Mike the Mad Biologist

Overhead and Costing Out Professors

We read that a conservative Texas faith tank has convinced the Texas Legislature to force universities to release a “profit-and-loss” statement for every professor:

A 265-page spreadsheet, released last month by the chancellor of the Texas A&M University system, amounted to a profit-and-loss statement for each faculty member, weighing annual salary against students taught, tuition generated, and research grants obtained.

Ms. Johnson came out very much in the black; in the period analyzed–fiscal year 2009–she netted the public university $279,617. Some of her colleagues weren’t nearly so profitable. Newly hired assistant professor Charles Criscione, for instance, spent much of the year setting up a lab to research parasite genetics and ended up $45,305 in the red.

James Kwak is absolutely right to call this “just about the most idiotic way of doing it that I could imagine.” And Daniel Hamermesh is absolutely right in pointing out that this system will have all sorts of unintended consequences, as many faculty activities don’t increase revenue, but are essential parts of education, outreach, and scholarship.

But I want to draw your attention to this chart from the WSJ article because it reinforces what I’ve been saying for a long time about overheads (indirect costs and fringe benefits) on scientific research grants:

RV-AA474_TEXASt_NS_20101022184102

We’ll leave aside the puzzling poor performance of some of the science departments. And like I said, this is a stupid way to determine the effectiveness of a university–only ‘free market’ conservatives could come up with something this stupid. But it does highlight an important fiscal reality: research–and the overheads generated by grants–play a critical role in the financial health of many colleges and universities, not just the major research institutions (although there, it can be humongous). Like it or not, the numbers do have to add up.

I’ve described overheads before, but the short version is that if I receive a grant for a million dollars to do the work (“direct costs”)–salaries, equipment, supplies, travel, and so on–typically, universities will be granted an additional thirty to forty percent of that total to pay for costs incurred to the university (maintenance of buildings, administration, benefits for grant-funded employees, etc.). While the exact extra amount will depend on the institution and what’s requested in the grant, this is a reasonable rule of thumb. The actual overhead costs usually don’t run to that much, so part of the ‘overhead’ is actually profit for universities, in that those surplus funds can subsidize other activities.

For many faculty, this brutal accounting-based perspective is nothing new, but I think most people outside of academia don’t realize just how important grant funding is financially. Having said that, to make this the organizing principle for an institution dedicated to education, service (it’s an ag school, they do a lot of outreach), and scholarship is very stupid, and precisely what I would expect from a conservative faith tank.

But, hopefully, this exercise should make those who perpetually claim that professors should ‘do less research and more teaching’, ‘more outreach’, or an elimination of massive 300 student classes realize that, if they want these things, then they will have to pay for them.

An aside: Texas A&M appears to have removed the report from their website (pdf).

Comments

  1. #1 daedalus2u
    November 4, 2010

    The surplus funds that you describe are not “profit” that ends up in someone’s pocket. They are used to do things that accounting rules say can’t be added to overhead.

    Einstein had a good quote about it. “Not everything that can be counted counts, and not everything that counts can be counted.”

  2. #2 Fred
    November 4, 2010

    Including “students taught” is obviously going to skew the the report in favor of soft-ass non-disciplines like journalism and art. Why not include “donations from alumni” by department? Suddenly all those art/journalism/poli-sci/history programs won’t seem as profitable as engineering/chemistry/biology etc.

    This is another shot fired in the war against science education. Watch the science budgets shrink because Texas public schools actively try to repel students from an interest in science.

  3. #3 NewEnglandBob
    November 4, 2010

    They should require a profit-loss statement on all Texas legislators to show how they are 100% total loss and a drag on society.

  4. #4 Robert B
    November 4, 2010

    Breaking News: All departments outside of the Athletic programs of Football and Basketball have been canceled due to poor financial performance.

  5. #5 Tex
    November 4, 2010

    Mike,

    I am in the Biology department at Texas A&M, and I can assure you that those numbers do not take research into account at all. When that is done, then almost all of our departments are very much in the black.

    The numbers in the chart you present represents ONLY money generated from teaching (tuition and fees from the students plus subsidies from the state). This has nothing to do with research, and even the teaching numbers were generated in such a haphazard way they are meaningless. Apparently, I taught 72 students in 35 different classes in the year they analyzed.

    According to the report and our Bored of Regents’ desire to have each professor teach 3 courses per semester, I should be caught up for the next 5 or 6 years.

    If any faculty member had done such a piss poor job on an important report they would have had their tenure revoked.

  6. #6 Joe
    November 5, 2010

    It’s a weird way to fund a university, and in some ways both the NIH and we scientists are getting ripped off. My public MRU is getting squeezed by reduced funding from the state, so my department’s budget gets cut and then we get less services and materials from the univ, even though we are still paying the same in overhead. (Thus the NIH is getting cheated). The univ has even invented accounting gimmicks to get us to pay tuition for our grad students that are only doing research, funds that are then used to fund grad students at the univ generally. Due to NIH and univ rules, I can no longer buy a computer with grant money unless I will use it to run equipment in the lab. I think the NIH must think that they can refuse to pay for computers because the univ should be using overhead money for that, but that doesn’t happen either.

    I have some sympathy for those pushing accountability, because we have a number of faculty that bring in no grant money and aren’t even trying. My salary replacement money is paying their salaries, instead of going for improvements to the dept, such as expensive equipment. There should be better rewards for faculty that work hard and bring in grant money and also rewards for those that just work hard, even if there is no direct profit to the univ.

    The system described in TX is absurd. The current systems in many places don’t make much sense either.

  7. #7 Eric Lund
    November 5, 2010

    Due to NIH and univ rules, I can no longer buy a computer with grant money unless I will use it to run equipment in the lab.

    Same deal with NSF and NASA. You need to get special permission to spend grant money on computers.

  8. #8 drdrA
    April 11, 2011

    ‘I have some sympathy for those pushing accountability, because we have a number of faculty that bring in no grant money and aren’t even trying. My salary replacement money is paying their salaries, instead of going for improvements to the dept, such as expensive equipment. There should be better rewards for faculty that work hard and bring in grant money and also rewards for those that just work hard, even if there is no direct profit to the univ. ‘

    Joe- There is another way to get deadwood faculty out- and that is for chair people to do their jobs and distribute resources and teaching fairly and in a transparent way. It doesn’t require the kind of ‘accountability’ that is going on at A&M (and I don’t think that is what you meant- for the record). Maybe we should be asking chair candidates the hard questions- like what will you do about problem employees… that every manager in business probably gets asked.

    Furthermore, I totally agree with you that there is very little in the way of retention incentives for faculty. As a rule, for tenured faculty – you generally get two regular raises in your entire career- once when you are raised from assistant to associate (after like…. 6-7 years of being faculty), and once when you are raised from associate to full- lets say… like 5 or 6 years later. Otherwise- you better go out and get an offer elsewhere …. because then a retention package might come your way. Its sad really.

  9. #9 RT
    April 25, 2011

    The same department??? Who hired this couple?

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