Wake Forest Law Review
25Feb

Research at Risk: New NIH Policy Proposal Threatens Research Funding

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By: Palmer Dayhuff

A new policy proposed by the National Institute for Health could dramatically reduce the amount of federal funding universities and other research institutions conducting medical research receive.[1] The National Institute of Health (“NIH”), a part of the U.S. Department of Health and Human Services, is the nation’s medical research agency.[2]The NIH’s mission “is to seek fundamental knowledge about the nature and behavior of living systems and the application of that knowledge to enhance health, lengthen life, and reduce illness and disability.”[3] The NIH awards a large number of grants providing substantial federal funding for research purposes.[4] In the fiscal year 2023, NIH spent more than $35 billion on almost 50,000 competitive extramural grants to more than 300,000 researchers at more than 2,500 universities, medical schools, and other research institutions.[5]

On February 7, 2025, the Director of the NIH published Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates.[6] The suggested policy change sparked controversy as many grant recipients are concerned that the new policy will dramatically reduce their federal funding for medical research.[7] The policy change could disproportionately affect universities and research institutions in North Carolina “because of the concentration of medical research in [the] state[].”[8]

 For federal grants awarded by the NIH, recipients may currently receive the direct costs of the program and indirect costs, also referred to as facilities and administration (“F&A”) costs.[9] “Direct costs are any cost that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned (allocated) to such activities relatively easily with a high degree of accuracy.”[10] Put simply, direct costs include things like salaries, equipment, and supplies directly supporting the grant-supported project.

Indirect costs or F&A costs, are defined as “costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.”[11] Indirect costs cover expenses such as lab infrastructure, building maintenance and operations, administrative staff, and safety and compliance.[12] While these costs cannot be neatly attributed to one specific research project, they are nevertheless necessary to that research.

The Change in Policy:         

The NIH announced in its supplemental guidance on February 7, that any new grants and all existing grants to institutions of higher education (“IHE”) would be subject to a fifteen percent indirect cost rate.[13] This would be a sharp departure from the way the NIH negotiated these rates. In the past, individual universities and other research organizations negotiated indirect cost rates with the federal government.[14] This process involved universities submitting indirect cost proposals every three to five years including cost summaries, floor plans, and other information relevant to the indirect costs that universities face when engaging in research.[15] The federal government would then review these proposals and negotiate with universities to determine the agreed upon indirect cost rate.[16] While the current average indirect cost rate is between twenty-seven and twenty-eight percent, certain universities and organizations have negotiated indirect cost rates over fifty or sixty percent.[17]

A reduction of indirect cost rates could reduce universities’ federal grant funding substantially. Of the $35 billion distributed by the NIH in fiscal year 2023, $9 billion was allocated to indirect costs.[18] Universities that receive the most funds and negotiate high indirect cost rates could stand to lose more than $100 million of funding per year on average.[19] The NIH took to X after publishing the guidance and claimed that the policy change “will save more than $4B a year effective immediately.”[20]

Fallout:

The response from the medical and academic community was swift. Multiple lawsuits have been filed in the U.S. District Court for the District of Massachusetts seeking to enjoin the NIH from implementing this policy change.[21] The first suit filed by a group of twenty-two state attorneys general prompted the district court to grant a temporary restraining order (TRO) enjoining NIH from “taking steps to implement, apply or enforce” the new policy in any of the Plaintiff states.[22] In a subsequent suit brought by the Association of American Medical Colleges and other higher education organizations and universities, the district court expanded its TRO nationwide.[23] On Friday, February 21, the district court extended the TRO pending a hearing on a preliminary injunction.[24]

Though the judiciary has temporarily restrained enforcement of this rate change, interested parties on both sides continue to argue over the potential costs and benefits. Those who support the change argue that indirect costs are “by their very nature . . . difficult for NIH to oversee.”[25] Further, universities are willing to accept lower indirect cost rates on funding from the private sector.[26] On the other side, critics argue that a decrease in funding will slow progress in vital medical research.[27] The Association of American Medical Colleges claimed that the loss in funding could “force universities to lay off staff, close laboratories and shutter certain research programs altogether.”[28] In North Carolina specifically, the proposed cuts could put thousands of jobs at risk and result in significant lost economic activity.[29]

Whether the NIH will be able to implement this change will hinge on the success of the plaintiffs’ claims that the policy change violates the Administrative Procedure Act and is outside of the agency’s authority under the Appropriations Act of FY 2024.[30] Some senators have weighed in on this issue and claimed that the agency’s decision to cut funding violates the appropriations law Congress passed last March.[31] Universities and research institutions across the country and in North Carolina will need to continue to monitor the situation closely because the outcome of the litigation could have a dramatic impact.

[1] See Nat’l Inst. of Health, Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates, (Feb. 7, 2025), https://grants.nih.gov/grants/guide/notice-files/NOT-OD-25-068.html.

[2] Who We Are, Nat’l Inst. of Health, https://www.nih.gov/about-nih/who-we-are (last visited Feb. 21, 2025).

[3] What We Do: Mission and Goals, Nat’l Inst. of Health, https://www.nih.gov/about-nih/what-we-do/mission-goals (last visited Feb. 21, 2025).

[4] Nat’l Inst. of Health, supra note 1.

[5] Id.

[6] Id.

[7] See, e.g., Penny Gordon-Larsen, Research VC Explains True Costs of Research, Univ. of N.C. at Chappel Hill (Feb. 14, 2025), https://www.unc.edu/posts/2025/02/14/the-true-costs-of-conducting-research/. 

[8] Emily Badger et al., How Trump’s Medical Research Cuts Would Hit Colleges and Hospitals in Every State, N.Y. Times (Feb. 13, 2025), https://www.nytimes.com/interactive/2025/02/13/upshot/nih-trump-funding-cuts.html.

[9] Nat’l Inst. Of Health, NIH Grants Policy Statement, (Apr. 2024), https://grants.nih.gov/grants/policy/nihgps/nihgps.pdf.

[10] Id.

[11] Id.

[12] See, e.g., Penny Gordon-Larsen, supra note 7.

[13] See Nat’l Inst. of Health, supra note 1.

[14] Id.

[15] Penny Gordon-Larsen, supra note 7.

[16] Id.

[17] See Nat’l Inst. of Health, supra note 1.

[18] Id.

[19] Emily Badger et al., supra note 8.

[20] @NIH, X (Feb. 7, 2025, 6:19 PM), https://x.com/NIH/status/1888004759396958263.

[21] Michael T. Nietzel, Federal Judge Extends TRO Against NIH Cap On Indirect Cost Payments, Forbes (Feb. 21, 2025, 1:36 PM), https://www.forbes.com/sites/michaeltnietzel/2025/02/21/federal-judge-extends-tro-against-nih-cap-on-indirect-cost-payments/.

[22] Massachusetts v. Nat’l Inst. of Health, No. 25-CV-10338 (D. Mass. Feb. 10, 2025).

[23] Association of American Medical Colleges v. Nat’l Inst. of Health, No. 25-CV-10340 (D. Mass Feb. 10, 2025).

[24] Michael T. Nietzel, supra note 21.

[25] See Nat’l Inst. of Health, supra note 1.

[26] Id.

[27] Emily Badger et al., supra note 8.

[28] Christina Jewett and Teddy Rosenbluth, Court Pause on Trump Cuts to Medical Research Funds Is Expanded Nationwide, N.Y. Times (Feb. 11, 2025), https://www.nytimes.com/2025/02/11/health/nih-research-funding-lawsuit-injunction.html.

[29] Cindy Bae, Cuts to Research Funding Would Impact Jobs, Patients and NC’s Economy: ‘Ripple Effect’, ABC (Feb. 24, 2025, 7:39 PM), https://abc11.com/post/usaid-cuts-nc-duke-university-worries-medical-research-north-carolina-jobs-amid-funding/15951571/#:~:text=Cuts%20to%20research%20funding%20would,NC’s%20economy%3A%20’Ripple%20Effect’&text=Duke%20University%20said%20over%2025%2C000,DURHAM%2C%20N.C.

[30] Michael T. Nietzel, supra note 21,

[31] See, e.g., Erin Shumaker, Susan Collins Says Trump’s Research Cuts Violate the Law, as Judge Temporarily Blocks Them, POLITICO (Feb. 10, 2025), https://www.politico.com/news/2025/02/10/trump-nih-research-grant-lawsuit-00203376.

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9Mar

Competitive Grant Applications for Allocating State Revolving Funds Need to be Reconsidered to Curb Ongoing Disparate Impact on Marginalized Communities

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Grace Kinley

The Clean Water State Revolving Funds (CWSRF)  and Drinking Water State Revolving Funds (DWSRF) are the largest sources of federal funding for water infrastructure.[1] The CWSRF provides low-cost financing for water quality infrastructure projects and the DWSRF provides financial assistance to help water systems achieve the objectives of the Safe Drinking Water Act.[2] Both of these State Revolving Funds (SRFs) are intended to increase communities’ ability to take on large water infrastructure projects to provide safe and clean water to their community members.[3] In reality, the communities that are most in need of this funding are often unable to access it. In most states, SRFs are allocated based on a competitive loan application process.[4] Across the country, most water systems have never applied for any SRF assistance, and decision-makers for small systems that serve fewer than 10,000 people are the least likely to apply.[5] Many decision-makers choose not to apply for SRFs because they feel they have insufficient training and time to meet the technical requirements of the applications.[6]

One solution that has been proffered for this dilemma is providing technical assistance to communities to help them complete the application process.[7] In theory, this technical assistance would allow for a more equitable distribution of SRFs; however, at least two obstacles prevent technical assistance from being particularly successful.[8] First, technical assistance will only be helpful if it happens to be given to a community whose application is ultimately accepted for funding. Otherwise, the technical assistance funding is wasted because the application the assistance helped create is never put into use. Therefore, for technical assistance to be beneficial, states must actively seek out water systems that serve overburdened communities and encourage them to participate in the application process.[9] This places an additional burden on SRF state administrators who already have a heavy workload of scoring applications and dispersing funds accordingly.[10] Second, federal statute only allows states to use up to four percent of their SRF capitalization grants for administration and technical assistance.[11] In most states, this is likely not enough funding to provide meaningful technical assistance to all of the low-capacity communities that need it.

Another strategy, and potentially more beneficial solution to this dilemma, is that states could provide funds to low-capacity communities without relying on a competitive loan application process. Instead, states could create sub-funds within their SRFs and use that funding to seek out overburdened water systems to plan and implement water infrastructure projects collaboratively. States administer DWSRF resources with significant discretion.[12] Under the Safe Drinking Water Act, states may set aside up to thirty-one percent of their DWSRF capitalization grant to fund state programs or third parties to provide assistance to and develop the capacity of drinking water systems.[13] This set-aside funding can be used to fund activities that are unique to a state’s individual needs.[14]  For example, Massachusetts used a portion of its set-aside to initiate stakeholder involvement that encourages partnerships between nonprofit organizations and low-capacity communities.[15] These non-profit organizations then offered training, site visits, and mentoring to the low-capacity water systems.[16]

Instead of relying exclusively on the four percent of their SRF capitalization grants for administration and technical assistance, a state could potentially use a portion of its thirty-one percent set aside to seek out low-capacity communities to develop and implement water projects jointly with those communities. This not only would allow a greater percentage of funding to go to these low-capacity communities, but it would also eliminate the risk that technical assistance would be provided to a community whose application is not ultimately accepted. This strategy would potentially be less burdensome on SRF state administrators because they will not have to actively seek out water systems that serve overburdened communities and encourage them to participate in the application process on top of scoring applications and dispersing funds. If this is still overburdensome, then a portion of the thirty-one percent could be used to subcontract this work out in a way similar to how many states subcontract out technical assistance.[17]

It is important that in creating this sub-fund, the state requires the funding to be used toward water projects in disadvantaged communities that cannot undergo the application process on their own. In doing this, the state must create a well-considered definition of disadvantaged communities that fits the characteristics of need in that individual state. The Environmental Protection Agency’s Climate and Economic Justice Screening Tool provides a good starting point for developing this definition.[18] This tool uses factors such as poverty, median household income, proximity to wastewater discharge, language isolation, housing cost burden, and educational attainment; however, these are just a starting point and a state must create a list of factors specific to its need.[19] Importantly, race may be an important factor to consider in this definition to help historically underinvested communities receive the necessary funding. Additionally, using a portion of the thirty-one percent set aside to seek out low-capacity communities and develop and implement water projects collaboratively aligns with the Biden administration’s Justice40 Initiative.[20] Under this initiative, the Federal Government has made it a goal that forty percent of environmental-related Federal investments go to disadvantaged communities.[21]

In conclusion, communities that need SRF resources the most often cannot receive funding due to their lack of capacity to undergo the competitive grant application process. Providing technical assistance to aid these communities in the application process, while beneficial in theory, does not do enough to mediate the currently existing disparities in water accessibility. Eliminating the application process and devoting a portion of DWSRF set-asides to sub-funds used to seek out overburdened water systems to plan and implement water infrastructure projects collaboratively could be a more advantageous approach. Ultimately access to safe and clean water is indispensable to health and human dignity.[22] The solution may not be clear but using creativity to reshape state discretion in the distribution of SRFs is an important step toward achieving water equity.

[1] State Revolving Fund Advocacy Toolkit, River Network, https://www.rivernetwork.org/connect-learn/resources/state-revolving-fund-advocacy-toolkit/ (last visited Mar. 8, 2023).

[2] Id.

[3] Id.

[4] See Katy Hansen et al., Uncommitted State Revolving Funds, Nicholas Inst. for Env’t Pol’y solutions 1 (2022).

[5] Id. at 11.

[6] Id. at 12.

[7] Id. at 15.

[8] Id.

[9] Id.

[10] Id. at 12.

[11] Id. at 15 (“States may also use an additional 2 percent of their DWSRF capitalization grant for technical assistance to systems serving fewer than 10,000 people”).

[12] Katy Hansen et al., supra note 3, at 2.

[13] Analysis of the Use of Drinking Water State Revolving Fund Set-Asides: Building the Capacity of Drinking Water Systems, United States Environmental Protection Agency 1 (2015).

[14] Id. at 40.

[15] Id.

[16] Id.

[17] See id. at 5.

[18] See EJScreen: Environmental Justice Screening and Mapping Tool, United States Environmental Protection Agency (2023) https://www.epa.gov/ejscreen.

[19] Misbah Husain & Melissa K. Scanlan, Disadvantaged Communities, Water Justice & the Promise of the Infrastructure Investment and Jobs Act, 52 Seton Hall L. Rev. 1513, 1522 (2022).

[20] See Justice40 a Whole-of-Government Initiative, The White House, (2022) https://www.whitehouse.gov/environmentaljustice/justice40/.

[21] Id.

[22] OHCHR and the Rights to Water and Sanitation, United Nations Human Rights Office of the High Commissioner, https://www.ohchr.org/en/water-and-sanitation.

 

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29Mar

Unconstitutional and Ongoing: Property Taxes Funding Ohio’s Public Schools

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Classroom, School, Education, Learning, Lecture

Danny Cundiff

The Constitution of Ohio states, “[t]he general assembly shall make such provisions, by taxation, or otherwise, as, with the income arising from the school trust fund, will secure a thorough and efficient system of common schools throughout the state . . . . ”[1]  Under a “thorough and efficient system,” it is “the state’s duty to provide a system which allows its citizens to fully develop their human potential” while “rich and poor people alike are given the opportunity to become educated so that they may flourish . . . . ”[2]  Despite the constitutional mandate that “it is the state’s obligation to fund education … the legislature has left much of that responsibility upon local school districts.”[3]  Ohio’s public schools, contrary to most public schools in the United States, are primarily funded locally through property taxes.[4]   As a result, there is inequity between school districts in affluent areas with higher property tax revenues and poorer areas with much lower property tax revenues,[5] which “starved” schools for funds and created anything but a “thorough and efficient” school financing scheme.[6]  Therefore, twenty five years ago, the Ohio Supreme Court held that the state’s public school financing system violated the Ohio Constitution.[7]  However, the same system is still in use today,[8] which begs the question: How?

Three years after its first holding, DeRolph made its way to the Ohio Supreme Court again in DeRolph II.[9]  The State claimed that it had now enacted new legislation that “[met] and even exceed[ed]” the “thorough and efficient” system requirement.[10]  In DeRolph I, the Court identified four aspects of the school-funding scheme that needed to be eliminated:

(1) the operation of the School Foundation Program, (2) the emphasis of Ohio’s school funding system on local property tax, (3) the requirements of school district borrowing through the spending reserve and emergency school assistance loan programs, and (4) the lack of sufficient funding in the General Assembly’s biennium budget for the construction and maintenance of public school buildings.[11]

DeRolph v. State, 728 N.E.2d 993, 998 (Ohio 2000) (DeRolph II).

Specifically, the Court noted in DeRolph II that, while funding systems that rely too much on local property taxes are “extremely difficult to rectify,” they “run counter to [Ohio’s] Constitution’s explicit requirement for a statewide system of public schools.”[12]  Finally, the Court recognized that this problem “underlies most of the other deficiencies in Ohio’s school system.”[13]  In neither DeRolph I nor DeRolph II did the Ohio Supreme Court instruct the General Assembly as to the specifics of new legislation.[14]

Instead, in DeRolph I, it recognized that creation of an entirely new funding structure would take time and stayed the effect of its decision for twelve months.[15]  In DeRolph II, the Court noted that the General Assembly’s new formula was “almost identical to its predecessor,” which conflicted with the Court’s mandate from DeRolph I requiring a “complete systematic overhaul” with respect to school financing.[16]  While the Court recognized the need for studies, experts, goals, and priorities, each of which required “hard choices,” the Court again declined to instruct the General Assembly on how to form a “thorough and efficient” funding structure for public schools.[17]  Three years after DeRolph II, the Court reiterated that it was up to the General Assembly to determine what the new funding structure would be and ended any further litigation surrounding DeRolph without a new funding structure.[18]

Since DeRolph I, DeRolph II, and Lewis, nothing has changed in Ohio, and the status quo continues to be, “[t]he more affluent the community, the better the education.”[19]  A former justice of the Ohio Supreme Court opined that inaction amounted to “[a]bsolute thievery,” stating that “[h]undreds of millions of dollars of education funding were stolen from the children, and the legislature did nothing.”[20]

The average school district in Ohio spends approximately $12,500 per student,[21] but that number hardly paints the entire picture.  For example, “Cleveland Municipal Schools spend $11,000 per student, while Orange Schools spend $20,000 per student,”[22] despite the two cities being separated by just 17.5 miles.[23]  Further, Wickliffe City Schools spend just $2,000 per student, the lowest in the state.[24]  The highest expenditure per student in Ohio belongs to Vanlue Local Schools, which spend over $20,000 per student, more than ten times the amount Wickliffe City Schools spends per student.[25]  This disparity clearly cuts against the mandated “thorough and efficient” funding for public education, and it is no surprise that Vanlue Local Schools have a higher performance index than Wickliffe City Schools.[26]

The funding scheme for public education in Ohio has been in need of revision for a very long time.  The courts have recognized this, but have not taken concrete steps to remedy the problem.[27]  The problem has even advanced to litigation between school districts, as public schools fight to obtain funding through tax revenue in a system that has already been found unconstitutional.[28]  Therefore, instead of investing their money into educating the next generation, public schools have been reduced to litigating over tax revenue from a 405-acre tract of land.[29]  The General Assembly, pursuant to the Ohio Supreme Court’s mandate, must enact a “thorough and efficient” funding structure for Ohio’s public schools to ensure that a sound, equal education can be had anywhere in the state, and “rich and poor people alike are given the opportunity to become educated so that they may flourish . . . . ”[30]

[1] Ohio Const. art VI. § 2.

[2] DeRolph v. State, 677 N.E.2d 733, 736, 740 (Ohio 1997) (DeRolph I).

[3] Id. at 745.

[4] Id. at 738.

[5] Karen Kasler, Report Finds Ohio Hasn’t Bridged Funding Gap between Rich and Poor School Districts, WOSU (Aug. 15, 2018, 4:06 PM), https://news.wosu.org/news/2018-08-15/report-finds-ohio-hasnt-bridged-funding-gap-between-rich-and-poor-school-districts.

[6] DeRolph I, 677 N.E.2d at 745.

[7] Id. at 747.

[8] Monique John, Despite Being Unconstitutional, Ohio’s School Funding System Lives On. How is it Hurting Students?, WCPO Cincinnati, https://www.wcpo.com/news/election-2020/despite-being-unconstitutional-ohios-school-funding-system-lives-on-how-is-it-hurting-students (last updated Dec. 17, 2020, 1:45 PM).

[9] See DeRolph v. State, 728 N.E.2d 993, 997 (Ohio 2000) (DeRolph II).

[10] Id. at 998.

[11] Id.

[12] Id. at 999

[13] Id. at 1000.

[14] See DeRolph I, 677 N.E.2d at 747; DeRolph II, 728 N.E. at 1003.

[15] Id.

[16] DeRolph II, 728 N.E.2d at 1006.

[17] Id. at 1000, 1002-03.

[18] State v. Lewis, 789 N.E.2d 195, 202-03 (Ohio 2003).

[19] Harry Boomer & Stephanie Czekalinski, The Next 400: School Funding System Ruled Unconstitutional 4 Times, Failing Students in Poor Rural, Urban Areas, 19 News, https://www.cleveland19.com/2021/03/12/next-school-funding-system-ruled-unconstitutional-times-failing-students-poor-rural-urban-areas/, (last updated Mar. 12, 2021, 5:38 PM).

[20] Id.

[21] Aaron Churchill, Ohio Media Spreads Myths about School Funding, Thomas Fordham Inst. (Dec. 14, 2020), https://fordhaminstitute.org/ohio/commentary/ohio-media-spreads-myths-about-school-funding.

[22] Boomer, supra note 19.

[23] Maps, Google, https://www.google.com/maps/dir/Downtown,+Cleveland,+OH/Orange,+Ohio/@41.4553269,-81.7230086,11z/data=!3m1!4b1!4m14!4m13!1m5!1m1!1s0x8830fa7be9bc5935:0x39e29ea31d74e9b9!2m2!1d-81.6856808!2d41.5047834!1m5!1m1!1s0x88311d2840188df1:0x1b30ac6698d6ff41!2m2!1d-81.4801687!2d41.4494132!3e0 (last visited Mar. 9, 2022).

[24] Ohio School Report Cards, Ohio Dept. of Educ., https://reportcard.education.ohio.gov/district/finance/044313 (last visited Mar. 21, 2022).

[25] Id.

[26] Id.

[27] See DeRolph I, supra note 2; DeRolph II, supra note 8.

[28] See, e.g., Beachwood City Sch. Dist. Bd. of Educ. v. Warrensville Heights City Sch. Dist. Bd. of Educ., 158 N.E.3d 906, 908 (Ohio Ct. App. 2020).

[29] Id.

[30] DeRolph, supra note 2 at 741.

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