2 - Overview of R&D Trends

2

Overview of R&D Trends

The FY 2000 Congressional Budget Process
The federal government recorded a budget surplus in fiscal year (FY) 1999 for the second year in a row, ushering in a new era of federal budget surpluses after decades of deficit reduction struggles. The FY 1999 surplus of $123 billion was the largest in history. The off-budget (Social Security) surplus in FY 1999 was $124 billion, meaning that the non-Social Security or on-budget deficit was only $1 billion, narrowly missing the first non-Social Security surplus since FY 1960. As a result of two years in a row of budget surpluses, the federal government has been paying off the national debt to the public and as a share of the economy the national debt is shrinking dramatically. In this flush fiscal environment, federal support of R&D eventually flourished in the final FY 2000 appropriations. The road there, however, was chaotic, prolonged, and partisan, and both the President and Congress reached deep into their bags of tricks to ensure politically palatable results.

In 1997, Congress and President Clinton agreed on a balanced budget law that set a course toward balancing the federal budget by FY 2002. Included were caps (spending limits) each year through FY 2002 on discretionary spending, the portion of the federal budget out of which nearly all federal research and development (R&D) is funded. Although the economic assumptions underlying the law are now seriously out of date and the federal budget actually went into surplus in FY 1998, the caps remain in place because neither the President nor the Congress wants to be the first to propose officially raising or eliminating them.

In FY 1999, Congress and the President cooperated to circumvent the caps by designating $21 billion in spending as emergency and thus exempt from the FY 1999 caps. As a result, discretionary spending in general and federal R&D in particular received generous funding increases. But the FY 2000 cap of $538 billion remained law, $18 billion less than final FY 1999 appropriations.

The FY 2000 budget process began in a poisoned political environment that did not portend well for bipartisan cooperation. The 106th Congress convened in January, and the Senate immediately plunged into the impeachment trial for President Clinton, continuing the intense partisan rancor that characterized much of 1998. President Clinton was eventually acquitted, which pleased Democrats but left Republicans bitter and in no mood to cooperate with the President.

The President pressed ahead with his FY 2000 budget, released in February, which proposed increases for most nondefense R&D agencies. (For details of the request, please see AAAS Report XXIV: R&D FY 2000.) In order to stay within the FY 2000 cap and provide increases for selected programs, the President proposed an $18 billion package of offsetting revenues counted against additional spending. Included were proposals that had failed in FY 1999, such as a tobacco tax.

The budget proposal arrived in a Congress determined to impose fiscal discipline. Many Republicans were angry at the conclusion to the FY 1999 appropriations process, when the $21 billion in cap-busting spending was enacted in a 2,000-page omnibus bill that few had read and which was three weeks late. The bill gave the President nearly all the additional spending he had requested, and also added billions of dollars for congressional priorities. Republican anger over the omnibus bill was one of the reasons for Rep. Newt Gingrich's (R-GA) removal as Speaker of the House and subsequent resignation in November 1998.

Rep. Dennis Hastert (R-IL), Gingrich's successor, vowed to do things differently, and promised to restrain spending in FY 2000, avoid budgetary tricks and "emergency" designations, and complete the appropriations process on time and in an orderly manner. At first, he was successful. Unlike the year before, when Republican infighting prevented Congress from approving a budget resolution for the first time since the current congressional budget process was created in 1974, Congress approved a final budget resolution before the rarely-met official deadline of April 15. The budget resolution stuck to the theme of fiscal discipline by limiting FY 2000 discretionary to the capped level.

The same month, however, Congress enacted a FY 1999 supplemental appropriations bill (Public Law 106-31) mostly to pay for military operations in Kosovo, but the bill was loaded with spending that would normally be considered routine. The entire $15 billion total was designated as emergency to exempt it from the caps.

As Congress began to write the 13 appropriations bills, it ran into trouble as the realities of cutting discretionary spending by $18 billion while increasing defense spending (which makes up half of all discretionary spending) became clear. In order to make the process go smoothly, Congress deliberately increased the total allocations for the first few bills written, including the defense-related bills, aware that this would shortchange the later ones. The next few bills were given flat or slightly declining allocations, again by shortchanging later ones, which made the bills more difficult to draft but still possible to approve. But by July and August, there was no more money left to move around. The last three appropriations bills had been shortchanged so much that it was politically impossible to draft them without padding them with budgetary tricks. Though the House proposed deep cuts to discretionary programs, including R&D, it was still forced to dip into its bag of budgetary tricks to draft its last few bills.

By the time Congress left Washington in August for a month-long recess, it was clear that Congress could not keep discretionary spending within the $538 billion FY 2000 cap without budgetary tricks. It then retreated to holding the line at preserving the projected non-Social Security surplus in FY 2000, which would have allowed an additional $14 billion in spending through tricks. This option, which would allow the entire Social Security surplus to pay down the national debt, became a rallying cry for the Republicans and a line in the sand against President Clinton's demands which, because they totaled $558 billion, allowed Republicans to claim that the Democrats would "raid" Social Security.

After the recess, Congress stayed mostly on course to send President Clinton 13 appropriations bills separately and on time. Although they missed the October 1 start of FY 2000 by a few weeks, 11 of the 13 appropriations bills won final approval from Congress as separate pieces of legislation, while the remaining two were combined into one bill.

President Clinton, however, refused to be boxed in by Republican demands. In September, he vetoed a 10-year, $892 billion tax cut bill, thus defeating one of the Republican party's key priorities. He vetoed four of the 13 appropriations bills in the fall, and forced the withdrawal of a fifth. He criticized the Republican spending bills for not providing enough money for his priorities. He signed 8 of the 13 appropriations bills into law between August and October, but then a stalemate developed as it became clear that high-level closed-door negotiations between congressional leaders and the President would be necessary to resolve the remaining bills, a repeat of last year's situation.

Seven temporary spending bills (continuing resolutions) were necessary to keep the federal government operating while Congress and the President negotiated. As November dragged on, President Clinton gained the upper hand in negotiations as Congress became increasingly impatient to adjourn and the congressional leadership was unable to negotiate separate agreements on the five unsigned appropriations bills while holding the line against the President's demands for more money. Fiscal discipline evaporated as Congress competed to provide more money than the President for key Administration priorities such as education, even though a few years earlier the Republican Party had seriously considered eliminating the Department of Education.

In the end, the five appropriations bills were rolled into yet another 2000+ page omnibus bill combining not only the five remaining bills but also legislation on Medicare/Medicaid, a Department of State authorization, dairy price programs, satellites, scrap metal, miscellaneous supplemental or emergency appropriations, and offsets¾ just what the Republican leadership had vowed to avoid. The agreement was completed on November 17 after the President finally agreed to Republican demands for a 0.38 percent across-the-board cut in all FY 2000 discretionary appropriations, lower than the 0.97 percent cut they had proposed earlier. The House approved the omnibus bill on November 18 and adjourned for the year, even though only a handful of people had seen it; the Senate approved the bill and adjourned for the year on November 19 after deflecting an attempt by Midwestern Senators to sink it over the dairy provisions.

The final FY 2000 budget contains numerous budgetary tricks and accounting devices that allow discretionary spending to exceed the cap and even tap the non-Social Security surplus, while still technically remaining within the cap and preserving the surplus. The agreement contains $16 billion in emergency spending for normally routine items such as the decennial census, nearly $10 billion in emergency spending for natural disasters and agricultural assistance, nearly $20 billion pushed forward to FY 2001 in advance appropriations, $2 billion pushed back retroactively to FY 1999, miscellaneous rescissions, $8 billion in miscellaneous offsets, and $2 billion in savings from the across-the-board cut. This byzantine arrangement allows discretionary budget authority to exceed $590 billion in FY 2000 after adjusting for these maneuvers, compared to approximately $556 billion in FY 1999; this amount is far above the technical cap of $538 billion, and also well above the Administration's request of $558 billion. Federal R&D shares in the increase, as the following sections in the report show.

Even after these maneuvers, however, Congress and the President still faced the prospect that actual spending in FY 2000 would dip into the Social Security surplus. In order to push as much spending as possible to FY 2001, they resorted to measures such as withholding billions of dollars in spending until September 29, 2000, a day before the end of FY 2000, so that the National Institutes of Health (NIH) and other agencies would not be able to spend the money until FY 2001. They also agreed to push a military and civilian pay day from the end of September to October 1, 2000. However, when even these measures proved insufficient, Congress made the problem go away by simply instructing the Congressional Budget Office (CBO) to lower its estimates of FY 2000 spending by $17 billion, allowing everyone to claim that according to CBO projections, there would still be a small non-Social Security surplus in FY 2000 for the first time in forty years.

Despite all the creative ways to circumvent them, the discretionary caps remain law. The FY 2001 discretionary budget authority cap is only $541 billion, $50 billion less than final FY 2000 discretionary spending.

Although no one expects either Congress or the President to abide by the cap in an election year, few expect Congress or the President to repeal the caps either. Ever-increasing and ever-more-creative contortions will be necessary for the President to propose and Congress to appropriate an FY 2001 budget that simultaneously preserves the cap in principle but provides increases for discretionary programs in fact. It remains to be seen whether there are any practical limits to budgetary tricks that could eventually force Congress and the President to either cut discretionary spending or repeal the caps. But as long as they are able to stretch the rules they seem poised to continue to invest in high priority areas of R&D such as defense and health, and the federal investment in R&D looks poised to expand in the first years of the new millennium.