Responding to Federal Actions that Threaten Caltech's Financial Strength

To: The Campus Community
From: David A. Tirrell, Provost; Thomas F. Rosenbaum, President

The federal government has announced a suite of actions that have the potential to undermine the financial strength of Caltech and many of the nation's leading colleges and universities.  Congress is considering increases in taxes on endowment returns that would reduce Institute revenue by tens of millions of dollars. NIH, DOE, and NSF have attempted to reduce the indirect cost rate on research awards to 15% of modified total direct costs. If implemented across all federal funding agencies, the reduction in overhead recovery would cost Caltech roughly $70 million per year. Nationwide, the government has terminated hundreds of ongoing research grants that support work that the administration doesn't like, and President Trump has released a budget proposal that calls for large reductions in funding for federal agencies that support university research. This includes core missions led by JPL and operation of our offsite observatories. Many tens of millions of dollars in Caltech research support are at stake. Even if the President's budget proposal is turned away by Congress, the threat of impoundment, either explicit or as a result of unacknowledged stalling in awarding of new grants and release of funds, remains.

Faced with these threats, we are guided by several important considerations.  

• We will not weaken the Institute pre-emptively in response to threats that may not materialize.  We don't know which —if any—of the actions listed above will be implemented.  
• We will mount—or join—legal challenges to federal actions when justified.  We are party to the lawsuits that have halted (for now) the government's attempted reductions in the rate of indirect cost recovery on federal awards.  
• If we experience reductions in revenue, we will redirect funds from discretionary sources to sustain our essential missions in education and research, with support for current students—both undergraduate and graduate—as our first priority.  
• If we must reduce expenditures, we will do so in a manner that preserves our operational strength to the fullest extent possible, to enable the Institute to recover promptly when financial conditions allow.  

The federal actions described above would affect the Institute in different ways. An increase in the endowment tax or a reduction in indirect cost recovery would reduce revenues that flow to the general budget. Reduction in the budgets of the agencies that support academic research, delayed release or impoundment of grant funds, or rescission of federal grants, would fall especially heavily on individual, faculty-led research groups, in addition to causing shortfalls in the general budget through loss of overhead and tuition dollars.  

As always, faculty members must assume primary responsibility for managing their research budgets. That said, the Divisions and the Institute are prepared to work with faculty colleagues who face budget shortfalls caused by adverse federal actions. Although none of the options available to us avoids difficult trade-offs, we have identified a series of steps, including use of discretionary funds; deferral of optional software upgrades and renovations; slowing of graduate admissions, faculty and staff hiring, and salary increases; and special draws from the endowment; that will allow us to compensate for lost federal funds for a period of one to two years if the government succeeds in implementing the measures outlined above. But if those measures define the future of the relationship between the government and our research universities, and Congress does not intervene to reinforce the university-government partnership that has vaulted the United States into international scientific leadership since World War II, Caltech and its peers will face a difficult period of retrenchment.