Federal funds are received for student financial aid (mostly work-study and loans) and the research activities of the faculty. Federal grants provide support for graduate students, post doctoral researchers, professional staff, as well as technical and administrative elements of the research infrastructure. Federal grants also generate indirect cost receipts.
Contracts and grants are awarded to principal investigators to support direct costs of research (consistent with OMB Circular A21). These funds, which go to individual faculty rather than to the campus, are not budgeted and are not part of the campus's annual budget process. These are restricted according to the terms and conditions of the grant.
Overhead reimbursements (indirect cost recovery) are tied to the expenditure of direct costs. The amount is based on the indirect cost rate, which includes the cost of facilities (such as equipment, research space, maintenance and utilities, and the library) as well as departmental administration and support. Effective 7/1/06 the on-campus rate was 51% and on 7/1/08 increased to 51.5%. This is within the range relative to the other UC campuses - UCR is 50%, UCSB is 51.5%, UCD is 52%, UCB is 53%, UCLA is 54% and UCSD is 54.5%. The "effective" rate (the amount actually generated as a % of expenditures) is closer to 27% because not all federal contracts and grants generate the full overhead rate, i.e. equipment grants, grants for off-campus research use the "off-campus rate" and sometimes the overhead is waived or is reduced. Waivers of overhead require approval of the Vice Chancellor for Research. In general, waivers and reductions are not encouraged and are no longer common.
All federal overhead goes to OP and is then allocated to the campuses based on how the funds were generated. The overhead is split into three categories. OP retains 6% of the revenue generated in each category of indirect costs and returns 94% to the campus, as shown on the following chart.
Off the Top Funds - About 20% of federal indirect cost receipts flow into the "Off-The-Top Fund" (OTT). OTT is used for administrative costs related to the accounting and administration of grant-related activities such as the Sponsored Projects Office and Extramural Accounting. OTT cannot be used for capital projects.
Opportunity Funds - 36% of federal indirect costs become known as Opportunity Funds. OP's portion of Opportunity Funds are used for such things as the Keck Telescope. The campus opportunity funds are flexible dollars.
General Fund - The remaining 44% is used, along with state funds and education fee revenue, to support the University's general fund budget.
