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

1. New Zealand’s Approach to Supporting Research Overheads (and fully funding research) Stuart McCutcheon The University of Auckland

2. 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

3. University of Auckland Budget(29,000 EFTS) Revenue $m % increase p.a. Student component (Government) 227 2.5 Domestic tuition fees 115 2.5 International tuition fees 57 5.0 Performance Based Research Fund 68 0 Externally funded research 163 0 Other (service, donations, interest) 110 2.5 Total revenue 7401.9 Expenditure People costs 409 5-6 Operating (including leases) 201 2.5 Depreciation 108* 2.5 Total expenditure7184.2 Operating surplus 22* * Available for reinvestment (capital expenditure)

4. 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!

5. 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

6. 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 method Multiplier =Σ(overhead costs)/Σ(salaries) = 110-127% of salaries In some cases, application of the method is audited by the funding agency

7. A Typical Research Budget Direct costs$k Academic, technical staff (itemised) 700 Research working expenses (itemised) 200 Total direct costs 900 Indirect costs Academic and related salaries x overhead multiplier (1.21) 847 Total cost of project 1747

8. Disposition of Research Budget Components Direct costs $k Disposition Research staff 700 Teaching relief Direct employment Working expenses 200 Researchers draw down as required Indirect costs 847 Department contribution to central costs

9. Some Challenges to the NZ Overhead/Full Cost Funding System The coalition of the unwilling: Government agencies in transition Government agencies post-transition Private industry Charitable trusts (Some) academic staff This applies to some, but not all, such groups

10. 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

11. 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)

12. 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

13. 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”)

14. 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!