Update on Federal Actions that Threaten Caltech's Financial Strength

To: The Campus Community
From: David A. Tirrell, Provost, and Thomas F. Rosenbaum, President

In our message of June 2, 2025, we summarized a series of federal actions that threaten the financial strength of Caltech and many of the nation's colleges and universities, including an increase in the tax on endowment returns, reduction in federal indirect cost rates, and cuts in the budgets of the agencies and programs that support academic research. We write today to provide updates on these challenges and to alert you to steps we are taking in response.  

Federal Actions

• Endowment Tax. As part of the major tax and spending bill signed into law by President Trump on July 4, Congress modified the legislation that governs taxes on university endowment returns in a manner that exempts institutions with fewer than 3,000 tuition-paying students. This provision removes Caltech's endowment tax burden. 
  
• Indirect Cost Rates. On Friday, June 13, the Department of Defense joined the National Institutes of Health, the National Science Foundation, and the Department of Energy in attempting to impose a 15% cap on the rate of indirect cost recovery on federal awards. On June 16, Caltech joined the Association of American Universities, the American Council on Education, the Association of Public and Land-Grant Universities, and 11 other universities, in filing a legal challenge to the cap in the U.S. District Court for the District of Massachusetts. The court granted our request for a preliminary injunction on July 18. The injunction applies to new awards, but DOD has agreed to hold off on applying the policy to existing awards while the litigation continues. We expect to have a final decision on the merits—covering both new and existing awards—sometime in September. This action, together with Court rulings in earlier lawsuits challenging the NIH, NSF and DOE directives, have temporarily halted imposition of the 15% cap at all four agencies. The cases are at different stages of litigation and appeal. At this point, the outcome is still uncertain. Should the cap ultimately be imposed across all federal funding agencies, the cost to Caltech would be roughly $70 million per year.
  
  As the court cases continue, a working group convened by the Council on Government Relations has developed alternative models for reimbursement of indirect costs (https://www.cogr.edu/fa-cost-reimbursement-materials-0). The group is led by Kelvin Droegemeier, former director of the White House Office of Science and Technology Policy, and has initiated discussion with Congressional leaders with the objective of developing practices that are acceptable to the government and that pay the full costs of university research. The timing and outcome of this process remain highly uncertain, although it is likely that Congress will have significant input on any changes to the structure of indirect cost reimbursement.
  
• Federal Support for University Research and the Jet Propulsion Laboratory. In May, the White House released a budget proposal for fiscal year 2026 that mandates draconian cuts in funding for the federal agencies that support university research and the Jet Propulsion Laboratory. Appropriations committees in the House and Senate are in the process of making their own recommendations, which in many cases call for far higher levels of support – in some instances close to FY 2025 funding levels (https://www.congress.gov/crs-appropriations-status-table). Here again timing and outcome are highly uncertain.
  
  A further complicating factor is the prospect of impoundment, delay or rescission of appropriated federal funds. For example, the health news site STAT reports that as of mid-June, NIH awards were tracking 29% below the average level of the last nine years (https://www.statnews.com/2025/06/27/despite-resumption-of-nih-grant-reviews-research-funding-gap-grew/). [Subscription required] Our own data may be showing evidence of slowing of federal funding as well; dollars awarded to Caltech through new grants or competitive renewals in the third quarter of FY 2025 were less than half the norm for the last nine years (and four standard deviations below the mean). But this is a single quarter; we will know more as we approach the end of the fiscal year.

Mitigation Measures

The fact that we cannot rely on a normal flow of federal funds, which constitute roughly one-third of our campus budget, demands that we adjust our practices in ways that increase revenue and reduce expenses. With those goals in mind, we have initiated the following steps.

• Increasing Revenue
  • We are in active discussions with Foundations and individual philanthropists to increase support for Caltech research.
  • The Director of JPL, Dave Gallagher, is leading an effort to increase both NASA and other agency support for the Laboratory.
    
• Reducing Expenses
  • Only campus employees who earn less than $75,000 per year will be eligible for salary increases in fiscal year 2026. We recognize that this step imposes a burden on many members of our community, and we will reconsider the decision if the financial picture brightens during the year.  
  • We will reduce the target rate of faculty hiring to six appointments during the coming academic year, rather than the normal ten. All six academic divisions will be empowered to search for new faculty colleagues and to make appointments that address their highest priorities.
  • We are asking all of our divisions and departments to propose measures that would allow them to reduce their general budget expenditures in fiscal year 2026. Budget memos to divisions and departments will be distributed within the next few days.
  • We are prepared to implement a substantial reduction in graduate admissions for fall 2026. As we stated in June, support for current students must be our highest priority, and preserving funds for support of continuing students may require that we admit fewer new students next fall. 

We regret having to implement these cost-reduction measures. But we believe that they constitute a prudent response to the extraordinary uncertainty created by recent and ongoing actions of the federal government. We ask for your help in navigating this difficult environment.