State budget crisis brings UNC ‘overhead receipts’ under scrutiny

Public universities in North Carolina this year received $120 million from the federal government in “overhead receipts.” That money is intended to help pay the universities’ administrative and institutional costs in conducting research for federal projects. It is also coming under legislative scrutiny in this tight budgetary era, as lawmakers question how the universities use that money and whether it duplicates any state funding efforts.

Until 1999, the legislature did exact a portion of the overhead receipts, ostensibly to reimburse the state for its share of the “double payment” for operational expenses. Determining the exact amount of the double coverage of operational expenses, or even whether there was such a redundancy (university officials, of course, say there wasn’t), is extremely difficult given the way the legislature allows the University of North Carolina system to decide the distribution of its operational expenses from the single, large amount the legislature appropriates for them.

Having given the overhead receipts fully over to the UNC schools, and then not only coming to view them as another straw to grasp in the current fiscal quagmire, but also having seen some of the questionable uses the universities have put them toward, legislators have begun to consider whether they should again avail themselves a portion of the universities’ overhead receipts. That was the goal of several House members this summer as that body discussed the state budget.

As one member of the House Education Appropriations Subcommittee, Alex Warner (D-Hope Mills), told The News & Observer in July, “You could make a very viable argument for the loose ends of those overhead receipts. We could put them to practical use in the state budget.”

Naturally, this development set off alarms within UNC. UNC officials took their case to legislators and also the public. For example, UNC-Chapel Hill Provost Robert N. Shelton wrote an op-ed in the N&O in June, N.C. State Chancellor Marye Anne Fox and UNC-CH Chancellor James Moeser teamed up to write an op-ed in July in The Charlotte Observer, the web site for the UNC system has an “Issue Brief” section to help UNC advocates make the case for the schools keeping all of their “facilities and administrative funds,” and the web site for N.C. State has a large section on “indirect costs.”

Those apologetics point toward the “good uses” of those funds, which include: N.C. State’s recruitment of Ralph Dean, an expert in fungal genomics, who has since 1999 garnered over $11 million in research grants; East Carolina University’s acquisition of the da Vinci Surgical System, robotic technology that has enabled ECU surgeons to perform the world’s first adrenal gland removal surgery and the nation’s first gastric reflux repair; UNC-CH’s recruitment of Charles Perou, a researcher developing new technology in the fight against breast cancer; and the further development N.C. State’s Centennial Campus, thus driving employment and spin off beneficial research discoveries. Also, they say, the receipts help support start-up costs for new laboratories, fund new research areas, and help fight diseases. Diverting a portion of that revenue stream to the legislature, they say, would be “devastating,” and not just to the universities, but to the state as well.

“If overhead receipts were diverted from our campuses,” Fox and Moeser write, “North Carolina would lose ground — and perhaps new companies, new jobs, and our best faculty — to other states that can make investments that promote research.”

Legislators have their own list, however; theirs is of the apparent “bad uses” of the funds. Those include:
• Winston-Salem State University spending over $75,000 to search for a new chancellor
• UNC-CH diverting grant money supposed to reimburse its libraries to other areas
• and N.C. State suggesting (a suggestion since retracted) it could use the money to cover deficits in its proposed hotel, conference center, and golf course.

Nevertheless, the universities’ worst-case-scenario argument — that returning a portion of the funds to the legislature would result in the financial immolation of the state as well as the universities — appears to have carried the argument, at least for now. The issue appears to have shifted away from returning to the pre-1999 practice of the universities returning a portion of their overhead receipts back to the legislature. The focus now seems to be on full disclosure of how those funds are used. It’s an uneasy and uncertain truce.