappropriate name, as it implies to some people that these are not “real” costs. So-called “direct costs” pay for things like lab supplies and equipment, salaries and stipends for researchers and graduate students, and travel costs incurred conducting or sharing the research. Indirect costs cover facility and administrative costs which includes all the other costs of doing research. This includes services like utilities, internet, telecommunications, data storage and hazardous waste disposal. Indirects also pay for personnel outside the lab who provide necessary support to research projects, including security, financial, administrative, technical, maintenance and custodial services. They also help maintain and update lab facilities and equipment needed to conduct research.  Finally, these costs cover expenses incurred in maintaining compliance with federal, state and local regulatory oversight. Things like institutional review boards for human subjects, campus animal care, and biological safety are all paid for through indirect cost recovery.

This differentiation between direct and indirect costs was created decades ago when the federal government decided it was far more efficient to negotiate a fixed rate for facility and administrative costs with each university rather than to monitor these multiple complex costs in every grant.  Our indirect cost rate is negotiated every three or four years with the federal government.

Currently, UW-Madison’s indirect cost rate is 53 percent. In fiscal 2016, UW-Madison researchers brought in about $325.5 million from NIH, meaning that a cap at 10 percent for NIH awards only would result in a reduction of as much as $53 million per year for our campus. (We receive about $500 million in federal research dollars but the federal government does not pay indirect costs on all types of research expenses. A cap extended to all federal agencies would result in an estimated loss of about $110 million annually in indirect cost recovery.) According to the data we submitted in our last renegotiation, UW-Madison’s actual facility and administrative costs on research are more than 60 percent. That means the university already contributes about $7 from its own funds for every $100 we receive in direct costs for research.

If the federal government reduced its support, covering only a small share of the facilities and administrative costs that we bear, we would have to make some tough decisions about our research priorities. We would not have the resources to cover these costs for all of the research projects we currently conduct with federal support. As our faculty know, UW-Madison’s strong reputation for innovation in research is due to its broad research strength across many areas. Like many other public universities, we could not continue to conduct the same breadth and quality of research with lower cost recovery rates.

One of the biggest and most ironic reasons indirect costs are so high is the increasing regulatory burden imposed on research by the federal government. As any recipient of federal research dollars knows, there have been increases in the time reporting requirements, in the conflict of interest area, and in the financial reporting that we have to do. Particularly as these regulatory requirements increase, raising the administrative costs of doing federally-supported research, it is odd to propose cutting back on administrative cost payments.

I am well aware that not all faculty appreciate or understand indirect costs, and would rather receive fewer dollars in indirect costs and more dollars in direct costs. But the indirect dollars cover real costs of their research that have to be paid.  I also know that there is regular dissension about the ways in which indirect costs are distributed here on campus. I’ve now worked at four different universities, each with different models of distributing indirect costs. In every university, faculty grumbled about the distribution. We can have a discussion about UW’s indirect cost distribution formula – that’s a valid conversation to have. But there should be no disagreement about the need for the federal government to pay the full cost of the research for which it solicits proposals.

The proposed indirect cost cap represents an additional and far from insignificant cut to the nation’s research capacity. If implemented, it would reduce both the volume and kinds of research UW-Madison and many other universities would be able to conduct, further eroding the nation’s global scientific and economic competitiveness.