Question for Panelists discussing the Report of the Senate Task Force on University – Industry Partnerships

On November 18, CUCFA Secretary Christine Rosen sent the following letter:

Date: November 18, 2008

To: Mary Firestone, Chair, Berkeley Division of the Academic Senate
George Breslauer, Executive Vice Chancellor and Provost
Janet Broughton, Dean of Arts and Humanities
Fiona Doyle, Executive Associate Dean, College of Engineering
Carla Hesse, Professor of History
Richard Mathies, Dean, College of Chemistry

From: Christine Rosen, Associate Professor, Haas School of Business and Secretary, CUCFA

Re: Question for Panelists discussing the Report of the Senate Task Force on University – Industry Partnerships

I am writing this letter on behalf of the Council of University of California Faculty Associations (CUCFA) to follow up on my comment on and question regarding the panel presentation at the November 13 meeting of the Berkeley Academic Senate on “the implications of increasing dependence on private funding for research, teaching, and service at Berkeley.” The panel speakers said that they needed more time to respond to my question, but indicated that they would be willing to do so at a later time.

I’ll start by briefly recapitulating my comment and clarifying and expanding some of my points.

The CUCFA Board appreciates the thoughtfulness of the Task Force’s report. We agree that corporate research grants and partnerships can support the University’s research and teaching.

However, we are concerned that the leaders of our campus and university administrations consider our campus’s “increasing dependence on private funding for research, teaching, and service” as the answer to the larger economic problem facing the university as a result of the steady cuts in state support. We are concerned that this claim is not credible and that, without safeguards, these grants and partnership may in fact make our economic plight worse.

As I pointed out, we have several grounds for our concern. They relate to problems with the overhead charges used to offset the cost to the university of recruiting and administering corporate grants. The belief that the federal overhead rate is a subsidy to the university to pay other educational costs is a widely held urban myth among faculty and administrators who don’t understand how overhead is negotiated.

1. The Federal indirect cost (overhead) rate of 53% does not, by design, cover all the real costs to the university of administering grants. The reason for this is that the federal government expects some level of cost sharing by the University in recognition of the fact that the research is a core mission of the university. Thus, even grants that draw the full federal indirect cost rate require some contribution of University resources.

2. The Federal overhead rate is just a ceiling where private grants are concerned. Corporations can and often do negotiate lower overhead rates, increasing the amount of University resources needed to cover the full costs of conducting the sponsored projects.

3. Given the competition for sponsored corporate projects Berkeley may be forced to accept increasingly low overhead rates to stay competitive in a race to the bottom for these funds. Doing so will further increase the need to divert other University funds to cover unreimbursed indirect costs.

4. As many of the panel speakers pointed out in their presentations, increasingly large amounts of state resources are being diverted to enable the development office to bring these funds to campus and to enable the campus to manage the huge, complex, difficult to manage the Big Science projects that are being funded. The larger these projects are, the more University discretionary funds must be diverted to cover these expenses.

5. The numbers on page 40 of the Task Force report show the standard gross revenue statistic to argue that these corporate sponsored projects are big money earners. These are not net figures that account for the University’s financial contributions to these projects, so do not present a meaningful picture of the true financial impact of these projects.

6. At a time that the University was in a strong financial position, one could argue that these public subsidies of private projects were a worthwhile investment of University resources. At a time of financial stress, however, there is a high likelihood that the funds necessary to cover their full costs will come at the expense of teaching, non-sponsored research and service, and other core university functions.

To sum up, for the reasons stated, CUCFA is concerned that these grants may be compromising Berkeley’s ability to meet its core academic mission by sucking many more resources from the University than they are returning. If so, they represent a major de facto reorientation of the University’s academic plans – without clear and explicit consideration by the Senate, the administration, and other key Berkeley constituencies.

The first step to sensibly discussing these questions would be for the Administration to provide a reasonable accounting of the magnitude of unreimbursed indirect costs (and other forms of cost sharing, if any) for the 20 largest corporately funded sponsored projects at Berkeley, a description of the specific fund sources being used to cover these costs, and an estimate of which of the campus’ existing unfounded needs could be met if these funds were used to pay those expenses rather than subsidize these corporate projects.

Only after carefully considering this information should the Senate endorse the concepts in the Task Force report.

I concluded my comment by asking what the Senate can do to ensure that corporate grants and partnerships do in fact provide more economic benefit to the university than their cost to the university. This is the question I hope you will be able to answer.

In CUCFA’s view, it is important that the Senate not approve this report until the administration has demonstrated, based on actual experience to date, that the economic benefits to the campus of these large corporate grants and partnership do in fact exceed the economic costs to the campus and its academic mission. Among the conditions for UC-industry partnerships should be (1) that they bring in more than they cost; (2) that they return this surplus to support the general mission of this campus; (3) that Senate committees be charged with reporting to the Senate whether these conditions are met in aggregate and for individual projects (at least those above a certain size), and (4) that an administrative process be put in place to enable and ensure that the Senate, the campus administration, and the parties managing the partnerships will negotiate and implement remedies for any failures to meet these conditions.

Finally, this letter should not be interpreted as opposing all corporate sponsored projects at Berkeley, or even the use of campus discretionary funds to subsidize some such projects. The decisions to provide such a subsidy, however, should be based on accurate information about the true costs and benefits, including the opportunity costs for leaving other crucial university needs unmet.

It must be a major concern of the campus that “competition” for such projects not further drain the resources appropriated by the State to fund our overall educational mission.

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