UNC’s Federal ‘Overhead’ Left Untouched — For Now

Last year, 15 universities comprising the University of North Carolina system (excluding the N.C. School of the Arts) received $123.6 million in what are known as “overhead receipts” from federal research grants. That money, which the UNC system prefers to call “facilities and administrative receipts,” is money given on top of the actual grant amount that is intended to defray the administrative and institutional costs in conducting the actual research.

Those are costs, however, that the General Assembly has already covered. Thus the overhead receipts stand out as a recoverable pot of money to legislators, especially during a tight budget season.

Not so fast, say university lobbyists. They paint a picture of future irrelevance of the UNC system if they are forced to give back some of their overhead. That money is the catalyst for future research projects, they say, and equate the legislature thinking of taking it with a farmer considering eating his seed corn.

So far the UNC argument has held sway in Raleigh, although it suffered a close call in March, when a last-second change to Gov. Mike Easley’s budget proposal changed a proposal to pull $13.9 million in the universities’ overhead receipts to a proposal to cut that amount via a “one-time flexibility reduction” — which left it at the chancellors’ discretion where to make the cuts.

Last year when legislators mulled the option of accessing part of universities’ overhead, UNC advocates brought forth a litany of those “good uses,” citing researchers and research made possible, they said, only through their having discretion on those overhead receipts’ use. Also, N.C. State Chancellor Marye Anne Fox and UNC-Chapel Hill Chancellor James Moeser co-wrote an op-ed in the July 2, 2002 issue of the Charlotte Observer in which they warned of devastating results if the General Assembly accessed some of their overhead, and not just to the universities, but also to the state. “If overhead receipts were diverted from our campuses,” Fox and Moeser wrote, “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.”

UNC institutions weren’t allowed to keep all of their overhead receipts until 1999. Till then the legislature expected a certain share of it back into state coffers. In 1990, the state kept 30 percent of UNC schools’ overhead. In 1991 the legislature kept 50 percent, with the promise (which was kept) that the next year it would keep only 20 percent. By 1997 the legislature kept only 10 percent, and was, also as promised, phasing out its demanded share of the overhead.

The 800-pound gorilla in this issue has always been UNC-CH. In 1989-90, for example, UNC-CH brought in $31.9 million of the system’s $45.3 million. Last year, UNC-CH alone earned over two-thirds of the overhead ($83.7 million) of the entire UNC system. That amount dwarfs N.C. State’s haul of $24.3 million — even though N.C. State earned over 60 percent of the remainder ($39.9 million). So if the legislature were to return to taking a portion of that overhead, it would receive a far greater amount from UNC-CH than any other school in the system. N.C. State would contribute a significantly smaller share than its sister flagship, but it would also give up an amount considerably higher than those contributed by the remaining UNC schools.

The UNC system is slated to receive an additional $24 million per the House budget or $25 million per the Senate in tuition increases. Nevertheless, if the legislature had gone by the governor’s original plan to pull $13.9 million from overhead receipts rather than from the universities’ budgets, the disproportionate effect of the loss of overhead revenue to UNC-CH would likely have offset the positive revenue effect of the tuition increase. That effect would just as likely not be shared by the other UNC institutions, including possibly also N.C. State.

Apart from the matter of universities receiving “double payment” for their facilities and administration (owing to federal overhead receipts going to cover those things, which have already been funded by the General Assembly), there is also the issue of where those receipts go. Such funds have been abused by private as well as public institutions, including recently. A famous example from the late 1980s is the $1,2000 commode that Stanford University put in its president’s house, paid for by federal research overhead. In 1991 auditors for the U.S. Dept. of Health and Human Services questioned over $900,000 in overhead expenses listed by Duke University, which included $6,000 for wine.

Recent, questionable expenditures by UNC schools include Winston-Salem State University spending more than $75,000 to search for a new chancellor, UNC-CH diverting grant money supposed to reimburse its libraries to other areas, and UNC-CH spending about $3,000 of their overhead on gourmet pizza. The latter prompted Rep. Art Pope last year to start the “Amante Pizza Index” to chart wasteful spending of overhead receipts according to how much federal money is dumped on UNC-CH’s gourmet pizza vendor of choice.In lieu of recovering a portion of universities’ overhead receipts, the legislature began requiring UNC officials to issue annual reports to the legislature on overhead receipts.

One thing seems clear about this issue of whether the state is entitled to a share in the UNC system’s federal research overhead receipts. The issue is not likely to be settled soon, especially if the state’s budget crunch persists.