why do universities salivate over money-losing grants?

Happy new year. Guess what my New Year’s resolution is. To that end, a few quick thoughts on universities and the grant economy to dip a toe back in the water.

We all know that American universities (well, not only American universities) are increasingly hungry for grants. When state funding stagnates, and tuition revenues are limited by politics or discounting, universities look to their faculty to bring in money through grants. Although this may be a zero-sum game across universities (assuming total funding is fixed), it is unsurprising that administrations would intensify grant-seeking when faced with tight budgets.

Of course, it’s only unsurprising if grants actually make money for the university. But a variety of observers, from the critical to the self-interested, have argued that the indirect costs that many grants bring in – the part that pays not for the direct cost of research, but for overhead expenses like keeping the network running, the library open, and the heat and electricity on – don’t actually cover the full expense of conducting research.

Instead, they suggest that every grant the university brings in costs it another 9% or so in unreimbursed overhead. In addition, about 12% of total research spending consists of universities spending their own money on research. While some of this goes to support work unlikely to receive external funding (e.g. research in the humanities), I think it’s safe to assume that most of it is related to the search for external grants – it’s seed funding for projects with the potential for external funding, or bridge funding for lab faculty between grants. (These numbers come from the Council on Government Relations, a lobbying organization of research universities.)

If that’s the case, it means that when faculty bring in grants, even federal grants that come with an extra 50% or so to pay for overhead costs, it costs the university money. Money that could be spent on instruction, or facility maintenance, or even on research itself. So how can we make sense of the fact that universities are intensifying their search for grants, even as the numbers suggest that grants cost universities more they gain them?

I can think of at least three reasons this might be the case:

1.  The numbers are wrong.

It is notoriously difficult to estimate the “real” indirect costs of research. How much of the library should your grant pay for? How much of the heat, if it’s basically supporting a grad student who would be sitting in the same shared office with or without the grant? There are conventions here, but they are just that – conventions. And maybe universities have a better sense of the “real” costs, which might be lower than standard accounting would suggest. COGR has an interest in making research look expensive, so government is generous about covering indirect costs. And critics of the university (with whom I sympathize) have a different interest in highlighting the costs of research, since they see a heavy grants focus as coming at the cost of education and of the humanities and social sciences. (See e.g. this recent piece by Chris Newfield, which inspired the line of thought behind this post.)

Certainly the numbers are squishy, and the evidence that grant-seeking costs universities more than it gains them isn’t airtight. But I haven’t seen anyone make a strong case that universities are actually making money from indirect costs. So I’m skeptical that these numbers are out-and-out wrong, although open to better evidence.

2. It’s basically political and/or symbolic, not financial.

A second possibility is that the additional dollars aren’t really the point. The point is that universities exist in a status economy in which having a large research enterprise is integral to many forms of success, from attracting desirable faculty and students, to appearing in a positive light to politicians (more relevant for public than private universities), to attracting donations from those who want to give to an institution that is among the “best”. Or, in a slight variation, maybe the perceived political benefits of having a large grant apparatus – of being on the cutting edge of science, of being seen as economically valuable – is seen as outweighing any extra costs. After all, what’s an extra 10% per grant if it makes the difference between the state increasing or cutting your appropriations over the next decade? (Again, most relevant for publics.)

These dynamics are real, but they don’t explain the intensification of the search for grants in response to tight budgets, except insofar as tight budgets also intensify the status competition. But it really seems to me that administrators see grants as a direct financial solution, not an indirect one. So I think that symbolic politics is a piece of the puzzle, but not the only one.

3.  Not all dollars are created equal.

Different dollars have different values to different people. Academic scientists often like industry grants because they tend to be more flexible than government money. Administrators, on the other hand, don’t, since such grants typically don’t cover overhead expenses.

Perhaps something related is going on with the broader search for grants. Maybe, even if grants really do cost more than they bring in for universities, administrators don’t perceive the revenues and the expenses in parallel ways. After all, those indirect costs provide identifiable extra dollars the university wouldn’t have seen otherwise. But the “excess” expenses are sort of invisible. The university is going to pay for the heat and the library either way; even if you know the research infrastructure has to be supported, you might assume that the marginal overhead cost of an additional grant doesn’t make that much difference. (Maybe you’d even be right.) And people might not see some costs – like university seed funding for potentially fundable research – as an expense of grant-seeking, even if that’s why they exist.

I think this is probably a big part of the explanation. The extra revenues of grants are visible and salient; the extra costs are hidden and easy to discount. So, rightly or wrongly, administrators turn to grant-seeking in tight times despite the fact that it actually costs universities money.

There are some other possibilities I’m not considering here. For example, maybe this is about the interests of different specific groups within the organization – e.g. about competitions among deans, or between upper administration and trustees. But I think #2 and #3 capture a lot of what’s going on.

So, if you think this dynamic (the intensification of grant-seeking) is kind of dysfunctional, what do you do? Well, pointing out how much research really costs the university – loudly and repeatedly – is probably a good idea. Make those “extra” costs as visible and salient as the revenues. (Though it would be SO NICE if the numbers were better.)

But don’t discount #2 – even if any extra costs of grants are made clear, universities aren’t going to give up the search for them. Because while the money grants bring in matters, they also have value as status capital, and that outweighs any unreimbursed costs they incur. Grants may not quite cover those pesky infrastructure costs. But the legitimacy they collectively confer is, quite literally, priceless.