When the wrecking ball known as DOGE (the Department of Government Efficiency) began its run through the federal bureaucracy earlier this year, it was inevitable that North Carolina would find itself in its path. With a multiplicity of nonprofits and federally funded university research organizations, the Triangle region looked especially vulnerable. And so it has proven to be.
It has never been hard to find tales of government waste, as Ronald Reagan demonstrated many decades ago. But the plural of anecdote is not data; that some money is wasted does not make all spending pointless. In North Carolina and elsewhere, federal monies have underwritten countless innovations in healthcare and technology and improved the lives of millions of people around the world.
A short list of world-changing innovations developed in the Triangle would include Taxol, the most widely prescribed cancer drug of all time, discovered at Research Triangle Institute, or RTI, one of RTP’s foundational companies, which also developed the technology behind wind shear detection; 3D ultrasound, introduced by researchers at Duke University; the “big data” revolution, ushered in by SAS; the UPC barcode, created by IBM researchers working at RTP; and Burroughs Wellcome’s development of the first effective treatment for HIV/Aids, for which the inventors received the Nobel Prize.
Much of the culture that fostered that innovation is now under threat, says Peter Colcanis, an economic historian who has taught at UNC Chapel Hill since 1996. “It’s been one of our great successes, this working together of government and the universities that has made the U.S. the envy of the world. The real blow (from the cuts) is to our R&D infrastructure and the research ecosystem the U.S. has been building since World War II. He (Trump) responded to some real problems, but the instruments used were too blunt.”
Research Triangle Institute has seen 174 federally funded projects terminated as of early June, or about 34% of its backlog. It has cut around a third of its workforce, or 2,000 people, including 355 in North Carolina. It now has around 3,800 employees worldwide, with 1,885 based in the state.
Durham-based FHI360, a global nonprofit focused on healthcare, announced in April that
it would lay off 483 workers, including 144 in North Carolina. Grants from the U.S. Agency for International Development, or USAID, accounted for more than 65% of its portfolio
in 2024.
Duke and UNC Chapel Hill have taken major hits to funding as well. UNC has seen federal funding terminated for 115 projects so far, with total grants down about $126 million. In July, UNC announced $70 million in cuts, or about 2% of its operating budget.
Duke has had at least 28 National Institutes of Health grants canceled worth about $96 million, according to the Duke Chronicle. In July, Duke said nearly 600 employees had accepted a buyout, and that “involuntary staff reductions” were likely on
the way. The Durham university employed about 48,000 people in 2024.
“Most balanced assessments would say there are some issues that need to be addressed,” Colcanis notes. “There are legitimate differences of opinion on (issues like) indirect costs — were they too large or used in the proper manner? USAID has sometimes been out of its lane.”
But, he contends the administration’s approach, was misguided.
“Reform would have been better than what we’re seeing.”
Adds Dan Gross, an associate professor at Duke’s Fuqua School and Faculty Research Fellow at the National Bureau of Economic Research, “This is not just collateral damage. This is a fundamental change in perspective and approach to the government’s role in the innovation sector. We’re going through a substantial experiment right now in what federal innovation and immigration policy does to local and national economic and health outcomes.”
Not everyone forecasts doom and gloom. Gerald Cohen, chief economist at the Kenan Institute of Private Enterprise in Chapel Hill, says, “There’s so much uncertainty over who’s spending or not spending what, what actually is being cut, and what are the downstream implications of that.
“I don’t want to be sounding five alarm bells because it’s hard to know how things will end up. I don’t think it (the Triangle) will stop being an attractive place. We’re still going to graduate these great students, we still have all these underlying investments that have been made. (But) the tailwind is smaller,” Cohen says.
Research Triangle Institute CEO Tim Gabel, speaking at a July forum sponsored by The Assembly news service, said that the current cutbacks are “sort of a typical business cycle.” The nonprofit made layoffs of a similar magnitude early in the Reagan administration in 1980-81, he noted.
In an email response to a question, Gabel said, “We’ve been actively diversifying (away from the federal government) for years and that has helped us in recent months.” He joined RTI in 1983 and has been CEO since 2022.
Federal contracts accounted for about 80% of RTI’s revenue for the past seven years. Gabel cites defense as an area of opportunity, suggesting that breaking RTI’s dependence on government funding may be hard. Like others, RTI expects major benefits from more use of AI.
UNC System President Peter Hans, speaking about pressure on research spending, has said North Carolina is dealing effectively with a “populist backlash” against elite universities.
He noted in July that state lawmakers have boosted recurring spending for the system by 32% over the past five years, and have not raised in-state tuition for nine years.
The overhead question
Further debate is occurring about what are called facilities and administration expenses, or F&A. This refers to the cost of the infrastructure needed to conduct research, including resources such as facilities, computing, safety and compliance, administration support and libraries. At UNC, the current F&A rate is 55%, meaning 55 cents of every dollar spent is needed to fund “indirect” costs. At Duke, the number is around 61%; at Harvard, 69%.
Duke’s Gross suggests that the effective F&A rate is actually around 35-40%. “There’s a lot of misunderstanding about indirect cost recovery in science funding. In practice, Duke and most universities are actually collecting around 40 cents on the dollar,
not 60 cents,” he says, noting that there are some direct costs on which overhead can’t be collected. Further, the administrative component of F&A rates has been capped at 26% since 1991.
Now, federal agencies are proposing capping F&A expenses at 15%. Industry participants are discussing how to better manage these costs, and to provide better transparency.
The likely result is that F&A rates will be coming down.
Global talent pool
Beyond funding cuts, other policy changes could threaten the region’s long-term health, with efforts to curb immigration topping the list.
The Kenan Institute’s Cohen notes that, “The U.S. benefited from the brain drain in Europe in the 1930s.” Now, the nation is in danger of reversing gains that accrued in the country over the ensuing decades. “If we are discouraging people from coming (to the U.S.) to get their degrees or staying after they graduate, that’s bad,” he says. “Immigration is an important aspect of the knowledge economy.”
Colcanis adds, “One thing I don’t think you can overestimate is the shock to the area that will come from the potential loss of international researchers and students. A large part of our research, publications and reputation rests on our international talent. The U.S. is 4% of the world’s population. Assuming talent is distributed evenly, you have to draw people from around the world to play at the highest levels,” he says, noting that both of UNC’s Nobel Prize winning professors were immigrants (Oliver Smithies, from England, and Aziz Sancar, a native of Turkey, both received the prize in chemistry).
Across the U.S., foreign born individuals account for 45% of doctorates in the science, technology and math disciplines, according to Gross. “Immigrants and children of immigrants are over-represented in science,” he says.
So far, UNC System officials have not cited a significant decline in enrollment by foreign students. Details on this fall’s student count weren’t available at press time.
Tech-driven growth
In January, before DOGE cuts took effect, the Kenan Institute and Fifth Third Bank released the Empowering American Cities report, forecasting GDP growth rates for 150 economic areas across the U.S. The Triangle ranked as the country’s fourth-fastest growing “extended metropolitan area” with growth for 2025 pegged at 3.1%, versus 4.1% the prior year. Much of that growth is attributed to biotechnology and technology, as well as the area’s ability to attract and retain talent. More recently, the growth rate for Raleigh/Durham has been marked down to 2.3%, anticipating the impact of tariffs and reduced federal funding. Conversely, the forecast for employment growth has increased from 0.2% at the start of the year to 0.7% in July.
Johnston and Chatham counties in the Triangle region are benefiting from pharmaceutical and other high-tech manufacturing facilities. That has provided support for other projects. Housing is a major beneficiary, with multiple major developments throughout the region, including Disney’s plan for a 4,000-home community on the banks of the Haw River
near Pittsboro.
Restaurants and other service providers are similarly dependent on an expanding
work force. The impact of slowing growth and a potential decline of migration would
ripple through the local economies. As Cohen says, “These jobs have significant
multiplier effects.”
Owning the IP
The commercialization of academic research has been central to the Triangle’s growth. Passage of the Bayh-Dole Act by Congress in 1980 kickstarted the innovation economy, with the law allowing universities and nonprofits to retain ownership of inventions and patents developed with the aid of federal funds. Previously, the rights to this intellectual property had generally been retained by the government.
“As a result of this Act, IP created at universities could be considered the property of the university and the people who developed the patent rather than the federal government,” says Colcanis. “This totally incentivized researchers to try and commercialize their work.”
At the same time, these engines of innovation were increasingly powered by federal funds. In 2015, Duke and UNC collectively received about $542 million from the National Institutes of Health. By 2024, the number was $1.1 billion. The 4th Congressional District, which includes Durham, Orange, Granville, and part of Wake counties, has been the fourth-largest recipient of USAID funds among the 435 U.S. congressional districts. RTP and environs ranks ninth for life sciences funding from the NIH. Total federal funding at UNC rose from about $570 million in 2014 to nearly $800 million in 2024.
The soaring federal support created a new set of vulnerabilities. “One could argue that [RTI and FHI360] had an unbalanced portfolio,” Colcanis says. “In hindsight, (there was) too much reliance on federal funds.” A 2012 Business North Carolina article reported on how RTI was trying to reduce its reliance on federal funds.
Adds Gross, “Whenever you have a large share of your revenue tied up in a single exposure, (you) would be exposed to the risk that customers take their business elsewhere or that demand contracts for unexpected reasons.”
But, he adds, the government sector is a little different. “There’s long been an expectation of predictability. There’s been an implicit contract in place since the end of World War II that the federal government is going to fund research that we think will deliver benefits and largely leave (the universities) to do their science. The compact was predicated on the idea that science is good for the nation. That compact has now been disrupted.”
Expecting private funding to fill the research funding gap left by the DOGE cuts draws skepticism. “I hope that’s true, but a large body of evidence speaks to the contrary,”
Gross says.
Companies tend to shy away from investing in fundamental research, which has generally been the domain of governments.
Sixty percent of university research is federally funded, with 6% funded by industry and another 6% by foundations, with the rest coming from institutional sources. Private funding would have to increase 10 times to replace federal funding.
The $190 billion of cuts cited by DOGE as of June involves a rounding error against $6.75 trillion in federal spending in fiscal year 2024. But the impact on the region’s R&D infrastructure is likely to be disproportionately large.
As Coclanis says, “Our innovation ecosystem is going to be compromised by these cuts to universities and ancillary programs. (They are) small in a relative sense, but they will impede our ability to grow going forward.”■
