I don’t know how these legal battles are going to play out, but if the cap on indirect costs is sustained, it will have profound effects on balance sheets. Columbia, for example, is expectedto lose over 100 million dollars a year from this one change alone, and twice as much if other federal agencies follow suit. Stanford’s projected losses are in the same ball park. Other major research universities, including flagship state schools, all face roughly the same fate.
The last time there was a fiscal shock of comparable magnitude was during the pandemic, when Columbia faced about 300 million dollars in net losses over two years due to reduced occupancy in housing units, a precipitous drop in the number of international students, lower revenues from medical procedures, and new expenditures on testing, tracing, student evacuation, and upgraded classroom technologies. The university responded with employee furloughs, hiring and salary freezes, temporary reductions in retirement benefits, depletion of cash reserves, and new debt issuance.
The difference this time is that the fiscal shortfall is of indefinite duration, and cannot be addressed by temporary measures. Harvard’s president has argued that the proposed cap “would slash funding and cut research activity at Harvard and nearly every research university in our nation.” He predicts the following consequences:
The discovery of new treatments would slow, opportunities to train the next generation of scientific leaders would shrink, and our nation’s science and engineering prowess would be severely compromised. At a time of rapid strides in quantum computing, artificial intelligence, brain science, biological imaging, and regenerative biology, and when other nations are expanding their investment in science, America should not drop knowingly and willingly from her lead position on the endless frontier.
For reasons discussed below, such arguments are unlikely to sway those responsible for higher education policy in the current administration.
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