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6 Restoring the Physical Infrastructure for Health Sciences Research The human element is critical to the conception and development of ideas, and the physical infrastructure for our scientific work force is vitally important as well. Over the past four decades, scientific knowledge has been expanding at an exponential rate. In order for this creativity to continue to flourish in the nation's research institutions, both within and outside of government, the scientist's physical environment must be conducive to high levels of scientific achievement. The laboratory buildings and libraries at research institutions house the essential tools that researchers need for scientific creativity to flourish. The scientific equipment and apparatus in those buildings, as well as the knowledge recorded and stored in the libraries, form the basis for the discovery of new knowledge. According to various evidence, including surveys, interviews with scien- tists and administrators, and legislative testimony, laboratory facilities and equipment are becoming obsolete at an alarming pace, and the deteriorat- ing condition of the physical research infrastructure limits the quality and quantity of research that can be carried out. The committee also empha- sizes that unsuitable facilities will not only hamper research performance, but that unsuitable facilities will be a suboptimal training environment as well. Without adequate attention to facilities and equipment, the U.S. scientific work force will be seriously disadvantaged in its competition with the European and Japanese work forces. The condition of physical structures has to be evaluated accurately, and laboratory equipment must be given equal attention. Advancing tech- nology is encouraging the development of both more advanced equipment 139

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140 FUNDING HEALTH SCIENCES RESEARCH for old techniques as well as promoting newly designed equipment for new avenues of research. Although state-of-the-art tools may not be necessary to perform all laboratory tasks, increasing efficiency and accuracy by use of technologically advanced equipment inevitably will speed discovery and application of research results. Also, trainees need sufficient exposure to advanced technologies and equipment to be able to pose relevant research questions that will expand our medical knowledge base. Federal regulations have elevated standards that render the present condition of many facilities no longer acceptable. Safety of laboratory per- sonnel requires installation of certain costly equipment, such as improved fume hoods. Regulations on handling and disposal of radioactive and biohazardous wastes are becoming increasingly stringent, forcing a rise in overhead costs. These changes are most evident with the recent expansion of AIDS research, which requires highly specialized containment facilities for the study of the human immunodeficiency virus (HIV). Furthermore, there are increasing demands on utilities as equipment becomes more ad- vanced and the electrical and plumbing systems needed to operate them properly must be up to date. Also, most new instrumentation requires climate-controlled environments in order to function properly. Changes in regulations and guidelines to protect animal welfare also add to the costs of performing research by forcing research institutions to modify buildings to meet changing caging and handling requirements. Adverse conditions of the infrastructure may interfere directly with the ability to perform research or indirectly may discourage talented individuals from pursuing active research careers. Congress recognizes that research is hampered by aging and obsolete research facilities and instrumentation, and it admits that federal support for the construction of health sciences research facilities is one of the most complicated issues facing Congress.t Estimates of needs vary because of differences in definitions, sampling techniques, and time periods. The National Institutes of Health (NIH) and the National Science Foundation (NSE;) construction programs in the l950s and 1960s greatly expanded the physical infrastructure for all scientific research health sci- ences included. This period of expansion encouraged talented candidates to pursue careers in the sciences by providing the expectation of growth in research funding and adequate facilities and equipment to allow their ideas and creativity to nourish. Clearly, it would be impossible to build or reno- vate all health research facilities in order to make every institution a first tier research organization. However, it would not be sound policy to allow these institutions to crumble. According to the author of a recent article, "the government should decide how much science it is willing to pay for, but the long-run health of science will be jeopardized if uninformed and inconsis

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RESTORING PHYSICAL INFRASTRUCTURE FOR RESEARCH 141 tent policies result in too much money being put into current operational support and too little into facilities investment"2 This chapter reviews both the past and present federal programs for facilities construction and support for equipment as well as private sec- tor contributions. The discussion focuses on the adequacy and suitability of existing research space and equipment and the financing mechanisms currently employed to build, renovate, and equip research facilities. ADEQUACY AND SUITABILITY OF RESEARCH SPACE The physical infrastructure for health sciences research in the United States includes facilities associated with the following institutions: colleges and universities, private independent research organizations, industry, and government laboratories. Most of the data available on biomedical research facilities and equipment concern the condition of college and university laboratories, although a survey that included nonfederal, nonprofit research facilities was conducted by NSF and NIH in 1988.3~4 The committee is not aware of any data concerning the amount and adequacy of research space in industry. The 19~ NSF/NIH survey reported that there was an estimated 52 million net assignable square feet (NASF) of biomedical research space at all institutions performing health research in the United States (Figure 6-1~.3 Forty-four million NASF (84 percent) of this space was located in academic institutions. The remaining 8 million NASF (16 percent) was distributed equally between independent research organizations and hospitals. Of the 44 million academic NASF, about 43 million NASF were located in doctorate-granting institutions and nearly half (21 million NASH) was in the top 50 research and development (R&D) institutions. Also, about two-thirds of all academic biomedical research facilities were located in public institutions. This distribution among the various types of public and private institutions has implications for the funding mechanisms available for construction and renovation. In the same survey institutions were asked to rate the adequacy of their biomedical research facilities in the following categories: (1) adequate, (2) generally adequate, (3) inadequate, (4) nonexistent but needed, and (5) inapplicable or not needed. About half of the academic institutions rated their space as inadequate to support the needs of the research in the bio- logical and medical disciplines (Figure 6-2~. Medical schools had a slightly higher percentage (45 to 51 percent) of adequate space than did colleges and universities (37 to 46 percent). Academic institutions reported that 50 to 54 percent of their medical science research space and 45 to 46 percent of their biological science space generally was adequate. Very few academic

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142 43.6 ~) \~ Academic Inst Millions of Net Assignable Square Feet (NASF) for Biomedical Research FIGURE 6-1 Distnbution of U.S. biomedical research space.3 FUNDING HEALTH SCIENCES RESEARCH Hospitals 4 2 Pvt Res Org 4.4 institutions (0 to 13 percent) reported that their space was able to support all of the needs of the research in these disciplines. Hospitals ranked their space much the same as the academic institutions, with nearly 45 percent of the space categorized as inadequate the remainder being adequate or generally adequate. Independent research organizations reported a much higher percentage of adequate or generally sufficient space for research in the biological and medical sciences than did academic institutions, with 60 to 75 percent of the organizations rating the space in these two categories. The physical condition of research facilities is related directly to the age of the structure. In 1986 the NSF reported that more than half (56.8 percent) of academic research facilities (all fields) were built prior to 1970, with about a quarter (26.5 percent) built or renovated before 1960.5 Only 18 percent of research facilities were built or renovated between 1980 and 1986. Whereas these data are for research facilities in all fields, data from 71 institutions with medical schools demonstrate the same general trend.5 The 1988 NSF/NIH survey queried those same institutions on the suitability of existing research space for performing biomedical research. Only about one-quarter of the space for medical research at academic institutions was categorized as suitable for the most sophisticated research (Figure 6-3~.3 Whereas 35 to 41 percent of this space was categorized as adequate for most uses, one-quarter of the space required some repair or renovation, and 15 percent needed major repair or renovation. The condition of biomedical research space at research organizations generally was satisfactory, with nearly four-fifths of the space categorized as adequate for most uses or suitable for the most sophisticated research. However, 12 to 14 percent of the space in these institutions needed limited repair or renovation, and 10 to 13 percent required major work (Figure 6-3~. Whereas hospitals reported that nearly half of their space for medical

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RESTORING PHYSICAL INFRASTRUCTURE FOR RESEARCH ACADEMIC INSTITUTIONS Bio Sci (Col/Univ) Bio Sci (Mea SChlS) Med Sci (Col/Univ) Led Sci (Mea SChlS) PRIVATE RESEARCH ORG Biological Sciences Medical Sciences HOSPITALS Biological Sciences Medical Sciences 143 0% 25% 50% 75% 100% _ Adequate ~3 Generally Adequate O Inadequate FIGURE 6-2 Adequapy of the amount of research space for biological and biomedical sciences. sciences was suitable for sophisticated research, about 20 percent required limited or major repairs. The suitability of space for the biological sciences in hospitals was rated as slightly worse. Construction and Renovation Investment It takes an average of 150 to 300 square feet of laboratory space to house an individual laboratory worker and his or her associated equipment.3 Thus, a research group consisting of a director and 8 to 10 coworkers may require 2000 square feet or more. Large multidisciplinary teams may require as much as 10,000 square feet. The construction of laboratories that provide safe, proper space is estimated to cost more than $300 per square foot, and extensive renovation can be equally costly.3 The NIH reported that of the 16.7 million NASF of biomedical re- search space in need of repair and renovation at academic institutions, work on only 5.1 million NASF would be done in 1988 and 1989.3 Thus, renovation and repair on the remaining 11.6 million NASF of space would be deferred. NIH estimated that the costs for planned renovation and repair would be $422 million, compared to a deferred amount of $920 million. Therefore, for every $1.00 of planned renovation and repair for 1988 and 1989, institutions were deferring an average of $2.18 of needed repair and renovations.

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144 ACADEMIC INSTITUTIONS Bio Sci (Coll/Univ) Bio Sci (Mea Schl) Med Sci (Coll/Univ) Med Sci (Mea Schl) PRIVATE RESEARCH ORG Biological Sciences Medical Sciences HOSP ITALS Biological Sciences Medical Sciences FUNDING HEALTH SCIENCES RESEARCH 0% 25% 50% 75% 1 00% _ Suitable O Limited Repair Ef fective Major Repair FIGURE 6-3 Current condition of research facilities in the biological and medical sciences.3 Variances in deferral ratios existed among the types of academic insti- tutions (doctorate granting, medical schools, colleges, and universities) in the survey. Colleges and universities reported the largest deferral ratios- nearly $3.03 for every dollar planned for repair and renovation, which was twice the ratio of medical schools ($1.53) Amble 6-1~. Of the nearly 2.2 million NASF of biomedical research space located in hospitals and research organizations needing repair and renovation, only 1.1 million was slated for repair and renovation in 1988 and 1989. The deferral ratio for hospitals was $0.52, whereas research organizations were deferring $1.53 for every $1.00 of planned repair and renovation. Institutions also reported in the NSF/NIH survey that new construction was being deferred. Although "construction" may imply that these projects are for expansion of the current research plant, this may not be entirely true. Some new construction is planned to replace existing research space. That is, an out-dated facility may be demolished and replaced with a new facility. Although not increasing the NASF of research space of the institution, these new facilities will meet new building codes and provide a more suitable environment for advanced research. According to the NSF/NIH survey, institutions reported actual and planned construction (renovation, replacement, and expansion) of biomed- ical research facilities totaling about $3.2 billion, with $2.7 billion at aca- demic institutions, $0.2 billion at research organizations, and $0.3 billion at

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146 FUNDING HEALTH SCIENCES RESEARCH independent hospitals. About $1.1 billion of the total investment was for projects initiated in 1986 and 1987. In 1988 and 1989 institutions planned a substantial increase in new facilities projects-about $2.1 billion.3 The NIH estimated that if all types of research institutions were to initiate construction to meet the needs of inadequate space (expansion construction only) in the biomedical sciences (and assuming the costs were the same per institution), $3.1 billion would be needed in 1988 and 1989. However, these research institutions planned construction of only $1.2 billion, creating a $1.9 billion shortfall for 1988 and 1989. Therefore, for every $1.00 in planned 1988 and 1989 construction, $1.63 was being deferred in needed but not planned construction.3 Again, there were large variances among the deferral ratios of the different types of institutions. Research organizations were deferring as much as $7.71 for every $1.00 of planned new construction in meeting the needs for the biomedical sciences (Bible 6-2~. Likewise, hospitals reported that they were deferring an average of $5.32 for every dollar spent on new construction in the biomedical sciences. ADEQUACY AND SUITABILITY OF RESEARCH EQUIPMENT Although it may be true that many pioneering discoveries in the health sciences were made by very simple means, scientists lacking access to proper instrumentation are limited in designing their experiments and collecting data, or they may be forced to turn away from some of the important prob- lems of their discipline. A 1985 NIH study of 42 U.S. universities and 24 medical schools with the largest amounts of R&D funding collected infor- mation about instrumentation costs, age, condition, use, and so on.6 More recently, NSF conducted a survey of academic research instrumentation in selected science and engineering fields, including the biological sciences in universities and medical schools.7 These survey data, while appearing anecdotal, are the most accurate information available on the adequacy of research instrumentation for the health sciences. The 1985 NIH survey, which queried the heads of 367 biological and medical science departments, provided some insight into the condition and needs of instrumentation in the health sciences.6 Fifty-eight percent of the respondents indicated that critical scientific experiments could not be con- ducted because equipment was lacking. Although this response was more frequent in the biological sciences overall, 41 percent of the departments in medicine identified equipment shortages as a serious problem. Only 16 percent of the departments rated their equipment stocks as excellent for tenured faculty (15 percent for nontenured faculty). Between 50 and 60 percent of the respondents indicated that their equipment stocks were adequate, and nearly a third rated their equipment insufficient. These data

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148 FUNDING HEALTH SCIENCES RESEARCH were collected in 1983, but the more recent data collected by NSF in 1986 showed no apparent change in response to similar questions.7 In 1985 and 1986, 32 percent and 24 percent of department heads of the biological sciences in universities and medical schools, respectively, described their equipment as inadequate for pursuing their primary research interests. The working condition of equipment is related directly to its age. The upper limit for equipment to remain state of the art is estimated to be 5 years, with diminishing usability starting as early as the first year following purchase.6 For instance, the median age of all 1985 and 1986 systems classified as state of the art by the principal user was only 2 years.7 Technological advancement is one primary reason that research instrumentation becomes obsolete at an increasingly rapid pace. Thus, older equipment tends to be obsolete and frequently inoperable. The 1985 NIH survey reported that only 44 percent of the equipment in biological sciences and departments of medicine was less than 5 years old, about 29 percent was 6 to 10 years old, and the remaining 27 percent was more than 10 years old. This same survey revealed that only 18 percent of academic medicaVbiological instruments were classified as state of the art by respondents. About 65 percent of the instruments in active use were not classified as state of the art, and nearly 16 percent of equipment physically present in laboratories was not in use, owing either to mechanical disrepair or technological obsolescence. The survey showed also that only about half of the existing instrument systems were in excellent working condition. The 1988 NSF study of academic research equipment in selected science and engineering fields reported that about one out of every four instrument systems in research use in 1982 and 1983 was no longer being used for research by 1985 and 1986.7 Conversely, about two-fifths of all systems in research use in 1985 and 1986 had been acquired in the 3-year period since a 1982 and 1983 baseline study was conducted. Maintenance and repair of existing equipment are additional problems for the users and host institutions. For every dollar spent to purchase equipment for the medicaVbiological sciences in 1983 (a total of $158.2 million), only 22.5,{ (a total of $35.7 million) was spent on maintenance and repair.6 Moreover, maintenance and repair costs tend to increase after the instrument is over 5 years old. SOURCES OF SUPPORT FOR FACILITIES AND EQUIPMENT The traditional sources of capital for facilities and equipment are funds obtained from operations (tuition), gifts and foundation grants, gov- ernment grants and contracts, and state and local government support. Other sources of funds for capital improvements may come from research partnerships or other arrangements with industry, debt financing, and the

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RESTORING PHYSICAL INFRASTRUC75URE FOR RESEARCH 149 use of capital or operating leases. This diversification is necessary to help institutions adapt to changing economic environments by minimizing the effects of disruption from any one source. The mix of funding sources at any particular institution depends upon the type of institution (e.g., college, university, hospital or research organization, public or private sector). Between 1986 and 1989 state and local governments were the pri- mary sources of funding for new construction at universities and colleges, supplying about 46 percent ($1.8 billion) of all new construction money (Figure ~4~.3 in contrast, 50 to 60 percent of new construction funds at medical schools, research institutions, and hospitals came from private monies or institutional funds. Ix-exempt bonds at all of these types of research organizations accounted for 17 to 30 percent of new construction funds. Facilities renovation or repair funds, however, largely were institu- tional monies, varying from 53 percent in medical schools to 72 percent at research organizations. About two-thirds of renovation and repair funds at universities and colleges came from institutional money and state and local government. During this period, the federal government provided very little support (0 to 8 percent) in the form of direct funds for all types of research organizations for facilities construction, repair, or renovation. An exception to this was federal support to historically black colleges and universities, which obtained more than 80 percent of their funding for construction and renovation projects from federal sources.3 The NIH has been the principal source of funding for medical and biological sciences equipment; for example, it funded nearly 38 percent of equipment in active use in 1983.6 Equipment purchases are funded ei- ther directly, through research project grants, equipment grants, and block grants, or indirectly through indirect cost recovery mechanisms. Other fed- eral agencies (including NSF) have funded about 12 percent of academic research instrumentation in the health sciences. Whereas the federal gov- ernment funds nearly half of research equipment purchases, institutions provide the main portion (about 37 percent) of nonfederal funds for equip- ment. However, some institutional monies may have included indirect cost payments from research grants. Other sources of funds for equipment include state funds, private nonprofit foundations, and industry.6 State and Local Government In recent years state and local governments have provided the largest proportion of funding for biomedical research facilities.3 State govern- ments invest in their colleges and universities to provide higher education for their citizens. The ability of individual states to support their institu- tions of higher education is related directly to their tax base. Investment decisions are made with respect to the state's industriaVagricultural profile,

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RESTORING PHYSICAL INFRASTRUCTURE FOR RESEARCH Federal Grant Programs 151 Previous federal grant programs supported research facilities construc- tion directly.8 In federal construction programs Congress generally gives authority to NSF, NIH, the individual institutes of NIH, or another gov- ernment agency or agencies to build research facilities. Funding decisions for money disbursed through these programs are based on competitively reviewed proposals. The criteria upon which these proposals are judged are determined by Congress and can include the following: (1) needs for expanding research capacity, (2) promotion of geographic distribution of research facilities, and (3) special programmatic needs. Previous NSF and NIH programs have required 50/50 matching funds from the recipient institution. The first program to construct nonfederal research facilities began in 1948, through authority granted to the National Cancer Institute (NCI).8 During the expansion of NIH in the 1950s, the physical infrastructure for scientific research had to be improved to pursue emerging scientific op- portunities effectively. Then, in 1956, the Health Research Facilities Act (HRFA) authorized a Public Health Service (PHS) program to expand ca- pacity, improve quality, and promote the equitable distribution of research in the health sciences. Grants made under this authority provided up to 50 Torrent of the Rat for ~.onstrilctinp remodeling. altering* and equipping new or existing buildings for the health sciences. A primary condition for receipt of these funds was a 10-year commitment to use the designated facility for health sciences research. Between 1956 and 1968 the HRFA program awarded 1,482 grants totaling $473 million to 407 institutions in all 50 states. Although this pro- gram required that only 50/50 matching funds be provided by the recipient institution, federal funds were matched with $632 million dollars (nearly 60 percent of construction costs) of institutional funds. Approximately 19 million net square feet of laboratory space 60 percent of the health- related research space constructed between 1958 and 196kwas built with the assistance of this program. Although this program was congressionally authorized until 1974, no funds were appropriated after fiscal year 1968. Unlike most NIH programs in which construction authority is targeted through institutes or disease programs, in the HRFA program the awards were made independent of these constraints. Total NIH construction funds have been negligible over the past 10 years (Figure 6-5~.9 Only NCI, the National Eye Institute (NEI), and the National Heart, Lung and Blood Institute (NHLBI) have had construction authority in recent years. Construction obligations fell from $22 million in 1977 to $2 million in 1984 in constant dollars. Funding rebounded to $13 million in 1985, but it declined again to $9 million in 1986. In the 1988 p~1~11L -Vl ally AVOW AVl vet ~7 _ ^ ~7 ~07

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152 FUNDING HEALTH SCIENCES RESEARCH DOLLARS (Millions) NUMBER 35 1 _ 30 25 20 10 o \ - ~0 77 78 79 80 81 82 83 84 85 86 87 88 YEAR ~+~ Current $ Constant 1988 $ ~ Number of Grants 70 60 50 40 30 20 10 FIGURE 6-5 NIH allocations for extramural construction and number of grants awarded from 1977 to 19~.9 NIH reauthorization bill, $150 million of matching funds was proposed for construction the most substantial increase in recent years. However, because the need for construction and renovation could not be verified adequately, these funds were not appropriated by Congress.i Early construction authorities generally received separate appropria- tions, but recent authorities tend to be in direct competition with research funding. This has led to less use of these authorities by NHLBI and NEI and to declining construction support by NCI.8 In fiscal years 1988 and 1989, no funds were requested under any of these construction authorities. However, $23.9 million was appropriated to the Division of Research Re- sources in fiscal year 1988 for AIDS-related construction.~ The amount allocated in fiscal year 1989 was about $5 million. A proposed $150 mil- lion facilities renewal fund was not approved for fiscal year 1990, although $14 million was taken from the institute budgets to fund a small program. The NSF Science Facilities Program also contributed to the renova- tion and addition of large amounts of research space during the 1960s.8 Whereas this program began by funding renovations and repair during the first couple of years, subsequent awards were made for building new and larger multidisciplinary structures as well as for purchasing stationary general purpose equipment. The program eventually was expanded beyond doctorate-granting institutions to those awarding masters degrees and to

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RESTORING PHYSICAL INFRAS17RUCTURE FOR RESEARCH 153 nonprofit institutions providing graduate training. This program granted 977 awards to 182 institutions. NSF estimated that awardees exceeded the 50 percent matching funds necessary for construction, supplying about 65 percent of the construction funds. Of the $188 million disbursed through this program, $500 million of new or renovated space and equipment was generated. Although the awards were made in all scientific disciplines, the life sciences received one~uarter of the funds and only 11 percent went to the behavioral sciences. In 1960 the President's Science Advisory Committee issued a report en- titled "Scientific Progress, the Universities, and the Federal Government," reaffirming the government's role in expanding the nation's research base.8 After publication of this report, commonly known as the Seaborg Re- port; the NSF Science Development Grants Program became one of the agency's major programs between 1964 and 1972. Large grants were made to "second-tier" institutions to enable them to upgrade their research activ- ities comprehensively over a 5-year period by providing funds to hire new faculty, support graduate students, and construct new facilities. Proposals for these grants were developed cooperatively between the institutions and NSF and were subject to peer review as well as an internal technical re- view. The program was divided into four sections, two of which provided considerable facilities funding. The University Sciences Development Pro- gram awarded $177 million to 31 institutions, and the Special Science Development Awards granted $44 million to 62 institutions. About 23 percent of these funds were used for facilities.8 Unlike direct support for facilities construction, equipment has been financed largely through funds from research project grants or shared instrument grants.6 In 196611.7 percent of research project grant funds were used to purchase permanent laboratory equipment (Table ~3~. By the mid-l97Os less than 5 percent of the funds awarded by NIH through research project grants as well as shared instrument programs were used for equipment. In 1984, the last year in the NIH survey, the percent of funds awarded by NIH for equipment was less than 4 percent of extramural awards, and has remained at this level through 1988. The committee was not able to determine the cause of this decline from the data available. Nevertheless, it is concerned that if this trend continues, scientists may not be able to conduct necessary research protocols in a high-quality manner on NIH grant awards. Earmarking funds for universities, often referred to as pork barreling, has become commonplace in the 1980s. For instance, in fiscal year 1982 Congress earmarked about $3 million for projects on specific university campuses, and by 1989 the total earmarking to universities had reached almost $300 million.~3 Whereas construction funds allocated to science agencies such as NIH and NSF are awarded to colleges and universities in

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154 FUNDING HEALTH SCIENCES RESEARCH TABLE ~3 Percent of NIH Research Project Grant Funds Allocated for Permanent Laboratory Equipment, Fiscal Years 1966 1988 Year Percent Year Percent 1966 11.7 1978 4.4 1967 11.8 1979 4.6 1968 95 1980 3.8 1969 75 1981 3.3 1970 5.9 1982 3.2 19~71 6.2 1983 3.4 1972 6.6 1984 3.7 1973 4.9 1985 4.1 1974 5.7 1986 3.7 1975 4.6 1987 4.0 1976 3.9 1988 3.9 1977 4.3 SOURCES: U.S. Department of Health and Human Sentences; Public Health Service. 1985. Academic Research Equipment and Equipment Needs in the Biological and Medical Sciences. NIH Program Evaluation Report No. 85-2769. Bethesda, Md. U.S. Department of Health and Human Services; Public Health Sentence. 1989. NIH Data Book Publication No. 90-1261. Bethesda, Md.: National Institutes of Health. competitive programs, earmarking bypasses all scientific merit and technical review. The committee believes that the direct lobbying of congressional members by universities ultimately will benefit only a few institutions and not necessarily those with a definite need. Indirect Cost Recovery Indirect cost (IDC) recovery is a reimbursement mechanism used by institutions to recoup expenses already incurred. Although the federal government does not restrict the use of these funds, there are guidelines that outline reimbursable expenses. For instance, federal IDC funds cannot pay for the use of facilities originally financed with federal funds. Also, whereas indirect payments reimburse the institution for the original cost of the facility, institutions are not reimbursed for replacement costs. Institutions receiving federal research funds negotiate individual IDC rates with the sponsoring agency.~4 Many foundations and some industrial sponsors set limits on IDCs allowable. Under current practice, IDCs are used largely for operations and maintenance of the research facilities and ancillary costs of doing research. There is a small percentage (2 percent) of IDC that can be used for depreciation of research facilities, assuming a 50-year life-span of buildings. This assumption may not reflect the life-span of research facilities accurately, for these facilities may become outdated in only 20 years.~5 i6 Use allowances, depreciation, and interest payments (since 1982) on

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RESTORING PHYSICAL INFRASTRUCTURE FOR RESEARCH 155 debts for facilities used in sponsored research are allowable reimburse- ments to universities through IDC recovery. As larger portions of facilities construction money comes from nonfederal sources, this portion of IDCs is edging upwards and increasing the overall institutional rated As the funds for construction grant programs came to an end in the late 1960s and early 1970s, the government shifted its policy to support facilities through IDC recovery to research institutions.8 With additional emphasis on research projects in the 1980s, this policy has become ensconced as the primary means of federal support for facilities renewal. This allows investigators to apply for equipment funds freely, but little if any money is for research buildings except through IDC recovery. The committee believes this policy of IDC recovery as the sole source of facilities renewal is fundamentally flawed. There is a direct relationship between the level of sponsored research activity and IDC reimbursement, which is part of the financial support package to institutions performing the research. The short duration of grant support, generally less than 4 years, contributes to the tendency of research institutions to meet short- term needs rather than the long-range planning necessary for science. Also, whereas the IDCs recovered by the top 50 institutions can be substantial, IDC recovery by second-tier institutions can do little for major construction needs at these institutions. The Office of Management and Budget (OMB) Circular A-21, which regulates the recovery of IDCs related to federally sponsored research, was first written in the 1950s.~8 Ceilings were placed on institutions' IDC rates until 1966; therefore, associated research costs could not be recovered fully. Although the cap no longer exists, there is speculation that many institutions underreport IDCs to keep the overall costs of research low, thus helping their individual institutions remain competitive nationally. Also, as pressures mount to keep IDC categories down, many institutions may shift some of these costs to direct cost categories; thus, total awards will remain the same, but with larger percentages in the direct cost category. Also, the budget sheets of research grants, which include IDC rates and amounts, are available to study section members and may influence awards especially in times of extremely scarce research funds. Debt Financing Debt financing is used by academic institutions as one means of raising funds for capital improvements. Whereas debt financing by state institutions is controlled by state legislatures, private institutions use tax-exempt bonds to raise capital for facility improvements. Also, limits on debt financing through tax-exempt bonds are set by the federal government. The 1984 Ax Reform Act placed a state per capita limit on student loan issues

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156 FUNDING HEALTH SCIENCES RESEARCH and limited industrial development bond issues. Further restrictions were imposed by the 1986 lax Reform Act' which limited institutional tax-exempt borrowing to $150 million. For institutions to be able to use the bond market, they must be good credit risks. Credit evaluations of academic and research organizations are similar to that of corporations because they ate judged on their estimated future earnings and past performance for repaying debt. The ability of faculty to get grants is not a major consideration in credit evaluations. Therefore, only well-established institutions with a good credit rating can use this financial instrument to fund facilities projects. It is estimated that only about 10 percent of the colleges and universities in the United States have effective access to the tax-exempt market.8 Since there is an economy of scale in bond issues, institutions frequently combine various facilities (e.g., parking garages, dormitories, and laboratories) into one bond issue. Tax-exempt bonds are particularly attractive financial instruments for private academic institutions, because these institutions can borrow facili- ties construction money at interest rates below the interest income levels received on their endowments. However, restrictions in the 1986 Ax Re- form Act placed a $150 million limit on outstanding bond debt for private institutions. Nearly 27 percent of the medical schools are affiliated with in- stitutions who have reached this limit, and another 10 percent are expected to do so within the next 2 years.3 This severely limits these institutions' ability to undertake large construction projects, including modifying and expanding research space. The federal government currently sponsors two programs to encourage loans to academic institutions for capital improvement. Congress autho- rized the Student Loan Marketing Association (nicknamed Sallie Mae), through the Higher Education Amendments of 1986, to lend funds for aca- demic facilities construction. Seventy-five percent of these loans must be made to institutions with credit ratings below the third highest rating. The second program, the College Construction Loan Insurance Corporation (nicknamed Connie Lee), authorized by the Higher Education Amend- ments of 1986, established a program to guarantee, insure, or reinsure bonds and other debt instruments for academic facilities.~7 Institutional Funds In addition to federal, state, and local government support, institutions of higher education obtain revenues from tuition, philanthropy, endowment income, and revenues from sales and services. The proportions of support from these various sources have changed over the last decade, with gov- ernment support declining and revenue from the other sources increasing.

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RESTO[UNG PHYSICAL INFRASTRUCTURE FOR RESEARCH 157 Recent evidence of this is the skyrocketing costs of college tuition in both private and public institutions.20 The Government-University- Industry Research Round table (GUIRR) reports that almost 20 percent of facilities funds annually came from in- stitutional monies in the years 1986 through 1989.~7 Publicly supported institutions devoted 15 percent of institutional funds for facilities, whereas these monies constituted 24 percent of the facilities funds expended at pri- vate institutions. Institutions also fund nearly as much research equipment in the biological and medical sciences as does the NIH: 37 and 38 per- cent, respectively.6 Unrestricted institutional funds can be used as matching funds for government facilities and equipment grants. Escalating education costs, which have continued to outpace inflation, coupled with possible de- clining enrollments in the l990s, inevitably will increase competition within institutions for distributing endowment earnings between educational and research needs. Gifts and donations from philanthropies are other sources of funding for constructing and restoring facilities. Private institutions rely heavily on these sources to raise money for capital improvements: About 20 percent of the science and engineering facilities funding between 1986 and 1989 was provided through gifts and donations.~7 Unlike institutional funds, which are controlled by the institutional officers, donors often restrict the use of gifts and donations; therefore, institutions have less control over their use. Also, philanthropic giving is affected directly by tax law. Whereas the lax Reform Act of 1986 has reduced the marginal tax rates, it treats gifts of appreciated property as a preference item and subjects them to the alternative minimum tax of 21 percent.2i The effect of tax law changes on philanthropic giving has been studied by expert groups, and a clear conclusion on the result remains elusive. Foundations and Voluntary Health Agencies Foundations and voluntary health agencies support facilities through direct and indirect means. These organizations can contribute directly through specific facilities and equipment programs or indirectly through comprehensive curriculum development programs with allowances for fa- cilities construction. For example, the Kresge Foundation Science Ini- tiative is a matching funds grant program for scientific equipment and laboratories that provides foundation funds to colleges and universities to upgrade equipment.22 Indirectly, these types of organizations support fa- cilities through payment of overhead costs associated with grants to the facility. However, the committee believes that these organizations cap IDC rates, and, therefore, they do not pay the full costs for performing the research they sponsor.

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158 FUNDING HEALTH SCIENCES RESEARCH Industrial Participation Many corporations support their own R&D facilities, but the mag- nitude of this support is unknown. Industries have not been significant supporters of research facilities projects at academic institutions or inde- pendent research organizations. Rather, companies have preferred direct project or program funding in which they have greater leverage or control. It is believed that companies, like foundations, may tend to increase IDC recovery problems for universities by negotiating lower overhead rates than what federal sponsors pay.23 In recent years partnerships have spawned between industry and universities.24 These arrangements are intended to provide mutual ben- efits to both parties without compromising the educational mission of the university. Although individual project support from industry generally does not provide full recovery of IDCs, the committee believes these larger partnerships sponsored by industry provide more reimbursement for facil- ities and administrative costs of performing the research than individual projects allow. SUMMARY AND CONCLUSIONS The committee concludes that aging research space and obsolete equip- ment are restricting the number and types of research projects that can be undertaken. Over the last decade there has been a plethora of studies on the condition of academic facilities, and there is general agreement within, as well as outside, the scientific community that many research laboratories on our campuses are in disrepair. The committee concludes that even after repeated studies, no long-term federal strategy exists to restore the physical infrastructure. There is no consensus on the need for expanded versus renovated facilities, the best mechanism for support, and the respective roles of the interested parties. Additionally, there is no way to coordinate the various independent contributors supporting facilities and equipment. Without a clear set of goals and a cohesive national policy, universities and other research institutions will be forced to continue seeking short-term solutions to their facilities' needs by obtaining earmarked appropriations from Congress. At a minimum, the committee believes it is critical to maintain the current level of research effort as well as provide an optimal environment for training the next generation of health scientists. Meeting these objectives is becoming increasingly more difficult under the present condition of research facilities. It will be counterproductive to allow the existing facilities to slip into a further disrepair where scientists will no longer be able to investigate the frontiers of science. The committee could not conclude that

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RESTORING PHYSICAL INFRASTRUCTURE FOR RESEARCH 159 all outmoded structures should be renovated; rather, those structures that can be updated should be, and the others should be demolished and rebuilt. The committee also believes that the decline in federal programs for research facility construction and equipment is partially responsible for deterioration of the nation's research laboratories. Federal support of facilities and equipment as a percentage of total federal health R&D expenditures has decreased drastically over the past two decades. Federal grant programs in the 1960s were very successful in expanding the nation's research capabilities, but several factors caused the NIT and NSF facilities programs to be eliminated in the early 1970s. Except for some limited appropriations for AIDS research facilities, federal funds for health sciences research facilities have been negligible or nonexistent over the past 10 years. This comes at a time of escalating maintenance costs, increasing regulatory standards, and an explosion of scientific opportunities and technological sophistication. Although research institutions have been able to raise some money from other sources, a great deal of biomedical research renovation and money construction needs are being deferred. Creative funding mechanisms will be required to fill the enormous need for new and renovated biomedical research facilities, now estimated to be in excess of $8 billion more than three and one-half times the amount to be spent. Alternatives to the traditional forms of capital forma- tion are beginning to reshape the way academia raises money for capital improvements. State and local governments are investing in academic fa- cilities for education and garnering the economic advantages of providing a sound scientific base in the state. Although the private sector continues to make significant contributions to supporting the physical infrastructure of research, it cannot be expected to meet the total need. Partnerships with industry (although limited) may help fill these enormous gaps for research institutions but are sensitive arrangements to work out. It seems that the policy options available are few. As IDCs increase, scientists claim that they consume scarce research resources. Institutional administrators claim that overhead rates are undercharged and that they have to find these resources to keep their institutions competitive. With large federal deficits looming in the immediate future, direct grant programs for revitalizing the physical infrastructure seem remote. Thus, it appears that we will be forced to recoup these costs through indirect means. Despite these problems, the committee concluded that there is a crucial need to establish a national policy for renewal and expansion of the health sciences research infrastructure. The objectives of a comprehensive facilities plan should be twofold:

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160 FUNDING HEALTH SCIENCES RESEARCH 1. 1b maintain and restore the present physical infrastructure by improving the capabilities and efficiency of performing health sciences research. 2. To expand the physical infrastructure and therefore the nation's capacity to perform health sciences research. Meeting these objectives will allow scientists to pursue new as well as enst- ing opportunities in the health sciences in order to expand the boundaries of health sciences knowledge. REFERENCES 3. 1. U.S. House of Representatives. 1989. Report of the House of Representatives Appro- priations Subcommittee for the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Bill, 1989. Report No. 100 689. Washington, D.C. Massey, W.F. 1989. Capital investment for the future of biomedical research: A university chief financial officer's view. Acad Med 64~1989~:433-437. U.S. Department of Health and Human Services; Public Health Service. 1988. The Status of Biomedical Research Facilities: 1988. Bethesda, Md.: National Institutes of Health. National Science Foundation. 1988. Scientific and Engineering Research Facilities at Universities and Colleges. NSF 88-320. Washington, D.C. 5. National Science Foundation. 1986. Science and Engineering Research Facilities at Doctorate-Granting Institutions. Washington, D.C. 6. U.S. Department of Health and Human Services; Public Health Service. 1985. Academic Research Equipment and Equipment Needs in the Biological and Medical Sciences. NIH Program Evaluation Report No. 85-2769. Bethesda, Md. 7. National Science Foundation. 1988. Academic Research Equipment in Selected Science/Engineering Fields: 1982-82 to 1985-86. NSF SRS 88-D1. Washington, D.C. 8. U.S. House of Representatives. 1987. Brick and Mortar A Summary and Analysis of Proposals to Meet Research Facilities Needs on College Campuses. Committee on Science, Space, and Technology; Subcommittee on Science, Research, and Technology; GPO Publication No. 77-341. Washington, D.C. 9. U.S. Department of Health and Human SeIvices; Public Health Service. 1988. NIH Data Book, 1988. Publication No. 89-1261. Bethesda, Md.: National Institutes of Health. 10. NIH Budget Office. 11. U.S. Congress. 1988. Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 1989. P.L. 100~36. 12. Panning pork. 1988. Science 242:1383. 13. Cordes, C. 1989. Colleges receive about $289-million in earmarked funds. The Chronicle of Higher Education. February 1, pp. A1 and A20. 14. Association of American Universities. 19~. Indirect Costs Associated with Federal Support on University Campuses: Some Suggestions for Change (Draft). AAU Ad Hoc Committee on the Indirect Costs to the Executive Committee of the AAU. Washington, D.C. 15. U.S. Department of Health and Human Services. 1988. Report of the Ad Hoc NIH Study Group on Extramural Biomedical Research Facilities Construction. Bethesda, Md.: National Institutes of Health.

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RESTORING PHYSICAL INFRASTRUCTURE FOR RESEARCH 161 16. U.S. Department of Health and Human Services. 1989. Report on Extramural Biomedical Research Facilities Construction. Office of the Secretary. Washington, D.C. 17. National Academy of Sciences; Government-University-Indust~y Research Roundtable. 1990. Perspectives on Financing Academic Research Facilities: A Resource for Policy Formulation. In Press. 18. Office of Management and Budget. 1979. Principles for Determining Costs Applicable to Grants, Contracts, and Other Agreements with Educational Institutions. OMB Circular A-21. Washington, D.C. (Revised February 1979.) 19. National Association of College and University Business Officers. 1988. Capital Formation Alternatives in Higher Education. NACUBO Capital Management Series. Washington, D.C. 20. The College Board. 1989. The College Cost Book, 1989-90. New York: College Board Publications. 21. Ginzberg, E., and A.B. Dutka. 1989. The Financing of Biomedical Research. Balti more: The Johns Hopkins University Press. 22. The Kresge Foundation. 1987. Annual Report for 1987. Detroit. 23. National Academy of Sciences: Government-University-Industry Research Roundtable. 1986. Academic Research Facilities: Financing Strategies. Washington, D.C.: National Academy Press. 24. National Academy of Sciences; Government-University-Industry Research Roundtable. 1986. New Alliances and Partnerships in American Science and Engineering. Wash ington, D.C.: National Academy Press.