1. Facilities & Administrative (F&A) Cost Recovery March 5, 2009

2. What is F&A?   OMB Circular A-21 term for what was formerly referred to as indirect cost recovery.   Also known as “overhead”   Cost recovery mechanism – not a “tax”   OMB Circular A-21 term for what was formerly referred to as indirect cost recovery.   Also known as “overhead”   Cost recovery mechanism – not a “tax”

3. What is F&A?   Facilities & Administrative (F&A) costs are   “Costs incurred for common or joint objectives and, therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.”   Not Direct Costs – direct costs are specifically identified to individual research projects, instructional programs or other major functions.   Examples: Salaries, fringe benefits, travel related to project, lab supplies, subcontracts, etc.   Facilities & Administrative (F&A) costs are   “Costs incurred for common or joint objectives and, therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.”   Not Direct Costs – direct costs are specifically identified to individual research projects, instructional programs or other major functions.   Examples: Salaries, fringe benefits, travel related to project, lab supplies, subcontracts, etc.

4. F&A Cost Basis   Universities that receive $10M+ from federal sources must use a modified total direct cost (MTDC) basis for calculating F&A.   MTDC includes all project costs except equipment, renovations and subcontract costs in excess of the first $25,000.   F&A is recovered as the sponsor’s funds are expended (and billed) for direct cost items allowed per the project budget.   Universities that receive $10M+ from federal sources must use a modified total direct cost (MTDC) basis for calculating F&A.   MTDC includes all project costs except equipment, renovations and subcontract costs in excess of the first $25,000.   F&A is recovered as the sponsor’s funds are expended (and billed) for direct cost items allowed per the project budget.

5. How are F&A Rates Calculated? Calculation is a ratio of: F&A costs allocated to Organized Research divided by Organized Research Modified Total Direct Costs Calculation is a ratio of: F&A costs allocated to Organized Research divided by Organized Research Modified Total Direct Costs

6. F&A Rate Calculation   Rate Calculation Process   Each indirect cost pool is allocated to major functions (Instruction, Research, etc.) based on Cost Allocation methods   Amount allocated to each major function is divided by a ‘base’ – direct operations of the function   Resulting % is the indirect cost rate for that function   Rate Calculation Process   Each indirect cost pool is allocated to major functions (Instruction, Research, etc.) based on Cost Allocation methods   Amount allocated to each major function is divided by a ‘base’ – direct operations of the function   Resulting % is the indirect cost rate for that function

7. F&A Rate ComponentExamples General Administrative CostsCentral administrative offices (Payroll, accounting, disbursements, purchasing) Department Administration Academic Departments/Colleges Sponsored AdministrationVPR / Grants & Contracts Financial Services Operation & MaintenanceRepair & maintenance, utilities, custodial, grounds, police Building and Equipment DepreciationStandardized asset classifications and lives Interest Costs on Building & EquipmentDebt Service on certain buildings Libraries Administrative Facilities F&A Cost Pools Capped at 26%

8. F&A Rates   F&A Costs are recovered based on F&A Rates   Rates are developed based on cost studies.   UTSA contracted with Huron Consulting Group to develop our most recent cost study.   Significant effort.   Proposals are submitted to cognizant federal agency for review, audit, negotiation & approval.   Once approved, rates are applied to each grant & contract to determine the amount of indirect costs to be charged/recovered.   F&A Costs are recovered based on F&A Rates   Rates are developed based on cost studies.   UTSA contracted with Huron Consulting Group to develop our most recent cost study.   Significant effort.   Proposals are submitted to cognizant federal agency for review, audit, negotiation & approval.   Once approved, rates are applied to each grant & contract to determine the amount of indirect costs to be charged/recovered.

9. F&A Cost Rate Agreement

10. Recent COGR survey: F&A rates have held relatively constant at ~51% for the past 6 yrs! F&A payments as a % of total NIH awards was stable at 28.5% for FY03- 05 accdg to GAO. 2000 Rand study estimated that universities were subsidizing between $700M and $1.5B of F&A FY06 NSF survey showed that universities contribute more than $9B of their own funds to support R&D activities or nearly 20% of total R&D expenditures.

11. Comparison of Cost Study to the negotiated rate Administrative Costs are capped at 26%; the Facility rate component is negotiated down to less than half the computed ‘actual’ costs.

12. Why is F&A Recovery Important?   Supports the cost of conducting research   If sponsors don’t pay, someone else must   Important new revenue source to UTSA   Supports the cost of conducting research   If sponsors don’t pay, someone else must   Important new revenue source to UTSA $2,978,543 $3,933,801 $5,201,496 $5,703,051 $6,055,402 $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 FY 04FY 05FY 06FY 07FY 08 UTSA F&A Revenue - 5 Year History F&A revenue grew by $3.1M over the last 5 years, an increase of 103%

13. Net Effective F&A Rate The net effective F&A rate is computed as follows: TOTAL F&A Recovery Revenue divided by Restricted Sponsored Program Expenditures (Net of F&A) The net effective F&A rate is computed as follows: TOTAL F&A Recovery Revenue divided by Restricted Sponsored Program Expenditures (Net of F&A)

14. F&A Net Effective Rate Includes all NACUBO Programs FY 07 Basis Net Effective Rate FY 08 Basis Net Effective Rate All Restricted $5,703,051 / $31,442,181 18.1% $6,055,402 / $34,035,958 17.8% Restricted Federal $5,404,985 / $26,194,640 20.6% $5,753,973 / $27,725,858 20.8% Restricted Non- Federal $298,066 / $5,247,542 5.7% $301,429 / $6,310,100 4.8% Restricted Research Only $4,973,465 / $20,283,600 $4,973,465 / $20,283,60024.5% $5,188,035/ $21,908,637 $5,188,035/ $21,908,63723.7% We are subsidizing ~50% of the negotiated cost of overhead for restricted research (69% of cost study developed costs)

15. F&A Revenue Recovery by Source FY 04 FY 05 FY 06 FY07FY08 Federal$2,872,068$3,781,347$5,032,063$5,404,985$5,753,973 State 31,627 31,627 68,132 68,132 52,261 52,261 65,799 65,799 65,992 65,992 Local16,32117,80530,17522,84237,325 Private58,52766,51786,997209,425198,112 TOTALS $2,978,543$3,933,801$5,201,496$5,703,051$6,055,402 95% of F&A is from federally sponsored activities.

16. Sources of F&A FY07 Revenue Federal94.8% State1.2% Local0.4% Private3.7% TOTAL100%

17. Sources of F&A FY08 Revenue Federal95% State1.1% Local0.6% Private3.3% TOTAL100%

18. FY08 F&A (Federal) Sources

19. F&A Recovery by College, Institute, Center, Program

20. How is F&A Allocated?   In FY07, the VPs for Research, Business Affairs and Academic Affairs entered into a formal Memorandum of Understanding (MOU) to document the allocation of F&A.   The MOU is:  Flexible - has been amended twice with another pending.  Transparent   In FY07, the VPs for Research, Business Affairs and Academic Affairs entered into a formal Memorandum of Understanding (MOU) to document the allocation of F&A.   The MOU is:  Flexible - has been amended twice with another pending.  Transparent

22. Allocations to Principle Investigators, Colleges, Centers and Institutes   The MOU allocates 10% of actual F&A recovery to PI’s, Colleges, Centers and Institutes based on prior year actual earnings.   These funds are allocated on a one-time basis   Not part of the recipient’s base budget due to year-to-year fluctuations in earnings.   Funds are currently treated as discretionary incentive.   The MOU allocates 10% of actual F&A recovery to PI’s, Colleges, Centers and Institutes based on prior year actual earnings.   These funds are allocated on a one-time basis   Not part of the recipient’s base budget due to year-to-year fluctuations in earnings.   Funds are currently treated as discretionary incentive.

23. Debt Service 29% of FY08 F&A recovery is pledged to debt service:   Renovations to West Campus (Margaret Tobin) Lab Facility financed through bond series 2006B   will be retired August 15, 2036: FY07 debt service paid $665,350 FY08 debt service paid $667,600 FY09 payment due $666,000 29% of FY08 F&A recovery is pledged to debt service:   Renovations to West Campus (Margaret Tobin) Lab Facility financed through bond series 2006B   will be retired August 15, 2036: FY07 debt service paid $665,350 FY08 debt service paid $667,600 FY09 payment due $666,000

24. Debt Service Faculty Start-Up Costs   Beginning FY04, faculty start-up costs were financed with F&A to service the debt.   All debt under this program will be retired August 31, 2012.   Remaining payments are: FY09 $1,383,495 FY10 1,251,908 FY11 924,722 FY12 34,795 Faculty Start-Up Costs   Beginning FY04, faculty start-up costs were financed with F&A to service the debt.   All debt under this program will be retired August 31, 2012.   Remaining payments are: FY09 $1,383,495 FY10 1,251,908 FY11 924,722 FY12 34,795

25. Building Maintenance & Capital Improvements   $300,000 set aside as a reserve for capital requirements and building maintenance for research related facilities.  In FY08, funds were used for previously pledged faculty start-up costs to forego incurring additional debt.   Unused balances roll forward to reserves.   $300,000 set aside as a reserve for capital requirements and building maintenance for research related facilities.  In FY08, funds were used for previously pledged faculty start-up costs to forego incurring additional debt.   Unused balances roll forward to reserves.

26. Center for Infrastructure Assurance & Security Lease Costs   During FY09, up to $222,000 of the annual lease costs will be paid from F&A to allow CIAS to move off campus (near Main campus).   Allocation is subject to annual escalation of 3%.  Allows TRIO to move to ITC  Allows Business Affairs staff to move from JPL to University Heights   Funds are not allocated directly to CIAS.  Lease term is 5 years.   During FY09, up to $222,000 of the annual lease costs will be paid from F&A to allow CIAS to move off campus (near Main campus).   Allocation is subject to annual escalation of 3%.  Allows TRIO to move to ITC  Allows Business Affairs staff to move from JPL to University Heights   Funds are not allocated directly to CIAS.  Lease term is 5 years.

27. VP Administrative Overhead   The following VP areas receive a base budget allocation to support salaries & related administrative overhead:  Academic Affairs  Academic Affairs $875,000 (14% of FY08 Actual)  Research$855,580  Research$855,580 (14% of FY08 Actual)  Business Affairs $522,200  Business Affairs $522,200 (9% of FY08 Actual)   The following VP areas receive a base budget allocation to support salaries & related administrative overhead:  Academic Affairs  Academic Affairs $875,000 (14% of FY08 Actual)  Research$855,580  Research$855,580 (14% of FY08 Actual)  Business Affairs $522,200  Business Affairs $522,200 (9% of FY08 Actual)

28. FY 10 Budget Outlook   FY10 Budget will be set 2.5% higher than FY09 (1.6% higher than FY08 actual recovery)