Because of California's size and its disproportionate share of total federal R&D, trends in federal R&D in California have always closely tracked trends in total federal R&D spending, especially defense R&D. Chart 6 illustrates the trend in total federal R&D, which peaked in the early 1990s in real terms. California's peak came earlier than in the rest of the nation, in fiscal year 1989, because defense R&D peaked at that time, even as nondefense R&D continued to grow for a few more years.

Even though the latest complete data available for California are for obligations for fiscal year 1993, we can project future trends in federal R&D funding in California based on national trends. R&D in the defense budget, accounting as noted earlier for two-thirds of California's federal R&D, has declined each year of the 1990s in real terms. (Even the small increase in FY 1996 is less than the rate of inflation.) By now it has fallen more than 30 percent below its peak of the late 1980s. This trend has mirrored the well-known trend in defense procurement that led to California's recession of the early 1990s, from which the state is only now recovering.

The modest (1.7 percent) increase in defense R&D (including both DOD and DOE's atomic energy defense activities) in FY 1996, although smaller than the rate of inflation, will be helpful to California. Although it is unclear how these FY 1996 R&D funds will be distributed, California is likely to get its traditional 25 to 30 percent share of the total, which stands at approximately $38.5 billion, up $0.7 billion. Industry is especially likely to benefit as this money is obligated over the coming year, because the development, testing and evaluation parts of the R&D budget enjoyed the bulk of the increase. Basic and applied research, however, were cut, meaning that California universities and colleges and other performers receiving DOD funds are likely to see less this year than last year, even before factoring in the effects of inflation.

The long-term future for California defense R&D, however, is still uncertain because of the continuing struggle between Congress and the President over defense. Congress has protected defense spending from cuts even in the push to achieve a balanced budget and was responsible for the increases both to DOD's R&D and the overall defense budget. The President, however, has placed greater emphasis on domestic programs and has called for declining defense spending over the next several years.

AAAS, in an update released in mid-May 1996, estimates that under the President's FY 1997 budget defense R&D will fall from $38.3 billion in FY 1997 (itself a drop from the $38.5 billion FY 1996 appropriation) to $30.8 billion in FY 2002. After factoring in expected inflation, this amounts to a more than a 30 percent drop over the FY 1995-2002 period. Barring unusual changes in the allocation of DOD's R&D, California can expect a proportional share of this cut if the President's plan is followed.

Nondefense R&D, although only a third of California's total R&D, has disproportionate impact on the state's universities, FFRDCs and nonprofits. Here, the future looks similarly bleak. AAAS's mid-May estimates indicate that the latest budget proposals from both the White House and the House Budget Committee would reduce funding for nondefense R&D programs by about 25 percent in constant dollars by FY 2002.

The House Budget Committee plan, which has not been approved by the full Congress, but seems likely to set the pattern for long-range congressional budget plans, would cut the President's request for nondefense R&D in FY 1997 by about 9 percent. A similar decline is proposed for FY 1998, then flat budgets (in current dollars) out to FY 2002. The President's plan, which includes a proposed increase for nondefense R&D in FY 1997, would begin trending downward in FY 1998, winding up at $30.2 billion in FY 2002, slightly below the House projection.

Taking into account anticipated inflation, both budget plans would mean a virtually identical inflation-adjusted reduction of about one-fourth from the original FY 1995 spending level over the seven-year period from FY 1995 to FY 2002 (24.4 percent for the House, 24.5 percent for the Administration). Last year, AAAS's analysis of the final congressional budget resolution projected a one-third cut in nondefense R&D by FY 2002. The difference in this year's outlook is largely a matter of a lower anticipated rate of inflation, about 2.2 percent a year instead of the 3.0 to 3.5 percent forecast last year.

It should be noted that the AAAS projections of the President's budget differ from those released by the White House in March because AAAS has re-estimated the Administration's R&D figures for FY 2001 and 2002 following a Congressional Budget Office finding that the President's original plan did not balance the budget by FY 2002.

Once again, California's size makes it likely that the state's share will mirror national trends. The specifics are, of course, subject to negotiations (which are likely to be protracted, if the past year is any guide) between the President and Congress. And many things may change between now and FY 2002. The Administration plan would impose deeper cuts on basic research agencies than the congressional plan, while providing more generously for applied programs. NIH, favored by budget-makers in the rough climate of the past year, could nevertheless lose between 10 and 15 percent in constant dollars by FY 2002. NSF could lose even morefrom 7 percent in the congressional plan to an estimated 24 percent in the Administration's projections. NASA and DOE's nondefense program fare worse than NSF and NIH, under both congressional and Administration plans.

These projections are not cast in concrete. When push came to shove in the FY 1996 budget battle, congressional appropriators provided considerably more money for R&D programs than had been called for in the FY 1996 budget resolution. This could well happen again in future years. However, with both Congress and the President committed to balancing the budget in seven years without raising taxes and without seriously tackling the growth of entitlement programs, substantial reductions in overall discretionary spending seem inescapable. R&D is part of the discretionary component of the budget. It has grown in the context of increasing discretionary spending. It is likely to decline as the discretionary pie shrinks. The consequences for California's R&D institutions and the state's economy could be profound.