On Feb. 7, the Trump administration announced that the Facilities & Administration recovery fees on federal funding (~$760 million in FY 2023) — currently set at 60% for Northwestern and several other top research universities — would be capped at 15%. Applying this change to FY 2023 would have produced a loss of $214 millions in operating revenue.
In the meantime, Republicans in Congress have floated proposals to tax endowment income at rates between 21% and 35%, instead of the current 1.4%. In 2023, NU took $481 million for operations out of the endowment returns. The loss in operating revenue of these changes would be $96 million (increase to 21%) to $159 million (increase to 35%).
The projected lost revenue makes the financial hole of 2018 look like nothing more than a hiccup. But are these concerns justified? Let us first revisit the decrease in the F&A rate from 60% to 15%.
On March 5, a federal judge temporarily blocked the White House from imposing the cut while arguments are heard. Even then, the cap change has only been announced for NIH funding. In FY 2023, the total in NU’s NIH funding was $540 million. So, the loss would be $152 million. But even this is not the full picture.
Most NIH funding goes to Feinberg, which runs an independent budget from the central administration. Assuming only 70% of NIH funding goes to Feinberg — very likely an underestimate — then the loss to schools managed by the central administration would be on the order of $46 million, not $241 million.
One important fact that is being left out of this story is the impact of a reduced F&A rate on the PhD tuition charged by NU to federal agencies. Research Assistantships and Teaching Assistantships cover most NU PhD students’ tuition. For research assistants on grants paying the full F&A rate, the tuition is about $10,000 a year. For research assistants on grants paying a reduced F&A rate, the tuition rate is $74,756 a year.
There are about 14,000 graduate students at NU. Not all of them are research assistants, nor are they all in schools with budgets controlled by the central administration. Let us assume that 500 of the 3,000 PhD students working at the Evanston campus are research assistants supported by NIH grants. Then, the increase in the tuition rate would yield an additional $32 million per year in operating revenue, offsetting a large portion of the estimated $46 million loss from the change in F&A rate.
Tuition is not the only budget category impacted by the F&A rate. Currently, a project’s budget cannot include office supplies, books, subscriptions to journals or laptops, just to name a few items. This is due to the agreement terms between the federal government and NU when the F&A rate was set. Those are all things that would now have to be permitted in the direct costs section of a budget, increasing that portion of the budget.
What about Feinberg, you may ask? As I wrote before, Feinberg runs on an independent budget — as does Kellogg — and I have not heard from them about how they will handle their finances moving forward. It is important to notice, however, that Feinberg has close ties to Northwestern Memorial, a nonprofit with billions in assets.
Let me get back to the endowment income loss if the tax rate is increased. Taxes on endowment income are charged to universities meeting two criteria. The institution must be private, and the endowment per full-time-equivalent student must exceed $500,000. NU cannot avoid fulfilling the first criterion. But what about the second?
Currently, the endowment per full-time-equivalent student is around $650,000. An increase of 30% in total student enrollment or a 30% drop in endowment value would let NU entirely off the hook.
Imagine that enrollment has increased by 30%. That would enable NU to fail the second criterion and thus not have to pay the endowment tax. Moreover, increased enrollment would generate additional tuition revenue even if a larger fraction of students receiving financial aid were admitted. In the past, I wrote why having more NU would be great. In the current situation, that would address some of the stated financial concerns.
You may now be thinking that it cannot be this easy. How can we be sure that the Trump administration and Republicans in Congress will not implement work-arounds for the strategies sketched here? The answer is that it does not matter. This is not chess.
We do not need to be coming up with solutions that avoid all countermoves. Trump and his acolytes do not have unlimited time to achieve their goals. Anything that we do to delay, deflect and confront their actions will make it harder for them. Indeed, while the rule of law stands, many of the financial concerns are addressable. If the rule of law is lost — and the government can do whatever it wants, whenever it wants, to whomever it wants — then we have much more serious things to worry about.
In both cases, what is guaranteed to be ineffective is complying in advance. As with any bully situation, the most important role is played by the bystanders. Bullies tend to focus on a single target at a time and rely on bystander passivity. Bystanders remain passive because they fear being the bully’s next target. But one of them is guaranteed to become the next target. Only by acting together can they stop a bully. As the resistance in “The Handmaid’s Tale” advised: Nolite te bastardes carborundorum.
Luís A. Nunes Amaral is a Professor of Engineering Sciences and Applied Math at McCormick. He can be reached at amaral@northwestern.edu. If you would like to respond publicly to this op-ed, send a Letter to the Editor to opinion@dailynorthwestern.com. The views expressed in this piece do not necessarily reflect the views of all staff members of The Daily Northwestern.
