Bacon's Rebellion

James A. Bacon

It’s a Start

Mark Warner has set a goal of generating $1 billion in university R&D by 2010. His proposed budget makes a down payment on what Virgin-

ia's research institutions need to achieve it.

No one needs to tell Gov. Mark R. Warner, a former venture capitalist, that Virginians need to build world-class research programs if they want to stay competitive in a knowledge-intensive economy. Early in his administration, the governor set an ambitious benchmark for Virginia’s public universities: $1 billion in R&D expenditures by 2010, up from $577 million in 2000.

Facing a budgetary furor his first two years in office, Warner found himself cutting higher education budgets, not augmenting them. But behind the scenes, he pushed through a comprehensive analysis of what it would take to bolster the stature of Virginia universities in the research arena. By doing its homework when times were tight, the administration has positioned itself to make intelligent decisions now that funds are flowing again.

In his proposed 2004-2006 budget, the governor has taken an important first step toward shifting resources from Virginia’s traditional priority, undergraduate education, to R&D. The Warner budget dedicates $19.7 million to research-related initiatives over and above a $42 million increase in general operating funds earmarked for the state’s nine Ph.D.-granting institutions.

The governor’s budget recommendations fall considerably short of the two-year, $100 million investment called for by a Warner-appointed study committee. But in the words of Deputy Secretary of Education Peter Blake, “It does make a significant down payment. … The governor has set a clear marker that this is the direction the state needs to go.”

As Bacon’s Rebellion has argued on many occasions, the Commonwealth needs to develop world-class research institutions if it wants to prosper in a globally integrated economy. Virginians will be hard pressed to compete against China, India and other fast-developing countries on the basis of cost. We will thrive only if we out-innovate our competitors, developing new technologies, spotting new markets, churning out new products and services, and revolutionizing business processes. Many of those innovations -- especially the technologies -- will emerge from an academic research environment.

Unfortunately, R&D is the Achilles heel of Virginia’s economy. Virginia generated $4.9 billion in R&D activity in 1998, according to a May 2002 report issued by the State Council for Higher Education for Virginia. But roughly 90 percent of that sum came from private industry and federal labs. Ranked by academic R&D expenditures per capita, Virginia ranked 37th among the 50 states in 2000. As a percentage of gross state product, the academic R&D ranking dropped to a pitiful 39th place. Furthermore, none of Virginia’s universities ranked among the top 50 research institutions nationally; only Virginia Tech and the University of Virginia made it into the top 100.

Measured by absolute dollars, academic R&D expenditures in the Old Dominion are climbing. But Virginia is chasing a moving target. Other states are upgrading their research programs as well. Between 1992 and 2000, according to SCHEV report, Virginia universities bolstered R&D spending by 58 percent -- a seemingly strong performance. But universities in the 15 top-performing states racked up R&D spending by 65 percent on average.

Virginia lawmakers have long recognized the contribution of academic R&D to the state’s economy. During the Robb administration, 1982-1986, the Legislature funded the creation of the Center for Innovative Technology as a conduit for funneling state dollars into university research programs. It was difficult demonstrating a return on investment, however, and CIT was forced to reinvent itself repeatedly as a succession of leaders  undertook to meet lawmaker expectations for technology transfer and job creation.

By the time of the Gilmore administration in the late 1990s, CIT had evolved so far from its original mission that the General Assembly funded the creation of an entirely new entity, the Commonwealth Technology Research Fund (CTRF), to funnel state dollars into promising R&D programs. An advisory board, the Virginia Research & Technology Advisory Commission (VRTAC), provided guidance on how to spend more than $20 million committed to the fund.

The CTRF funds dried up during the budget crisis that greeted Gov. Warner upon his inauguration, and legislators chopped CIT funding in half. Reinventing itself yet again, CIT took on a new role of helping Virginia universities track down federal funding.

In May 2002, the State Council of Higher Education for Virginia published a key report that is destined to shape thinking on university R&D for a long time: “Condition of Research at Virginia Colleges and Universities.” In one of the finest pieces of policy analysis to come out of Virginia state government in recent years, SCHEV sharpened what had been a desultory discussion by candidly addressing Virginia's mediocre R&D standing and identifying the key drivers of research excellence.

The report highlighted key factors that had simply gone AWOL from previous discussions of the technology development in the Old Dominion. Virginia institutions, for instance, lag nationally ranked research universities in their ability to recruit world-renowned researchers. Only eight faculty members in the entire Virginia university system belonged to the National Academy of Sciences as compared to 22 at the University of Michigan, 42 at the University of Wisconsin-Madison and 119 at the University of California-Berkeley.

Competition is intense for super-star professors whose research attracts federal and industry funding. The difficulty in recruiting them, however, goes deeper than low state salaries. As the SCHEV report noted, "Top researchers command dedicated research space, specialized equipment and graduate students who can provide research assistance." In a rarely noted deficiency, Virginia universities lag peer institutions in the percentage of graduate students in the student body. Also, thanks to Virginia's emphasis on teaching, faculty members have higher teaching loads, giving them less time to spend on research. Teaching productivity may be higher in Virginia, but research productivity is lower.

Concluded the report: "The message, both implicitly and explicitly, has been that teaching and learning are a higher priority than research and discovery; undergraduate students are a priority over graduate students; and investments that product immediate returns and are low-risk are preferable to longer-term, potentially more risky endeavors."

Last January the Steger Committee, chaired by Virginia Tech President Charles Steger, issued another overview of university R&D. Building on the SCHEV report, Steger recommended that Virginia "develop a systematic and strategic investment strategy to bolster the excellence of research programs," estimating that it would take investments on the order of $100 million per biennium to make "substantial progress" towards the governor's goals.

Among the Steger Committee's proposals was creation of a "blue ribbon panel," comprised of nationally recognized experts from the National Academy of Sciences and other prestigious academies, to evaluate the strengths and weaknesses of Virginia research programs to guide state investment.

The Warner administration embraced the idea, or at least a facsimile of it. In October, 16 experts from around the country convened at the CIT headquarters in Herndon to review 26 research programs presented by Virginia universities. The gathering included two additional days for interviews and follow-up sessions. The evaluations are being compiled in a notebook for use by lawmakers, university officials and economic developers.

On the heels of these activities have come two more reports: one from the Virginia Research and Technology Advisory Commission, "Research & Development Strategies for the Commonwealth of Virginia," and another from a VRTAC subcommittee, "The Creation of New High-Tech Industries in Virginia."

Warner's $1 billion goal by 2010 should be achievable if Virginia universities simply maintain their historic growth rates in R&D expenditures, says John Noftsinger, co-chair of VRTAC and associate vice president for academic affairs at James Madison University. That's not to say that the growth can be taken for granted. Competition for research dollars is intense.

According to Noftsinger, VRTAC proffered two main recommendations. First, put another $20 million or so into the Commonwealth Technology Research Fund. Secondly, change an accounting rule that returns 30 percent of the "indirect cost" portion of every outside research grant back to the state to cover administration and overhead, a charge that amounts to about six to nine percent of the grant revenues. "It's like the state is actually taxing us on research," he says. "The more successful we are in getting research, the less the state pays us."

In compiling the higher education budget this year, says Deputy Secretary Blake, Gov. Warner wanted to help universities cope with enrollment increases, address basic operational needs, and invest in R&D. Universities, which were under-funded by almost $400 million last year, are getting only a fraction of the amount they want from the state this biennium. But it's clear from the break-down of expenditures that the Warner administration is paying attention to how the research community wants the money spent.

Overall, higher education receives $144 million more from the General Fund during the next biennium, an increase of about 3.7 percent. The biggest increases go to schools projecting the largest enrollments. However, the state's four strongest research institutions -- Tech, UVa, VCU and William & Mary -- see only miniscule increases in state assistance. They, presumably, have the greatest latitude to increase tuitions and tap endowments.

Supplementary items in the Warner budget would maintain the state's commitment to agricultural research, and funnel $3 million to Danville's Institute for Advanced Learning and Research. The budget would contribute $2.4 million to the Mid-Atlantic Terascale Partnership, to be matched by $5 million from six major research institutions. The Terascale Partnership would allow the participants to purchase or lease fiber optic lines to provide monster bandwidth required for computation-

intensive research applications. Says Blake: "This is not for college students to download music in their dorms."

The administration proposes carving out another $10 million to support research initiatives identified in the October CIT retreat as particularly promising. Eschewing long-term funding commitments, the state will provide first-year start-up funds to help recruit outstanding faculty, buy equipment or outfit labs. "This program recognizes that the institutions will bring some of their own funds to support these programs and over time will be generating their own research funds," Blake says.

Warner's capital budget would put an extra $17 million into the state's equipment trust fund, some of which will go to research projects. There's a bit more money as well for research buildings and construction of a biotechnology production facility.

To help recruit outstanding graduate students, the administration would allow universities greater flexibility in waiving out-of-state tuitions. Finally, Warner proposes a $30 million cap on the administration-and-overhead rebate to the state from research grants. Says Blake: "We're saying, for any additional dollar you get [over $30 million], you can plow it all back into research."

Blake summarizes the Warner philosophy this way: "We're going back to the SCHEV report and the Steger report and looking at the things that people uniformly agree are important to the research enterprise, and with a limited amount of funds, targeting those that have the greatest return."

-- January 5, 2004