Summary of the 2014 COGR Report on the Finances of Research Universities

Date: 
08/25/2014
Author: 
Eric Dorman

The Council on Governmental Relations (COGR) recently released its “Finances of Research Universities” report for 2014. (Previous reports were released in 2003 and 2008.) In the report, COGR provides an overview of the financial landscape, discusses research funding and financial implications, and concludes with suggestions for the future of the government-university partnership. Here is a brief summary of the report’s findings.

Public universities traditionally receive the majority of their funding from state appropriations, but over the last decade states have reduced appropriations, causing public universities to rely more on private sources, increased tuition and fees, and the university’s endowment. A survey of 31 public AAU member institutions showed that 17% of FY2012 revenue came from state appropriations, compared to 31% in FY2001. In that same span, revenue from tuition and fees increased from 13% to 23%. 

The COGR report expresses concern over this reduction in state appropriations because it undermines the state-public university partnership and exacerbates negative public perception of tuition increases. The authors note that these increases are often seen as the result of administrative glut, but that reduced state appropriations are the bigger cause.

In both public and private research institutions, 25-28% of revenue comes from non-private grants and contracts, and almost 95% of that is from federal funding. The decrease in state appropriations means that the already significant portion of funding that comes from federal sources is becoming even more important for public research institutions.

However, federal funding for university research is also coming under increased scrutiny. The COGR report argues that misunderstandings abound due to the complexity of research finances. In particular, federal lawmakers and the public tend to not see the whole picture when it comes to facilities and administrative costs (F&A), also known as indirect costs. 

In (overly) simple terms, direct costs refer to things like lab supplies and researcher salaries, the things people think of when they imagine university research. F&A costs refer to things like facilities maintenance and paying the electricity bills, which are not as visible but just as important as direct cost items. COGR offers two reasons why F&A rates cause so much concern. First, some view these costs as detracting funds from direct costs. Second, calculating and using the F&A rate is not an immediately straightforward process. Once again, the perception of skyrocketing indirect costs taking away from the actual research doesn’t bear out in the data. The COGR report looks at NIH awards and shows that F&A as a percent of total research spending has increased only 0.5% over the last decade.

The complexities of F&A costs are only a recent factor in a larger trend noted by the report, an increase in university contribution to research. In the mid-1960s, institutional funds accounted for 8.6% of research and development expenditures, but in FY2012 that percentage was around 21%. In FY2012, the federal share of those expenditures dropped below 60% for the first time since the 1950s.

The report also expresses concerns over the percentage of unrecovered F&A costs. Almost 34% of the $13.7 billion spent by institutions on research in FY2012 was on unrecovered F&A costs. The consequences of continuing this financial burden on the universities range from decreased spending on instruction to delayed investment in facilities and equipment.

The report concludes by recommending a stronger university-government partnership to address the above concerns. The authors lay out the various ways that universities are doing their part—such as acknowledgement of necessarily internal expenses, cost sharing, start-up funds for new research projects, and increased administrative efficiency—but warn of a tipping point where the institution/federal support ratio becomes unsustainable for the continued quality of American university research. 

Read the whole COGR report here.

Read the executive summary here.