Virginia Tech OK’s Intelligent Infrastructure Initiative

Bringing intelligent infrastructure to Virginia

Bringing intelligent infrastructure to Virginia

The Virginia Tech Board of Visitors voted Monday to approve a $78 million plan to make the university a leader in “intelligent infrastructure.” The term encompasses everything from self-driving cars and drones to smart construction and energy systems — areas, in the words of President Tim Sands, that are “related to energy systems for the cities of the future and the way that people move in and around those cities.”

“We set … aggressive philanthropy and industry targets and were able to meet them quickly,” Sands said. “It was ready. … We already had industry and philanthropy champing at the bit.”

Intelligent Infrastructure is a fascinating field of endeavor, and one that is well suited to Virginia Tech’s engineering strengths. Further, the concept, while hardly original to Tech, has yet to become a trendy buzzword that every university in America is chasing, so Tech may have an opportunity to establish a leadership position in the field.

As an economic development initiative that stimulates the growth of R&D and, potentially, the spin-off of new technologies and business enterprises, intelligent infrastructure is an exciting idea. There is a double benefit for Virginia if the initiative helps state and local governments in the Old Dominion devise solutions to chronic problems such as traffic congestion and aging, ill-maintained infrastructure. Strategically, the initiative makes sense.

In other action, the board also approved a 3.5% hike for in-state tuition & fees in the next academic year, bringing the full-year cost to $13,329. That increase exceeds the 2% increase in Virginia’s median household income (2015-2016 numbers) by a hefty margin, but Tech remains a relative bargain compared to other Virginia’s other public, four-year institutions.

Here’s my question: Where does the $75 million come from to finance this significant new initiative? Tech officials say the money comes from corporate sponsorships, philanthropy and other sources but not from tuition & fees. In political terms, Tech is claiming that the project is not being financed on the backs of students and their families.

Here’s what the Roanoke Times has to say:

The … funding will come from non-general funds, which comes from revenue streams other than tuition and mandatory fees.

University officials previously vowed to put about $75 million into the intelligent infrastructure destination area. Millions in private dollars were in the plans since last year, and now Tech has $25 million. The donors include John Lawson, president and CEO of W.M. Jordan Co., and a former board of visitors rector; the charitable foundation controlled by the Hitt family of HITT Contracting Inc., in Washington, D.C.; and two other donors who Virginia Tech declined to name.

A briefing report included in the board briefing materials provides a few more details (my bold face):

At this time, the university is requesting to move forward with a $6 million planning authorization for the $69.5 million of outstanding capital projects and capital lease components. The planning authorization will cover establishing a scope, schedule, delivery method, and complete design documents for each capital component. As with all self-supporting projects, the university has developed a financing plan to provide assurance regarding the financial feasibility of this planning project. The funding plan calls for the use of private gifts, overhead funds, revenues derived from the Dining Services auxiliary, and future external support.

If Tech can make the Smart Infrastructure initiative essentially self-funding, then it would seem to be a win-win all around and a model for Virginia’s other research universities.

Two sets of questions, though. First, how much of the project will be paid through “overhead funds?” What overhead are we talking about? Who’s paying for that overhead now? Does that amount to an indirect subsidy?

Second, how certain are we that “future external support” will materialize, and how contingent is the Intelligent Infrastructure initiative upon obtaining that support? Is there any chance that Tech will spent $70 million+ on the project and the external support might not appear? If so, who gets left holding the bag? In other words, who bears the risk?

Bacon’s Rebellion…. asking the questions no one else will ask.

Update: “Overhead funds” come from sponsored research. “When an outside organization sponsors faculty research (e.g. NIH, General Motors, DOD, etc.) the university collects an overhead fee, in addition to the actual costs associated with the research (such as salaries or equipment costs),” says Larry Hincker, retired associate vice president for university relations. “This is a good example of how sponsored research leverages new activities without using any state funds.”

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16 responses to “Virginia Tech OK’s Intelligent Infrastructure Initiative

  1. re: ” Millions in private dollars were in the plans since last year, and now Tech has $25 million. The donors include John Lawson, president and CEO of W.M. Jordan Co., and a former board of visitors rector; the charitable foundation controlled by the Hitt family of HITT Contracting Inc., in Washington, D.C.; and two other donors who Virginia Tech declined to name.”

    so if Mr. Lawson asked for preferential treatment for one or more of his offspring?

    and hey… what about the administrative BLOAT at Va Tech – anyone worried about that?

    😉

  2. Jim, at the university “overhead funds” are funds associated with sponsored research. When an outside organization sponsors faculty research (e.g. NIH, General Motors, DOD, etc.) the university collects an overhead fee, in addition to the actual costs associated with the research (such as salaries or equipment costs). Those are the monies referenced in the Roa Times news stories. This is a good example of how sponsored research leverages new activities without using any state funds.

  3. hmmm… you mean that “bloat” is really “overhead”. 🙂

    I think Mr. Hincker got it right.. and we owe him thanks. Perhaps he has
    more he would share.

    Now maybe, we can stop accusing our Universities of nefarious behaviors with tuition and can get on to celebrating the fact that some of of them are really doing things that will help transform our economy to more of a private sector one that is not so dependent on the Feds spending money in NoVa and Hampton.

  4. I can’t speak for this project, specifically. It may be “self funding” (with some help at a minimum from dining services revenue).

    BUT, you can readily see that Virginia Tech put in $219M in INSTITUTIONAL funds into research in 2015.
    https://ncsesdata.nsf.gov/profiles/site?method=report&fice=3754&id=h2

    Did they get this $219M in 2015 from returns from their $800M endowment or the $100M in funds they raised? Obviously not. Did they get it from patent income as Larry might suggest? They have earned $40.2M TOTAL from 1991-2014 (23 years) according to Bloomberg. No.

    So I’ll say it again. Some of it — probably quite a bit of it — comes from tuition. But no one associated with universities wants to say that. I wonder why.

    (And keep in mind that the $219M doesn’t cover “departmental research”, which is actually accounted for as instructional costs, even though no instruction is associated with it.)

    We have already hit all the key metrics here on this blog. College costs have greatly exceeded cost of living (and even health care costs) for 40 years. (Housing prices greatly exceeded income growth leading up to the 2008 financial collapse. How did that work out for us?). Administrative costs and institutionally funded research expenditures significantly exceed the growth rate of college costs. Teaching loads have been declining and there is more dependence on adjuncts. Student debt exceeds credit card debt and 46% of direct student loans are not in repayment (only about 12% are outright defaults at this point). We spend more of our GDP on higher education than any other country but our college completion rate has fallen well behind many OECD countries. Economic mobility has been declining.

    Keep pushing Jim. Something clearly is broken.

    • OMG — it must be another SLUSH FUND!

      Seriously now, the transparency of college finances seems to be down there on a par with executive compensation at a Fortune 500 company. But, there must be some standards, some rules. Izzo, is there a handbook on this? What differentiates a “student fee” from a “mandatory fee” from tuition from room & board from Dining Services auxiliary income from business income from hospital income from student health income from research grants income from patent income from athletic income from alumni giving? What measure of net profitability in any of these categories may a “non-profit” educational institution have? What are the rules on speaking fees and book income and board-member fees and other sources of supplemental income for “full-time” faculty? These are a few of the questions that swirl around any discussion such as this post.

  5. “[11] Institutionally financed research includes both organized research projects fully supported with internal funding and all other separately accounted-for funds for research. This category does not include funds spent on research that are not separately accounted for, such as estimates of faculty time budgeted for instruction that is spent on research. Funds for institutionally financed R&D may also derive from general-purpose state or local government appropriations; general-purpose awards from industry, foundations, or other outside sources; endowment income; and gifts. Universities may also use income from patents and licenses or revenue from patient care to support R&D. (See this chapter’s section “Commercialization of U.S. Academic Patents” for a discussion of patent and licensing income.)”

    https://www.nsf.gov/statistics/seind14/index.cfm/chapter-5/c5s1.htm

  6. Larry, what is your point? You are just making me go through stuff I’ve already been through for no real purpose or gain. You are distracting and not advancing the discussion in any meaningful way.

    Again, this specific project may be legitimately self-funded. I don’t know. I am just saying a lot of research is not externally funded. For every $100 in externally funded research, institutions are coming up with $30+ internally on average. You can see that in NSF data. Institutions can only get to that level of funding through appropriations and tuition. (That is what I was alluding to in my prior post.) However, the institutions NEVER want to say that.

    I’m sure I’ve provided this before, but I’d suggest reading through this for background: http://www.changinghighereducation.com/2016/08/the-high-cost-of-funded-research.html

    To parse through the footnote you cited:

    “This category does not include funds spent on research that are not separately accounted for, such as estimates of faculty time budgeted for instruction that is spent on research.”
    This, as I’ve said many times, is a reference to “Departmental Research” which is accounted for as instruction costs even though it does not involve instruction. Since this is accounted for as instruction, it is funded through tuition and other sources. This is over and above the $219 tech spent on research in 2015 with institutional funds. We don’t know how much it is because of the way they account for it, but it could be on the order of $20B a year or more.

    “Funds for institutionally financed R&D MAY also derive from general-purpose state or local government appropriations; general-purpose awards from industry, foundations, or other outside sources; endowment income; and gifts. Universities may also use income from patents and licenses or revenue from patient care to support R&D. (See this chapter’s section “Commercialization of U.S. Academic Patents” for a discussion of patent and licensing income.)”

    This is just a general statement of what some possible sources could be. Notice the use of “MAY”. But you can just look at what the sources of institutional funds are to get the same picture. They are typically: state appropriations, tuition, endowment income, gifts, auxiliary enterprises (Tech is using some funds from food services), patent revenue. To get to $219M, patent revenue, gifts, endowment income are not going to get you there. It is going to have to come from tuition and appropriations, which are dumped into discretionary fund pools.

    Note the use of “patient care”. This is what UVA has done with the SIF. The report on the SIF to the General Assembly listed patient care, but did not quantify it. I maintain that, if you do the math, patient fees are the primary ultimate source of the SIF at UVA. They just ran it through some accounts with different terms first. Not illegal, per the terms of the restructuring agreements. But clearly not very transparent, just like the role of tuition in research funding.

  7. Izzo – I see accusations.. not much definitive evidence …

    I’m impressed that NSF captures this data and that it is for a lot of Universities that have dollars in that “institutionally financed” column.

    Have we seen an accounting for where these funds come from?

    I’m not willing to attribute it to something in particular on my instincts. I need to see real numbers or else I will say I don’t know and won’t speculate.

    do we know?

  8. Larry,

    First of all, if you haven’t read the blog referenced above, PLEASE DO. The writer is a former Provost of the University of Souther California. He’s a bit more savvy on this than most of us. Here is it again: http://www.changinghighereducation.com/2016/08/the-high-cost-of-funded-research.html

    The way universities do accounting by “funds” makes precise quantification difficult. On the other hand, if you understand how the funds are created and used, it is qualitatively clear.

    Tuition goes into an “unrestricted” fund. At that point, a tuition dollar is no longer a tuition dollar, it is just an unrestricted fund dollar. Unrestricted fund dollars can be used by the institution to fund teaching, research, and public service.

    But don’t take my word on it. Here I summarize from a report from the Council on Governmental Relations, an association of the top research universities (BOLD added by me):
    “Sources of revenue for both public and private research universities can be divided into unrestricted and restricted resources. Unrestricted resources can be used at the discretion of the institution for the primary missions of teaching, RESEARCH, public service, or any other activity. The primary unrestricted sources for operations are state appropriations (public) AND TUITION (both public and private). ”

    “. . . the single, limited pool of unrestricted revenue is expended according to the competing needs and priorities of the university.”

    So, institutionally funded research covers research costs that are not directly or indirect recovered from external sources (e.g. the NIH). It is about $30 for each $100 of external research funding on average per the NSF data. It was $219M in the case of Virginia Tech in 2015.

    We know that unrestricted funds CAN pay for institutionally funded research. We know that tuition goes into unrestricted funds. If you look at any other funds that might pay for institutionally funded research so you don’t have to use unrestricted funds (e.g. an endowment) you can see readily in the case of Virginia Tech that they are not large enough to fund $219M a year. A significant part of the money has to come from unrestricted funds, which include tuition.

    Here is the link to the report: http://www.cogr.edu/COGR/files/ccLibraryFiles/Filename/000000000267/Finances%20of%20Research%20Universities_June%202014.pdf

  9. re: ” The way universities do accounting by “funds” makes precise quantification difficult. On the other hand, if you understand how the funds are created and used, it is qualitatively clear.”

    I agree on your first point but how do we “understand” if we are not using facts and just our own beliefs?

    For instance: how do we actually KNOW THIS> ” Tuition goes into an “unrestricted” fund. At that point, a tuition dollar is no longer a tuition dollar, it is just an unrestricted fund dollar. ” Is this demonstrably true?
    where is the data that actually show that?

    further how do we KNOW what the OTHER sources of funds are for things like patents and other non-tuition monies also collected my Universities?

    I think the entire premise that tuition is being used to finance research – questionable and to this point lacking convincing evidence beyond what some people believe. sorry.

  10. Do you ever actually read or think about anything I write or refer you to?

    You’ve got me convinced. I’m now certain that the $40.2M CUMULATIVE that Virginia Tech has earned on patents from 1992 to 2014 paid for the $219M in 2015. You are so right.

    https://www.bloomberg.com/graphics/2016-university-patents/

    And clearly we should go and write a note to the people listed on page 28 who wrote the Council on Governmental Relations report that said tuition goes into unrestricted funds and unrestricted funds can be used to pay for things including research that they are likely wrong, don’t know what they are talking about, and have no proof. Let’s start with James Luther, Associate Vice President of Finance at Duke. He sounds like an idiot. . .

    http://www.cogr.edu/COGR/files/ccLibraryFiles/Filename/000000000267/Finances%20of%20Research%20Universities_June%202014.pdf

  11. First, let me say again this project may be self-funding. I don’t have any specific knowledge about it. I’m focused on the larger issue of how research is funded.

    Larry, I’ll try one more time with you, then I am going to give up. (I thought I posted earlier, but I don’t see it.) You respond as if this is just my pet theory. What I quoted was a report from the Council on Governmental Relations, which is composed of major research universities. You should note that authors are all senior administrators. They include the Associate Vice President of Finance, Duke University; the Associate Vice President, Financial Management at the University of Washington; the Vice Provost of Research, Stanford. They are subject matter experts.

    Here is what these experts say (I added the caps):

    “Sources of revenue for both public and private research universities can be divided into unrestricted and restricted resources. Unrestricted resources can be used at the discretion of the institution for the primary missions of teaching, RESEARCH, public service, or any other activity. The primary unrestricted sources for operations are STATE APPROPRIATIONS (public) AND TUITION (both public and private) . . . The single, limited pool of unrestricted revenue is expended according to the competing needs and priorities of the university.”

    So, they, the experts, say tuition can be used for research. Let’s look at Virginia Tech finances to see what they are doing.

    Virginia Tech reported $504M in research expenditure to the National Science Foundation in 2015. According to Virginia Tech’s Summary of Revenues for 2015, the University had $296M in externally provided Grants and Contracts revenue that directly or indirectly funds research. If you subtract the externally funded $296M from the $504M total research expenditure, you get $208M that had to be funded from other sources. This is very close to the $219M in the NSF report that was “Institutional Funds” from Virginia Tech in 2015. (The difference may be due to timing. NSF was calendar year. Virginia Tech is fiscal year ended June 30, 2015.)

    So, what funded the $208M that is in addition to the external sources (Grants and Contracts)? Total Virginia Tech revenue for 2015 was $1,333M. Here are the remaining components of revenue in descending size:
    • $411M – Net student tuition and Fees
    • $243M – State Appropriations
    • $235M – Auxiliary Enterprises (athletics, housing, dining, etc.)
    • $73M – Other Non-operating revenue (investment income, etc.)
    • $53M – Capital grants and gifts
    • $24M – Other operating revenue

    If ALL gifts, investment income, and other operating revenue were dedicated to research, it would still be $150M. And we know that gifts and endowments are often restricted and go to all different types of uses, often restricted, including athletics, scholarships, endowed positions, building construction, etc.

    Auxiliary Enterprise revenue is relatively large, but these are typically directly tied to expenditures because they are supposed to be self-supporting (housing, dining, athletics, etc.). This is likely not a significant source.

    This leaves tuition and state appropriations, which totaled $654M for 2015. These, as the experts say, are unrestricted, and can fund research. Some funding could come from the other sources, but it seems very likely that a large percentage of the $208M had to come from tuition and appropriations.

    I note again that the $208M does not include “Departmental Research”. That is viewed as instructional cost (even though it is not actual instruction) per guidance from the National Association of College Business Officers.

    Why do I keep bringing this up? Because it is a huge component of cost (and cost growth) and no one really wants to come clean on it.

    • Izzo –

      Thank you for your commentary of these issues over many posts. Your reference to outside highly reliable reports are invaluable. For example, the various National Science Foundation Excel spread sheets found for starters at:

      https://ncsesdata.nsf.gov/profiles/site?method=report&fice=3754&id=h2.

      When reviewing these sheets, please note the control that is now exercised by the US Federal Government over the conduct of much of the research conducted in US universities. Based on the past acquiesces of American universities to US Federal Mandates, it is clear that an unethical Federal US Government Administration now has the financial power to force most any research result or claim that it may demand in return for continued US funding of most any University program that is dependent on such funding.

      This twists research out of shape. Its a threat to the nation.

      This built in power of US government coercion of scientific research should be not unacceptable. Yet few raise the subject, much less concern about it, despite the vast increase in bogus claims made today by some universities in their mad dash for more US Federal Funding of research dollars.

      I do NOT include Virginia Tech on that list.

      However, looking over these National Science Foundation spread sheets, please compare the amount and nature of UVa.’s ongoing research activity to that of Virginia Tech’s research.

      UVa. research by world class standards hardly registers. Yet, Uva. claims of research leadership claims are extravagant. And grow daily.

      Most recently UVA Today informed us that with it new $17 million program funded by its Strategic Research Investment Fund:

      “Researchers at the University of Virginia are on track to eradicate a disease that plagues nearly 1.5 million Americans, many of whom are children and adolescents. With the help of experts from across disciplines, UVA’s School of Medicine is leading a three-pronged approach to better detect, control and eventually cure Type 1 diabetes.”

      Human beings have been trying to cure diabetes for more than 3500 years. Today the plague is growing by leaps and bounds. Uva. effort’s, as opposed to its claims, are a drop in an ocean. The University of Virginia should treat its readers and Alumni with more respect.

      UVA Today should also realize that humility and uncompromising attention to detail, not propaganda, is the hallmark of great science. That arrogance and false claims and inattention to detail will surely thwart and destroy any possibility for UVA’s future of scientific achievement. Indeed such arrogance and inattention to detail on the part of UVA personnel are quite likely a leading cause of infections that kill its hospitalized patients. Hence:

      “For the third consecutive year, the federal government will penalize the University of Virginia Medical Center for high rates of hospital-acquired infections and other medical complications.

      UVa had higher-than-average rates of deaths from surgical complications from 2013 to 2015, according to data from the Centers for Medicare and Medicaid Services, or CMS.

      Clostridium difficile (or C. Diff) infections — which occur when antibiotics kill protective gut flora — also were higher than average in 2015.

      As a result, the UVa Medical Center will be hit with an estimated $1.8 million in reductions to Medicaid reimbursements this fiscal year. It’s part of an ongoing incentive program by CMS, instituted in 2014, that penalizes the lowest performers in hospital safety measures …

      Each year, CMS penalizes hospitals that perform in the bottom quartile of overall safety ratings derived from a variety of measures, such as rates of death from surgical complications, rates of catheter-related urinary tract infections and fall-related injuries.

      UVa has been hit with a penalty each year since the program was instituted … Since then, UVa officials have acknowledged the need for improvement while downplaying the CMS penalties and criticizing the agency’s methods.”

      For more details, See Dec. 19, 2016 Daily Progress Article entitled UVA Hospital Fined for High Infection Rates, Again.

      Izzo regarding the Virginia Tech spread sheet, you note that “the $208M does not include “Departmental Research.” How would you define “Departmental Research”.

  12. First, I want to make clear that I am not having a go at Tech. I have a lot of respect for Virginia Tech. I am really commenting on how research is funded overall.

    Reed, “Departmental Research” covers work initiated by faculty that is not externally sponsored. It is done on the department’s budget (paid with unrestricted funds, which include tuition). You can think of research sabbaticals or reduced teaching loads to allow the faculty to do research that is not externally sponsored. The other type is project-driven work which you can think of as the time spent to get an external grant but is not offset by an external grant. Faculty often need reduced teaching loads to do this.

    You can think of three categories of research. First, direct external is what is sounds like, an institution like NIH directly funding R&D. That was nearly $300M in the case of Virginia Tech. Then there are costs related to external research that are not picked up by the external sponsor (unrecovered indirect “overhead” costs, cost sharing). These are big and going up fast and the universities have had to pick them up. These are the ones that fall under “Institutionally Funded” in the NSF report. Then there are the “Departmental Research” ones that are not reported in the NSF reports as they are considered Instructional costs per the NACUBO guidelines (even though it does not include instruction in any form we would understand it).

    To be fair here, I’ll describe how a research university sees this. They think external sponsors are not picking up all the costs. (They are not coming anywhere close to picking up all the costs.) The Council on Governmental Relations I referenced is really an association trying to influence the government to pick up more cost. So, from their point of view, research is part of their mission, to do research they have to absorb these costs which have to be paid with university funds, which puts them in a difficult position. They don’t want to disclose how the sausage is being made. Universities would like to think of “Departmental Research” as something that keeps professors up to date and fresh when they teach. Hence the designation as instruction.

    This is an enormous game of cost shifting and lack of transparency. Government grants don’t come close covering all costs so the universities must cover them. Universities typically cover with unrestricted funds from tuition and appropriations, which drives up costs. Universities don’t want to be specific about what ultimately funds anything, and they don’t have to be based on commonly accepted accounting practices. Tuition and fees must go up to fund this, which in turn drives up student debt. Increases in student debt increase default rates, which must be borne by taxpayers. Higher defaults also keep people who default from buying cars, etc., so it also hurts the economy in that way.

    And the numbers are huge. I’ll use the University of Michigan rather than Virginia Tech here. Michigan had an incredible $500M in Institutionally Funded research in 2015. They have 44,000 students. That is $11,400 per student per year (and it probably falls disproportionately on undergraduates). Granted, some of this may be offset by patents, endowment, etc., but much will fall to unrestricted funds. How many families paying to send their kids their have this clearly described to them? If we aren’t more transparent about this, we’ll won’t get this under control and we are close to the breaking point.

  13. Reed, you comments on UVA reflect what makes me feel a bit uncomfortable about the SIF. I feel certain a large percentage of the SIF funds came out of hospital surpluses. Those surpluses could have been used to reduce fees or improve hospital performance, including infection rates.

    Instead, they’ve moved them over to the University side, where they can fund research project. The mechanism to do this was the Restructuring act and fund accounting. Hospital operating surpluses became a University Bank, which became the SIF. As they make these fund accounting changes, the initial origin of the money became obscured.

    (I supported the Restructuring Act way back when.)

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