Cuts to federal funding for higher-education research and financial aid currently set to take effect Jan. 1 could pose a significant threat to University finances, officials said. The cuts are part of a mandatory $1.4 trillion overall reduction in spending outlined in the Sequestration Clause of the Budget Control Act of 2011, which was originally passed after Congress decided to raise the debt ceiling last year.
Despite the threat of these cuts, legislators have been unable to reach a compromise on how to reduce the national deficit. The Office of Management and Budget released a report Sept. 14 that announced a projected 8.2 percent across-the-board cut to domestic discretionary spending, which includes significant reductions in funding for higher education, that will take effect if Congress does not agree on a long-term plan to balance the budget by the end of the year.
Though the possibility that the sequester will take effect is still uncertain, the University’s research funding could take a serious hit if cuts do occur, said Beppie Huidekoper, executive vice president for finance and administration.
The University currently receives approximately $160 to $170 million in federal research funding annually. Of that figure, $40 million goes toward indirect cost recovery for things like lab space, utility fees and administrative costs, while $130 million covers direct costs such as lab equipment and stipends and salaries for graduate students and professors.
Assuming a worst-case scenario in which the cuts take place immediately and across-the-board, the University would face a $13 to $15 million reduction in annual federal research funding that would be distributed between direct and indirect costs, Huidekoper said.
The University has a commitment to graduate students and faculty to maintain stipend and salary rates for as long as possible, she said. The University would prioritize covering these costs with money from department’s emergency reserve funding and the modest contingency built into the University’s operating budget. But the ability to pay for research equipment, facilities and administration would be affected.
Whether or not the sequester goes into effect, the University also has to prepare for the possibility of other future budget cuts and tax reform that would affect University resources, Huidekoper said.
The potential effects of these changes as well as those from the sequester will factor into decisions made by the University Resources Committee, which offers recommendations each spring for how the University should allocate its budget. There would be consequences for the University’s $800 million budget, but not ones as drastic as those incurred after the endowment dropped by 27 percent four years ago, Huidekoper said.
“It’s going to be tough, we’ll have to make some adjustment, but we will figure out a way,” she said.
While the University’s relatively diversified resources make Brown fairly well-equipped to handle these cuts, universities like Johns Hopkins, Massachusetts Institute of Technology and California Institute of Technology, whose budgets depend more heavily on federal funds, will feel a bigger impact, Huidekoper said.
The National Institutes of Health, the National Sciences Foundation and the National Endowment for the Humanities will all be affected under the sequester, but the greater funding typically received by the sciences means they will bear the brunt of the cuts. The National Endowment for the Humanities receives approximately $146 million annually, compared to $30 billion for the NIH.
The NIH, which is the largest funder of university research by far, is slated to lose more than $11 billion over five years under the sequester, according to a report by the American Association for the Advancement of Science.
“If this goes into effect it is going to be a serious, serious blow for our universities,” said Barry Toiv, vice president for public affairs at the Association of American Universities. “The research that our universities conduct is fundamental to innovation – it’s fundamental to long-term economic growth, it’s fundamental to expanding the economy and creating good high-paying jobs.”
The sequester would also include cuts to several federal financial aid programs and could affect the ability of students and families to pay for college, Toiv said. Pell grants, the largest source of federal financial aid funding, will not be affected, but the Federal Supplemental Educational Opportunity Grant and federal funding for work-study will both be subject to cuts.
The University receives approximately $1 million annually from the Federal Supplemental Educational Opportunity Grant, said Jim Tilton, director of financial aid. Brown is also allocated $1.3 million annually in federal work-study funds, Tilton said. Most of these funds have already been allotted for the current year, so cuts would most likely affect disbursement of funds for the spring semester and factor into financial aid funding for future student, he said.
“Because we get so few dollars for financial aid, the cuts won’t be as dramatic,” Tilton said. “But I think if you look at the totality of what could happen and how that impacts families and students paying for college, I think that’s a larger concern.”
The sequester could also mean cuts to higher-education access programs such as the American Opportunity Tax Credit and the HOPE credit, as well as interest rates and tax deductions on student loans.
The expiration of the Bush tax cuts and the fact that the debt ceiling will likely be breached by March of next year are two factors that could also affect the overall affordability of higher education.
The potential effects of the sequester and other cuts to federal spending will become more apparent following the presidential election, Huidekoper said, though things will remain relatively uncertain until Congress takes further action.
“Whatever happens here is going to have an impact on Brown,” she said. “We will have some challenges we’ll have to respond to.”
By the numbers
Cuts to research funding in worst-case scenario
8.2 percent national discretionary spending cut
$160-170 million annual federal research funding the University currently receives
$13-15 million amount of federal research funding the University stands to lose