(All figures in this analysis are preliminary
and will be revised in later AAAS releases. This analysis examines the
FY 2002 budget blueprint; it is a preview of the forthcoming AAAS Report
XXVI: Research and Development FY 2002, a comprehensive look at the
President’s budget for R&D in FY 2002, which will be released soon
after the 26th Annual AAAS Colloquium
on Science and Technology Policy, May 3-4, 2001, in Washington, DC.
More tables and supplemental materials on R&D in the FY 2002 budget
will be available in April on the AAAS R&D Web site at
http://www.aaas.org/spp/R&D, after the release of the full FY
2002 budget request.)
On February 28, President Bush released an FY 2002 budget 'blueprint' offering the broad outlines of his FY 2002 budget request. The full request, with program-level details, is tentatively scheduled for release on April 3. The budget calls for a large tax cut of $1.6 trillion over ten years, $153 billion over ten years for Medicare, a reserve for unanticipated needs, and the retirement of $2.0 trillion in publicly held debt over 10 years, mostly from the $2.6 trillion projected Social Security surplus. These expansive proposals, however, leave little room for expanded discretionary spending.
Discretionary spending, the one-third of the budget subject to annual appropriations decisions by Congress and the President, is the part of the budget out of which nearly all federal R&D is funded. Over the next ten years, the Bush budget would allow discretionary spending to grow at the projected rate of inflation, and a slightly higher 4.0 percent or $25 billion in FY 2002 to $661 billion. Nearly $22 billion of the increase would go just to the Department of Defense (DOD), the Department of Education, and the National Institutes of Health (NIH), leaving all other discretionary programs overall, including other R&D programs, with flat funding.
R&D in the FY 2002 Budget: Increases for NIH and DOD, Flat or Declining Funding Likely for Other Agencies
- The latest AAAS estimate for total federal R&D in FY 2001 is $90.9 billion, a 9.1 percent increase over FY 2000. A revised FY 2001 estimate and FY 2002 R&D figures will not be available until April, but because of large proposed increases for R&D in NIH and DOD, total federal R&D may approach or exceed $95 billion in FY 2002. Other R&D funding agencies, however, will most likely see their R&D funding stay flat or even decline in FY 2002.
- The National Institutes of Health (NIH) would receive $23.1 billion for its total budget in FY 2002, an unprecedented increase of $2.8 billion (13 percent) that would keep NIH on track to double its budget in the five years between FY 1998 and 2003. The distribution of this increase among the institutes will not be known until April.
- Although specifics will not be available until April, the Bush Administration would provide a substantial increase for R&D in the Department of Defense (DOD), the largest federal sponsor of R&D. The overall DOD budget would increase 4.8 percent from the FY 2001 funding level to $310.5 billion. The budget outline proposes a $2.6 billion increase in FY 2002 ($20 billion over five years) for R&D in new technologies. (FY 2001 DOD R&D is $41.8 billion in the latest AAAS estimate.) It is unclear how much of the increase would go to basic or applied research as opposed to development, or how much of the increase would be devoted to the Administration's high priority of developing a national missile defense system. It is also unclear whether there will be offsetting cuts in other DOD R&D programs.
- Although the National Science Foundation (NSF) enjoyed a 13 percent increase in its budget and its R&D funding in FY 2001, the FY 2002 budget would barely provide an increase. The FY 2002 NSF budget would total $4.5 billion, just $56 million or 1.3 percent above FY 2001. The budget blueprint proposes an expansion of NSF's science and mathematics education activities. As a result, NSF R&D (three-quarters of the agency's budget) would stay even with FY 2001 or even decline. The budget proposes a new multidisciplinary mathematics research initiative, but there are no details on how the nanotechnology and IT research initiatives, for which NSF is the lead agency, would fare.
- The National Aeronautics and Space Administration (NASA) would see its total budget increase by 2 percent to $14.5 billion in FY 2002 after a nearly 5 percent increase in FY 2001. NASA's R&D (two-thirds of the agency's budget) would see a similar increase. The only specific figure in the blueprint is a proposed 64 percent increase to $476 million for the Space Launch Initiative. The blueprint proposes increases in the International Space Station, the Mars program, and Earth Observing System satellites, but there would be reductions in other areas, including cancellations of the X-33 and X-34 vehicles and a Pluto mission.
- The Department of Energy (DOE) would see its total budget decline 3 percent to $19.0 billion in FY 2002, which could squeeze DOE's R&D programs ($8.0 billion in FY 2001, 12 percent more than FY 2000). Although the blueprint promises a 5 percent increase for the Stockpile Stewardship program, the core of DOE's defense R&D activities, it is unclear how DOE's nondefense Science and Energy R&D programs would do in this tight budget situation.
- R&D in the U.S. Department of Agriculture (USDA) could decline in FY 2002 because the Bush Administration would not renew up to $150 million in FY 2001 congressionally designated research projects and would also slash USDA's research facilities construction by more than half. It is unclear in the blueprint whether the FY 2002 budget would reallocate some of these funds toward increases in competitively awarded research grants.
- The Department of Commerce budget would decline 6 percent in FY 2002 to $4.8 billion, putting a squeeze on Commerce R&D programs (one-fifth of the total budget). The Bush Administration would eliminate the Advanced Technology Program in FY 2002 and would allow FY 2001 funds to be used only to fund existing ATP awards. The ATP budget is $145 million in FY 2001, nearly all of which funds R&D.
- The Environmental Protection Agency (EPA) budget would decline from $7.8 billion in FY 2001 to $7.3 billion in FY 2002, but details on how this overall cut will affect EPA's R&D (less than a tenth of the total budget) will not be available until April. In past years, EPA R&D has declined in the request when compared with the previous year because EPA has not requested continuing funding for congressionally designated research projects (more than 30 in FY 2001), a pattern that is likely to continue in the FY 2002 request.
- Total Department of Transportation (DOT) funding, including guaranteed spending from transportation trust funds, would rise from $56.8 billion to $57.2 billion in FY 2002. Because DOT R&D (approximately $700 million in FY 2001) is a small part of the total budget, it is unclear from the budget blueprint how DOT R&D would fare in FY 2002.
- No details are available in the budget blueprint on R&D in the Department of the Interior, but it is rumored that steep cuts are being considered for Interior's lead science agency, the U.S. Geological Survey (USGS; $883 million budget in FY 2001, more than 60 percent of which is R&D). Details will be available in April.
The Budgetary Context for FY 2002: Caps, Tax Cuts, and the National Debt
The FY 2002 Bush budget proposes discretionary spending of $661 billion in FY 2002, an increase of $26 billion or 4.0 percent over FY 2001 (see Figure 1). Nearly $22 billion of the increase would go just to the Department of Defense (DOD), the Department of Education, and the National Institutes of Health (NIH), leaving other discretionary programs overall with flat funding. The budget blueprint calls for some agencies' budgets to decline, while others would receive only slight increases. Between FY 2000 and 2001, discretionary spending grew by more than 9 percent, an increase in which federal R&D fully shared, and the FY 2002 budget aims to slow down this growth.
In past years, the Clinton Administration was constrained in drafting its discretionary proposals by discretionary spending caps signed into law in 1997. The caps are still law through FY 2002, even though Congress and the President have found ways in the past four years to circumvent them in order to spend far more than the caps, and thus provide increases for R&D programs (see Figure 1). Last year, President Clinton and Congress agreed to a revised FY 2001 cap nearly $100 billion above the previous cap, and spent slightly less than the cap for a total of $635 billion but left the FY 2002 cap at $553 billion. Because complying with the cap in FY 2002 would require steep cuts in discretionary spending, the Bush Administration would raise discretionary spending to $661 billion in FY 2002 and set a new FY 2002 cap at that level, with allowances for inflationary growth thereafter.
Figure 1. (click on the image to view or download a full-page PDF version
of this chart)
Holding overall discretionary spending growth to the rate of inflation allows President Bush to spend the bulk of projected budget surpluses on tax cuts and debt reduction. The FY 2002 budget projects baseline budget surpluses of $5.6 trillion over ten years (FY 2002-2011; the baseline projection is one which assumes no changes in current tax or entitlement policies, only inflationary growth in discretionary spending, and moderate economic growth and inflation over the next decade). The FY 2002 budget proposes to allocate this surplus as follows: $1.6 trillion in tax cuts, $0.4 trillion in additional debt service costs resulting from tax cuts and additional spending, $153 billion for Medicare reform and a possible prescription drug benefit, a $0.8 trillion reserve for contingencies (future priorities, emergency spending, etc.), and just $30 billion for additional discretionary spending over ten years above inflationary growth. This would leave $2.6 trillion in surpluses from the Social Security trust funds, all of which automatically become Social Security-held debt. Of the $2.6 trillion, the President proposes to use $2.0 trillion to pay down the national debt to the public, and $0.6 trillion to keep as a cash reserve for Social Security reform, including possible use for private Social Security accounts.
This proposal has drawn sharp criticism from Democrats because it breaks the bipartisan consensus that has emerged over the past few years to use all Social Security surpluses to pay down the national debt to the public, and it also breaks the emerging consensus that surpluses in the Medicare trust fund should be used to pay down the debt. The Bush Administration claims that in the next ten years, only $2.0 trillion of the $3.2 trillion debt to the public will be available for redemption. The blueprint states that the remaining debt is held in long-term debt that will mature after 2011, and that it would be expensive and impractical to pay off this debt. Therefore, instead of completely paying off the debt this decade, the budget proposes to retire long-term debt only as it matures and use the remaining Social Security surpluses as cash to finance Social Security reform. The Medicare surpluses ($526 billion over ten years) would be treated as general funds (as they traditionally have been) and used to finance tax cuts and other priorities.
Figure 2. (click on the image to view or download a full-page PDF version
of this chart)
After taking into account the budget proposals, the federal budget would still stay in surplus even without counting the Social Security surpluses, as shown in Figure 2. Currently, the FY 2001 unified surplus is projected to hit $284 billion, a record ninth year of fiscal improvement. In the Bush Administration budget, the surplus would decline in FY 2002 because of lost revenues from tax cuts, before increasing again. These surpluses would peak in FY 2011 at over $500 billion, in contrast to a projected $900 billion under current policies. The remaining on-budget (non-Social Security) surpluses in Figure 2 represent the $0.8 trillion over ten years in contingency funds; if these funds are spent, the non-Social Security surpluses would drop toward zero.
Of the $1.6 trillion in proposed tax cuts, most of the cuts would go to individuals, including increases in the child tax credit, reductions in income tax brackets, and repeal of the estate tax. The proposal includes a permanent extension of the research and experimentation (R&E) tax credit (currently set to expire in 2003) which would reduce corporate taxes by $50 billion between FY 2004 and 2011.
Outlook for the FY 2002 Budget Process
Because program-level details in the FY 2002 budget will not be available until April, it is too early to assess the full impacts of the FY 2002 budget on federal R&D, and too early for Congress to begin drafting appropriations for discretionary programs. Instead, the focus in Congress will shift to the FY 2002 budget resolution, Congress' own blueprint of its budget priorities for FY 2002 and beyond. Because, for the first time since 1994, the President and Congress are controlled by the same party, the congressional budget resolution is expected to closely follow the Administration blueprint, though there are some disagreements over the numbers. Congressional Democrats would like to see less for tax cuts and more for discretionary spending, and because the Senate is split 50-50 between the parties their concerns may have to be accommodated. Some Republicans would like to see tax cuts even greater than $1.6 trillion, which would necessitate adjustments elsewhere. Many Republicans, especially those on the Appropriations Committees, would like to see more discretionary spending. Congress is expected to work on the budget resolution and tax cut bills for the next month, and there may be enough momentum to enact some tax-cut legislation quickly, even before the budget resolution is approved by Congress.
For federal R&D programs, until April the only thing certain is that NIH will eventually receive its requested $23.1 billion, and perhaps even more. For other agencies, congressional appropriators may disagree with the President, and the flat or declining funding foretold in the budget blueprint may change before the FY 2002 budget process is over. But with momentum building for some form of a large tax cut, R&D and other programs will face steep competition in the annual race for funding.
- March 2, 2001
