When Virginia Universities Fund their Own Research, Where Does the Money Come From?

In the previous blog post, Reed Fawell makes the argument that America’s research universities are subsidizing their R&D programs to the tune of some $18 billion a year. The subsidies, which are especially high among public universities, contribute significantly to cost pressures that drive up undergraduate tuition. There is significant variability among universities and higher-ed systems in the fifty states, however. Does the national trend that Reed describes apply to Virginia?

Examine the table below. It breaks down sources of 2016 R&D spending for Virginia’s six leading research universities as well as the total for all U.S. universities. The column headed “institution” covers funding from university sources — tuition, state support, endowments, and the like. All told, Virginia’s six research universities contributed $478 million toward $1.39 billion in R&D. 

How does that contribution compare to the national average for all universities? The following table tells the tale.

The average “institution” contribution for all U.S. universities is 25% of the total raised for research. Virginia Tech, George Mason University, the College of William & Mary (primarily the Virginia Institute of Marine Science), and Old Dominion University all exceeded the national average by wide margins. The University of Virginia and Virginia Commonwealth University fell short of the national average by small margins. In other words, Reed’s critique does apply to Virginia higher-ed institutions.

Furthermore, his argument that research funded by the universities themselves has increased in recent years applies to Virginia institutions as well. This table compares research funding from all sources (“total”) to funding paid with university resources in 2010 and 2016, a period which saw a surge in institutional funding nationally.

The raw numbers aren’t as meaningful as the change in the numbers. In the following table we see the increases in total funding and institutional funding, both in absolute dollars and expressed as a percentage.

Here the variability between individual institutions is evident. Between 2010 and 2016, ODU slashed its institutional support for R&D by $33 million, or 53%. Not surprisingly, total R&D funding declined by a similar amount, $27 million. William & Mary increased its institutional support modestly, by $1.2 million, or $6.3%, and its total R&D funding increase was likewise modest.

By contrast, Virginia Tech pumped $123 million additional institutional dollars into its research program in just four years, while UVa upped its ante by $69 million, VCU by $27 million, and GMU by $24 million.

Unfortunately, the National Science Foundation doesn’t tell us where these so-called “institution” dollars come from. Tuition increases? State aid? Gifts and endowment? Some other source entirely? We don’t know. If the institutional dollars came from gifts and endowments, students and taxpayers have little cause to complain. If the dollars came from state support or undergraduate tuition, it’s a very different story. But the NSF data is not granular enough to allow us to confirm Reed’s hypothesis — that undergraduate tuition is subsidizing research — for specific universities.

To do that, we need to dig deeper. While the universities do publish a lot more data than the NSF does, the data does not necessarily answer the questions we are asking. I’ll poke around and see what I can come up with.

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11 responses to “When Virginia Universities Fund their Own Research, Where Does the Money Come From?

  1. When we say “institutional spending”… do we know the source of the money they are spending?

    I’m having trouble understanding how we know where the money for research actually is coming from…

    It would seem logical that at least SOME of the money comes from the govt as well as private industry. How do we actually KNOW what R&D is directly funded from tuition?

  2. How do we actually KNOW what R&D is directly funded from tuition?

    We don’t know — not from the NSF data anyway. But there are hints contained within university documents. I just need to spend time going through the archives.

    As for government money, the NSF provides that data — as you can see from the top table in this post.

  3. Universities do not provide detail beyond the NSF data on institutional sources of funds. You can piece together from documentation, as Reid did, that institutional sources can include tuition and state appropriations.

    But do some analysis. Take Virginia Tech, for example. Where does Virginia Tech get $219M per year in institutional funding for research? If you do the math (which I did to the extent of my abilities and available information in an earlier post), you can deduce that that much money cannot be explained by endowment proceeds, gifts, patent income, etc. It has to come from other discretionary funds, and tuition and appropriations are the largest sources of discretionary funds.

    Someone commented earlier that it would be good if institutions that are less research oriented would provide competition to keep costs in control. I would agree, but there are a couple of issues that come to mind. First, the perceived prestige of the schools listed in the post probably enable them to get away with it. (The schools may well argue that institutional research funding is a fundamental part of their prestige.) Second, if you look at non-research oriented schools like JMU, which might provide an alternative, they seem to find other ways to inflate Tuition + Fees. I believe JMU has the dubious distinction of having the largest aggregate contribution from student fees to the athletic budget in the country.

    • Yes, well said, Izzo.

      And thank you again for your groundbreaking work here on this issue.

      Another way to say the same thing, or to reach the same general conclusion, is to consider the fact that relatively speaking the courses and programs that cost relatively little and serve the overwhelming majority of undergraduate students in universities are their undergraduate arts and sciences (humanities) and certain undergraduate professional schools. These are the programs that generate the most positive revenue by far for the large public university.

      In contrast, the programs in the hard sciences and engineering (STEM) are those that most always lose lots of money, both in teaching and in research. This is because these programs cost so much more to operate than the Humanities, and they teach so few students, typically in the single digits of student in the undergraduate programs, and graduate programs as well.

      Hence these courses and programs generate big losses, needing big subsidies, from somewhere. Wealthy private research universities often have many buckets of money to dip into to find these monies. Not so most public research universities.

      So, as you ask, where does the money come from?

      Every school is different, some wildly so, for the same or different reasons. Harvard and Stanford for example have huge endowments, and huge tuition. Many public research universities have neither, relative to Harvard, so must look primarily to state support and tuition. State tuition support has in some cases, like California, dropped as much as 50%. The average drop per state is around 25% as I recall.

      Meanwhile tuition in most states has surged, doubling or more in the recent past, to far outstrip state support in many cases.

      So while each institution must be looked at and considered on its own circumstances, and performance and circumstance can vary widely from institution to institution, the threat and issue at hand can no longer be ignored given today’s obvious consequences that operate on many levels.

  4. I agree, Reid. The flow of subsidies is from undergraduate students to research and graduate students, and from humanities to STEM. Undergraduate loan defaults puts the burden back on taxpayers.

    And picking up on something jwgilley wrote in the other thread, the actual cost of research is much greater than what shows up as “Institution-Funded” research. Faculty salaries are typically accounted for as “Instruction” regardless of how much of their time is actually spent on instruction. More faculty time is now devoted to what is called “Departmental Research,” which is accounted for as instruction and is separate from “Institution-Funded” research.

  5. in terms of sources.. I would think two large sources would be the govt and industry… maybe 80% or more…

    do we have any idea what percentage of the total comes from govt and industry for schools and from that deduce a remaining percentage that comes from other sources including tuition and fees?

    I’m seeing a lot of inferences but not a whole lot of hard factual data.

    and suspect it’s not going to be obtained unless perhaps in Va – the GA would require a standardized audit format similar in concept to what they require from localities … I might add also that even for K-12 schools – trying to find out what the discretionary local money – over and above the mandated SOQ match is spent on is near impossible the way the budgets are structured…

    essentially they don’t want folks to be able to get that info and then turn around and use it for “ammunition” for accountability. I think the only option is for the state to mandate a standardized format where schools could be compared ..

  6. Larry,

    “in terms of sources.. I would think two large sources would be the govt and industry… maybe 80% or more…”

    If you look at the data in the post from the National Science Foundation, it has already separated out the R&D funding coming from government (federal, state/local) and industry (business and non-profit). Institutional funds are a distinct source.

  7. Izzo – yes…my question is essentially the same as Jims.

    when we say “institutional spending”.. does that imply it comes from tuition?

    Perhaps an interesting chart would be to compare the rise in costs for R&D institutions compared to non R&D institutions… would it show a pattern of higher tuition costs for R&D institutions?

  8. Izzo notes, “picking up on something jwgilley wrote in the other thread, the actual cost of research is much greater than what shows up as “Institution-Funded” research. Faculty salaries are typically accounted for as “Instruction” regardless of how much of their time is actually spent on instruction.” This strikes me as hugely important. It’s a subterfuge, hiding the ball; there’s a base faculty “salary” for “instruction” when in fact there’s not much instruction going on, plus I would expect there is separately pigeonholed compensation for the work of supervising the lab and grant administration, and the research going on in it.

    No wonder the data is hard to find. But the bottom line is, any shortfall has to be made up, and the variables are limited: personnel expenses and tuitions and fee income. View the University overall as a basket of related but separate businesses leveraging off one another, the only way anyone could make sense of it is to break down the stand-alone profit/loss of each business, taking into account the cross-subsidies (both transfer payments and unquantifiable “prestige enhancement”) between these businesses. At UVa, the Hospital is one such business; the R&D labs would be another (or others, depending on how finely you break them down); collegiate sports would be another. But does the University want us to see that breakdown?

    Apparently not.

  9. Acbar,

    In Virginia, and in many states, public universities have had to give breakdowns of where FEES go (sports, technology, etc.), so there are some efforts to provided transparency. Universities have not had to directly give breakdowns of where tuition goes between actual instruction, research, and other legitimate uses. Indeed, it appears universities don’t want to publicize in any way that tuition can go to research in the U.S., and they are not compelled.

    There are some pieces of data, like the National Science Foundation research summary, that provide some insight. That report shows that institutions (universities) use a lot of their own “institutional” funds to pay for this. If you dig into footnotes and OMB guidelines, you can see tuition can be a source of “institutional” funds, but the amount is not given. If you dig further, into university finance, like I did for Virginia Tech, it then becomes clear that the only way universities could fund this huge level of institutional funding of research would be through tuition and unrestricted appropriations.

    Given how dire the cost and student loan situation is, I believe it is a legitimate for government to require more transparency. All the evidence I see suggests that this is a much, much larger diversion of a student’s tuition and fees away from a core educational mission than items like athletic fees.

    It has been suggested here that requiring more transparency (which the UK and Australia have done for tuition used for research) is really just an attempt to get data to use against the institution. I don’t deny that could be a possible motive, but I view this level of transparency as needed for improving market efficiency (see the efficient market hypothesis), and it is consistent with what is required in financial markets by the SEC, food labeling by the FDA, and indeed uses of fees in higher education. Transparency is needed for efficient markets.

    Putting on a university administrator hat, I can see why they would not want this information available. They view themselves as having multiple missions, including education, research, and public service. To achieve them, they move money around and they don’t want people looking at how the sausage is being made.

    But we are at a breaking point on cost, the government has a legitimate role to play to improve market efficiency (and should also look at the role of their subsidies, but that is another issue) by requiring more information on cross-subsidies and uses of tuition.

    • “If you dig into footnotes and OMB guidelines, you can see tuition can be a source of “institutional” funds, but the amount is not given. If you dig further, into university finance, like I did for Virginia Tech, it then becomes clear that the only way universities could fund this huge level of institutional funding of research would be through tuition and unrestricted appropriations.”

      Yes, you are totally correct. There is simply no way that vast amounts of undergraduate Tuition is not going for graduate level professors research. It plainly is. And this immoral diversion of undergraduate student tuition away from their education is a national scandal that has been hidden for decades, and now is reaching crisis proportions, on many fronts.

      But I suspect this is in one sense the tip of the iceberg. That from an immoral and financial point of view, it is quite likely that there is a great deal of DOUBLE DIPPING going on here. This is when the tenured or tenure track professor gets paid twice for the same hour of work. And that this is why, I suspect that professors so often claim to be working 70 hours a week, namely 40 hours as professors (instruction, teaching, and instruction related research) PLUS an 30 additional hours a week as sponsored researchers and administrators.

      Have you ever tried to work 70 a week as a lawyer and administrator, Acbar. I have. It near impossible for all but a few people over a short period of time but all these tenured professors seem to do it with ease all the time.

      What I am saying here is that I suspect we are dealing with a massive cover-up and fraud. Whether that is true or not, we need to get to the bottom of it, and expose the truth of what is going on in the Academy to the light of day.

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