GIM 22
Attachment A
A Primer on Facilities and Administrative Costs

13. Are the cost category percentages similar at most research institutions?

Clearly, values for some cost pools differ widely. For example, total facilities costs range from 18.5 percentage points at the University of North Carolina, Chapel Hill to 39 and 41 percentage points respectively at Johns Hopkins University and MIT. The data reveal that one of the main reasons for the difference is in the Buildings and Improvements, Interest and Equipment cost groups. For these cost pools, North Carolina's rate is 5 percentage points compared to 17 for Johns Hopkins.

The rate at North Carolina is low for several reasons. First, the University's research facilities are relatively older, which means the original costs for construction were lower. In addition, North Carolina utilizes a 2% use allowance instead of full depreciation which does not generate much in the way of F&A costs for this pool, given the low base for the cost of the older buildings. And finally, without debt financing for buildings, the University has no interest expense to include in this cost group. By contrast, Johns Hopkins has newer, debt-financed research buildings which are depreciated in the cost study. The Hopkins rate includes about 8 percentage points for interest alone. Indeed, space costs are the single most important factor for F&A cost rate differences between institutions.

Prior to 1991, it was often argued that growing administrative costs were a major reason for substantial increases in F&A costs rates. While this argument had little validity before, it is now entirely without merit. The 1991 revisions to Circular A-21 placed a 26 percentage point cap on administrative costs (General Administration, Departmental Administration, Sponsored Projects Administration, and Student Services Administration). Chart VIII indicates that the current ranges are 22% to 26%, with 13 of the 15 universities within a percent or two of 26%.

The University of Washington rates are fairly typical: the F&A cost rate increases of the 1980s resulted from the facilities component and not from the administrative component. At the UW, during the period from 1987 through 2000, the facilities component of the rate increased by 9.5 percentage points (16.5% to 26%) while the administrative component decreased by 2 percentage points (28% to 26%). This resulted in an overall rate increase of 7.5 percentage points (44.5% to 52%).

The Library column of Chart VIII also shows substantial variation among universities. All but three universities received 2 percentage points or less, while MIT and Stanford each received more than 4 percentage points. Part of this can be attributed to economies of scale. At institutions such as Stanford and MIT, which have relatively smaller undergraduate populations but very large research programs, the majority of the costs of their extensive library holdings and library activity are attributed to the research enterprise. At the University of Washington, with large undergraduate enrollments, there is an economy of scale which makes the effective cost of sustaining the research portion of the library's activities somewhat lower.