Budget Deal Explained: Two Years of Funding Room

The deal will make it easier for appropriators and science agencies, but funding will tighten again in FY 2018.

Nearly a month after avoiding a shutdown, Congressional leaders and the White House have produced the Bipartisan Budget Act of 2015, a two-year deal to partially roll back the spending caps and increase discretionary spending in FY 2016 by 5.2 percent. The deal allows federal agencies to avoid a return to sequestration-level spending, while suspending the debt ceiling for over a year. The deal, announced late last night, will still have to be approved by Congress, but if it does become law, it should be a boon to federal science agencies, which have been dealing with relatively modest appropriations this summer. Votes are expected on the Hill this week.

To fully understand the contours of the deal, it’s worth taking a short stroll back in time. Figure 1 shows the recent history. When the Budget Control Act was signed into law in 2011, it first established an original spending cap baseline, along with a joint Congressional committee to come up with some kind of trillion-dollar grand bargain to further reduce deficits. When the Congressional committee failed to reach an agreement, the Budget Control Act required sequestration to kick in, resulting in across-the-board cuts in FY 2013, and capping federal agencies at a new lower spending baseline (labeled in Figure 1 as the sequester baseline) for the rest of the decade. This would have meant cumulative cuts of $1 trillion from the discretionary budget, and tens of billions from the federal R&D budget, since R&D doesn’t tend to change much as a share of discretionary spending.

Fortunately, Congress did not abide by the original law. Every year the sequestration-level spending caps have been in place, Congress has acted to roll them partially back, most recently via a deal two years ago. To be sure, spending has still come down – total R&D dropped by 9.3 percent in FY 2013 – but the spending drop was smaller than it could have been.

The challenge facing policymakers this year was that the prior deal only lifted the caps in FY 2014 and FY 2015. This meant a return to the sequestration-level baseline in FY 2016, seen at right, with spending capped at just above $1 trillion in nominal dollars. Unsurprisingly, the President’s budget again proposed to roll back the spending caps with a big increase in FY 2016, as shown in Figure 2. This would have gotten agencies most of the way, but not all the way, back to that pre-sequestration spending baseline. But Congress remained unwilling to follow the Administration's lead, and last spring Congress approved a budget resolution that locked in sequestration-level spending (while recommending further reductions in future years, as shown). The appropriations process this summer operated at this level, resulting in modest appropriations for science agencies.

The deal reached by Congress and the White House is shown in Figure 3. As can be seen, the deal is much closer to the President’s request than the Congressional budget. In nominal dollars, the base discretionary budget would rise to $1.067 trillion in FY 2016, good for a 5.2 percent increase from FY 2015, and split evenly between defense and nondefense. In FY 2017, spending would remain nearly flat, rising to $1.070 trillion in FY 2017 (yielding a small decline when adjusting for inflation). In total, the deal means an increase of $80 billion or 3.9 percent above sequestration levels. Beyond FY 2017 there is no deal, and spending would presumably return to the previous sequestration baseline, unless Congress acts again.

In addition, a politically important aspect of the deal is how it treats war funding, also known as Overseas Contingency Operations funding or OCO. The President had proposed a $58 billion OCO budget, which is not subject to the spending caps. Congressional defense hawks initially sought to bulk up the OCO budget as a means to get around the spending caps. In the final deal, policymakers did agree to increase the OCO budget over two years, but by only about $15 billion (in contrast with much larger Congressional proposals), and this is split between the Department of Defense and the Department of State, ensuring the defense/nondefense spending balance remains in place. This spending is also shown in Figure 3, and it means that much more room for agency priorities.

To offset this extra spending, the budget deal includes a combination of health savings, reductions in agriculture crop insurance subsidies, and other provisions. Congress would cover some of the costs through a series of changes to both the Social Security disability and Medicare programs. Another significant offset calls for the sale of 58 million barrels of crude oil from the Strategic Petroleum Reserve over the next decade. The deal also incorporates a handful of minor tax code adjustments and several other revenue changes.

This all matters for science funding because discretionary spending and R&D tend to move hand-in-hand: individual agencies may fare better or worse in different years, but the discretionary budget is essentially the center of gravity around which science agencies cluster, fiscally speaking (see chart at right, for instance). The overall deal only provides a framework under which agencies and their supporters can make a final funding plea.

Assuming the deal is accepted by Congress, appropriators will still have to hammer out a final spending bill, perhaps in the form of an omnibus. Here, appropriations from this summer may provide some clues. For instance, Senate appropriators sought to give NIH a $2 billion increase, the largest single-year increase in a decade, and the budget deal improves the odds of NIH actually getting it. The Administration had sought over five percent increases for both NSF and the Department of Energy’s Office of Science, and a 5.2 percent discretionary spending increase might open the door to these (as Rep. John Culberson [R-TX], chair of the NSF appropriations subcommittee, suggested back in May). Supporters of the Administration’s manufacturing innovation initiative may also hope to see some gains after a rough go during appropriations.

Elsewhere, appropriators may have to make some tough calls over differing takes on advanced computing and fusion energy research at DOE, and proposed cuts to basic research at the Defense Department. It also remains to be seen how appropriators will cope with major proposed cuts to social sciences and geosciences at NSF. The President’s proposed increases for climate science and renewable energy will remain controversial, but extra fiscal room might temper any push for cuts.

The budget deal also sets up the next debate in summer 2017. Every silver cloud has its dark lining; in this case, federal agencies will be looking at another spending mini-cliff in FY 2018, as shown in Figure 3 above. Adjusting for purchasing power, discretionary spending will decline by 2.3 percent in FY 2018, after a 1.5 percent decline in FY 2017. The debate then may look much like the debate now, whoever occupies the White House.

Again, this all depends on Congressional acceptance, and GOP leadership may need to rely on Democratic votes to secure passage. At the time of this writing, the House is expected to vote on the deal Wednesday, with a Senate vote the following day.