The Indirect Costs of Innovation
How the reduction in the NIH indirect rate could lead to a $2B blow to North Carolina's economy
North Carolina is a powerhouse in biomedical research. Hopefully, it will stay that way.
In 2023, North Carolina received $2.28 billion in NIH awards, placing North Carolina in the top 10 states for NIH funding (#6). While a lot of this funding fuels research within universities, funding is also won by companies, both big and small. The top 10 is a mix of both universities, (4 of them - Duke, UNC-Chapel Hill, Wake Forest, and NC State University) along with 6 companies, bringing in around $2 billion to the state. (State-level data is here: https://www.unitedformedicalresearch.org/annual-economic-report-toolkit/#state-specific-resources)
This money funds research that works, in one way or another, to improve our health and overall quality of life. What is key to recognize is that this money generates over $5.3 billion in economic activity and supports more than 23,000 jobs within the state and nearly another 2,000 outside. For every $1 of NIH funding an estimated $2.34 is generated in additional economic activity. (See more here: https://www.ncbiotech.org/news/teconomy-report-highlights-north-carolinas-life-sciences-growth)
So NIH funding supports not just the research laboratories, but also the extensive ecosystem that makes cutting-edge biomedical research possible. It helps generate new companies, new jobs, and supports existing jobs and companies within the state. It is also a big part of why the US is currently a leader in biomedical research.
Impact of NIH Funding in North Carolina
NIH Awards (2023)
$2.28B
Total award funding
Total Jobs
25,081
Combined intra/interstate jobs
Economic Activity
$5.34B
Total economic impact
Economic Multiplier Effect
$1 NIH Award → $2.34 Economic Activity
10.1 jobs created per $1M in awards
Last week NIH announced a dramatic reduction in its indirect funding rate, sometimes referred to as facilities & administrative (F&A) rates or indirect costs, cutting it down to 15%. For North Carolina’s universities and research institutions, this isn’t just a minor change — it’s a huge drop that has the potential to damage the state’s biomedical research and innovation landscape.
How you ask? Indirect costs are the funds that support the necessary but less-visible parts of research—think of things like facilities maintenance (HVAC, electricity, plumbing, etc.), administrative support, supporting research staff, and safety measures, as well as specialized core facilities that provide shared access to high-end research equipment and resources (and thus reducing costs further). It is also important to note that these funds don’t cover all the costs, just a portion.
You could argue that indirect costs have an even bigger and immediate impact on the broader ecosystem of jobs and companies than the “direct” funds do, as indirect funds pay for all the supporting jobs and company services and products that make this research possible.
What happens when you cut it to 15%?
The amount of indirect costs doesn’t just get to be chosen willy-nilly by a company or university and then forced on NIH. Each institution negotiates with the government to establish an agreed upon F&A rate. While it does vary, an estimate of F&A rates for research universities in NC is around 55%. This means that a drop to 15% in indirect costs is basically a 26% decrease in the amount of money coming in to support research.
A basic but reasonable look at the numbers suggest that such a cut will lead to a direct loss of nearly $600 million of NIH money to North Carolina, placing nearly 6,000 jobs at risk. More broadly, the economic repercussions of such a cut could feasibly lead to a loss of $1.4 billion dollars of additional economic stimulus to the state. These numbers were for 2023 during which NC had a total budget of $29.7 billion. Having the equivalent of almost 7% of your budget wiped out in one swoop will have an effect, and not a good one.
Impact of NIH F&A Rate Reduction in North Carolina
Projected losses from reducing F&A rate from 55% to 15%
I’ve also heard of these indirect costs getting connected to some kind of imaginary “DEI slush fund” - this is both outright stupid and irresponsible. This also affects all states, not just North Carolina. If people care about jobs, economic prosperity for its citizens, and US competitiveness, they should call their legislators at all levels and make some noise.
Related Links
https://www.aamc.org/news/press-releases/aamc-statement-drastic-cuts-nih-funded-research