Federal indirect cost payments help keep the lights on in academic research laboratories.

THOMAS BARWICK/GETTY IMAGES

NIH plan to reduce overhead payments draws fire

President Donald Trump's administration has brought a long-simmering debate over how the U.S. government supports university research back to a boil. In its 2018 budget proposal released last week, the White House proposes cutting so-called indirect cost payments that the National Institutes of Health (NIH) makes to universities, hospitals, and research institutes by about two-thirds, to 10% of each grant.

The administration says the change would allow it to redirect about $4.6 billion now spent each year on overhead—including maintaining labs and complying with regulations—to research. The shift would also enable it to cut NIH's budget by 22% without greatly reducing the agency's direct spending on science. Congress is unlikely to support the overall NIH cut, but policy experts say the administration might be able to trim overhead payments unilaterally.

The proposal has raised wide alarm. It would “literally turn out the lights in labs where universities have no other funding to pay for essential research infrastructure and operating expenses,” says Mary Sue Coleman, president of the Association of American Universities in Washington, D.C., which represents 60 major U.S. universities. Some schools would tell their faculty to stop applying for NIH grants, observers predict, because the grants wouldn't come close to covering the full cost of the work.

The federal government has been adding indirect cost payments to research grants since 1947. Today, each university negotiates its own overhead rate—including one rate for facilities and one for administration—with the government every few years. Rates vary widely because of geography—costs are higher in urban areas—and because research expenses differ. Biomedical science, for example, often requires animal facilities, ethics review boards, and pricey equipment that aren't needed for social science. The base rate for NIH grants averages about 52%—meaning the agency pays a school $52,000 to cover overhead costs on a $100,000 research grant (making overhead costs about one-third of the grant total). Universities usually don't receive the entire 52%, however, in part because some awards for training and conferences carry a lower rate, and because certain expenses such as graduate student tuition don't qualify.

Many universities have long complained that their negotiated rates don't cover true research costs. Congress and federal officials, for their part, have repeatedly tried to rein in overhead payments. Most notably, in 1994 officials capped the administration rate for universities at 26% after Congress became concerned that schools were misusing the money. But for decades the share of grants from funding agencies devoted to indirect costs has remained fairly steady.

Earlier this year, the Trump administration seized on indirect costs as it began to explore ways to cut spending at nondefense agencies to pay for a defense and border security boost. The White House's budget request argues that a 10% flat rate applied to all institutions would be “more in line” with rates paid by private foundations, such as the Seattle, Washington–based Bill & Melinda Gates Foundation. Adopting the 10% rate, the documents show, would cut NIH's spending on indirect costs by 71% from 2016, from roughly $6.5 billion to $1.9 billion, while keeping direct research spending flat at about $17 billion in 2018.

University officials, however, say comparing NIH and foundation overhead rates is misleading. Gates, for example, is more expansive than NIH in defining direct costs, meaning some overhead payments are wrapped in with the grant. The Trump proposal “does not reflect [the foundation's] process for determining direct or indirect costs,” a Gates spokesperson says. Universities note that they are often willing to accept foundation grants that carry low- or zero-overhead rates because those grants amount to a relatively small fraction of their funding—something they could not afford to do for major funders.

Universities also criticize the proposed single flat rate. Some economists support the idea, saying it would be more efficient. President Barack Obama's administration also floated setting an unspecified (but likely much higher than 10%) flat rate. The Trump White House says its single rate would cut lengthy negotiations and paperwork, and reduce the risk of fraud and abuse.

Critics of the proposal predict that richer, private institutions, which often have endowment income and fundraising prospects, would have an easier time coping with lower overhead payments. But research facilities at some state universities “would just become derelict,” predicts Mary Lidstrom, vice provost for research at the University of Washington in Seattle. “We would have to pick and choose what small number of grants we could support.”

Rules that took effect in 2014 appear to allow the administration to impose the lower rate on its own, says Anthony DeCrappeo, president of the Council on Governmental Relations in Washington, D.C., which tracks regulatory issues for research institutions. But that power has never been tested, and lawmakers could at least temporarily block any White House move to cut NIH's indirect cost rates through legislation.

Even some scientists who see indirect costs as an exorbitant tax on their grants think the Trump proposal goes too far, too fast. Rates should be “open to discussion,” says microbiologist Richard Ebright of Rutgers University in Piscataway, New Jersey, “but 10% is not a realistic number.”