While lawmakers in Washington struck an 11th-hour deal to avoid massive automatic spending cuts and tax increases set to take effect at the start of the new year, colleges and universities like Penn are not yet out of the woods.
Congressional leaders passed legislation on New Year’s Day to avoid the so-called “fiscal cliff,” which included tax increases for top income earners and small spending cuts.
However, the deal sets up a second showdown over cuts now poised to automatically take hold in two months, and Penn could lose millions in the process.
“Some of the toughest battles are ahead of us,” said Fels Institute of Government professor and former Pennsylvania Representative Marjorie Margolies. “This is a perfect time when leaders in Washington have to decide to lead.”
‘If you don’t have the money’
Should significant spending cuts happen in two months — whether automatic or through a deal that similarly cuts spending — Penn could see reductions in funding from the federal government.
If automatic sequestration cuts go into effect in two months, Senior Vice Provost for Research Steven Fluharty estimates that Penn could lose $50-60 million annually in research funding. Depending on how cuts are implemented, the Perelman School of Medicine alone could be facing up to a $40 million annual cut to its research budget, Medical School Executive Vice Dean Glen Gaulton said.
A large share of federal funding Penn receives is for research — 82 percent of research conducted at the University is funded by federal agencies, Fluharty said in an email.
“Insofar as many of the undergraduate positions in labs are paid, lab heads will have less funds and may need to use them to retain key staff rather than have an undergraduate in the lab,” Fluharty said. “Labs may need to be more conservative and cautious in launching new exploratory, riskier projects that are often ideal opportunities for undergraduates.”
About 70 percent of research conducted by the Medical School is funded through grants from the National Institutes of Health, which is slated to receive an 8.2 percent cut to funding should the full range of automatic cuts go into place. This could result in fewer grants awarded to students for research, said Gaulton.
While the cuts won’t automatically hit budgets for several months, Gaulton added that NIH is already behaving conservatively because of uncertainty about funding for future years.
“It’s already a difficult situation because of the conservatism,” he said. “It’s going to take a bad situation and make it worse.”
The School of Engineering and Applied Sciences could also be facing significant cuts, since it receives federal funding for research projects through several agencies, including NIH, the National Science Foundation and the Department of Defense, said Engineering Deputy Dean for Research Kathleen Stebe.
Fluharty and Gaulton stressed the importance of viewing research spending as an investment rather than an expense, not just because of quality of life improvements but also because of its economic benefits, including new jobs.
“We run the risk of not only undermining medical advances for humanitarian purposes. We run the risk of undermining what is really one of America’s greatest trades,” Gaulton said. “The hope is that Congress will realize that even in a difficult time, for both humanitarian and fiscal reasons that this is a great investment to make.”
Penn Medicine, which includes the Medical School and the University of Pennsylvania Health System, could also see a 2 percent cut to payments provided under Medicare — a $23 million annual loss, said Susan Phillips, senior vice president for public affairs for UPHS and chief of staff of the Medical School. Overall, Phillips estimates that Penn Med could lose up to $100 million in one year.
Additionally, about 70 percent of tuition and stipend funding for doctoral students in the Biomedical Graduate Studies program comes from NIH. Because doctoral students do not pay tuition or stipends themselves, Gaulton said a reduction in NIH funding would force the school to accept fewer students to the program.
“There’s only one response to that,” he said. “And that’s take [fewer] students. If you don’t have the money, you don’t have the money.”
Sequestration cuts will also apply to the Department of Education, which houses many student aid programs. Students may see interest rates and origination fees on federally subsidized student loans rise, especially if Congress fails to re-extend the low rate for many subsidized loans, which is set to expire in June, Director of Financial Aid Joel Carstens said in an email.
However, he does not expect the financial aid the University gives to students to change, since it will make up the difference as part of the no-loan policy, he said.
Fighting for funding
The University has engaged in heavy lobbying efforts to soften any blow it could receive as a result of spending cuts.
Staff in Penn’s Washington office have met with the Pennsylvania delegation in Congress regularly and have written letters to Congressional committee members to ask that research and student aid funding be maintained, Penn’s Associate Vice President for Federal Affairs Bill Andresen said.
In addition, Penn is a member of several organizations, such as the Association of American Universities and the Science Coalition, which have lobbied lawmakers for research and education funding.
The AAU sent letters to the president and Congressional leaders in July and November — both of which Penn President Amy Gutmann signed — that said cuts to research and education would “risk undermining our nation’s human capital, infrastructure, technological and scientific needs.”
Representatives from Penn Med also met with and wrote letters to lawmakers independent of the University’s lobbying, Phillips said. They argued that cuts under sequestration would directly harm the quality of care for patients as well as decrease investment in biomedical research, which they said is an engine of economic growth and is important for the long-term health of the nation.
“Appreciating that this is a difficult economic climate for our country, we lobby very heavily and try to make every reasonable case with Congressional offices and the office of the president that money spent on research is money well spent,” Gaulton said.
Despite the stopgap measure to avoid the fiscal cliff, Penn is not satisfied — primarily because major spending cuts have yet to be dealt with.
“The results aren’t in yet. We don’t know whether there will be funding cuts,” Vice President for Government and Community Affairs Jeffrey Cooper said. Penn is hopeful, however, that eventual cuts in spending will spare research funds. There is “broad bipartisan support” for federal research and education funding, Andresen said.
Penn plans to maintain its lobbying efforts in the next few months. “It remains my top priority in the Washington office,” Andresen said. Phillips also said Penn Med would “continue to press [its] case.”
If Congress is able to avoid full implementation of sequestration cuts in February, it could put into place another temporary measure that again delays cuts in exchange for a small deficit reduction deal. But that could be a time-consuming and uncertain process, Gutmann said.
“We would be better off not only as a country but as a university if there were a big, grand deal,” Gutmann said. “But the sequester is a lose-lose, and any deal is better than the sequester.”