1. 1 February 23, 2015 Teresa A. Costantinidis Budget and Resource Management UCSF Facilities & Administration Presentation

2. 2 This presentation provides an overview of Facilities and Administration (F&A) cost recovery at UCSF Federal regulations Simple rate calculation Key issues in rate development Rate history and comparisons Actual recoveries How recovered monies are used at UCSF

3. 3 The Federal government pays for direct costs of sponsored activities, then reimburses universities for allowable facilities and administration expenses (aka F&A, indirect costs, or overhead) based on negotiated rates

4. 4 The relevant policy is: 2 C.F.R 200 Subpart E, (Officially – Title 2, Code of Federal Regulations, Part 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, Subpart E– Cost Principles) –Formerly, Title 2, Code of Federal Regulations, Subtitle A, Chapter II, Part 220 and Office of Management and Budget (OMB) Circular A-21, define the principles for assigning facilities and administrative costs The University of California negotiates its rate with a “cognizant agency” of the Federal government, specifically the Division of Cost Allocation of the Department of Health and Human Services To recover indirect costs from sponsors, a university must go through a rate development process in accordance with federal regulations

5. 5 The rate evolution includes four phases, each reflecting an important part of the F&A process The calculated rateThe full cost of allowable facilities and administrative expenses as reported in the financial statements The proposed rateThe calculated rate adjusted by Federal limitations The negotiated rateThe rate established through the negotiation process and published in a formal negotiation agreement; this is the maximum allowable rate for federal awards The effective recovery rateThe actual rate of recovery the campus recovers from sponsored activity 76.9% Calculated 55.5% Effective 57.0% Negotiated 70.9% Proposed 2013-14 Rates for UCSF On Campus Organized Research:

6. 6 Example Direct Cost Bases: Instruction and Departmental Research ($223 million) Organized Research ($341 million) Other Sponsored Activities ($141 million) Other Institutional Activities ($99 million) In the first step of rate development, Federal regulations require that all campus expenditures be classified into a direct cost base

7. 7 Then, items not directly assigned to a base are associated with one of nine specific cost pools Facilities Pools (5) Building Depreciation Interest (on external debt for buildings or equipment) Equipment Depreciation Operations and Maintenance Library Administrative Pools (4) General Administration Department Administration Sponsored Projects Administration Student Services and Administration “Indirect costs … are 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.” $224 million for Organized Research

8. 8 In developing rates, the F&A team works with staff in campus departments to prepare a series of analyses How much of each base activity is occurring? How are facilities and specifically rooms being used? How are we paying for each facility? How much of each cost pool is occurring? What about costs of future buildings? Involves: −Reviewing audited financial data −Reclassifying activities to appropriate bases −Allocating costs to base activities

9. 9 Then, the F&A rate is a simple calculation of indirect over direct costs Then, points are added for “future cost projections” Organized Research: 65.6% + 11.2% = 76.8% Separate calculations are conducted for each base and for on-campus versus off-campus locations The allocations of indirect costs are customized to each of the four bases Many adjustments are required based on various regulatory details Allocated Facilities and Administrative Costs Appropriate Direct Cost Base $224m $341m = 65.6% =

10. 10 The proposed rate is the calculated rate adjusted by federal requirements and limitations The Federal government: Applies an Administrative Cap of 26% (implemented in 1991) Limits utilities costs assigned to research according to defined metrics Makes other adjustments: −Limits genomic arrays (F&A for up to $75,000/year per project) −Limits sub-awards (F&A for first $25,000 for each sub-award per competitive project period) −Requires cost sharing −Utilizes a salary cap

11. 11 F&A costs are typically greater than full negotiated rates for each component Negotiating the highest rate possible is critical for UCSF

12. 12 Negotiations include a series of questions and responses Frequent Asked Questions: o Are costs functionalized correctly? o Are allocations appropriate? o Are future costs reasonable? o How are you interpreting general regulations and trending? Adjustments are reviewed and allowances are made based on interpretation of regulations The campus must certify that its F&A proposal has been reviewed and is compliant with UCSF policy and Federal regulations If the Federal government finds discrepancies or inconsistencies with policy or regulation in the signed proposal, they can reduce the rate and levy penalties on the university

13. 13 Negotiations may set rates for multiple years UCSF Organized Research Rate by Component 2011-122012-132013-142014-152015-16 Facilities Building Depreciation Interest Equipment Depreciation Operations & Maintenance Library 7.50 4.00 2.60 12.80 1.60 9.00 4.50 2.30 13.20 1.50 9.00 5.00 2.30 13.20 1.50 10.00 5.00 2.30 13.20 1.50 10.00 5.50 2.30 13.20 1.50 Facilities Subtotal:28.5030.5032.5032.0032.50 Administration General Administration Department Administration Sponsored Projects Administration Student Services Administration 7.00 16.50 2.20.30 6.80 16.70 2.20.30 6.80 16.70 2.20.30 6.80 16.70 2.20.30 6.80 16.70 2.20.30 Administration Subtotal (Off Campus Rate):26.00 On Campus (All F&A) 54.5056.5057.0058.0058.50

14. 14 Facilities & Administration Rates On-Campus Research Administration Rates without Facilities Off-Campus Research UCSF approved F&A rates for Organized Research have been steadily increasing, but are held back by the 26% Administrative Cap The rate trend shows both the increasing investment in research facilities at UCSF and the increasing costs of supporting research activity

15. 15 Because of growing facilities costs and our high intensity use, UCSF now has the highest F&A rate in the UC System The cost to support the organized research activity is higher for UCSF than any other campus.

16. 16 UCSF organized research rates are now comparable to those of private research institutions The investment in research facilities and infrastructure without federal or state support has pushed UCSF F&A rates into the ranks of private institutions

17. 17 Effective F&A recovery is far short of negotiated rates The University must cover the difference between the negotiated rate and the effective rate with other unrestricted discretionary funds Cost Sharing and/or waivers are among the controllable reasons Timing, sponsor or federal policy are among the uncontrollable reasons Negotiated Rate 57%

18. 18 In 2013-14, our actual F&A recovery of $197 million was half the calculated cost of $397 million

19. 19 F&A provides UCSF with facilities and administrative funding for ongoing activities F&A recovery ($197 million) flows to the Core Financial Plan Schools and ORUs are allocated a share of recovered funds for departmental administration ($27 million) Remaining funds are used to help pay for a variety of core- funded activities including: −Debt service on facilities ($49 million) −Facilities investment needs and renewal ($37 million) −Operation and maintenance of plant ($34 million) −Administrative support - EVCP, FAS, URel ($112 million) −UCOP Assessment and Initiatives ($52 million) −Allocations for salary and benefit cost increases ($7 million) −Strategic initiatives ($3 million) Total 2013-14 F&A recovery of $197 million made up 36% of the $547 million allocated from the Core Financial Plan