We’re Not Alone in Pointing to the Risks of Open-Ended Capital Projects

Vannevar Bush
From: The Endless Frontier: Reaping what Bush Sowed?  
by Paula Stephan (pp. 33-34)*
NBER working paper 19687 (Nov. 2013) Excerpt:

Overexpansion of research facilities

In recent years, universities have gone on a building binge, constructing a substantial amount of new research space which led to a 30 percent increase in net assignable square feet for research between 2001 and 2011. Most of this increase is for facilities in the biological, biomedical and health sciences—a response of universities to the doubling of the NIH. Some of this space has been paid for by private philanthropy. At MIT, for example, David Koch contributed $50 million to the construction of an institute for cancer research that bears his. But in a number of instances, campuses did not have the funds to construct the new buildings but instead did so by floating bonds, assuming that the debt would be recovered through increased grant activity engendered by better facilities housing more research-active faculty. A 2003 survey of medical schools by the AAMC found that the average annual debt service for buildings in 2003 was $3.5 million; it grew to $6.9 million in 2008. The brakes were applied to the NIH budget beginning in 2004 and in constant dollars the NIH budget shrank by about 4.4 percent between 2004 and 2009. It has continued to decline since, with the exception of ARRA. Success rates for NIH grants, as we have seen, declined, and universities found that revenues from grants did not live up to their expectations. The situation is not likely to improve in the near future given sequestration. This means that the only way a university can hope to cover the costs of these buildings is to outcompete over other academic institutions in bringing in grants. But, as Princeton’s President Shirley Tilghman notes, “this just can’t be true for every academic medical center. It does not compute.” Moreover, given that very top institutions have continued to maintain their share of NIH funding, the pain is most likely to be felt by institutions that historically have not received top funding. Somebody, especially at lower-tiered institutions, is going to have to pay for this substantial expansion and it is unlikely to be the federal government. It is more likely to come through a reallocation of resources within the university…
Note that while for a time, UC may be one of the more protected upper-tier institutions, continued squeeze on the federal budget will ultimately not insulate us.  And someone will have to pay off bonds floated on the hopes of continued revenue. Anyone in UCOP or at the Regents paying attention?

*The Bush referred to in the title is not George H.W. and not George W.  It is Vannevar Bush, FDR’s science advisor, who wrote a report entitled “The Endless Frontier” in 1945.  His photo is above.