Capping ‘indirect funds’ for researchers at 15% is a good start at curtailing the administrative bloat.
A social-media post last month from the Trump administration triggered fainting spells throughout the academy. The National Institutes of Health, which funds biomedical research, announced that it is reducing the amount of money the government pays grant recipients for overhead costs.
According to NIH, $9 billion of the $35 billion that it granted for research last year “was used for administrative overhead, what is known as ‘indirect costs.’ ” A school that receives a grant typically gets an additional 50% of its modified total direct costs (which includes salaries, materials and supplies, services, travel and some subcontract payments) to cover these administrative expenses. At prestige schools such as Harvard, the overhead payments—for the use of buildings, electricity, support staff, etc.—can run as high as 70%. The Trump administration wants to cap this figure at 15%, which it estimates will save taxpayers more than $4 billion annually.
The labor economist Richard Vedder thinks this is exactly the shock to the system that higher education needs. “Of course the universities with heavy research grants are going crazy over this,” he told me. “But if you talk to anyone at a university, you know that those overhead costs are vastly inflated compared with the true marginal cost, or extra cost, to the university doing the research.” He added that many schools collect so much overhead money that they give some of it back to researchers as an incentive to apply for more research grants. “It’s kind of a con game, all based on false assumptions and faulty economics,” Mr. Vedder says. A nonnegotiable uniform rate would be far more efficient.
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Jason L. Riley is a senior fellow at the Manhattan Institute, a columnist at The Wall Street Journal, and a Fox News commentator. Follow him on Twitter here.
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