Statecraft Podcast Episode Summary

Podcast: Statecraft
Host: Santi Ruiz
Episode: How to Save Science Funding
Airdate: December 4, 2025

Episode Overview

This episode dives into the rarely understood world of indirect costs—universities' "overhead"—as a pillar of U.S. science funding. With recent moves by the Trump administration to cap indirect cost recovery (covering infrastructure and overhead) in federal grants at just 15%, researchers Pierre Azou (MIT Sloan) and Dan Gross (Duke Fuqua), alongside their team, present their pioneering research to demystify how this funding mechanism truly works, its opaque negotiation process, and its crucial role in the scientific enterprise. The discussion exposes the consequences of such reforms and explores alternative models for structuring research funding.

Key Discussion Points & Insights

1. Understanding the Basics: Direct vs. Indirect Costs

• Direct costs: Project-specific expenses (e.g., salaries, mice, equipment for cancer research).
• Indirect costs (Overhead): Shared infrastructure costs like lab space, general equipment, building maintenance, compliance, and administration.
  • Quote, Dan Gross (02:36): “Indirect costs are not as easily assigned to any particular project... keeping the lights on, buildings cooled and heated, and even complying with regulatory requirements…”

2. How Indirect Cost Rates Are Set

• Universities negotiate institution-specific fixed indirect cost rates with federal agencies every 2–4 years, supported by extensive documentation.
• These rates attempt to compensate universities for infrastructure and overhead required for federally funded research.
  • Dan Gross (04:32): “Without that funding, universities would have to pay those costs out of pocket... many would not be interested or able to do the kind of science the government is funding them to do without that additional support.”

3. Why the System Is Opaque and Often Misunderstood

• Most researchers and the public have little insight into how rates are set or what overhead covers.
• There’s confusion—even among faculty—about how overhead affects their grants.
  • Dan Gross (06:11): “This is as much of a mystery to the researchers as it is to the public… The system is complicated and hard to penetrate.”

4. Shifts in Federal Science Funding

• Historically, federal agencies gave much more support for infrastructure (block grants, facility creation, etc.).
• Today, the vast majority of support comes through project-specific grants, each carrying its own indirect (overhead) charges.
  • Dan Gross (12:06): “That’s the kind of large-scale investment in research infrastructure that is not as common in the US research policy enterprise today.”

5. The 2025 Indirect Cost Cap Controversy

• The Trump administration in early 2025 proposed capping all indirect cost recovery at 15% across agencies (NIH, NSF, DOE, DOD), citing private foundations (e.g., Gates Foundation) as precedent.
• The stated rationale: If universities accept lower rates from foundations, the government should not pay more.
  • Pierre Azou (15:37): “The argument is there are cases where foundations only charge 15% overhead rate on grants and universities acquiesce... the government is entitled to some sort of most favored nation clause…”

Counterarguments from Guests

• Accepting 15% overhead from foundations is rare and often requires special internal funding to cover actual costs.
• Foundations sometimes allow budgeting ‘indirect’ expenses as ‘direct’ costs, sidestepping the issue.
• Federal funding dwarfs private foundation funding—cutting indirects would massively reduce universities’ ability to do large-scale, high-value research.
  • Dan Gross (20:58): “...the federal government has funded an order of magnitude more university research than private firms or foundations have.”

6. The True Story: Rates, Realities, and Perverse Incentives

• The interviewees’ new study uses data covering 85% of all NIH research funding over 20 years.
• Key finding: Effective indirect cost rates (what universities are actually paid) are much lower than the debated “sticker” rates.
  • Negotiated rates are often 50–70%, but effective rates hover around 40%. This gap is due to exclusions and limits in federal grant rules—for example, not all grant categories or costs are eligible for overhead.
  • Dan Gross (35:40): “Negotiated indirect cost rates have been rising over time... But effective rates haven’t changed for 40 or 45 years and are more modest, at least around 2/3 of those negotiated rates.”

7. Consequences of Cutting Indirect Cost Rates

• Universities would run bigger deficits covering expensive but vital research infrastructure.
• The most affected institutions are often those performing the most socially and commercially valuable medical research—the very work that leads to key patents and innovations.
  • Pierre Azou (43:58): “The more a university or research institution stands to lose under the administration policy, the more it contributed over the past 25 years in research that the private sector found relevant in terms of patents...”
• If indirect cost support collapses, universities may avoid research with high upfront infrastructure costs, nudging the entire research ecosystem toward “cheaper” projects rather than those with the most value or long-term benefit.
  • Pierre Azou (30:34): “If we end up reducing overhead rate by a lot... expect research that has less fixed costs and more variable costs to gain in favor… which is not obviously a good development.”

8. Transparency and Policy Reform: What Needs to Change

• Current Barriers:
  • Lack of transparency into what overhead covers.
  • Complexity and inconsistency of current system breeds suspicion and policy “illiteracy.”
  • Universities are cautious about disclosure, fearing misinterpretation or public backlash.
    • Pierre Azou (50:45): “There are lots of institutions of academia that strike most lay people as completely bizarre... university administrators are hugely attuned to that... shroud it in secrecy.”
• Calls to Action:
  • Simplify overhead rate structure.
  • Increase openness regarding what is reimbursed.
  • Set a standardized, moderate rate (e.g., 40%)—much higher than proposed 15%, matched to real costs, and treat all direct costs equally.
    • Pierre Azou (54:23): “Why don’t we give up on [the complicated process] right from the start and set a rate that is unlikely to lead to large errors in under- or over-recovery?”

Notable Quotes & Memorable Moments

• Dan Gross (11:07):
  “[At] Duke University... the indirect cost rate is 61%... But in practice, Duke doesn’t actually collect 61 cents over every dollar... That’s part of why ICR is pretty misunderstood.”

• Dan Gross (22:58):
  “That may be true, the evidence may suggest [federal R&D is valuable], but that’s not really where the political and public dialogue around science policy is... The tenor shifted from ‘let’s take chances’ to ‘let’s make science and government more accountable.’”

• Pierre Azou (30:34):
  “The stakes are high because if we get this wrong... we’re sending participants in the research ecosystem... [signals] to bias the type of research they’re going to invest in... Right. So... research that is more scale intensive [could] lose favor.”

• Dan Gross (41:03):
  “If you look at NIH budget data, the share of extramural grant funding to indirect costs has been roughly constant at 27 to 28%... even though negotiated rates have risen.”

• Pierre Azou (47:53): [Describing how basic research leads to commercial drug development]
  “The macro picture that we always believed... we can now validate at this... granular level... [and] leverage this data to say... more specific... about likely impact.”

• Dan Gross (53:36):
  “More information supports considered decision making... On the other hand, it also opens the door to misinterpretation... There are some practices at universities that... to the public, might look unusual... [but] might still be productive.”

• Pierre Azou (54:23):
  “We know there are fixed costs. Those need to be paid. We could have an elaborate bureaucratic apparatus... but it’s kind of mission impossible. Why don’t we set a rate at a level unlikely to lead to large errors?”

Timestamps for Key Segments

• 00:06 – Introduction & context on overhead (indirect costs)
• 02:36 – What are direct vs. indirect costs in research funding
• 10:26 – Example of how indirect cost rates affect real grants
• 15:14 – Explanation of 2025 administration’s rationale for capping overhead
• 20:58 – Discussion on scale—“order of magnitude more funding” from government versus foundations
• 35:14 – Data deep dive: What rates really look like & major findings
• 43:58 – Universities most at risk from cuts are those with most valuable research
• 50:22 – Transparency debate: Why overhead is hidden from public
• 53:36 – Policy proposals: How to fix indirect costs; panel’s preferred reforms

Flow and Tone

The discussion was rigorous but accessible, with Pierre often taking care to challenge assumptions and Dan offering institutional and historical context. The hosts and guests shared a dry humor and mutual respect; as Santi joked near the end, “You guys are a good pair.”

In Conclusion

This episode pulls back the curtain on a crucial, contentious, and often-misunderstood part of public science funding. The expert analysis from Pierre Azou and Dan Gross offers listeners a rare look at the mechanics, politics, and possible futures of research overhead—making a compelling case that while reform is needed, drastic cuts risk undermining the very engine of American scientific innovation.

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