In a series of research policy improvements we have been implementing this year, the University will change its dollar level for the capitalization of equipment from $1,000 to $5,000 effective July 1, 1997. This change is being made to reflect inflation in the cost of equipment and to reduce the campus burden of inventorying items in the $1,000 to $5,000 range. In addition, the University's definition of capital equipment will now conform to Federal Sponsoring Agencies and State of Wisconsin definitions, which should improve proposal budget development and the management of active projects.

This change in definition will apply to all new and active projects. To prepare for this change, we suggest the following:

1. Effective immediately, extramural application budgets should be prepared using the new dollar level for capital equipment on all relevant budget items that will be purchased in fiscal year 1997-98 or after.
   
   
2. Because items that were previously classified as equipment may now be considered supplies, active projects should also be reviewed to determine if the change would require any formal re-budgeting. Ample lead time should be allowed for re-budgeting that requires the approval of the sponsoring agency.

The change in definition will not affect purchase orders that are coded fiscal year 1996-97. These purchases, even if paid after July 1, 1997, will retain their original coding and not be charged indirect costs.

Raising the level of capital equipment has many benefits, but it also has the effect of classifying more items as supplies, which are now subject to indirect costs. To assist Principal Investigators, who have sponsored projects negatively affected by the capitalization level change, UW-Madison will continue the policy of returning the annual growth of federal overhead proceeds to the special capital exercise (after campus-wide costs are assessed). Deans' offices will be establishing procedures to assist these Principal Investigators through a transition period.

An Ad Hoc Committee composed of faculty, school/college and departmental staff, Research and Sponsored Programs staff and staff from other administrative units recently concluded a thorough review of the capitalization level change. Their recommendations have been accepted and are being implemented as outlined above. In its deliberations, the committee considered several recent policy improvements (e.g. the elimination of tuition remission charges on federal projects and providing competitive salaries for Research Assistants) before making their recommendation. They developed a Budget Model, which reflects how a typical project is affected by these changes. These and other changes are necessary to keep the University in a competitive position for extramural funding.

The memo from Donald L. Miner, Assistant Vice Chancellor for Business Services explains the administrative effects the change will have on accounting class codes, property control, and insurance issues.

Questions should be directed to Robert Andresen at 608-262-2896.