Troubling Forecast on Deficits Looms over Federal Science and Technology Initiatives

President Barack Obama and other elected officials have demonstrated a strong commitment to driving economic growth with science and technology, but federal deficits could create intense pressure to cut spending in the years ahead, speakers told a AAAS audience.

Douglas Elmendorf, director of the Congressional Budget Office, warned that projected budget deficits, along with growing financial obligations for such programs as Social Security and Medicare, could leave science and other discretionary programs fighting for a shrinking pool of discretionary funds.

“The [federal budget] gap is so large as to be unsustainable,” Elmendorf said at the recent AAAS Forum on Science & Technology Policy. “It cannot persist forever the way it looks that it will under current policies. And the longer it persists, the more drag it creates on people’s income and the greater the risk it creates of a government-centered financial crisis.”

Elmendorf’s talk set a sobering mood for the discussion that also included Roger Beachy, director of the new National Institute of Food and Agriculture (NIFA) at the U.S. Department of Agriculture, and Patrick J. Clemins, director of the AAAS R&D Budget and Policy Program.

Douglas Elmendorf

Douglas Elmendorf

Beachy detailed the Obama administration’s effort to use NIFA to address a range of challenges—climate change, bio-energy, food safety, nutrition, and global food security. And Clemins used the proposed fiscal year 2011 budget to demonstrate how the administration is seeking to pursue its ambitious goals while maintaining a freeze on discretionary spending.

The AAAS Forum on Science & Technology Policy celebrated its 35th year with an event that attracted more than 500 U.S. and foreign leaders from government, education, and business to Washington, D.C., on 13-14 May. They heard top policy experts talk on a range of critical issues, including the challenge of managing research universities in times of economic turmoil; building a stronger culture of innovation; science and technology in national security; and the impact of science and technology on society. The Forum was organized by AAAS Science and Policy Programs.

The panel discussion, “The Macro-Economic Horizon: U.S. and Global Outlooks,” followed a keynote address by White House science adviser John P. Holdren and a talk by Linda Katehi, chancellor at the University of California at Davis. Holdren discussed Obama’s deep commitment to science and technology, including the impressive team of science leaders appointed to positions in the administration. Katehi detailed how declining state support for public research universities is forcing debilitating service cuts and soaring tuition costs that are making higher education unaffordable for many families.

Clemins: R&D Shifts to Match Priorities

Patrick J. Clemins

Patrick J. Clemins

Funding is already a challenge in much of the federal research and development realm because Obama has frozen non-security discretionary spending for three years, said Clemins, who heads AAAS’s non-partisan R&D analysis program. For fiscal year 2011, Obama has proposed a slight decrease in R&D funds. But within the R&D investment portfolio, Clemins said, the White House is increasing funds for priority programs and cutting funds elsewhere.

The total budget proposed for 2011 is $3.8 trillion; of that, about a third—$1.3 trillion—would be deficit spending. The total discretionary budget would be $1.3 trillion, up 0.3% from 2010; the total non-defense budget is $532 billion, up 1.4%. Key objectives for the administration’s budget are to re-energize the economy and to create economic and job growth with a range of programs, including small business initiatives and investments in science and basic research.

To understand the R&D landscape, Clemins said, one has to understand the pattern of shifts that the White House has proposed for the 2011 budget year.

Total R&D spending would be $148.1 billion, down 0.3% from the current year. Within the R&D portfolio, basic and applied research would rise slightly; development would decline. Non-defense R&D would rise 5.9%, but defense R&D would decline 4.8%.

Funding would increase for clean energy R&D in the Department of Energy; for the National Institutes of Health; the USDA’s Agriculture and Food Research Initiative; and for basic research at the Department of Defense. There also would be a small increase for science, technology, engineering and mathematics education.

Meanwhile, Clemins’ analysis shows, overall R&D funding for defense and justice would decline. Investment in Department of Defense applied research and development programs, fossil and nuclear energy research at the Department of Energy, and the Department of Homeland Security is expected to shrink as well.

Case in Point: National Institute of Food and Agriculture

Roger Beachy

Roger Beachy

NIFA is, in many ways, representative of the Obama administration’s ambitions for science.

The U.S. Department of Agriculture (USDA) was, in the past, an important science agency, Beachy said, and under the direction of Secretary Tom Vilsack, its science mission is being renewed. Many of its strategic goals have a science component: help promote agriculture production and biotechnology exports as America works to increase food security; ensure that all of America’s children have access to safe, nutritious, balanced meals; help rural communities build prosperity so they are self-sustaining and economically thriving; ensure that U.S. national forests and private working lands are conserved, restored, and made more resilient to climate change.

In that context, Beachy said, the role of NIFA “is to support research, extension, and education, and bring focus to meet society’s grand challenges.”

NIFA is especially focused on five areas: climate change; bioenergy; food safety; nutrition and childhood obesity; and global food security. It is seeking to broaden scientific involvement in that effort and to bring a new generation of scientists to the agricultural mission, he said.

NIFA’s competitive grant program, the Agriculture and Food Research Initiative, is a critical tool in that effort. Its budget grew from $201.5 million in the 2009 budget year to $262.4 million in the current year; Obama is requesting a 62% increase to $426 million for 2011.

While the initiative is relatively small, in federal terms, it would plant seeds that could lead to innovation in sustainability, food safety and nutrition, renewable energy and other areas, Beachy said. And with additional funds in the years ahead, he said, progress could be faster and deeper, improving people’s lives in the United States and worldwide.

The proposed increase for 2011 is welcome, but it’s “still a drop in the bucket of what’s needed,” Beachy said.

“It’s a good time for agriculture,” he added, “but the societal challenges that we face will require significantly more investment if we are in fact to have the impact we want to have on reducing greenhouse gas emissions and having more renewable energy supplied… [and] if we expect to make more of the chemicals that feed our industries from natural products rather than from stored carbon or ancient carbon.”

Spending Cuts, Tax Increases—or Both?

Elmendorf, in his presentation at the Forum, suggested that budget realities would impose strong pressure against higher federal spending in the years ahead. The implications were clear: Current efforts to prioritize programs and shift spending will not be enough to solve long-term budget deficits.

The outlook, he said, is “depressing.” Without significant new tax revenue or spending cuts—or a combination of both—the U.S. budget would likely result in continuing deep and potentially disruptive budget shortfalls over the next decade.

On the positive side, the recession appears to have ended and inflation is in check. Unemployment could fall back to about 6% by 2015. But the U.S. economy remains vulnerable, and the recovery from the current recession is likely to be slow and relatively weak. Financial institutions are beset by “continuing fragility,” Elmendorf said. Some 8 million jobs have been lost since the start of the economic downturn, in a time when a healthier economy would have added 3 million jobs. To get back to even, he said, the economy needs to add 11 million jobs.

According to Elmendorf, a crucial measure of federal economic health is debt as a percentage of gross domestic product (GDP). The ratio peaked at a little over 100% right after World War II, and fell throughout the 1950s and 1960s. But in the past two years, the debt burden has jumped from about 40% of GDP to 60%. And the federal government has done “half as much borrowing in the last two years as in the previous 200 years.”

Elmendorf sees two crucial tax-policy issues already on the near horizon for U.S. lawmakers: Whether to extend the tax cuts approved by Congress and President George W. Bush in 2001 and 2003 when they expire at the end of this year, and whether to change the terms of the Alternative Minimum Tax (AMT), which effectively resulted in higher taxes for 4 million people last year but 27 million people this year.

Elmendorf outlined a scenario in which the tax cuts are extended, the terms of the AMT remain unchanged, and lawmakers approve no other significant changes in taxes or spending.

Overall, under the CBO forecast, federal revenue in 2020 would be $4.1 trillion, with spending at $5.5 trillion. Put another way: Spending would exceed revenue by 34%. Even if tax cuts aren’t extended and the AMT is not adjusted, deficit spending would push government borrowing to about 65% of gross domestic product for much of this decade—far higher than the percentage since 1970. But if the tax cuts are extended and the AMT is scaled back, the federal debt burden could spike to near 90% of GDP by 2020.

In that scenario, “the fiscal outlook becomes dramatically worse,” he said. “The budget deficit becomes twice as large, clearly growing over time, larger than we have experienced over a sustained period in history. And that is most definitely not sustainable.”

By 2020, more than three-quarters of the budget would be devoted to Social Security, Medicare and Medicaid, defense, and interest payments on the national debt. Of the 23% left for discretionary, non-defense spending, the CBO projects that 8% would be available for science, environment, and natural resources (along with justice and international affairs); health and transportation would get 2% each.

The threat of such historic deficits presents a challenge not just for policymakers, but for the American people, Elmendorf said.

“The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services,” he said. “To address the budget problem in a significant way, we need to face up to this disconnect.”

He cast the challenge in stark terms: “As a household, if your spending exceeds your income by one-third, you would not expect to fix that problem by eating out somewhat fewer times over the next month. You would think about taking a second job. You would think about selling your house and moving to a smaller one. You would think about whether you could possibly pay for your children to go to college.”

For taxpayers and the government over the next decade, that means pressure to find new income and new ways to dramatically cut spending, though either could cause real pain.

“Changes of this magnitude could have important economic and social effects,” Elmendorf acknowledged. “That is what makes the changes challenging. But they also provide an opportunity for us to address existing concerns about tax and spending policies.

“Being forced by the budget situation to go to those programs and those tax policies and make important changes gives us an opportunity not just to narrow the budget gap, but also to improve the way government works, to redirect the government’s focus in ways we think are appropriate.

“But this task is urgent. Given the time required to implement significant political changes and for people to respond to them, determining what those changes will be is an urgent task for policymakers now.”

Links

See presentation slides for Douglas Elmendorf, Patrick Clemins, and Roger Beachy.

Hear audio presentations and get further details about the program and speakers at this year’s Forum.

See more news from the 2010 Forum.