The University Record, October 29, 1996


VCM: Confusion x Mistrust = Challenge
In preparing a grant proposal, I have come across a startling confusion in the new VCM rules, especially on the issue of overhead of indirect costs. Here are three anecdotes from persons and units who will remain unnamed, and one named case from my own college.

1. I was told by one high administrator that all units would be taxed 12 percent of all spending. But grants would not be taxed for capital equipment, which goes to the University, or for tuition and fellowships, whose funds also go to the University.

2. I was told by another dean that the current budget taxed the school 15 percent.

3. I was told by another dean that the minimum tax on any grant would be 20 percent of direct costs for overhead. If a grant came in without permitting indirect costs (many foundation grants stipulate no overhead to the University), the head office could provide instructions for some innovative accounting practices that would in effect provide that 20 percent to the school in indirect costs.

4. The last is my own college, LS&A. I am making a proposal to an international organization that stipulates a maximum 13 percent indirect costs. I was told by our office of research that they can document real costs of over 50 percent for indirect costs; that they were uncertain what the University would actually charge units; but that they did not wish anyone to refuse a grant, or to refrain from seeking a grant, because of limits of indirect costs provisions. Here was a least one unit that was clear it did not wish the current confusions of VCM to limit faculty entrepreneurial activities. But they also said something else. Under new very strict accounting rules, attempts to hide indirect costs would be clearly illegal and would not be permitted.

I am surely not the only one confused by the implications of the VCM model-rules-mandate . . . whatever!

My own sense is that the rules will ultimately be worked out (possibly radically changed or dropped), and the result will most likely be reasonable and fair. After all, we do live very much by research grants sought and acquired by the faculty, and no sensible person would try to limit the faculty's entrepreneurial activities. It would, of course, be much easier to go through this period of confusion if there were widespread trust among the faculty of the administration. My sense is that this trust may now be at something like an all-time low.

Thus the challenge to the current interim president, the provost and the new president will be to restore some of the trust that has been lost. There is also a great challenge to make the new rules work, if we ultimately decide to do that, without dampening the entrepreneurial spirit of the faculty.
Gayl D. Ness,
professor of sociology

CREF participants should vote to divest CREF's tobacco investments for ethical and financial reasons
CREF (College Retirement Equities Fund), in which many University faculty and staff have invested for their retirement, owns more than a billion dollars of Philip Morris stock and commercial paper, as well as more than a third of a billion in 21 other tobacco corporations.

If you are a CREF participant, you have good reason to be uncomfortable on both ethical and financial grounds that your retirement money is invested in what has been called "America's sleaziest industry." And you will have the chance to do something about it this month when you receive your annual proxy mailing from TIAA-CREF.

Resolution 3 on that proxy asks that CREF divest itself, in an orderly fashion, of its tobacco-related investments. I urge you to vote for that resolution, which has been endorsed by the American Medical Association, the American Public Health Association and the Michigan Conference of the AAUP, among others.

If tobacco companies are to maintain their profits, they must replace the 450,000 smokers who die each year in the United Statesand they do this by targeting their advertising to young people, ethnic minorities and women. The average American smoker becomes a daily smoker before age 18. Very few begin smoking after their teens. The tobacco industry continuously violates the ethical obligation of adults to protect children, who are not able to maturely weigh risk from known threats to their well-being.

The industry is under attack as never before. And it is this attack which provides the financial reason for CREF to divest itself of its tobacco investments. Hundreds of individual and class-action personal injury and fraud suits have been filed against tobacco companies. Seventeen states are suing for reimbursement for the billions of dollars they have paid for medical care as a result of tobacco-related illnesses.

The public is increasingly hostile toward the tobacco industry. Thus, it is reasonable to expect that the economic power and political influence of the industry will no longer be as successful as it has been in the past in protecting the industry. This makes tobacco a risky investment.

The TIAA-CREF management says that current prices of tobacco stocks already reflect these risks. But not all financial analysts agree. For example, when the Maryland Retirement and Pension System recently announced that it was dropping its tobacco investments for purely "business" reasons, its board vice-chair said tobacco companies have been good at fighting legal battles over the years, "but sooner or later they are going to lose."

A vote for the resolution asking CREF to divest itself of its tobacco investments in an orderly fashion is the prudent and ethical choice.
Eugene Feingold, professor emeritus
School of Public Health