Unlocking Innovation: The Case for Government Funding of University Research Costs

On February 7, the NIH announced new rules about funding indirect costs (IDC) in scientific research. While it sounds complicated, this change could significantly impact the future of research funding in the U.S.

To understand this, we need to break down some terms. “Direct costs” are clear expenses tied directly to a research project, like salaries for staff or equipment. “Indirect costs,” on the other hand, are more tricky. They include overhead expenses, like electricity for labs or accountancy services that support budgeting.

Previously, universities would negotiate with the government on how much of these indirect costs would be covered. Different schools have various rates because locations can affect expenses. For example, the IDC rate at Columbia University is 64.5%, while the University of Nebraska has a rate of 55.5%. This reflects the different costs they face.

The NIH’s new guidance claims that lower IDC support is a sensible reform since private foundations often pay less. This shift also aligns with arguments made in the Heritage Foundation’s Project 2025, which suggests that IDC funds promotions for Diversity, Equity, and Inclusion (DEI) on campuses.

However, these reasons miss the historical significance of how the federal government evolved its funding model during the Cold War. Supporting indirect costs helped build a unique American approach to science, which has thrived for over 75 years.

Before World War II, most scientific research relied on private donations or industry funding, except for agricultural studies funded by a mix of federal and state support. But the war changed everything. Vannevar Bush led efforts to ramp up scientific contributions to the war, showcasing how government investment could rapidly push scientific boundaries, as seen in projects like the Manhattan Project.

In 1945, Bush published *Science, the Endless Frontier*, advocating for a strong, organized scientific community in the U.S. He feared the war-time scientific momentum would fade. He believed that expanding research universities was crucial for maintaining innovation across various fields. This meant that scientists in California could focus on seismology while their peers in Oklahoma delved into petroleum geology.

Bush argued for a federal funding model that would allow universities to attract top talent, build modern facilities, and reduce classroom time for researchers. If they didn’t, bright minds might leave for private industry, where their focus would shift from urgent scientific questions to corporate profit.

He also wanted to keep science free from political influences. Funding directly from Congress could lead to research being swayed by political agendas. So, he suggested a nonprofit granting agency to manage these funds, ensuring that funding was awarded based on merit.

The government adopted many of Bush’s ideas. Congress established the National Science Foundation in 1950, and organizations like the NIH expanded their roles in research funding. The belief that the U.S. should lead in scientific innovation guided this movement.

Through the 1950s, the norm became for the government to cover a portion of indirect research costs—initially around 8%. This changed quickly after the Soviet Union launched Sputnik in 1957, triggering fears that the U.S. was falling behind in science. This led to a flood of federal funding aimed at boosting scientific research.

By 1958, regulations were established for universities to calculate their IDC. Rates climbed, reflecting the growing costs of research. For instance, the flat rate jumped from 8% to 15%, and by 1963 reached 20%. Eventually, the cap was removed, allowing for negotiation.

A good example of how this funding framework supports research is the Framingham Heart Study. Funded by the Public Health Service and Massachusetts, it began in 1946 to study cardiovascular health. Over the decades, it provided critical data that shaped guidelines for heart disease treatment. Today, the study is looking into genetic factors influencing health.

As research programs have evolved, federal agencies now expect more cost-sharing from universities and have tightened regulations on how grant money can be used. While some argue that universities are overcharging the government for IDC, this doesn’t consider the deeper history of the funding model.

Vannevar Bush and his colleagues worked hard to ensure that federal payments for IDC were higher than those from private sources. They understood that such a model would keep American interests at the forefront of scientific research. The goal was to create research hubs nationwide, leading to innovation and job growth outside traditional centers of power.

In summary, the current system is not just about costs. It’s about establishing a solid, public-minded framework for American scientific research, designed to address big challenges facing our world. This system, shaped by the post-war era and refined during the Cold War, is crucial for the U.S. to maintain its lead in global scientific innovation.

Trysh Travis is a historian of behavioral health and previously served as an Associate Dean at the University of Florida.

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