Indirect Costs and Trump's Attack on Independent Voices
By Samuel Bagenstos
A strong democracy requires a robust independent sector. Organizations and associations that stand apart from the governing state regime can develop information and ideas that are beyond the dictates of–and may directly challenge–that regime. The information and ideas developed by these independent institutions provide the public with an essential tool for self-governance. They may offer more immediate material benefits, as well, by helping to prevent or cure disease, predict and prepare for climate-related disasters, and so forth.
In its first three weeks, the second Trump Administration has taken direct aim at this independent sector. The latest salvo came late yesterday, as the National Institutes of Health announced that it would limit the “indirect costs” it would pay on its grants to 15%.
This is the kind of announcement that usually flies below the radar, because it feels like some specialized matter of concern only to accountants. But the basic issue is this: Federal research grants pay not just for the research itself but also for a portion of the overhead costs an institution must incur to keep the lights on when doing the research. That portion of the overhead is known as “indirect costs.” Under the relevant federal regulations, agencies that give grants must generally negotiate indirect cost rates with their grantees. For NIH grants, the rates have generally averaged about 27 percent, though sometimes they have been in the 50 to 60 percent range, or even higher, depending on the particular institution and grant.
NIH says that its cut in indirect costs will save the agency $4 billion per year. But that’s $4 billion that will come directly from universities and other scientific institutions that conduct research. That’s a huge budget impact–and it’s an impact that will hit expenses on which those institutions rely to keep their institutions operating. (See this great STAT article for a discussion of the devastating effect these cuts will have if implemented. And see this Times article as well.)
Compounding the disruption, NIH made this announcement late on a Friday, and it said that the new cap will kick in for any expenses–even on existing grants–incurred starting on Monday, the very next business day. That abrupt announcement gives universities essentially no time to plan for or adapt to the massive budget hole they are now facing.
Litigation over the new indirect-cost policy seems likely, and those challenging the policy seem likely to prevail. In its announcement, NIH notes that the relevant regulations generally provide that the indirect-cost rate must be negotiated between the agency and the grantee. But it also asserts that “NIH may, however, use ‘a rate different from the negotiated rate for either a class of Federal awards or a single Federal award.’ 45 C.F.R. 75.414(c)(1). NIH may deviate from the negotiated rate both for future grant awards and, in the case of grants to institutions of higher education (‘IHEs’), for existing grant awards.”
If the regulations were all that constrained the agency here, that might be a decent argument. But Congress has specifically prohibited NIH from making deviations like this, in a rider to the agency’s appropriation:
“In making Federal financial assistance, the provisions relating to indirect costs in part 75 of title 45, Code of Federal Regulations, including with respect to the approval of deviations from negotiated rates, shall continue to apply to the National Institutes of Health to the same extent and in the same manner as such provisions were applied in the third quarter of fiscal year 2017. None of the funds appropriated in this or prior Acts or otherwise made available to the Department of Health and Human Services or to any department or agency may be used to develop or implement a modified approach to such provisions, or to intentionally or substantially expand the fiscal effect of the approval of such deviations from negotiated rates beyond the proportional effect of such approvals in such quarter.”
Such a massive change in NIH’s “approach to” indirect costs–requiring very large “deviations from negotiated rates” in essentially all cases, with extremely significant “fiscal effect[s]”–would pretty clearly violate this provision.
Even aside from the appropriations rider, the memo implementing the new policy would seem pretty clearly to violate the Administrative Procedure Act. Its 15-percent-across-the-board limitation on indirect cost reimbursement is likely to be understood as a “rule” that requires notice and comment. (Although the APA excludes rules related to grants from its notice-and-comment requirement, HHS has for decades waived that exception, and the courts have held agencies to such waivers.) Moreover, the last-minute implementation of this new rule, in a brief memo that gives literally zero consideration to the highly disruptive effect on universities and research institutions across the country–much less their reliance interests on the agency’s longstanding practice as reflected in the congressional appropriations rider–is the paradigm case of arbitrary and capricious agency action.
So this effort by the Trump Administration may (quickly) run aground in the courts. But it’s important to see the big picture. We can have legitimate policy arguments about how much the federal government should be paying in indirect costs for the research it funds. This new policy, though, clearly wasn’t motivated by those policy arguments. It came directly from a Project 2025 proposal that was explicitly designed to “reduce federal taxpayer subsidization of leftist agendas.”
More generally, this new effort is a direct attack on universities–independent institutions that provide a key location for developing ideas and information that do not accord with, and often promote dissent from, the goals of the current Trump regime. In this way, it’s of a piece with Trump’s “DEI” executive orders, which I discussed in a previous post. It is a component of the Trump Administration’s attacks on science generally. And don’t miss the actions of Trump’s Federal Communications Commission chair–investigating NPR and PBS, and reinstating complaints against stations owned by CBS and NBC. (And watch this development: Trump’s ally Steve Wynn, the casino magnate, just asked the Supreme Court to overturn New York Times v. Sullivan, which provides crucial First Amendment protections to those who speak out against or report about public figures.)
What we’re seeing is a systematic effort by the second Trump Administration to attack the independent institutions that could provide some check on Trump’s illegal and disastrous behavior. I understand why the leaders of these institutions are cowering in fear–university presidents remaining silent in the face of the threat, media companies paying millions of dollars to settle bogus defamation lawsuits Trump has filed against them–but these leaders need to stand strong to defend their institutions. Our democracy depends on it.