Director, Science and Policy Programs American Association for the Advancement of Science Before the House Science Committee July 23, 1996
Mr. Chairman, members of the Committee, my name is Al Teich, and I am the head of the Directorate for Science and Policy Programs at the American Association for the Advancement of Science (AAAS). I would like to thank you for inviting me to testify before you today.
Founded in 1848, AAAS is the world’s largest federation of scientific and engineering societies, with nearly 300 affiliates. AAAS counts more than 142,000 individual scientists, engineers, science educators, policymakers, and interested citizens among its members, making it the largest general scientific organization in the world. The continuing objectives of AAAS are to further the work of scientists, facilitate cooperation among them, foster scientific freedom and responsibility, improve the effectiveness of science in the promotion of human welfare, advance education in science, and increase the public understanding and appreciation of the importance of the methods of science in human progress. The Directorate for Science and Policy Programs, one of three program directorates, furthers AAAS’s objectives in five program areas where the interests of science, government, and society intersect: Science, Technology, and Government; the Center for Science, Technology, and Congress; Science and Human Rights; the Dialogue between Science and Religion; and Scientific Freedom, Responsibility, and Law.
Since 1976, AAAS has published an annual report analyzing research and development (R&D) in the proposed federal budget in order to make available to the scientific and engineering communities and to policymakers timely and objective information about the Administration’s plans for the coming fiscal year. I have been associated with the budget analysis effort since 1980, initially as the principal budget analyst and for the past several years as head of the directorate that is responsible for it. The most recent of the program’s reports, AAAS Report XXI: Research and Development FY 1997, is a collaborative effort involving contributions from approximately 20 scientific, engineering, higher education, and industrial associations known collectively as the Intersociety Working Group. At the end of each congressional session, AAAS also publishes a report reviewing the impact of appropriations decisions on R&D, entitled Congressional Action on Research and Development in the FY 199x Budget. The FY 1996 edition was published last May, simultaneously with our report on the President’s proposed FY 1997 budget.
As you know, the significance of outyear budget projections has been growing in recent years, as Congress and the President seek, by somewhat different paths, to eliminate the federal deficit and balance the budget. In 1995 AAAS for the first time prepared an analysis of the outyear projections contained in the congressional budget resolution. This became possible because the budget committees laid out their plans and policy assumptions for future years in greater detail than they had generally done in the past.
The AAAS analysis, published in July 1995, indicated that, under the assumptions contained in the FY 1996 resolution, nondefense R&D would be reduced by about one-third by the year 2002, when the effects of anticipated inflation were taken into account. This spring, AAAS prepared similar analyses of the outyear projections contained in the President’s FY 1997 budget and the FY 1997 congressional budget resolution. In what follows, I will first describe the methodology that AAAS uses to track R&D generally and then discuss the results of these outyear analyses in more detail.
METHODOLOGY AND DATA SOURCES
In the United States, unlike some nations, there is no overall, separately-identified budget for R&D and no special treatment of R&D in the federal budget. R&D programs are contained within the budgets of various federal agencies, in some cases representing a major share of the agency’s budget and activities, in others, a relatively small portion of a much larger set of programs. In most cases, the R&D funds are not line items but are included within general program funding. The Office of Management and Budget (OMB), however, requires agencies whose annual R&D funding is greater than $10 million to submit data on their R&D programs as part of their annual budget submissions. The agencies provide data (reported on OMB Circular A-11, Exhibit 44A, “Research and Development Activities”) on funding levels for basic research, applied research, development, R&D facilities, and R&D support to universities and colleges. Although definitions for each category exist (as outlined by the National Science Foundation in Federal R&D Funding by Budget Function: Fiscal Years 1993-1995), agencies are not always consistent in their reporting. For example, some agencies classify program direction or management support as R&D while others do not.
Recognizing that they are less than perfect, we use the OMB and NSF definitions of R&D for our analyses and the OMB data as our basic source materials. We supplement the OMB data with information we extract from agencies’ congressional budget justification books and often contact OMB and agency budget officials directly to clarify issues that arise. For our analyses of congressional appropriations and budget resolutions, we generally use the text of the relevant bills as well as the reports that accompany them. Because of the complexity and confusion surrounding the FY 1996 budget process, we relied on OMB’s final estimates in our wrap-up of the FY 1996 budget.
In our analyses of R&D funding, we have traditionally used the GDP deflators from the President’s budget in order to adjust for the effects of inflation on purchasing power. These deflators are updated annually by OMB, and contain both historical deflators and projected deflators for the outyears. Both of our FY 1997 outyear analyses use the projected GDP deflators in the President’s FY 1997 budget to allow for side-by-side comparisons. These deflators assume an average of about 2.2 percent inflation for the years FY 1997 through 2002, a significant reduction from last year’s estimate of 3.0-3.5 percent.
As Appendix A  to this testimony, I have included two excerpts from the wrap-up report, Congressional Action on R&D in the FY 1996 Budget. These provide a bit more detail on our methodology and data sources as well as the definitions of R&D that we and the agencies use.
OUTYEAR FUNDING ANALYSIS
In general, neither the President nor Congress included specific details of R&D funding in their outyear projections. In the absence of other information, AAAS extrapolated outyear funding levels for R&D by calculating how much of each account in the current budget represents R&D and then applying that percentage to proposed funding levels for each account in future years. Thus, in our analysis of the congressional budget resolution, we assumed that if 20 percent of a given account is R&D in FY 1996, 20 percent of that account would continue to be R&D in each of the outyears unless specific policy changes (e.g., elimination of an R&D program) were described. In our analysis of the President’s budget, we used the specific outyear projections described in the Public Budget Database and assumed that the fraction of each account devoted to R&D would remain constant at the proposed FY 1997 level.
We have not attempted to project how basic research would fare in the outyears. There are no “basic research” programs, per se, in the budget. Agencies annually make determinations as to what percentage of a program’s R&D should be classified as basic research, applied research, and development. (See the definitions in Appendix A .) While the percentage of a program’s budget that is classified as “R&D” usually remains fairly constant over time, the proportions of a program’s R&D portfolio that are classified basic research, applied research and development fluctuate depending on changing program missions, changing research priorities, and the differing judgments of the agency officials who report the allocations each year. These fluctuations make any attempt to project basic research in the outyears a far more speculative exercise than projecting total R&D.
The President’s Outyear Projections
The President’s FY 1997 budget sets out a plan to balance the federal budget by FY 2002. Included in the budget are detailed proposals by budget account for discretionary spending. AAAS calculated the effects of the President’s outyear projections on nondefense R&D during the seven-year period FY 1995-2002. Our initial analysis indicated that total nondefense R&D would increase in the first year of the President’s plan, growing 2.9 percent in constant (inflation-adjusted) dollars between FY 1996 and FY 1997. However, between FY 1997 and FY 1998, nondefense R&D would drop by 5.2 percent, then fall another 5.7 percent in FY 1999, and another 4.9 percent in FY 2000. Finally, in FY 2001 and FY 2002, the President’s budget assumes that the economy will improve and that discretionary spending, including funding for R&D, will increase, rising faster than the rate of inflation in those two years while still resulting in a balanced budget by the end of the period. By FY 2002, nondefense R&D would recover to 11.7 percent below its original FY 1995 level, after hitting a low-point of 18.9 percent below FY 1995 in FY 2000. (All percentage changes are in constant dollars.)
However, because the President agreed to have his budget plan certified by the Congressional Budget Office (CBO), he included contingency plans that would adjust discretionary spending in the outyears if CBO, in its spring 1996 budget outlook, determined that the budget did not balance by FY 2002. CBO, which used a different set of economic assumptions, announced in late April that the President’s plan would lead to a deficit in FY 2002 unless the contingency plans were called into play.
In May, following the CBO announcement, AAAS revised its projections of the President’s budget to take into account the contingency plans outlined to ensure CBO certification of the budget. Last week, after OMB issued its Mid-Session Review of the 1997 Budget , AAAS prepared a further revision, taking account of the new OMB projections and a clarification the Administration has provided of the adjustments it would make in order to bring the budget into balance under CBO’s economic assumptions. This most recent analysis, Projected Effects of President’s FY 1997 Budget Outyear Projections on Nondefense R&D — Adjusted for July 1996 Mid-Session Review (Appendix B ), shows that instead of turning upward after FY 2000, nondefense R&D would continue to decline slightly. By FY 2002 it would be 19.1 percent below FY 1995, after adjusting for expected inflation.
While every agency would face cuts in R&D programs, the Department of the Interior would be hardest hit, with a 33.4 percent cut in real terms (mainly because of elimination of the Bureau of Mines in the FY 1996 budget). Other agencies would also face reductions in the range of a quarter or more of their R&D budgets by FY 2002: Department of Agriculture, down 27.2 percent; Department of Energy nondefense R&D, down 24.9 percent; National Aeronautics and Space Administration, down 23.7 percent; Department of Transportation, down 23.5 percent. The National Science Foundation’s R&D budget is projected to decrease 18.1 percent by FY 2002. The details may be found in the table in Appendix B .
Basis of the AAAS Projections
The original AAAS analysis of the outyears in the President’s budget, published on May 16, was based on a literal interpretation of the language contained in the President’s budget that would have required a reduction of $40 billion in discretionary outlays in FY 2001 and $81 billion in FY 2002 in order to balance under CBO’s economic assumptions. That analysis noted an ambiguity in the Administration’s budget documents which left room for an alternative interpretation resulting in somewhat smaller reductions in discretionary outlays. Appendix C  explains the ambiguity and describes the rationale behind the AAAS interpretation.
The ambiguity has been resolved by the Mid-Session Review which indicates that the Administration would reduce the President’s March estimates of discretionary outlays by $20.2 billion in FY 2001 and $45.6 billion in FY 2002.* (The difference relative to the earlier AAAS numbers is mainly the result of an explicit indication that the President’s proposed tax cut would be allowed to lapse in FY 2001, permitting a smaller reduction in discretionary spending.) The revised AAAS analysis (contained in Appendix B ) reduces projected discretionary budget authority by the same amounts in FY 2001 and 2002. In the absence of specific information as to how these reductions should be distributed, the reductions have been applied proportionately to all defense and nondefense discretionary accounts.
FY 1997 Congressional Budget Resolution
In the budget resolution approved by Congress earlier this month, total nondefense R&D is projected to decline 23.0 percent between FY 1995 and FY 2002, in inflation-adjusted terms. R&D at the Department of Transportation would be the hardest hit, declining 54.4 percent by FY 2002 in real terms. R&D programs at the Department of Commerce would also take significant reductions, decreasing 46.3 percent, as would R&D at: the Department of Energy (nondefense), down 44 percent; the Environmental Protection Agency, down 31.9 percent; and the Department of the Interior, down 29 percent. A detailed table of the congressional budget resolution’s outyear projections is attached as Appendix D . It should be noted that we have not provided comparable projections on defense R&D because the budget resolution does not contain detailed assumptions on projected defense expenditures.
Comparing the President’s Plan and the Congressional Budget Resolution
In comparing the outyear projections in the President’s budget (after adjustments based on OMB’s July Mid-Session Review that would bring the budget into balance according to CBO assumptions) with those in the congressional budget resolution, it is immediately apparent that they both arrive at about the same point by fiscal year 2002. This is perhaps less surprising than it may seem since the two plans actually have more in common than one might expect. Not only do they share the same set of economic assumptions (those of CBO), but they both place the heaviest burden of deficit reduction on discretionary spending, the category that includes R&D. So federal funding for R&D, which has grown over the past four decades in the context of an expanding discretionary pie, would suffer reductions in the context of a shrinking one. While the reductions in R&D may not be as severe as in some other discretionary programs, they would still be substantial.
Despite the fact that they arrive at more or less the same endpoint, however, the Administration and congressional plans do differ in at least two ways. Perhaps the most significant difference is in the path they would take between today’s budget levels and those of FY 2002. While the congressional plan outlines a steady, downward-sloping curve to a balanced budget in FY 2002, the President’s plan calls for a significant increase in R&D between FY 1996 and FY 1997, followed by progressive reductions in subsequent years. Chart 1 (in Appendix E ) displays the comparison. Because of this difference between the two trajectories, the aggregate total that would be spent on R&D under the Administration’s plan between now and FY 2002 would be substantially more than under the congressional plan.
The second difference has to do with budgets of specific agencies. Under the assumptions used in the AAAS analysis, the President’s plan and the congressional budget resolution yield different results for the key R&D agencies in the outyears. The President’s budget favors the Administration’s technology initiatives, including programs in the Department of Commerce, as well as some of its priorities in energy R&D in the Department of Energy. NASA, which in the President’s original (unadjusted) budget had been slated for declining funding between FY 1997 and 2000, followed by significant increases in FY 2001 and 2002, would be hard-hit under the adjusted budget for the last two years, winding up below the congressional budget resolution level. NSF, whose budget had originally been shown to level off in FY 2000 after several years of modest declines, would now decline significantly in FY 2001 and 2002.
Under Congress’s plan, these priorities would look somewhat different. NSF would begin to increase after FY 1999. NASA, while declining steadily throughout the period, would be funded at a level higher than that projected under the Administration’s plan beginning in FY 1998. Commerce and Energy, on the other hand, would be consistently lower in the congressional projections. The charts displaying these projections are included in Appendix E  together with a summary table.
It should be pointed out that the AAAS analyses of the FY 1997 congressional budget resolution and the President’s original FY 1997 budget are both backed up by detailed policy statements contained in the reports that accompany the resolution and in budget books. The July adjustments to total discretionary spending outlined in the Mid-Session Review (to produce a budget that would balance according to CBO assumptions) were, however, applied in a mechanical fashion equally to all agency budgets. It seems likely that if the Administration were to issue its own revised outyear projections on an agency-by-agency basis the numbers would differ from those shown. The figures would also be affected, of course, by how Congress and the Administration chose to allocate the reductions between the major budget categories of defense and nondefense discretionary spending.
A REALITY CHECK ON OUTYEAR PROJECTIONS: CONCLUDING COMMENTS
Outyear projections serve an important purpose: They show the policy choices and tradeoffs the Administration and Congress have assumed in order to achieve the goal of a balanced budget. Both the President and Congress would achieve a balanced budget primarily through cuts in discretionary spending, including cuts to most of the accounts funding R&D. In both plans, spending on mandatory programs such as Social Security, Medicare, and Medicaid would continue to increase at a rate greater than inflation. In fact in FY 1996, nondefense discretionary spending was the only category of federal spending that both sides agreed to cut. The outlook for the future suggests more of the same.
As actual predictors of the future, however, outyear projections, whether from the Administration’s budget or the congressional budget resolution, have always been unreliable. Economic conditions change, priorities change, the international situation changes, political leadership changes, and parties in power change. Looking back over the outyear projections in budgets over the past ten or fifteen years, one would be hard-pressed to find anything that corresponds to today’s reality. Thus, the only thing that I can say with certainty about the outyear projections in the President’s FY 1997 budget and the FY 1997 Congressional Budget Resolution is that they are not likely to be realized.
Nevertheless, because they tell us something about the problems we face and the choices we must make to overcome them, these outyear projections are worth careful attention, particularly at a macro level. Over the past four decades, except in the 1960s during the heyday of the Apollo Program (which in respect to R&D funding was an exceptional situation), trends in nondefense R&D spending have closely followed trends in overall nondefense discretionary spending, and trends in total federal R&D, including defense, have tracked total discretionary spending. Despite the highly decentralized nature of decision-making in the budget process and the equally decentralized nature of R&D funding in the U.S., R&D has consistently hovered at around 14 percent of total discretionary spending. This suggests that the expansion in federal investment in R&D over the past several decades has resulted not only from a commitment to the “endless frontier” of science and technology, but perhaps as importantly from the general growth of discretionary spending which allowed greater government investments to be made in a variety of areas including S&T. The point is that, while I would not place bets on the precise numbers, if Congress and the President continue to pursue a balanced budget primarily through cuts in discretionary spending, especially nondefense discretionary, then further cuts to federal support of R&D are inevitable.
Within the federal budget there is no separately identified R&D budget as such; nor are most appropriations for R&D so labeled except for certain program areas, such as defense. Consequently, most funds for R&D are not line items in an agency’s budget but are included within general program funding. The Office of Management and Budget (OMB) requires agencies whose annual R&D funding is greater than $10 million to submit data on their R&D programs as part of their annual budget submissions. Specifically, the agencies provide data (reported on OMB Circular A-11, Exhibit 44A, “Research and Development Activities”) on funding levels for basic research, applied research, development, R&D facilities, and R&D support to universities and colleges (see Appendix 2: Definitions). However, agencies differ in their reporting. For example, some agencies classify program direction or management support as R&D; others do not.
In the data tables, the columns “FY 1995 Actual” and “FY 1996 Request” represent the agencies’ best estimates of actual and proposed federal funding for R&D collected during the winter and spring by OMB and AAAS. These figures incorporate information provided to OMB by 21 agencies accounting for more than 99 percent of all federal R&D and information collected by AAAS from individual agencies after the budget is prepared. “FY 1996 Final Estimate” figures are based on OMB figures collected in spring 1996, with adjustments to reflect agency information and the final FY 1996 appropriations bill.
Special Note on Table 2. Basic Research by Agency: Most R&D programs contain a mix of basic research, applied research, and development. Agencies determine what proportion of a program’s R&D is basic research.
Special Note on Table 3. Major Functional Categories of R&D: All activities in the federal budget are classified into 20 broad functional categories. (AAAS separates the general science, space, and technology function into its subfunctions of General Science and Space). Each function often includes programs from multiple agencies. Each R&D program is assigned to only one function, even though the R&D activity may address several functional concerns. For example, NASA’s Mission to Planet Earth program is classified under the Space function, even though its R&D is also closely related to Natural Resources and Environment, as well as General Science.
In this report, R&D refers to actual research and development activities as well as R&D facilities.
Research is systematic study directed toward more complete scientific knowledge or understanding of the subject studied. The federal government classifies research as either basic or applied according to the objective of the sponsoring agency.
In basic research the objective is to gain knowledge or understanding of phenomena without specific applications in mind.
In applied research the objective is to gain knowledge or understanding necessary for meeting a specific need.
Development is the systematic use of the knowledge or understanding gained from research directed toward the production of materials; devices; systems; or methods, including design, development, and improvement of prototypes and new processes. It excludes quality control, routine product testing, and production.
R&D funding normally includes those personnel, program supervision, and administrative support costs directly associated with R&D activities. Laboratory equipment is also included. Defense R&D also includes testing, evaluation, prototype development, and other activities which precede actual production.
Funding for R&D facilities includes construction, repair, or alteration of physical plant (e.g., reactors, wind tunnels, particle accelerators, or laboratories) used in the conduct of R&D.
The federal R&D funding data in this report are presented in terms of budget authority. Budget authority is the initial budget parameter for congressional action on the President’s proposed budget. Other R&D data sources may express R&D funding in terms of obligations or outlays. There are also R&D data sources which obtain funding data from funding recipients (companies, universities) rather than from funding sources (agencies).
Budget authority is the legal authorization to expend funds.
Obligations represent orders placed, contracts awarded, services received, and similar transactions during a given period, regardless of when the funds were appropriated and when the future payment of money is required.
Outlays represent checks issued and cash payments made during a given period, regardless of when the funds were appropriated or obligated.
As an example, Congress may appropriate $100 million to NASA in FY 1994 for an R&D laboratory. NASA may then issue contracts to build the lab and sign $50 million of the contracts in FY 1994 and $50 million in FY 1995. Upon completion of the lab in FY 1995, NASA may then write checks to the contractors for a total of $100 million. Budget authority would be $100 million in FY 1994; obligations would be split $50 million each in FY 1994 and FY 1995; outlays would be $100 million in FY 1995. In the federal budget process, there is normally a lag between budget authority and outlays for large capital projects and research contracts; budget authority and outlays usually occur in the same year for recurring expenses such as staff salaries.
(Definitions adapted from National Science Foundation, Federal R&D Funding by Budget Function: Fiscal Years 1993-95, Arlington, VA, 1994.)
AAAS’s May analysis was based on a specific footnote contained in the President’s budget. Found in several places in the President’s March 1996 budget for FY 1997, including Table S-5 in the Budget Supplement volume, the footnote states:
Note: The President is committed to producing a balanced budget by 2002 under the economic and technical assumptions of the Congressional Budget Office (CBO). If under CBO’s revised economic and technical assumptions, which will be released later this spring, there would be a deficit in 2002, the discretionary proposals will be reduced by the amount necessary to eliminate that deficit.
In its Economic and Budget Outlook: Fiscal Years 1997-2006 , published in May, the Congressional Budget Office estimates that “under the President’s basic policies,” the deficit would be $81 billion in FY 2002 (p. 62). The AAAS calculation used a literal interpretation of these two statements by OMB and CBO, reducing the President’s estimate of discretionary outlays for FY 2001 by $40 billion and discretionary outlays for FY 2002 by $81 billion, and reduces budget authority by the same amounts.
However, there was some ambiguity in the way the President’s outyear plans were presented in his March budget, and this allows for a different interpretation which results in somewhat smaller adjustments to discretionary spending, including R&D, after FY 2000. This alternative interpretation is based upon a provision described on p. 14 of the Budget Supplement volume of the President’s FY 1997 budget and spelled out in Table S-5 in that document:
The budget also includes a “trigger” to ensure that the budget reaches balance under either CBO or OMB assumptions. Under the trigger, most of the tax cuts end after 2000 if the deficit is not at least $20 billion below CBO’s initial estimate for that year. If, however, the deficit is at least $20 billion below the estimate, then the budget distributes the additional savings in the following order:
If one goes by the provisions of this “trigger,” the President’s tax cut would be sunset at the end of calendar year 2000 and other adjustments would be made. The reduction in discretionary spending in FY 2002 required to make the President’s budget conform to the CBO conditions would therefore be about $46 billion instead of $81 billion, resulting in smaller reductions in R&D projections, depending once again on how these reductions are distributed.
It should be noted that in the spring CBO report, CBO indicates that if the trigger is “pulled,” then the President’s budget would indeed balance in FY 2002. The difficulty that AAAS saw in using the trigger for current planning, however, was that (as stated in the quote above) it would not be “pulled” until the end of FY 2000 (September 30, 2000), which is the earliest the Administration could actually know whether the deficit “is at least $20 billion below the[CBO] estimate.” For this reason, in the absence of any statements from the Administration clarifying the issue, AAAS chose to use the literal ($81 billion) interpretation of the required reductions. OMB’s Mid-Session Review, however, resolves this ambiguity by stating in Tables 15 and 16 (page 31) that the Administration would exclude the “fiscal dividend” — i.e., “pull the trigger” — in order to balance the budget under the CBO economic assumptions. AAAS has therefore revised its analysis, applying the smaller reductions to its estimates of R&D in the President’s outyear projections for FY 2001 and 2002.