Lies, Damned Lies, and University Overheads

TL;DR: if you know what university overheads are, are an academic computer scientist in the U.S., and want to take the overhead survey to facilitate a meaningful comparison between different universities, the link is here. Otherwise, if you want an introduction to the arcane word of university finances—​or just to enjoy an inquiry into the same—​read on.

Bring a few faculty members together, and the topic of research funding usually comes up. And when the topic of research funding comes up, the topic of university overheads 1 frequently comes up. In my experience, this is something that faculty like to complain about, and a part of the challenge to funding university research that makes us look enviously at our colleagues at industry research labs. But I also think that there’s a lot to complain about, so let me try to hit the low points.

What Are University Overheads?

For the uninitiated, one of my responsibilities as an academic research is to raise money. Mobile systems research like my group does requires a fairly large number of graduate students, and usually their tuition and very modest stipends are paid using external funds. For example, currently I’m working with eight Ph.D. students 2, five of whom are externally supported by three different active grants. Two others work for the department as teaching assistants, which is another way that Ph.D. students support themselves during their degree. The last one is self-supported, which is rare.

So when you do receive external awards, you want the money to go as far as possible.I don’t want to digress into the history and current challenges associated with research funding—​a topic for another post, or several—​but let’s just say that external funding is not easy to come by. I spend more of my time than I would prefer writing grant proposals, and most funding programs are extremely competitive. I actually don’t have too many complaints about the National Science Foundation grant application process, except maybe that it’s too slow. Fundamentally, there are just too many people trying to eat the same pie. Overall, the result is that at least at present external funding is hard to obtain. So when you do receive external awards, you want the money to go as far as possible.

That’s where overheads come in. Every grant request contains two components:

  1. Direct costs support things that I can directly identify: student stipends, tuition, and fringe benefits; new equipment; or my salary during the two months each year that I’m not technically paid as part of my academic year appointment. If you’re new to overheads, this may surprise you, but it’s quite common in the U.S. for faculty at research universities to only be paid for the 10 months that classes are in session. As a result, faculty can request several months of summer salary to support themselves while supervising grant-funded research. Keep this in mind—​we’ll come back to it later.

  2. In contrast, indirect costs or overheads are supposed to cover the costs that the proposed research will indirectly incur. For example, to do research me and my students need a room in a building with heat 3, electricity, and the Internet. We might use shared resources like the university’s computing infrastructure or libraries footnote—​although library usage is fairly low in computer science, where we’re busily moving everything online.

Unlike direct costs, which can be included as line items in the budget, it would be a nightmare and probably impossible to budget for indirect costs. So instead, they are typically assessed as a percentage of the direct costs included in the grant. Actually it’s way more complicated than that, but I’m writing a long blog post, not a David Foster Wallace novel, so I’ll spare you the gory details of how the "Modified Direct Cost" is calculated. Except to point out that this futzing has funny effects. For example, at some institutions researchers encourage their students to avoid purchasing equipment that is under a certain amount because it will incur overheads, while larger equipment purchases do not. So go ahead and add a multi-TB Flash RAID array to that new desktop!

Let The Problems Begin

So far, so good: I don’t think any academics have a problem with the idea of indirect costs. But here’s where things start to get problematic.

The first interesting observation is that overhead rates vary widely between institutions. Here are ten examples for research universities where I was able to find their overhead rates online 4:

  • 69%: Harvard
  • 63.7%: Boston University
  • 59.5%: University at Buffalo
  • 56%: MIT
  • 55.5%: University of Michigan
  • 55.5%: Northeastern
  • 53.5%: Tufts
  • 52%: Notre Dame
  • 48.5%: Ohio University
  • 44.5%: North Dakota State

Without more context, you might conclude that it costs 50% more in overheads to do the same research at Harvard compared to North Dakota State. But the second problem with overhead rates is that they are impossible to compare, because they don’t reflect many other differences between institutions, including how research is supported, other costs associated with research, and how overheads are used. All of these institution-specific policies end up either increasing or decreasing the negotiated overhead rate. (It’s kind of like loopholes in the U.S. tax code, except they seem to only ever have a downward effect.)

Examples of these differences include:

  • Administrative support. At Harvard or MIT, three or four faculty might share one administrative assistant, whereas at UB the ratio is closer to ten to one. Less staff support places more administrative burden on faculty investigators who end up with less time to do actual research. Whether the amount of administrative support has any relationship with the overhead rate is anyone’s guess.

  • Faculty return. At some institutions a portion of the overheads collected on each grant are actually returned directly to the faculty investigator, usually with some limitations on what the money can be used for. This sounds strange until you realize that overhead rates are negotiated for an entire institution while the actual cost of doing research may vary significantly from department to department. And while this amount is usually small, it can be extremely valuable in supporting the initial investigations required to start new projects or paying for things not covered by existing grants.

  • Graduate student tuition. Ph.D. students supported by grants must be enrolled as students, and so grant budgets typical include tuition to support them. However, institutional policies about what to charge externally-supported students vary. Some collect full tuition, while others provide subsidies or discounts in various ways. For example, at some state schools that charge different in-state and out-of-state tuition rates, externally-supported students all pay in-state tuition regardless of their residency status. Despite the fact that tuition is being paid to the school, and these policies can have a large impact on the grant’s bottom line, tuition is not considered overhead.

    This is even stranger when you realize that a fair percentage of the courses taken by many Ph.D. student to meet their degree requirement are effectively supervised research courses (like this one) where the course content is doing research. So essentially they pay the university tuition to be able to be able to be paid to do research. Putting it this way makes it seem even more like overheads!

  • Academic year salary. Recall that research faculty in the U.S. are usually on 9- or 10-month academic contracts, leaving several unpaid summer months free to devote to research. Typically grant requests will include some summer salary for the investigator.

    Now, in my experience this entire system is a bit of a fiction. Research-active faculty usually work year-round, regardless of whether they have summer support or not, and so the summer salary really acts more as a bonus that rewards faculty who obtain external support. Put another way, I can give myself up to a 33% raise by writing successful external grants. You might argue that obtaining external support and doing research are part of a research faculty’s job description, and I would agree, but in practice given the unfortunate reality of the tenure system I suspect that this kind of financial incentive is an important part of encouraging faculty to continue to write grants and do research.

    Academic year salary is just another form of hidden overhead.Unfortunately, some institutions have a policy of forcing faculty to ask external sponsors to pay for some of their academic year months. For example, instead of using a month of salary support from a sponsor to support myself for 11 months, rather than 10, the university reduces their support to 9 months, leaving me with the 10 that I originally started with. The argument for this practice is that the university is "recovering" some of the portion of faculty salaries that pay for research activities. But in reality, the university is just trying to get away with paying faculty less more the same amount of work. Teaching and research are both part of my job description, and I’ve never heard of anyone forced to budget academic year salary who was allowed to teach 9/10 of a class 5 or had any of their departmental responsibilities reduced by 10%. Academic year salary is just another form of hidden overhead.

  • Other fees. Finally, there are other cases where faculty are encouraged or required to pad grants with fees that cover things that should be covered by overhead charges. For example, the NSF has a line item allowing grant budgets to include "Computer services fees." Some departments—​including mine—​are still requiring investigators add these charges, despite the fact that basic computer services are part of the indirect cost of doing research in any field today.

One Example Budget

So how does this all work out for in my case? Well, UB has a 59.5% overhead rate (fairly high), returns no portion of the overheads to the PI (sad), charges full out-of-state tuition to grant-supported foreign Ph.D. students (and most of them are foreign), does not require me to budget academic year salary (although other departments do) but does require me to budget computer service fees. Putting everything in three big categories, here’s how it all works out:

Component $ % of Total

Salaries

31,084

40

Student Tuition

17,172

22

Other Direct Costs

7,302

9

Total Direct Costs

55,558

71

Total Indirect Costs

22,840

29

Total

78,398

 

So 29% of my grant budget goes to overheads. Maybe that’s not so bad. But it’s also almost $23K for a single year. That’s enough to hire half of a well-paid administrator, and I certainly don’t have anywhere near that much administrative support—​not total, much less per award. Alternatively, it’s almost enough to add another half-student to the award, and given how hard my students work that would make a huge difference. As a final comparison, at North Dakota State, North Dakota’s top-ranked research university, 6 the same project would cost $5.7K (or 7.3%) less. Why?

Plus the usual caveats apply. Although UB’s tuition rates are quite reasonable, the $17K that I pay for tuition is three times more than it would be for an in-state student. And the direct costs include $2K of computer service fees that as far as I can tell constitute extra overhead.

And Then There’s the Conversation…​

All of the inter-institution differences between research policies make it hard to have a conversation about whether your institution is doing a good job of providing a supportive research environment. And in my experience, that conversation is hard enough anyway. I’ve asked several university administrators at UB about why our overhead rates are so high. Here’s how that chat usually goes:

  • Me: Why is our overhead rate so high?

  • Administrator: No it’s not!

  • Me: Yes it is. (Recites some numbers from table above.)

  • Administrator: Ummm…​ well…​ we pay a lot for snow removal!

  • Me: North Dakota State (44.5%)?

  • Administrator: Ummm…​ well…​ UB has great benefits!

  • Me: MIT (56%) also has great benefits.

  • Administrator: — 

No: the line about snow removal is not made up. I have heard that used as an explanation before. But beyond it’s transparent silliness, it also points to another problem with overheads, which is that in a lot of cases the things people claim they are covering are actually mixed-use facilities that are probably actually being paid for by tuition dollars. As far as I know, UB has no special parking lots or spots for faculty researchers 7, and the lots need to be plowed when classes are in session. So that’s something that should be (and probably is) paid for with tuition revenue, not with research overheads.

How About Them Apples-to-Apples

I think that academic researchers suspect that lurking behind all of these differences are the real issues of institutional administrative competence, efficiency, and planning. Unfortunately, all of these differences make it hard to perform the apples-to-apples comparisons required to determine whether your own institution creates a competitive financial environment for research or not.

So let’s try an apples-to-apples comparison. If you’d like to participate, please complete this survey. It includes a variety of questions about your institution and shouldn’t take too long to complete. An optional (but extremely important) component asks you to create a sample one-year budget similar to mine above, and that should provide the best way to compare the impact of at least some of the differences I outlined above.

Assuming a decent number of responses, I’ll return to this topic in the spring and present an analysis of the survey responses. I look forward to your contribution. And if you have any suggestions are other comments, feel free to email me.

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Created 2/11/2016
Updated 2/11/2016
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