New Zealand’s Approach to Supporting Research Overheads (and fully funding research)

Stuart McCutcheonThe University of Auckland

Background

• New Zealand universities are “bulk grant” funded by Government, primarily through student numbers

• No direct funding of overheads• Programmes that do not bring overheads must

be supported from other sources• Key issue is grant “sustainability” – capital,

capacity for future investment and operating surplus as well as overheads

University of Auckland Budget(29,000 EFTS)

Revenue $m % increase p.a.Student component (Government)227 2.5Domestic tuition fees 115 2.5International tuition fees 57 5.0Performance Based Research Fund 68 0Externally funded research 163 0Other (service, donations, interest) 110 2.5Total revenue740 1.9

ExpenditurePeople costs 409 5-6Operating (including leases) 201 2.5Depreciation 108* 2.5Total expenditure 718 4.2

Operating surplus 22*

* Available for reinvestment (capital expenditure)

A Brief History of Overheads

• Pre 1990, Government research agencies were bulk funded (overheads embedded)

• 1990, Crown Research Institutes formed• Foundation for Research, Science &

Technology :competitive funding with overheads included (~$600m fund)

• Universities permitted to compete• External research income increasing generally• Overheads suddenly of interest!

NZ Government:Principles of Full Cost Funding• Full cost funding is necessary to ensure:

– real costs of research are measured– long term viability of research providers– cross-subsidies between Vote:RS&T and

Vote:Education are avoided

• “RS&T purchase agents will pay fully for the direct and indirect costs of research projects” Hon. Pete Hodgson, Minister of RS&T, 2003

Assessing Overhead Costs

• Overheads (indirects) may include:– Support staff (e.g. secretarial)– Premises, depreciation– Libraries– Other infrastructure (e.g. Research Office)

• Assessed using the USA OMB A21 methodMultiplier =Σ(overhead costs)/Σ(salaries) = 110-127% of salaries

• In some cases, application of the method is audited by the funding agency

A Typical Research Budget Direct costs $k

Academic, technical staff (itemised) 700Research working expenses (itemised) 200

Total direct costs 900

Indirect costsAcademic and related salaries x overhead multiplier (1.21) 847

Total cost of project 1747

Disposition of Research Budget Components

Direct costs $k Disposition

Research staff 700 Teaching relief Direct employment

Working expenses 200 Researchers drawdown as required

Indirect costs 847 Department contribution tocentral costs

Some Challenges to the NZ Overhead/Full Cost Funding SystemThe coalition of the unwilling:1. Government agencies in transition2. Government agencies post-transition3. Private industry4. Charitable trusts5. (Some) academic staff

This applies to some, but not all, such groups

1. Government agencies in transition

• Previously marginal funders can fund fewer full-cost projects

• They take the view that “their” overheads are embedded in the universities

• Government unwilling to increase investment to purchase same research, or to get less research for the same funding

• Transition arrangements involve “smoke and mirrors” input of university funds

2. Government agencies post-transition

• Continuous challenges to overhead calculations

• Attempts to confuse overheads and directs – e.g. strikeout of animal costs because they were not specifically excluded from overheads

• Battles over other budget components (e.g. buying out of academics time)

3. Private industry• Claim that as taxpayers they have already

paid the overheads and cost of staff time

4. Charitable trusts• Typically refuse to pay all (or any) overheads• Pay for technicians, post-docs but not

academic staff time

5. (Some)academics

• Often fail to understand the true overhead costs• Believe overheads are already paid for• Fail to understand that “other” sources of

funding for overheads are declining in real terms• Want to preferentially reduce overhead

component (e.g. when grant not fully funded)• Want deals to reduce overheads or use them for

other purposes (“my overheads”)

On the Bright Side…

• The NZ system is simple, clear and can be audited

• Costs and revenues are allocated properly• The main challenge is to educate those who

want to reduce overheads to understand that the outcome can only be a running down of the science system….

• ….and then to get agencies to fund operating surplus and further investment!