My second example is the University of Pittsburgh, where I know well Chancellor Edward Litchfield and went to the school with the vice chancellor, Dr. John Geise, and have discussed with them their problems.

As a matter of fact, I have arranged scholarships for the university. So I am personally interested in it.

The University of Pittsburgh is participating in the new research and development organization, the Oakland corporation that is being set up in Pittsburgh, with all the universities of western Pennsylvania taking part, for the purpose of research and development, and training people in depth in outlying towns and cities and villages. The organization for space and aeronautics research on a broad base over a large geographical area in western Pennsylvania, would mean training people in electronics, physics, chemistry, mathematics, and the allied sciences which would give a base in depth to NASA for the future.

There are 2,200 people of doctoral level in this area of about 3 million people who are not now organized nor being used to any extent in the space program.

I have said at the University of Pittsburgh, "What will you do for the Government, not what we can get the Government to do for you," as the President said in his inaugural address.

I said if you are interested in a space center you should put up a million and a half dollars if you are asking a million and a half from the Government.

The CHAIRMAN. I believe they are in it.

Dr. SMULL. It is under consideration.

The CHAIRMAN. Not all of them have been finally established.
Dr. SMULL. That is right.

Mr. FULTON. My point is this:

I believe that you should require of the local areas and the local universities participation on a basis that they contribute to help the U.S. space program as well. Where that kind of interest is evidenced and indicated, then, regardless of the fact whether it is Pennsylvania, Iowa, West Virginia, they should be given adequate consideration.

My second point is, It is becoming an issue in our area, when NASA sends its teams around to recruit people on the research and development level, and when the large companies that are engaged in NASA research send their teams around to drain our local scientific manpower. We have already had an editorial in our largest morning paper, questioning NASA space programs as to their priority on scientific manpower. This amounts to the taking from local communities at higher prices than local industry paid this cream of their scientific talent. I want to warn you that is not going to be a little issue and that unless NASA likewise has a return so that each local community-not just Pittsburgh-can see that it is a combination effort with local participation in space programs there is going to be real trouble on this program.

I would say, in conclusion, that the National Aeronautics and Space Agency, in Pennsylvania, a State of almost 12 million people, has not 1 single employee of NÁSA at this time.

We pay over 10 percent of the taxes of the U.S. Government. Our area in western Pennsylvania alone pays $1,250 million worth of

Federal taxes in a year through our Pittsburgh collector of internal

revenue.

Under those circumstances, where we have these 2,200 people of doctoral level that so far have not been organized toward a NASA program, when our local citizens are forming a nonprofit corporation that will have $250 million worth of research money, I hope that it will not take NASA months to come to the conclusion that it is worth while putting $1,500,000 into a new space center when our local people donate the same amount to put it into this $250 million new research complex.

My point is this: Rather than drain these communities of their scientific talent, NASA would get a much broader base if they would help the universities all over the country organize and spread out into little towns and hamlets with educational facilities on these skills that you are going to need in depth in order to be able to screen and develop these scientific young people, who are the outstanding ones through the country.

Mr. CASEY. They have been trying to encourage more universities to take interest in the programs because of the fact that there seems to be a limited number, and, as Dr. Clark stated a while ago, you have to get them interested and start building up the program.

The CHAIRMAN. Gentlemen, I know of the interest of this, but I am afraid we have gone a little far afield. We are here to discuss the 20-percent limitation, and we have the National Science Foundation yet to hear.

Mr. TEAGUE. Mr. Chairman, I have two short questions.

Dr. CLARK. May I reply to Mr. Fulton's comment?

The CHAIRMAN. Shortly.

Mr. FULTON. I want to see a broad base program and not for a few institutions. It is not far afield.

Dr. CLARK. I think your points are very well made, Mr. Fulton. You are describing just the sort of thing that NASA is attempting to do with increasing effectiveness. We recognize that in this whole system of all these consumers of talent the only segment of the community that really produces talent is the university.

We are exceedingly anxious that this production of talent is emphasized and supported. This is the reason for this Ten Square program, for example. And perhaps after the session I could discuss with you some of the things we are doing with Penn State University in its ionospheric research laboratory, where we have some long-range funds supporting graduate studies, and from which we have borrowed on 1 year's leave of absence a man who is at present the chief of ionospheric physics program and will return to the university in even better position to contribute to that region, Mr. Fulton.

The CHAIRMAN. Mr. Teague.

Mr. TEAGUE. Is there any comparison between going to a university for program participation and going to DOD or another agency of the Government?

What do you pay another agency of the Government for doing a job for you?

Is there a fair comparison?

Dr. CLARK. This depends on the individual arrangements.

Mr. TEAGUE. What I was wondering was, could this indirect cost be brought into it?

Dr. CLARK. I think it would be very difficult to do so, Mr. Teague, because ordinarily if we go to another part of the Government this is a mutual consent type thing in which the other part of the Government is also interested.

Frequently their charges on us for the services or the functionwhatever it is-will be minimal because of this mutual interest.

Mr. TEAGUE. The second point, Dr. Clark, in the hearings Mr. Mahon pointed out the Defense Department spent $300,000 annually on audits of these grants.

He intimates this would be done away with if this percentage stays in. If this 20-percent limitation is in there will NASA audit the grants?

Dr. CLARK. I think it would be unlikely to drop the audit, Mr. Teague, because of the variation. It was our understanding that the 20-percent figure was a maximum figure, not a guaranteed figure. Mr. KARTH. Will the gentleman yield?

In situations like this, Dr. Clark: It has been my experience to find every time you put a limitation on it becomes the minimum rather than the maximum; isn't this true?

Dr. CLARK. Quite possible.

Mr. KARTH. Everybody will charge you 20 percent ?

Dr. CLARK. This is certainly possible.

Mr. TEAGUE. Mr. Ford, of the University of Michigan, estimates the same thing everybody will come in with 20 percent.

Dr. CLARK. I noticed that in the testimony.

The CHAIRMAN. Mr. Riehlman.

Mr. RIEHLMAN. No questions.

Mr. KARTH. One other question, Mr. Chairman.

The CHAIRMAN. Yes.

I want to urge you to hurry.

Mr. KARTH. Dr. Clark, are the universities upon accepting a grant for basic research bound legally to complete the work of this grant whether or not they exceed the limitation? Let's say the limitation was on. Would they be bound to complete this work?

Or when they reach the limitation could they just drop it and we have to reprogram and provide a similar grant to somebody else? Dr. CLARK. Ordinarily a grant provides for a certain fixed dollar amount to work in a certain area.

Mr. KARTH. When the money was spent they would quit?

Mr. CLARK. If there is no further money forthcoming they may, if they like, quit.

Mr. KARTH. Under a limitation like this the program could actu ally cost more money; is that correct?

Dr. CLARK. You mean if the university decided to stop work on the grant basis at some point in time because of imposition of a limit?

Mr. KARTH. If they do not feel they should subsidize the Government, for example, and have spent all of the grant money and they have reached the 20-percent limitation on indirect cost, they might fold their tent and quit?

Mr. CLARK. If they feel they could not continue under the grant instrument because they would, in your words, have to subsidize the Government in this regard, and if they feel the contract instrumentality would not be appropriate for the work and decide not to participate, then there can be some lost effort here, yes.

The CHAIRMAN. Thank you very much, gentlemen.

We have about 45 minutes we would like to have Mr. Rosenthal, Dr. Robertson, Mr. Levine come forward, and Mr. Charles Ruttenberg.

STATEMENT OF AARON ROSENTHAL, COMPTROLLER, NATIONAL
SCIENCE FOUNDATION; ACCOMPANIED BY DR. RANDAL M.
ROBERTSON; OSCAR H. LEVINE, AND CHARLES B. RUTTENBERG
The CHAIRMAN. Who will be the spokesman for the group?
Mr. ROSENTHAL. I will start.

The CHAIRMAN. All right, sir.

Mr. ROSENTHAL. Let me introduce my colleagues.

Dr. Robertson, on my left, Associate Director for Research. Next to him, Mr. Levine, Chief of the College and University Study Program of the Office of Economic and Statistical Studies.

To my right, Mr. Ruttenberg, Deputy General Counsel.

We have no prepared statement, Mr. Chairman.

I think it might be desirable if I could take a moment to amplify some of the comments made.

The CHAIRMAN. Gentlemen, you have heard the comments made by NASA witnesses. Perhaps you can amplify and supplement the statements previously made.

Mr. ROSENTHAL. There were certain statements made which I am afraid might lead to a misinterpretation of what the indirect cost category is supposed to cover.

I think the implication was left that indirect costs apply only to administrative expenses of the school.

The indirect costs also cover maintenance and operation of the buildings, utilities, janitorial services, and so forth the use of libraries and common service facilities.

It is more than just the administrative expenses which are normally included in overhead.

The CHAIRMAN. Those vary then with different parts of the coun

try?

Mr. ROSENTHAL. Yes, they do.

The CHAIRMAN. I can see the University of Maine overhead for heating may be much greater than in the University of Miami.

Mr. ROSENTHAL. Exactly. I think it is well to understand that it is not just administrative expenses we are talking about.

These costs include maintenance and operation of the campus as well as some common service activities, such as libraries. In many schools fringe benefits are included as part of the overhead or indirect cost category which, again, cause differences between schools.

The CHAIRMAN. What do you mean by fringe benefits?

Mr. ROSENTHAL. The retirement plan, teachers insurance, health, sabbatical leave costs.

The CHAIRMAN. They vary, of course, by school.

Mr. ROSENTHAL. Yes, and by State.

I should also like to state, while there has been a lot of discussion about cost sharing, it seems to me that we should understand when we talk about cost sharing we are not talking about cost sharing only with respect to the indirect cost category.

If there is to be cost sharing it should be applied to all the costs of project, namely, to the direct costs as well as the indirect costs.

On the point raised in connection with the audit, Mr. Teague, I believe it is fair to say that audit is not only an audit of the indirect costs, but these are audits of the total costs of the project, direct costs-salaries, wages, materials, equipment.

So that even with a fixed overhead rate there would be a requirement for audit.

Mr. TEAGUE. Have you read Mr. Mahon's statement in the Congressional Record where he intimates there would be no audit if you had a flat rate?

Mr. ROSENTHAL. No, sir, I did not see that.

Mr. TEAGUE. Mr. Ford says the same thing.

Mr. ROSENTHAL. I really don't see how that would be possible. I might say in the Foundation now and for a long period of time the Foundation has had a fixed rate, namely, 20 percent, and we do have an audit program and it is a very vital and important port of our activity.

Mr. TEAGUE. Is it 20 percent?

Mr. ROSENTHAL. Our rate right now is 20 percent, yes, sir.

Mr. TEAGUE. Fixed?

Mr. ROSENTHAL. It is fixed.

Mr. TEAGUE. Mr. Mahon said it is 20 percent with a 5-cent leeway either way.

Mr. ROSENTHAL. I don't understand that, sir.

Mr. TEAGUE. On page 13856, July 26, Mr. Mahon said the National Science Foundation follows the policy of allowing 20 percent with a 5-percent leeway for contingencies.

Mr. ROSENTHAL. I don't understand that.

We allow 20 percent of the direct costs of the research as an allowance to the school for all the indirect expenses.

Mr. TEAGUE. Are you saying you don't object to this 20-percent limitation?

Mr. ROSENTHAL. No, sir, I am not saying that.

The Foundation for a long period of time has taken the position that universities should be reimbursed for the full costs of the indirect expenses they have.

We have proposed—we have not been able to sell this viewpointif I may tell the committee what the Foundation's position has been on this-we have proposed we accomplish this through the following procedure:

Each school would be allowed either a fixed percentage of cost-and we think this should be about 25 percent, or the indirect rate which has already been negotiated, if the school has a negotiated indirect cost rate. The school would choose between the two at their option.

This would insure that all schools would get the full reimbursement of indirect expenses and would have another benefit, namely, that it would simplify greatly the administration of grants because we in our