Officials Defend Need for Overhead Receipts

N.C. officials are projecting a budget shortfall for the 2002-03 fiscal year that might exceed $1 billion, forcing legislators to consider budget cuts in most areas of the state budget. Some legislators argue that overhead receipts are a significant source of potential revenue.

Overhead receipts, also called facilities and administrative funds, are part of federally funded research grants that cover indirect costs of the project such as electricity or administrative fees.

Universities nationwide also use overhead receipts to fund miscellaneous projects on campus. Overhead receipts at UNC-Chapel Hill, which total about $75 million, fund everything from employee salaries to faculty training to building construction.

UNC-system schools received $110.4 million in overhead receipts during the 2000-01 fiscal year. About 80 percent of the revenue is used to cover personnel costs, supplies and utilities.

UNC-CH Chancellor James Moeser said overhead receipts are key to the University's continued growth. "We're re-investing those revenue sources and growing a great research university," he said.

Moeser said the University is relying on projected revenue from overhead receipts to serve as collateral for issuing bonds and to fund future construction projects. "A reliable stream (of overhead receipts) helps us achieve a highly favorable bond rating, which enables the University to lower construction budgets by reducing the cost of borrowing money," he said. "A substantial threat to our (overhead receipt) revenue stream could jeopardize our bond rating and escalate costs."

Moeser added that some campus buildings already under construction rely heavily on overhead receipts. The Bioinformatics Building is funded with $27 million in overhead receipts and only $2 million from state bonds.

Jeff Davies, UNC-system vice president for finance, said overhead receipts are crucial to funding construction and cannot easily be seized. "(Overhead receipts) cover a portion of building projects," Davies said. "It's difficult to build 30 or 40 percent of a building."

He also said overhead receipts supplement state funding for items like utilities. "Overhead receipts have been used to make up that gap," Davies said.

But some legislators repeatedly said UNC-system officials should not rely on retaining 100 percent of overhead receipts.

Rep. Robert Grady, R-Onslow, hinted that the N.C. General Assembly might seize some of the receipts to cover part of the budget shortfall. "In 1991, the legislature retained 50 percent of the receipts," Grady said. "I would urge you to stop and think if you are planning to continue receiving overhead receipts at 100 percent. The time might come when the issue is faced squarely." UNC-system schools only began keeping all funding from overhead receipts after 1991, which was after the state's last major budget crisis.

Moeser said only Texas takes a large percentage of overhead receipt funding, but Texas, unlike North Carolina and most other states, allots significant amounts of state funding to research.

Moeser said the General Assembly could not seize the overhead receipt revenue without damaging UNC-CH and the state's own economic development. "If that moment comes and we turn out the lights, then we turn out the lights on the future," he said. "I would hope that the General Assembly would not do that."

The State & National Editor can be reached at stntdesk@unc.edu.