Washington — The University of Michigan would lose at least $92 million under a Trump administration proposal that would slash reimbursements to universities for overhead costs related to biomedical research.

The proposed federal cut is almost 30 percent of the state appropriation UM is expected to receive this coming year. The Trump plan also would blow holes in the budgets of other research institutions that receive grants sponsored by the National Institutes of Health including Michigan State University and Wayne State University.

Alarmed school administrators said if the proposal is adopted, they would have to consider reducing or eliminating NIH grant research or even closing research facilities on campus.

University of Michigan President Mark Schlissel said it’s unfair to use tuition to pay for research expenses, and donors don’t want to pay for things like electricity to run equipment, staff to order supplies or janitors to clean up at the largest public research university in the country, he said.

“We have no source to replace that, so we literally have no idea in the long run how to support federally funded research, unless this sort of partnership continues,” Schlissel said.

“If it were to change in the short term, the dislocation is huge. We’d really have to, over the course of a couple years, start shutting down our research efforts. We couldn’t afford it.”

Universities around the country last year received an estimated $16.9 billion in federal aid for research sponsored by the National Institutes of Health and recovered an additional $6.4 billion for indirect expenses related to the NIH research. The indirect costs range from purchasing lab equipment to maintaining facilities to keeping the freezers running and lights on.

NIH currently spends roughly 28 percent of its outside research budget on these so-called facilities and administrative costs, and Trump officials want to cap that rate at 10 percent. Critics say taxpayers shouldn’t have to pay for such expenses.

Health and Human Services Secretary Tom Price said the flat-rate proposal would reduce system inefficiencies, while allowing for the same amount or more money to be used for direct research.

“If we could get the same level of research for lower amounts of money and the same number of research projects being granted, would we not do that as a society?” Price told a Senate subcommittee last month. “This is a conversation we ought to have.”

‘Jobs would go away’

Research universities said their recoveries for indirect costs already don’t come close to covering their expenses for the associated facilities and support staff needed to conduct the federally funded research.

Administrators said the cost of doing research is 15 percent to 25 percent above the reimbursement rate for overhead expenses that each university negotiates with the federal government.

The proposed 10 percent cap related to NIH grants would mean an estimated revenue loss of at least $92 million at UM, Schlissel said. If the cap were imposed on all federal research at UM, the loss would be up to $160 million a year.

Daryl Weinert, UM’s associate vice president for research, predicted a “tremendous” number of jobs would be lost.

“Some faculty jobs would go away, some administrative jobs would go away. Ultimately, we’d bring on fewer graduate students,” he said.

At Michigan State University, where NIH research is a smaller portion of the research portfolio, officials estimated a research budget shortfall of at least $9 million under the Trump proposal.

“Do they think this is pretend money or something?” said Dan Evon, contract and grant administrator at MSU. “Where else would we get the money from in order to cover this? The state of Michigan is not going to give us more money, and student tuition is already high enough.”

At Wayne State University, the anticipated cut would be more than $14 million each fiscal year for 2017 and 2018, said Stephen Lanier, the university’s vice president for research.

Lanier highlighted two programs — Wayne State’s cancer research center and its perinatology research branch — that would “probably be compromised with such a Draconian cut in facilities and administrative costs.”

In its budget proposal, the Trump administration notes that private foundations often pay less for overhead costs than the federal government does.

But the Council on Government Relations, an association of research universities and independent research institutions, said this is not an accurate comparison. Foundations categorize and reimburse grant expenses differently, counting as direct expenditures some items that federal rules consider to be overhead costs, the group says.

David Kennedy, the association’s director of cost and financial policy, said it’s unclear whether the Department of Health and Human Services, in conjunction with the White House’s budget office, could unilaterally impose the 10 percent cap on overhead costs for the current year’s budget or fiscal 2018.

“I think this totally goes against the will of Congress,” said Kennedy, noting that lawmakers last year passed the 21st Century Cures Act that included a funding boost for NIH – nearly $5 billion over 10 years.

“Congress really has to stop this, or everything they did with the Cures Act – or a big part of it – eventually becomes undone.”

Kennedy said that, if the proposal is implemented, research universities could possibly challenge it in court under the Administrative Procedures Act, which governs the way federal agencies may promulgate regulations.

‘Seriously flawed’

Several lawmakers, including Republican Rep. Fred Upton, R-St. Joseph, and Sen. Roy Blunt, R-Missouri, who chairs a key Appropriations panel, have indicated they disagree with the proposed $7 billion reduction for NIH’s budget.

“I want to be particularly clear that, as chairman of this subcommittee, I do not intend to be part of writing a bill this year that reducing funding for the National Institutes of Health,” Blunt said at a hearing last month. “I will not erase the gains we have made over the past two years.”

Democrats have blasted the proposal, with Sen. Patty Murray of Washington saying the proposed reduction for NIH would have “severe consequences” for thousands of research scientists and would force universities to “dramatically scale back” efforts to find medical cures.

Richard Vedder, director of the Center for College Affordability and Productivity at Ohio University, said the federal policy for reimbursing universities with research grants for overhead costs is “seriously flawed.”

He suggests adopting a flat, national reimbursement rate of 20 percent or 30 percent of the grant amount — unsuccessfully proposed during the Obama administration — in part to eliminate the time and effort it takes to negotiate rates with individual campuses and audit their expenditures annually.

He admitted there are legitimate, long-term indirect costs to conducting research, but said the current system creates an incentive for universities to “pad their bureaucracies and to have excessively fancy buildings.”

“Where’s the incentive to have linoleum floors instead of marble?” Vedder testified on the Hill in late May.

Lanier of Wayne State said such criticism doesn’t ring true, noting that his university has a lot of deferred maintenance on research facilities that it needs to address.

Schlissel noted that the universities make the investments and assume the risk to build facilities – not the federal government.

“Without buildings to support modern research labs, we can’t attract the best faculty who both teach our students and do this ground-breaking research,” he said.

UM’s Weinart agreed with Vedder that the current system doesn’t promote efficiency and suggested the government find a way to encourage universities to pursue cost-sharing, such as a consortium for universities to buy supplies or negotiate rates from vendors.

“A carrot-and-stick type approach would be more effective,” Weinart said. “I worry that this proposal is just taking a sledgehammer to the problem.”


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