A Report to the Advisory Committee of the Director,
National Institutes of Health,
July 6, 2001
This report details the Working Group's findings and recommendations.
The National Institutes of Health (NIH) shapes the nation's biomedical research priorities toward the ultimate goal of improving human health. About 85 percent of the NIH budget, which topped 20 billion in FY 2001, supports "extramural" research, which is conducted at universities, hospitals, nonprofit organizations, and other research institutions outside the NIH campus in Bethesda, Maryland.
As the largest single Federal supporter of university-based research, NIH also makes considerable contributions to the research infrastructure at academic and other research-performing institutions. Scientists must have access to appropriate infrastructure including research buildings and laboratories to make the most of society's sizeable investment in biomedical science. Unfortunately, there is much evidence to suggest that the nation's biomedical research facilities are inadequate to meet current needs, and the situation is likely to worsen.
To help identify an appropriate role for the Federal government, the NIH Working Group on Construction of Research Facilities examined reports on the current state of biomedical research facilities, collected data on facilities costs and needs from several research-performing institutions, and evaluated current and potential funding sources for facilities renewal. Subsequently, the Working Group drafted the following recommendations for the Federal government.
Federal Grants for Facilities Renewal
Federal Loan Guarantees
Facilities and Administration (F&A;) Reimbursement
STATEMENT OF THE PROBLEM
Infrastructure, by definition, is a system of public works or resources such as buildings, personnel, and equipment that provides the backbone for many activities. Like the human backbone, infrastructure is often taken for granted until it is out of commission. Power outages, transportation strikes, and computer crashes serve as occasional reminders of how deeply we depend on diverse forms of infrastructure.
In the realm of scientific research, essential infrastructure includes buildings and laboratories that meet certain safety and scientific requirements. To conduct biomedical investigations, scientists also depend on access to specialized facilities such as biosafety laboratories that effectively contain infectious agents; clinical research environments appropriate for study of human subjects; and animal facilities suitable for maintaining the health and well-being of laboratory animals.
In general, the Nation's research infrastructure has well-served the biomedical community to date, allowing the United States to remain a world leader in biomedical science. But a disturbing trend has begun to emerge. Mounting data suggest that the Nation's biomedical research infrastructure is fast becoming outdated or insufficient. In fact, more than half of institutions that conduct biological or medical research have inadequate research space to meet their current research commitments, according to the report Scientific and Engineering Research Facilities at Colleges and Universities 1998. The report, published in October 2000 by the National Science Foundation (NSF), is based on a biennial survey of the condition and adequacy of research facilities nationwide. This trend may seem altogether surprising, until one considers that biomedical research is essentially a labor-intensive endeavor. Therefore, increases to research funding that outpace growth in research facilities will necessarily lead to an eventual shortage of space.
Anticipated Expansion of Facilities Needs. The need for enhanced research facilities will become increasingly urgent in the coming years. Significant funding growth in the biomedical sciences is expanding the number of investigators and research groups, which places even greater demands on the nation's already-overburdened research facilities.
In addition, entirely new types of research facilities are needed to keep pace with today's rapid rate of change in the biomedical sciences. Many emerging disciplines and technologies require new types of specialized facilities, such as biocontainment laboratories for handling infectious agents or clean rooms for producing clinical-grade gene vectors. As a result, facilities once expected to last for two or three decades can become technologically obsolete in less than half that time.
Financial Roadblocks to Facilities Renewal. Because most of the organizations that conduct federally sponsored biomedical research are not-for-profit universities or research institutions, they lack the profit margins of commercial businesses, and therefore lack ready access to additional capital for facility construction as their volume of research grows. Although some institutions are better positioned financially than others to absorb the costs of building or modifying research space, institutions of all types and sizes encounter obstacles when trying to boost their research infrastructure. The Working Group identified the following areas of particular concern:
In a sense, many of these institutions are doubly disadvantaged when attempting to fund construction or renovation of research facilities. Lacking a large base of research grants, they receive little facilities and administration (F&A;) reimbursement a funding source on which many larger institutions depend for facilities renewal. Many emerging and minority-serving institutions are not as successful as larger, well-established institutions in raising funds or obtaining grants for facilities renewal, and may have trouble meeting current "matching requirements" for obtaining NIH facilities improvement grants.
Private Institutions. Some states provide a significant fraction of the cost of renovating or building facilities to public institutions, but private institutions must rely heavily on institutional funds and debt financing to cover their costs.
Regional Primate Research Centers (RPRCs). Seven of the nation's eight RPRCs were originally constructed in the 1960s and are in need of facilities repair, renovation, and replacement. These resources fill a national need, providing scientists across the country with access to specialized research services and animals, yet they have trouble attracting philanthropic funds or acquiring university funds, in part because they are free-standing facilities that are only affiliated with universities.
FUNDING SOURCES FOR RENEWAL OF RESEARCH FACILITIES
The United States boasts more than 900 biomedical research-performing institutions, including 617 academic institutions (colleges, universities, and medical schools), 171 nonprofit research organizations, and 125 research hospitals. Capital for the construction and renovation of biomedical research facilities comes from a variety of sources, including private donations; debt financing; and Federal, state, and local governments. Relative contributions from different funding sources vary depending on whether the institution is public or private, large or small, or research intensive or not. But across the board, substantial costs for infrastructure renewal are borne by the institutions themselves. In fact, in 1996 and 1997 institutional funds covered more than half the total costs of repairing or renovating research space at institutions that conduct biomedical research, according to the NSF report Scientific and Engineering Research Facilities at Colleges and Universities 1998 (Figure 1a). For new construction of research facilities, institutional funds covered nearly one-fifth the total costs (Figure 1b).
Federal Government. The Federal government directly contributed about 8 percent of the total costs of renovating or constructing research facilities at institutions that perform biomedical research, according to the NSF report. Direct Federal support for construction and renovation of biomedical research facilities usually comes either from NIH in the form of competitive grants (e.g., via the Research Facilities Improvement Program) or from non-peer-reviewed projects earmarked by Congress (i.e., specified individually through Congressional legislation).
But this is only a portion of the Federal investment in facilities. The Federal government also makes indirect contributions to construction and renovation projects through a mechanism known as facilities and administration (F&A;) recovery, which reimburses institutions for the indirect (or overhead) costs of conducting federally sponsored research. For a variety of reasons, discussed in further detail on pages 20-22, institutions do not receive full reimbursement for the F&A; costs associated with sponsored research. Although a portion of the costs of research facilities is reimbursed by the Federal government, this reimbursement takes place over the useful life of the building or improvement; the institution must provide the up-front capital for new construction and assume all of the associated risk.
The Federal Government's Changing Role. Much of the biomedical research infrastructure now in use at the nation's academic research institutions was built 30 or more years ago, when the Federal government committed major financial resources to direct grants for research facilities (Figure 2). At NIH, extramural construction and renovation was supported through the Health Research Facilities Program, administered by the NIH Division of Research Facilities and Resources (now known as the National Center for Research Resources, NCRR). Direct NIH support for renewal of research facilities was at its highest level during the mid-1960s. Throughout that decade, NIH committed between $129 million and $474 million annually (in constant year 2000 dollars) to the renewal of research facilities.
Once the cap was removed, institutions relied increasingly on indirect cost recovery to pay for facilities renewal. This led to a sharp increase in indirect cost rates in the 1970s and early 1980s, and direct Federal funding for these projects continued to decline. Today Federal indirect (F&A;) reimbursement averages about 31 percent of the total costs of an NIH research grant.
In 1988, spurred largely by the dearth of safe, state-of-the-art infrastructure for studying the newly emerging AIDS virus, Congress mandated the establishment of the Research Facilities Improvement Program (RFIP) within the NIH Division of Research Resources
(now known as NCRR). Under the 1993 NIH Revitalization Act, the scope of the RFIP was expanded to include construction and renovation of non-AIDS related facilities. Throughout the 1990s, RFIP funding ranged from $7 million to about $30 million annually, with the largest amount of the past decade $75 million appropriated in FY 2001. Today the RFIP is the principal mechanism by which the NIH directly funds renewal of research facilities.
WORKING GROUP'S INFORMAL SURVEY
To take a more detailed look at funding sources, biomedical research space, and construction costs, the Working Group sent questionnaires to 20 institutions that span the research spectrum. The 11 institutions that responded to this informal survey ranged from research-intensive institutions, with annual research expenditures of up to $324 million in FY 2000, to emerging institutions with research expenditures of slightly less than $3 million (Table 1). It should be noted that, although this small sample may not fully represent the range of overall institutional expenditures, construction costs, research volume ratios, and other factors pertinent to biomedical construction costs, the extent of their agreement on facilities concerns is a strong indication of a problem.
A standard measure of efficiency is the relationship of research volume (expenditures) to research square footage (i.e., the annual research dollars expended per net assignable square footage, NASF, of research space). For this sample, ratios varied dramatically from $152/sq.ft. (for three consecutive years from one institution) to $522/sq.ft. although the underlying reasons for this wide variation were not explored in the survey. Most institutions, however, indicated ratios in the $201-$290/sq.ft. range. Many institutions expect volume/sq.ft. ratios to increase in the near future due to limited growth in overall institutional space coupled with unprecedented projected annual increases in research awards. Based on these data, one might expect this ratio to increase by 25-50 percent, after which it may flatten due to capacity constraints. Additional research activity beyond that point may not be feasible.
Research space at surveyed institutions ranged from 10,000 NASF to 1.82 million NASF. Due primarily to higher land costs, high commercial construction labor demand, and increased facility sophistication, construction costs have increased dramatically in certain urban areas. Thus, most institutions have experienced considerable increases in construction expenditures, particularly in the last 3-5 years. One institution recently broke ground for a new research complex at an estimated gross cost of $216 million. The last major construction project at that institution (in 1992) cost $32.4 million.
Capital funding sources included state appropriations (for public institutions), institutional funds, grant funding (Federal and private), private gifts, and long-term debt. With construction of new space and the associated increases in operating costs, building depreciation, and debt service, many institutions anticipate increases in their F&A; rate. These rates are negotiated with the U.S. Department of Health and Human Services Division of Cost Allocation or the Office of Naval Research (ONR) Indirect Cost Division, and they vary depending on a number of factors. Three of the eleven institutions anticipated no changes in their F&A; rates, while others are seeking increases of up to 10 percentage points.
Expenditures on capital construction have ranged between $8 million and $94 million at the surveyed institutions over the last three years. Many of these construction projects were launched in anticipation of large funding increases for biomedical research. Most of these institutions anticipate the need for constructing new facilities (from one to nine additional buildings in the next 10 to 15 years, with total costs ranging from $50 million to $1.2 billion).
ASSESSMENT OF FUNDING MECHANISMS
NIH Facilities Improvement Grants
NIH's primary mechanism for directly funding the construction or renovation of biomedical research facilities is the Research Facilities Improvement Program (RFIP), administered by the NIH National Center for Research Resources (NCRR). Other NIH components including the National Cancer Institute and the National Heart, Lung, and Blood Institute also hold authorization for construction to meet specific needs (e.g., the construction of Cancer Centers), but these programs typically receive relatively small Congressional appropriations, ranging from zero to a few million dollars.
RFIP grants fund the "bricks and mortar" of facilities construction and renovation but cannot be used to purchase research equipment or instrumentation. Awards are based on several criteria, including "the merit of the proposal; the needs of the institution, with special consideration for small institutions as well as institutions designated as Centers of Excellence; the commitment by the institution of funds needed to complete the project; the availability of appropriated funds; prior receipt of a construction award from this program; and geographic distribution."
Individual grants are awarded up to $2 million, or $3 million if the institution is designated as a "Center of Excellence" as defined in the Public Health Service Act. In general, Centers of Excellence are institutions that support the education of under-represented minorities in the health professions.
In recent years NCRR has received appropriations for RFIP awards totaling $72.5 million in FY 2000, $75.0 million in 2001, and the President's budget request for the program in FY 2002 is $100 million. However, these amounts represent only a small fraction of the $5.6 billion in deferred spending on biomedical research facilities described in the 1998 NSF Report.
Advantages of Federal Facilities Improvement Grants. The Working Group identified the following advantages of relying on direct forms of NIH funding to support renewal of research facilities:
Limitations of Current Federal Facilities Improvement Grants. The Working Group also identified the following drawbacks of current NIH mechanisms for funding facilities improvement:
Federal Loan Guarantees
A Federal program administered by the Health Resources and Services Administration provides loan guarantees to help institutions secure loans for building hospital facilities at 1 to 3 percentage points below market rates. This can result in considerable savings-up to tens-of-millions of dollars-for an institution over time.
A similar type of Federal loan guarantee program for universities and nonprofit research institutions has been suggested in the past, but no program currently exists. At the request of the NIH Acting Director, the Working Group considered the potential benefits and drawbacks of such a program. A loan guarantee would essentially assure private lending institutions that the Federal government will make good on the principal plus interest of a loan if the borrower defaults. Such a program could improve the conditions and the cost of obtaining loans for facilities improvement, at a relatively small risk and cost to the Federal government.
Potential Disadvantages of NIH Loan Guarantee Authority. The Working Group also identified the following potential drawbacks of a Federal loan guarantee program for funding the construction and renovation of biomedical research facilities:
Facilities and Administration (F&A;) Reimbursement
Facilities and Administration (F&A;) reimbursement is the main mechanism by which the Federal government contributes to the construction and upgrade of research facilities. When awarding a research grant, the Federal government covers not only the research project's direct costs, which include portions of the scientists' salaries, equipment, and supplies, but also the project's indirect (or F&A;) costs, which are shared expenses that support so many research efforts that they are difficult to attribute to individual projects. F&A; costs include expenditures for facility maintenance, depreciation and financing, utilities, and salaries of administrative staff. Methods for assigning F&A; costs are described in Federal regulations, particularly in the Office of Management (OMB) and Budget Circular A-21, Principles for Determining Costs Applicable to Grants, Contracts, and Other Agreements with Educational Institutions.
Of the approximately $15 billion the Federal government spent in 1999 to support scientific research at academic institutions, about three-fourths, or $11 billion, funded the direct costs of research. The remainder, totaling more than $3.5 billion, contributed to the institutions' indirect, or F&A;, costs of conducting the research.
It is difficult to obtain accurate data on the amount of F&A; reimbursement applied to facilities construction and renovation. NIH estimates that the amount of F&A; recovery attributable to the depreciation and financing of biomedical research facilities equals about 8 percent of budgeted direct costs. Thus, as the NIH budget has increased, recovered funds for the use of research facilities has also increased. According to NIH estimates, the portion of F&A; recovery for the depreciation and financing of biomedical research facilities has more than doubled in the past decade from $243 million in FY 1990 to $521 million in FY 2000 because of steady expansion of the NIH budget and increased investment in facilities by institutions.
Because it involves a sizable portion of the Federal research budget, and because the rationale behind indirect cost reimbursement is often misunderstood, the F&A; mechanism has long been a controversial issue among members of Congress, university faculty, and the general public. Some contend that F&A; costs place an unnecessary strain on the Federal research budget, and that the monies would be better spent on the direct costs of research. Others assert that since F&A; expenses are essential costs of conducting federally sponsored research, the Federal outlay is appropriate and helps to ensure that Federal research funds are used effectively, with proper infrastructure in place.
In an attempt to resolve these differing viewpoints, the White House Office of Science and Technology Policy (OSTP) and RAND (a nonprofit policy institution) each examined the issue of F&A; reimbursements and released related reports of their findings in 2000. Both reports acknowledged that F&A; costs are real costs of performing research, and both found that universities are not recovering their full F&A; costs. In fact, the RAND report estimates that the Federal outlay for F&A; costs fall short of the F&A; costs eligible for reimbursement based on negotiated rates by up to $1.5 billion per year.
Limitations of F&A; reimbursement for funding renewal of research facilities. The Working Group also identified several drawbacks of relying on F&A; mechanisms as a primary source for funding the improvement of research facilities.
Federal Grants for Facilities Renewal
The NIH Research Facilities Improvement Program (RFIP) provides direct funding for the construction or renovation of biomedical research facilities. In recent years, the maximum annual appropriation for this program has been $75 million (in FY 2001), which is far short of the $5.6 billion in postponed construction or renovation of biomedical research facilities described in the 1998 NSF report.
Overall Funding. The Working Group recommends a sizable increase to NIH's direct investment in the construction and renovation of biomedical research facilities. In particular, the Group recommends that Congress:
Grant Size. Because of relatively low overall funding levels, RFIP grants have generally been on the small side, with a maximum award of up to $2 or $3 million. In many cases, these small grants serve as seed money and help institutions to obtain additional funding from other sources. But in some cases the small grant size can lead to inefficiencies and higher construction costs overall, especially if the project is large and must be completed in a piecemeal fashion. If the overall budget for NIH facilities improvement grants increases as suggested above, the Working Group recommends that NIH:
Matching and Other Grant Requirements. The current 1:1 matching requirement for obtaining RFIP funds is onerous to many institutions and discourages some from even applying, despite their need. Smaller institutions may lack sufficient access to nonfederal funds, or lack the experience and resources needed to raise capital for facilities renewal.
One rationale for requiring matching funds is that it demonstrates the seriousness of an institution's financial commitment to the project. However, the Working Group believes that simply embarking on facilities construction or renovation projects and planning to maintain these facilities over time represents a long-term financial commitment by the institution. The Working Group recommends:
Minority and Emerging Institutions. Many smaller institutions face unique difficulties when trying to secure funds for facilities renewal. Yet in many cases such institutions including those that serve minority populations or are located in geographic regions that typically have low success rates in obtaining NIH grants are in desperate need of facilities renovation or expansion. These institutions may also lack experience in applying for competitive grants or otherwise raising the large sums needed for the construction or renovation of research facilities. Therefore, the Working Group recommends:
Regional Primate Research Centers. The national network of eight RPRCs, located across the country, are mandated to serve as a resource to scientists both within and outside their host institutions. However, these critical facilities are in desperate need of modernization and expansion, since most were constructed more than 40 years ago.
The current relatively small size of RFIP grants creates difficulties when constructing expensive animal housing and research facilities, especially at the RPRCs. For example, at the Oregon RPRC, construction of one building of approximately 14,000 square feet required three years and three RFIP grants, which led to an increased cost of about 30 percent, including inflation. Larger grants (e.g., $4 million to $8 million) would allow completion of animal housing projects in a single phase, thereby improving efficiency and overall cost. The Working Group recommends:
Federal Loan Guarantees
Federal loan guarantees for facilities improvement have the potential to benefit research-performing institutions of all sizes. Smaller institutions with relatively low credit ratings may ordinarily be unable to obtain needed capital on reasonable terms. These institutions often must borrow at a higher interest rates and buy insurance on loans as well. In contrast, larger institutions, even those with excellent credit ratings, often experience a sizeable dip in their credit ratings once they've borrowed to fund facilities improvements, and so future debt service must be obtained at a less favorable rates.
Federal loan guarantees would assist both large and small institutions, as well as those in between. Such a program would have high leverage, reducing the cost of capital for institutions while allowing the cost to the Federal government to remain relatively low. Therefore, the Working Group recommends that the Federal government:
The principal barriers to this proposal are that it would require new legislative authority, which might take years to obtain, and it would be labor-intensive for NIH to operate. But the Working Group believes that the relative savings that would accrue to the research-performing institutions would far outweigh the administrative costs of operating the program. To the extent that interest costs are reimbursed under the F&A; mechanism, considerable cost savings would also accrue to the Federal government.
If successful, such a program might also serve as a model for funding facilities improvement by other agencies (such as NSF, the U.S. Department of Energy, etc.).
F&A; Reimbursement
The Working Group believes that Federal F&A; reimbursements to research-performing institutions over the past several decades have been critical to the partnership between the institutions and the Government. In light of the sensitivity of F&A; costs and the practical constraints on increases in F&A; rates noted earlier, the Working Group concludes that major changes to F&A; policies are not feasible. However, several things could be done in this area to help promote institutional investment in research facilities and assure equitable reimbursement of the costs of those investments. Specifically, the Working Group recommends the following actions to strengthen the indirect cost mechanism and assure that it remains a vital element in the support of the research infrastructure:
ROSTER OF WORKING GROUP MEMBERS
NIH Working Group on Construction of Research Facilities
Richard A. Grossi
Peter O. Kohler, M.D.
Julie T. Norris
David O'Brien
Gary M. Talesnik
NIH Staff:
Judith Vaitukaitis, M.D.
Current Insufficiency of Biomedical Research Facilities. Overall, the NSF report found, the 908 institutions that conduct biomedical research in the United States have had to defer a total of $5.6 billion in needed construction and renovation because of insufficient funds. These institutions also reported that less than half of their current research space in the biomedical sciences was "suitable for the most scientifically competitive research." Over the 10-year period between 1988 and 1998, the amount of biomedical research space reportedly in need of renovation or replacement nearly doubled, from 4.2 million net-assignable square feet (NASF) in 1988 to 8.3 million NASF in 1998.
Minority-Serving and Emerging Institutions. Institutions that lack a large base of NIH grants find it difficult to break into the system. Such institutions include those that serve minority populations or that are located in geographic regions that traditionally have received smaller proportions of NIH funding. Of the historically black colleges and universities (HBCUs) that have existing or needed research space in the biomedical sciences, 70 percent reported that their research space was inadequate, according to the 1998 NSF report.
Debt Sources. Debt financing is a commonly used source of capital to fund the costs of facilities renewal projects. In 1996 and 1997, debt sources comprised nearly one-third the total costs of new construction at biomedical research facilities nationwide and about 9 percent of repair/renovation costs. Research hospitals and nonprofit biomedical research organizations are especially dependent on debt financing, which contributes 91 percent and 49 percent, respectively, of their total construction costs, according to the 1998 NSF report.
Figure 1. Sources of funding for (a) repair or renovation and (b) new construction of research facilities in 1996 and 1997. Data were collected from the 908 institutions that conduct biomedical research in the United States; however, the data include expenditures made on all scientific and engineering research facilities at these institutions (not just the facilities that house biomedical research).
Although the Federal government directly contributes only about 8 percent of the total costs of construction and repair or renovation, it also makes indirect contributions via F&A; reimbursement to research-performing institutions.
Source: Based on data from Scientific and Engineering Research Facilities at Colleges and Universities 1998, NSF 01-301, National Science Foundation (Arlington, VA), October 2000.
Once received from the Federal government, F&A; monies become categorized as a part of the "institutional funds," making it difficult to track how much F&A; money is ultimately applied to the construction or renovation of research facilities. Because of changes to the Federal rules governing F&A; costs (described in the Office of Management and Budget Circular A-21), the amount of F&A; reimbursement received for
depreciation must now be expended to acquire or improve research facilities, or reserved for such expenditures within the subsequent five years. Institutions must provide an assurance of these expenditures as part of the F&A; cost proposal submitted to the Federal government.
Shift from Direct to Indirect Federal Funding. Beginning in the mid-1960s, Federal mechanisms for funding the renewal of research facilities started to shift. Rather than directly paying construction costs, the Federal government began to depend increasingly on indirect cost reimbursement to support the maintenance and improvement of research facilities. One impetus for this shift was the lifting of a federally imposed limit on indirect cost rates. Prior to 1966, institutions receiving NIH support could recover a maximum of 15 to 20 percent of a project's direct costs. But in 1965 a study by the White House Office of Science and Technology concluded that this ceiling led to less-than-full reimbursement for the actual costs of conducting federally sponsored research. As a result, the cap was lifted and replaced by negotiated rates based on each institution's actual indirect costs, a practice that continues to this day.
Direct Federal Spending on Facilities: 1970s to Today. The NIH Health Research Facilities Program received its last appropriation in 1969, and direct NIH spending on facilities construction and renovation had fallen to zero by 1971. NIH grants for facilities renewal enjoyed a sudden but brief boost in the mid-1970s, when the National Cancer Institute (NCI) launched a new facilities improvement program. More than $100 million in NCI facilities grants were awarded between 1972 and 1975. But by 1978, NIH spending on extramural renewal of research facilities again dropped dramatically to less than 0.5 percent of the total NIH budget (Figure 3) 7#151; and has generally remained that low ever since. When viewed in year 2000 constant dollars, or as a percentage of the total NIH budget, the precipitous drop in direct NIH spending on facilities renewal over the past five decades is particularly evident (Figures 2 and 3).
Matching Requirements. In most cases, institutions must obtain matching funds from non-Federal sources equal to the amount of the RFIP grant (a 1 to 1 matching ratio). For Regional Primate Research Centers, the matching requirement is reduced to a 1:4 ratio for non-Federal/Federal funds. With enactment of the Twenty-First Century Research Laboratories Act in 2001, the NCRR Director was granted authority to waive matching requirements for good cause on any RFIP application. However, overall elimination of RFIP matching requirements would require Congressional legislation. The table below provides an overview of RFIP grants awarded in FY 1999 and 2000.
Potential Advantages of NIH Loan Guarantee Authority. The Working Group identified the following potential advantages of creating a Federal Loan Guarantee program to fund the construction and renovation of biomedical research facilities:
Advantages of Using F&A; Recovery to Fund Facilities Renewal. The Working Group identified several advantages of the current mechanism for funding the construction and renovation of research facilities through F&A; reimbursement, including the following:
Chair
William R. Brody, M.D., Ph.D.
President
Johns Hopkins University
Baltimore, MD 21218-2688
Fitzgerald B. Bramwell, Ph.D.
Vice President for Research
and Graduate Studies
University of Kentucky
Chief Financial Officer
The Johns Hopkins University
President
Oregon Health Sciences University
Director, Office of Sponsored Programs
Massachusetts Institute of Technology
Director of Planning
School of Medicine
Stanford University
Earl S. Richardson, Ed.D.
President
Morgan State University
Special Consultant, KPMG Consulting
(Formerly Director of Cost Policy
and Indirect Cost Negotiations, DHHS)
Belinda Seto, Ph.D.
Deputy Director, Office of Extramural Research
National Institutes of Health
Director
National Center for Research Resources
National Institutes of Health
1.
Institutions are reimbursed for depreciation on facilities, but are not reimbursed for the cost of capital to finance the facilities unless the money is borrowed. For example, assume a building costs $100 million and is financed with $60 million of debt and $40 million of institutional funds. Depreciation on the full $100 million building costs would be allowed as well as the interest paid on the $60 million debt. However, the institution would not recover the cost of capital associated with its $40 million investment in the building even though it has clearly incurred an economic cost by using its own money to help finance the facility.