FEDERAL RESEARCH AND DEVELOPMENT OVERVIEW. Prepared by The University of Texas System R. D. Burck, Chancellor
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1 FEDERAL RESEARCH AND DEVELOPMENT OVERVIEW Prepared by The University of Texas System R. D. Burck, Chancellor November 14, 2001
2 Introduction The positive impact of research and development ( R&D ) investments of the federal government on the U.S. economy is widely recognized by experts and is credited with underpinning much of the nation s economic growth during the 20th century. In short, science and technology are transforming our society, and the U.S. federal government has driven much of that change due to its investments in R&D. When the locations of federal laboratories and major federally funded R&D activities at universities are mapped with the locations of hightechnology start-up companies, the ripple effects of federal R&D investments on regional and local economies become even clearer. This paper is based on information obtained from the RAND organization, the Texas Higher Education Coordinating Board, and the Texas State Comptroller of Public Accounts Office. Much of the quantitative information in the RAND reports is based on 1998 statistics, often the most recently compiled data available. Overview of Federal R&D Definition of R&D The official definition of R&D, which applies to all federal agencies, is found in the Office of Management and Budget s (OMB s) Circular A-11. It distinguishes among the conduct of R&D and states specifically: Basic Research Applied Research Development Systematic study directed toward greater knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific applications toward processes or products in mind. Systematic study to gain knowledge or understanding necessary to determine the means by which a recognized and specific need may be met. Systematic application of knowledge toward the production of useful materials, devices, and systems or methods, including design, development, and improvement of prototypes and new processes to meet specific requirements. Direct and Indirect Costs of R&D Direct costs of conducting research are the materials and labor used to perform the project. Facilities and Administration costs (often called indirect or overhead costs) encompass spending on such items as facilities maintenance and renewal, heating and cooling, libraries, and the salaries of departmental and central office staff. Higher education institutions are eligible for reimbursement of indirect costs related to federal grants and contracts. Institutions do not necessarily receive full reimbursement for these costs, however. Indirect cost reimbursement rates are set by negotiation between the federal government and each university, based on accounting data. There are also statutory limitations that apply to certain programs. In these cases, universities recover less than their negotiated indirect cost rate. Universities are voluntary participants in this system. They offer and provide funds to share the overhead costs of R&D because they perceive good reasons to do so. Federal projects bring prestige and opportunity to faculty in their careers and universities as institutions. As administrative rates have declined because of the imposition of a 26 percent administrative cap, facilities rates have increased, leaving overall negotiated rates about constant since the late 1980s
3 National Averages of Total Negotiated Indirect Cost Rate Components Year Administrative Facilities Total Rate % 23.2% 50.6% % 23.6% 50.8% % 24.1% 51.8% % 24.3% 51.9% % 24.8% 52.2% % 25.6% 50.5% % 25.7% 50.6% % 25.8% 50.9% % 25.6% 50.8% % 25.9% 50.9% % 26.0% 51.0% Financial Impact of Federal R&D on the State of Texas In recent years, the federal government has spent approximately $4 billion annually in Texas on R&D activities. This amount comprises approximately 5.3 percent of the more than $75 billion annually in federal R&D outlays. State Estimate 1998 Federal R&D Outlays ($ in Billions) Federal R&D Rank Total Non- Entitlement Fed. Funds in 1998 ($ in Billions) % of R&D of Total Federal Funds Federal R&D per Capita ($ in actual) California $ $ % $441 Maryland ,573 Virginia Georgia Texas On average, federal R&D dollars account for approximately 10 percent of all federal funds spent in Texas each year on matters other than the direct support of individuals (i.e., entitlements such as retirement, disability, and housing assistance). Most major federal agencies that currently support federal R&D efforts provide funding for R&D activities in Texas. Foremost among these agencies are the National Aeronautics and Space Administration (NASA) and the Department of Defense (DoD), which account for 44 percent and 34 percent of all federal R&D dollars spent in the state, respectively. The Department of Health and Human Services (HHS) accounts for 12 percent of the federal R&D dollars spent in Texas. The remaining federal R&D dollars come collectively from the National Science Foundation (NSF); the Departments of Agriculture (USDA), Commerce (DoC), Energy (DoE), and Veterans Affairs (DVA); and several other federal agencies. All federal R&D dollars spent in Texas either cover the costs of operating federal R&D units in the state, including paying the salaries of federal R&D personnel working at these units, or are awarded as grants, contracts, or cooperative agreements to entities in the state. The following is an overview of where and how federal R&D dollars are employed at key federally operated R&D units in Texas: - 3 -
4 Key Federal R&D Units in the State of Texas Location Sponsoring Agency Facility Austin Dept of Interior Texas District Office of Water Resources Beaumont USDA Rice Research Laboratory Bushland USDA Conservation and Production Research Laboratory College Station USDA Southern Plains Agricultural Research Center Dept of Interior Brazos Field Research Station Corpus Christi Dept of Interior Padre Island and Corpus Christi Field Research Stations Dallas HHS Dallas District Laboratory DVA R&D Unit Fort Bliss DoD Air and Missile Defense Battle Laboratory Fort Hood DoD Army Research Institute Galveston DoC Galveston Laboratory Houston NASA L.B.J. Space Center USDA DVA Children s Nutrition Research Center R&D Unit Kerrville USDA Knipling-Bushland Laboratory Lubbock USDA Cropping Systems Research Laboratory Dept of Interior Texas Cooperative Fish and Wildlife Research Unit Nacogdoches USDA Wildlife Habitat and Silviculture Laboratory San Antonio DoD Army Institute of Surgical Research Nuclear Reg Comm DVA Center for Nuclear Waste Regulatory Analyses R&D Unit Temple USDA Grassland, Soil, and Water Research Laboratory Weslaco USDA Subtropical Agriculture Research Center Other Federal R&D Activities in Texas Several private sector entities located in Texas also receive notable sums in the form of contracts or cooperative agreements from federal agencies for specific R&D efforts. By far, the majority of these funds go to the Boeing Company for work on NASA s International Space Station (close to $1.4 billion in FY 1998). In addition, Texas-based units of Raytheon and its subsidiaries ($240 million), Texas Instruments ($168 million), Bell Helicopter Textron ($77 million), and Lockheed Martin ($39 million) received large R&D contracts from federal agencies in FY Federal Funding of University R&D Federal spending for scientific research at U.S. academic institutions amounted to $15.1 billion in Approximately three-quarters of this outlay supports the direct costs of conducting research, such as the materials and labor used to perform each project. Despite average negotiated indirect cost rates of 51 percent, the remaining one-quarter of federal outlay covers facilities and administration costs. This differential between negotiated rates and actual indirect costs recovered, results from voluntary cost sharing by universities. The federal government is the largest source of funding for research in universities. Other external sources provide substantial funds as well: about $2 billion each from industry, state and local governments, and a combination of other providers, mostly foundations and private gifts. After - 4 -
5 the federal government, the largest supporters of university research are the universities themselves, in the form of direct and indirect costs (as discussed above). Each year universities direct resources they control to support about $5 billion in research. Principal Agencies Funding University R&D Six agencies sponsor the vast majority of research in universities. As shown in the graph below, the Department of Health and Human Services (DHHS) accounts for more than half of the total $15.1 billion federal outlay. The DHHS includes the National Institutes of Health (NIH), which organizes most of this agency's academic research funding. Five other agencies--the National Science Foundation (NSF), the Department of Defense (DoD), the Department of Agriculture (USDA), the National Aeronautics and Space Administration (NASA), and the Department of Energy (DoE)--account for a majority of the residual federal research funding for universities. Concentration of University Award Recipients Just as the source of research funding is concentrated in a few agencies, most of the funds go to a relatively small number of institutions. There are more than 4,000 accredited institutions of higher education in the United States. Of these, about 460 report receiving some federal research funding on an NSF survey. Major recipients are a smaller set. The top 50 recipients of federal research support account for 61 percent of total spending. The top 150 recipients account for 92 percent of the total Federally Funded R&D Expenditures for All Academic Disciplines at Selected Institutions 1998 Federal Outlay ($ in billions) 1998 Rank Academic Institution $ in Millions 1 Johns Hopkins $753 2 Stanford University of Washington-Seattle University of Michigan, All Campuses MIT University of California -San Diego Harvard University of Pennsylvania University of Wisconsin-Madison University of California -Los Angeles University of Texas at Austin Texas A&M University, All Campuses University of Texas Southwestern-Dallas Texas Tech University DHHS NSF DoD USDA NASA DoE All Other - 5 -
6 Federal Funding of The University of Texas System R&D Every major institution of higher education in Texas is the recipient of federal R&D dollars each year through grants made by federal agencies to faculty, graduate students, and research centers. The vast majority of the R&D grants are made by HHS, NSF, and DoD to individual faculty members and therefore ultimately accrue to the benefit of the institutions. The greatest beneficiary of higher education research-related expenditures is medical science (32 percent of the Texas total). Each year, million of dollars are spent on researching the cause, prevention, and treatment of a wide range of diseases including cancer, heart and vascular diseases, diabetes, and other major diseases. Other major expenditures include engineering (16 percent), biological and other life (22 percent) and environmental sciences (10 percent). Trends The federal government funded 55.4 percent of the $1.6 billion in total research expenditures by Texas public higher education institutions in 2000, making it the source of most research funds as it is in other states. The U. T. System has worked hard to increase research awards and indirect cost recoveries over the past five years, as follows: U. T. System s Share of Federal R&D Expenditures Health Academic $ in Millions U. T. System s Federal Indirect Cost Recoveries ($ in Millions) $108 $119 $126 $134 $148 Federal R&D funding has averaged 11 percent of total U. T. System operations during the past five years. Approximately 7 percent of these activities are attributable to medical science R&D at the System s six health institutions. R&D and the Economic Impact of Texas Universities The State Comptroller s Office estimates that for every dollar of externally funded R&D to Texas Universities, a 332 percent return on investment was generated in The U.S. federal R&D yielded an economic impact of $3.9 billion. The combination of this amount with the M.D. Anderson Cancer Center s impact of $605 million from patient care for non-texans, - 6 -
7 the spending generated by non-resident students at state universities of $2.3 billion, and the productivity gains of $17.8 billion contributed by higher education resulted in a $24.6 billion total economic impact to the State of Texas. Conclusions Federally funded R&D programs have dramatically improved business activity, personal income, job creation, and technological advances in human health and welfare. For these reasons, states and localities compete fiercely with each other to attract federal R&D support to their jurisdictions. While Texas ranks fifth in federal R&D outlay, it stands twentieth overall in federal R&D funds received per capita, behind many less populous states. Federal R&D funding for Texas universities has proven to be money well spent. Bibliography Fossum, Donna, et al., Discovery and Innovation: Federal Research and Development Activities in the Fifty States, District of Columbia, and Puerto Rico, RAND, 2000, accessed at Goldman, Charles A., Williams, T., Adamson, David M., and Rosenblatt, Kathy, Paying for University Research Facilities and Administration, RAND, July 2000, accessed at Texas Higher Education Coordinating Board, Research Expenditures Report for Texas Public Universities and Health-Related Institutions, April 2001, Austin, TX, accessed at Texas State Comptroller of Public Accounts, The Impact of the State Higher Education System on the Texas Economy, December 2000, Austin, TX, accessed at
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