2 - Overview of R&D Trends

2

Overview of R&D Trends

The FY 2001 Congressional Budget Process
For the federal budget, success followed on success in 2000 as rising revenues once again caused budget surpluses to increase. The federal government recorded a budget surplus last year for the third year in a row, even without counting the Social Security program's surplus. The $237 billion fiscal year (FY) 2000 surplus was the largest in history, and was nearly double the FY 1999 surplus. The non-Social Security surplus was $87 billion, up dramatically from a bare $1 billion in FY 1999, marking the first consecutive non-Social Security surpluses since the 1950s. The federal government paid down the national debt to the public for the third year in a row, and as a share of the economy the national debt shrank dramatically. In this flush fiscal environment, federal support of research and development (R&D) eventually flourished in FY 2001 appropriations, as election pressures, the temptation to spend projected surpluses, and a complete breakdown in fiscal discipline prompted President Clinton and the 106^th Congress to spend and spend. But the final result was delayed by a deadlocked election and negotiations over non-spending issues.
As President Clinton leaves office, he can lay claim to a remarkable fiscal legacy or an astonishing run of good luck, or a little of both. When he took office in 1993, the federal budget had just amassed a record deficit of $290 billion in FY 1992, and the baseline deficit (the deficit assuming continuation of current policies) for FY 2000 was $455 billion -- just one year in a string of endless projected deficits. But he became the only President in history to see the deficit decline or the surplus increase in every year of his administration, and the actual surplus in FY 2000 of $237 billion marked a record eighth consecutive year of fiscal improvement in an uninterrupted path from a record deficit to a record surplus.

Economic analysts give nearly all the credit for the current era of surpluses to a booming U.S. economy that in February 2000, officially entered its longest-ever expansion phase. The economy, at least until late 2000, regularly surprised economists and budget forecasters by delivering unexpected growth and thus surging tax revenues to the U.S. Treasury. Far more than tax increases or spending cuts, it was these revenues that delivered the federal budget to the promised land of surpluses.

The question of what to do with these surpluses has become the paramount question in the annual federal budget process, and the FY 2001 budget process was no exception. Save it; spend it; give it back to taxpayers; these three options were debated throughout the year, and in the end Congress and the President chose a mixture of the first two options, including additional spending on R&D.

In February, President Clinton released his budget request for FY 2001. Its R&D portion contained substantial requested increases, and was notable in its call for a 'more balanced' research portfolio (for details of the request, please see AAAS Report XXV: R&D FY 2001.) The rhetoric reflected increasing concern within the science and engineering communities that federal support for biomedical research had increased disproportionately because of large increases at the National Institutes of Health (NIH) over the past several years, while R&D support from other agencies in non-biomedical fields had stagnated or declined. The budget proposed a relatively modest increase for NIH but substantial increases for research in non-life sciences disciplines, including large increases for R&D in the Department of Energy (DOE) and the National Science Foundation (NSF). The request contained large increases for R&D in multi-agency initiatives, including those on information technology, nanotechnology, and global climate change.

In the overall budget, President Clinton called for a set of modest tax cuts as well as increased discretionary spending and a Medicare prescription-drug benefit. But to seal off other options, including Republicans plans for large tax cuts, his budget presented a plan to completely eliminate the national debt by 2013, an idea that would have been unthinkable even a year or two ago. By reserving all Social Security surpluses and some non-Social Security surpluses for debt reduction, the budget presented a timetable for paying off the $3.7 trillion national debt to the public.

The President's budget proposed $622 billion in discretionary budget authority for FY 2001, within which nearly all federal R&D would be funded, up from $586 billion in FY 2000. Although President Clinton and Congress had agreed on a balanced budget law in 1997 that set annual caps (spending limits) on discretionary spending through FY 2002, each year since then Congress and the President had circumvented them through elaborate budgetary maneuvers, reaching a new frenzy in the conclusion of the FY 2000 budget process when the final total exceeded the cap by nearly $50 billion. President Clinton skirted the $542 billion cap for FY 2001 by proposing to raise the cap by an astonishing $80 billion up to the level of his request.

The Republican-controlled Congress criticized the President's request for spending too much. While Congress tried to craft a more restrained alternative, it was clear that it, too, would have to raise the cap. When the congressional leaders originally drew up their spending plans for FY 2001 in April, the Congressional Budget Office (CBO) had projected only a $15 billion on-budget surplus in FY 2001, assuming discretionary spending grew at the rate of inflation (to $611 billion), leaving little to no room to enact tax cuts without dipping into the now-sacred Social Security surplus. The congressional budget resolution therefore set a discretionary spending target and new proposed cap of $601 billion to allow for more tax cuts in FY 2001. Congressional committees then drafted several tax cut bills following the blueprint of the budget resolution, most of them designed to cost relatively little in FY 2001 and FY 2002 but with revenue losses ballooning in subsequent years, when projected on-budget surpluses were much higher.

When it came time to actually write the appropriations bills, however, congressional appropriators found that the $601 billion limit was too low, especially since Republicans were determined to give defense spending, which makes up half of all discretionary spending, a substantial increase. This plan would have forced steep cuts in domestic programs. In May and June, appropriators reluctantly complied with the limits. The original House or Senate versions of the appropriations bills contained flat or declining funding for many domestic programs. President Clinton issued veto threats for most of these bills, ensuring that Congress would have to add more money before they would get signed into law.

As in past years, the growing economy offered Congress a way out of its dilemma. In July, CBO issued a revised budget forecast. In three short months between April and July, the economy had grown so much faster than previously anticipated, boosting expected tax revenues, that the surplus outlook had improved dramatically. CBO projected an on-budget surplus in FY 2001 (assuming current policies, and assuming discretionary spending of $611 billion) of $102 billion. CBO projected that these surpluses would grow every year for a cumulative $2.2 trillion over the next ten years. Including the Social Security surpluses, combined federal budget surpluses over the next ten years would total $4.6 trillion.

The new forecasts unleashed billions in spending, and fiscal restraint evaporated. When Congress returned to session after Labor Day, the money started pouring out: appropriations bills started to come out of House-Senate conference, and in program after program funding levels exceeded not only the House and Senate original levels, but even the President's request. Not only were the budget projections favorable, but congressional leaders were intensely focused on the November elections: they desperately wanted to adjourn and spend the month of October campaigning, armed with news of increased spending on popular programs. While negotiations on tax cuts, Medicare, and other uses of the surplus went nowhere, Congress padded appropriations with billions of dollars in additional discretionary spending, secure in the forecast that the Social Security surplus would still be safe.

It was widely expected that by October, when FY 2001 started, Congress would be forced to bundle several unfinished or vetoed bills together into an omnibus appropriations bill, negotiated in a frenzy behind closed doors by congressional leaders and Clinton Administration officials, and loaded with enough additional funds to break congressional spending limits. But this year, defying all expectations, Congress found that a public distracted by the close presidential election campaign, the Olympics, the World Series, and other news events was not particularly concerned with the outcome of budget negotiations in Washington. Congressional leaders were also able to arrange schedules so that vulnerable incumbents could return to their districts for long weekends to campaign. Without a pressing need to finish, negotiations on the final appropriations bills stayed deadlocked. In late October, with 6 of the 13 appropriations bills unfinished, Congress decided to postpone the remaining appropriations decisions until after the election. By that point, final funding levels had been all but settled, but there were still disagreements on non-spending matters such as immigration and ergonomics attached to the appropriations bills.

Before leaving for the final stretch of the campaign, Congress and the President quietly inserted a provision into an appropriations bill that raised the FY 2001 cap to $640 billion, nearly $100 billion more than the existing cap and nearly $20 billion more than the President's request. This was clearly a sign that fiscal discipline had broken down; barely a peep of protest was heard from even fiscal conservatives.

Then, reality became even stranger. Congress had planned to return the week after Election Day in a 'lame-duck' session to complete FY 2001 appropriations and other matters of the 106^th Congress, but an unusually close, chaotic election threw these plans completely out the window. America woke up on November 8, the day after the election, with the presidential race deadlocked, its outcome resting on a minuscule vote margin in Florida; several House races were too close to call, although the Republican majority appeared to be safe; and one Senate race was too close to call, but its outcome held the potential to leave the Senate evenly matched between Democrats and Republicans.

A week later, America had plunged into the maelstrom of legal battles and recount struggles in Florida between Vice President Gore and Governor Bush. Although the appropriations battles were for the current President and Congress and not the newly elected ones, lawmakers found themselves so distracted by the unfinished election that they postponed budget negotiations again, until December. But even on December 5th, when Congress returned to session, the outcome of the presidential race was still in doubt and the unprecedented case of Bush v. Gore was before the U.S. Supreme Court. Although congressional leaders and President Clinton met for negotiations, primarily on non-appropriations issues, final agreements could not be reached and discretionary programs in the unsigned appropriations bills continued to operate on a record series of 21 continuing resolutions (temporary extensions of funding for unsigned appropriations bills).

Yet after all the delays, the end came quickly, in a blur of activity that contrasted sharply with the sloth of the previous weeks. In one momentous week, the U.S. Supreme Court ruled in favor of Governor Bush by a 5-4 vote, Vice President Gore conceded, George W. Bush was declared the next President of the United States five weeks after Election Day, President Clinton and the Congress came to final agreements on appropriations and other legislative issues, Congress drafted and approved the last four appropriations bills and other legislation into one big package, and the 106^th Congress left Washington for good. President Clinton signed the appropriations bills into law a few days later, and appropriations were finally complete, 72 days into FY 2001.

After all was said and done, federal R&D did remarkably well, as the rest of this report shows. Shattering all previous plans and caps, Congress and the President agreed to spend $633 billion in discretionary budget authority in FY 2001, an increase of 8 percent over FY 2000. This amount was well below the new $640 billion cap because, with a Bush victory assured, fiscal discipline gained the upper hand at the last minute. Fiscal conservatives in Congress pushed successfully to scale back some of the previously agreed-upon increases for education spending, and also inserted an across-the-board cut of 0.22 percent for most discretionary programs.

Looking to the future, the 107^th Congress takes office with the narrowest margins in recent history between the two parties. The Senate is divided 50-50 between the parties; it faces a year in which Vice President Cheney will be called upon frequently to provide his tie-breaking vote, and the death or retirement of any Senator could cause an instant shift in party control, with the slight chance that party control could shift more than once in the next two years. The House is split Republican-Democratic 221-212 with two independents; Republican majorities will be extremely hard to form on controversial issues, and Democrats will be working to peel away Republican moderates' votes. All this is likely to make the upcoming FY 2002 budget process even more difficult and unpredictable than the previous year.