The Macroeconomic Effects of Scientific Research

One of the points about science funding I've tried to make over the years (we have been blogging a long time, haven't we?) is that the overheads and indirect costs associated with federal grants drive a lot of university decisions--there's a lot of money there. But this funding also has significant macroeconomic effects, especially in research-heavy states like Massachusetts. A local paper, The Boston Courant, describes the effects of the coming NIH cuts, due to the ending of the ARRA and the coming budget cuts, to the Boston economy. I'm quoting extensively from the August 12, 2001 edition, since The Courant isn't found online (italics mine):

The Longwood Medical and Academic Area (LMA) is at risk of losing a portion of vital National Institutes of Health (NIH) funding as Congress looks to cut government spending.

Boston has been the nation's leader in NIH funding for the last 16 years, again topping the list with $2.1 billion in awards last year, the Boston Redevelopment Authority announced this summer... LMA institutions Brigham and Women's , Dana Farber, Beth Israel Deaconess and Children's Hospital received a combined $796.6 million.

...However the quantity and quality of LMA institutions and NIH funding "is rather chicken and egg," Swartz-Lloyd said. "The funding is very important... because there is economic development and growth as a result...."

According to surveys completed two years ago, the LMA employs about 10,000 researchers...

Keep in mind, that 10,000 figure only refers to direct hires--the multiplier in terms of indirect jobs (e.g., the hospitals hire contractors, employees spend their money, etc.) for NIH funding is over double that amount[link]. Also, remember this doesn't include any of the other Boston hospitals (MGH, Tufts) or universities (Northeastern) which also receive NIH funding. Likewise, Cambridge, across the Charles River, gets a lot of money (so does Worcester, MA). Anyway, I promised you a discussion of money, so back to the article, which does a really good job of describing how indirect funding works:

...about 80 percent of their research is federally funded, of which NIH grants make up 90 percent... [about $574 million total]

...While direct NIH funds go to researchers, indirect funds cover overhead costs like lab space and administrative needs, Mason said. For every $100, hospitals receive $74 in indirect funds.

"That's the lifeblood. That's what helps support research," Mason said...

"What every research hospitals in the country is sort of freaking out about is that this flow of cash is basically being turned off," Mason said...

"Cuts would have a significant impact on research," Swartz-Lloyd said. "We don't know what that is right now, but it would impact jobs, the types of research being done, and the length of time it would take to find cures."

Just a couple of clarifications, while the LMA institutions charge 74% indirect costs, the realized amount is lower than that, since not everything item is charged at that rate (e.g., fringe benefits for salaries are 29%). In reality, with an indirect rate of 74%, the 'realized' indirect costs are probably around 50%, meaning that for every $100 that goes to the lab, the hospital receives an additional $50.

The other point is that the 'realized' indirect rate is not the breakeven point that covers expenses (it just doesn't cost that much). Research is a profit center for the hospital that subsidizes other activities:

"The hospitals are trying to be as efficient as possible, but maintaining high quality in the face of cuts from NIH, cuts in reimbursements from Medicare and Medicaid, and changes in the reimbursement formulas from insurers, it's a difficult time," Swartz-Lloyd added.

NIH funding provides a lot of jobs to many local economies--not just Boston's. With the Politburo Super-Congress inexplicably looking for trillions in cuts (over ten years), I only hope that Politburo member Democratic Senator John Kerry (MA) fights for his constituents. Then again, he is a Democrat, so you never know.

Ultimately, if we thought about money intelligently and weren't governed by deficit fetishists, we could discuss what should be funded and how. But these cuts, especially if no agreement is reached and the automatic cuts kick in, will be across the board. People should be aware of what those cuts will mean for hospitals and universities--and the students who pay to attend them and the people who work in them.

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