This analysis is a preview of AAAS
Report XXIX: Research and Development FY 2005, a comprehensive
look at the President’s budget for R&D in FY 2005. More tables and
continually updated supplemental materials on R&D in the FY 2005 budget
can be found on the AAAS R&D Web site at www.aaas.org/spp/rd.)
President Bush released his
fiscal year (FY) 2005 budget proposal in February. The focus of the budget
continues to be record-breaking projections of budget deficits; with a deficit
of about $500 billion expected this year, a major focus of the budget is the
Administration’s promise to halve the deficit within five years. In order to do
so, the President proposes to keep domestic discretionary spending growth well
below the expected rate of inflation while continuing to lavish resources on
defense and homeland security discretionary programs, proposing $1.1 trillion
in tax cuts over the next decade, and after signing into law a new Medicare
prescription drug benefit costing $539 billion over the next 10 years. The Administration’s
proposal to reduce the budget deficit through restraints on domestic spending
could have severe consequences for federal support of research and development
(R&D). As this AAAS analysis shows, nondefense R&D funding would
decline steadily over the next five years under the Bush budget proposals, and
nearly every federal R&D program outside the priority areas of defense,
homeland security, and space would see reduced funding over the next five
years.
Projections for R&D in the FY 2005 Budget:
All R&D Funding Agencies Decline Over Next Five Years Except DOD,
NASA, and DHS
The FY 2005 budget
contains detailed projections for federal spending to FY 2009; they
provide the detailed assumptions behind the Bush Administration’s goal
of reducing the budget deficit in half over the next five years. There
was controversy in February when the Bush Administration chose not to
publish these projections in the FY 2005 budget, though they are traditionally
made public. Instead, only aggregate totals were published. The detailed
projections are only available in an unpublished computer printout circulating
around Washington, which AAAS has obtained. Although these projections
are mostly extrapolations of current policies, they are far from mechanical
exercises; as this analysis shows, the projections show widely differing
budget trajectories for agencies, and even programs within agencies.
They are a statement of the Bush Administration’s budgetary priorities
and their implications for the future of federal R&D. The AAAS analysis
of these outyear projections reveals that the Bush budget would cut
R&D funding for all but three (out of 24) federal agencies over
five years, and that the steepest cuts would fall in FY 2006 after this
year’s elections.
- Federal
support for R&D is projected to increase from $126.5 billion this
year to $137.5 billion in FY 2009, a slight (0.0) percent increase after
adjusting for expected inflation (see Table
1). But the increases would
be concentrated in the three high priority areas of national defense,
homeland security, and the space program. All other R&D programs
would see their funding decline over the next five years, with even
modest increases in FY 2005 reversed the next year and remaining below
current levels after that.
- 9 out of the 12 largest R&D funding agencies would see their budgets
fall in real terms in the Bush budget plans, with only the Department
of Defense (DOD), the Department of Homeland Security (DHS), and the
National Aeronautics and Space Administration (NASA) staying ahead of
inflation.
- Nondefense
R&D would increase from $56.0 billion this year to $60.5 billion
by FY 2009, a 0.5 percent cut after adjusting for expected inflation
(see Table 1). Large projected increases
in NASA and DHS would offset steep projected cuts in all other nondefense
R&D agencies. Excluding the NASA and DHS increases, however, the
remaining nondefense R&D portfolio would fall 6.7 percent over the
time period.
- Defense
R&D would climb to a record-breaking $77.0 billion in FY 2009, a
slight (0.5) percent inflation-adjusted gain over FY 2004. R&D in
DOD, the defense-related activities of the Department of Energy (DOE),
and the defense-related R&D in DHS would all increase under the
budget projections. But DOD increases would be confined to development
activities; DOD support for basic research ("6.1") would
fall 17 percent over five years, while applied research ("6.2")
would fall 11 percent.
-
DHS would see its R&D
budget climb from $1.1 billion this year to $1.2 billion next year,
with small increases each year thereafter, resulting in a 25.0 percent
boost over five years after adjusting for inflation, with most of the
increase coming in FY 2005 (see Figure 2).
Figure 1. (click on the image to view
or download a full-page version of this chart)
- NASA is in store for large increases over the next few years, but only
for space exploration programs. Other NASA funding areas would see
their R&D funding decline dramatically. NASA R&D would increase
from $10.9 billion in FY 2004 to $14.4 billion in FY 2009 (up 21.9 percent
after inflation; see Figure 1). NASA plans a dramatic expansion of the
Space Science program from $4.0 billion this year to $5.6 billion in
FY 2009 (up 28.9 percent after inflation). NASA’s new Exploration Systems
program, which will begin to develop technologies for a human return
to the moon, would double from $1.6 billion to $3.3 billion over the
next five years (up 85 percent after inflation). And the Space Station
project would go from $1.5 billion this year to $2.1 billion in FY 2009
(up 30 percent). But other NASA programs would decline steeply over
the next five years, including Earth Science (down 15.9 percent), aeronautics
R&D (down 16.2 percent), and Biological and Physical Research (down
11.8 percent after inflation).
- Even a past favorite
such as NIH would see its R&D funding rise modestly in FY 2005 to
$27.9 billion, but then fall to $27.4 billion in FY 2006 and increase
only slowly thereafter, never returning to the FY 2005 funding level. Over five years, NIH R&D would fall 5.8 percent after adjusting
for inflation (see Figure 1); because NIH’s biodefense research
would increase during that time, non-biodefense NIH programs would lose
more than 7 percent over the next five years. NSF
R&D would also rise slightly next year to $4.2 billion, but
then fall to $4.1 billion in FY 2006 and never recover lost ground,
ending up 4.7 percent below this year’s funding level by FY 2009 after
inflation (see Figure 2).
- Other agencies would see even more dramatic reductions in their R&D
portfolios. DOE’s Office of Science, which has already seen its
budget stagnate for the past four years, would see its R&D portfolio
decline from $3.2 billion to $3.1 billion in FY 2009, a cut of 9.5 percent
after inflation. U.S. Department of Agriculture R&D would fall 11.3
percent; Commerce R&D would fall 13.6 percent; R&D in the U.S.
Geological Survey would fall 13.2 percent; and EPA’s R&D portfolio
would plummet 15.0 percent over the coming five years (see Figures 2
and 3).
- Several R&D funding programs would face steep cuts over the next five
years. DOE’s energy R&D portfolio would face dramatic cuts,
including DOE’s support of energy supply R&D (down 21 percent by
FY 2009), fossil energy R&D (down 22 percent), and energy conservation
R&D (down 26 percent). The Administration budget plan would cut
USDA intramural research by 19 percent and extramural research grants
by an even steeper 28 percent. The Bush Administration would eliminate
the Advanced Technology Program (ATP) in the Department of Commerce
in FY 2005. Commerce’s National Oceanic and Atmospheric Administration
(NOAA) would see its R&D portfolio fall 10.5 percent by FY 2009.
Figure 2. (click on the image to view
or download a full-page version of this chart)
- In order to meet deficit reduction
targets, R&D funding for most agencies would decline every year
for the next five years (see Figure 3). Even agencies proposed to receive
modest increases in FY 2005 such as NIH and NSF would see their R&D
funding fall beginning in FY 2006. The steepest cuts would happen in
FY 2006. In dollar terms R&D funding would rise for many agencies
in FY 2005 but then immediately fall in FY 2006, including NIH and NSF
(see Table 1). Thereafter, there would
be dollar increases for many R&D programs, but they would be far
smaller than necessary to keep pace with the average 1.5 percent annual
inflation rate expected.
Figure 3. (click on the image to view
or download a full-page version of this chart)
The FY 2005 Outyear Projections in Historical Context
The projected cuts to most nondefense R&D programs would leave key
R&D programs with budgets well below recent historical levels.
As Figure 1 and Figure 2 show, budget increases in the late 1990s and
early 2000s would be undone by the projected cuts.
For defense
R&D, Table 1 shows that recent trends
of large increases would continue. Defense R&D is at an all-time
inflation-adjusted high of $70.5 billion this year (FY 2004); the Administration
budget plan calls for continuing increases in DOD and other defense-related
R&D up to $77 billion by FY 2009, but would cut DOD's support of
basic and applied research substantially.
In nondefense R&D, projected cuts would reverse the gains of the last
several years. The NIH budget doubled between 1998 and 2003, as
shown in Figure 1, but modest increases enacted in FY 2004 and proposed
for FY 2005 would see the NIH investment level off, before planned cuts
take hold that would reverse NIH’s budget trajectory. Similarly, agencies
such as NSF, DOE’s nondefense programs, and USDA have all won increases
in the last several years, but they would be reversed by the projected
cuts (see Figure 2). Only the newly created DHS and NASA would be
immune from these trends, though even NASA’s proposed increases would
be insufficient to pay for ambitious plans to return humans to the moon
and resume construction of the Space Station, requiring offsetting cuts
in NASA’s other program areas.
The Budgetary Context for FY 2005: Record Deficits,
New Entitlements, and Tax Cuts
The budget projects a record-breaking deficit of $521 billion in the current
fiscal year (FY 2004), far above the $374 billion deficit last year.
The budget was in surplus as recently as three years ago (FY 2001).
The budget foresees the deficit declining to $237 billion (or half this
year’s projected level) by FY 2009. The primary way the Administration
proposes to reduce the deficit is by reducing discretionary spending,
the one-third of the budget subject to the annual control of the President
and the Congress, and also the part of the budget from which nearly
all federal R&D is funded. To reduce discretionary spending on the
defense side, the budget allots nothing for future costs in Iraq and
Afghanistan. Figure 4 includes all such war, occupation, and reconstruction
costs up to FY 2004, including the $87 billion supplemental approved
last fall that could run out this year. At least $50 billion would be
needed by the end of 2004, but President Bush has promised to postpone
any further requests until after the November elections.
Figure 4 also shows
that over the past several years, there have been dramatic increases
in both defense and nondefense discretionary spending after nearly a
decade of relative restraint in the 1990s. On the defense side, there
have been large increases in the regular DOD budget topped off in the
last four years by Iraq and Afghanistan costs. The FY 2005 budget achieves
its deficit targets in part by assuming these costs end this year. On
the nondefense side, there have been large increases in the relatively
new category of homeland security spending over the past four years
along with some additional funds for foreign aid to Iraq and Afghanistan;
the FY 2005 budget achieves its deficit targets by assuming no further
Iraq and Afghanistan aid, and by holding domestic spending increases
below the inflation rate every year.
Figure 4. (click on the image to view
or download a full-page version of this chart)
While discretionary spending is proposed for cuts, spending on
entitlement programs would increase dramatically. Even with recent
increases, discretionary spending as a share of the U.S. economy is still well
below the levels of the 1980s and early 1990s when the budget deficit was last
a big concern. The real growth in federal spending has been in entitlement and
other mandatory programs, now two-thirds of the federal budget. Last December,
President Bush signed into law a prescription-drug benefit for the Medicare
entitlement program that is now estimated to cost $534 billion over the next
decade; spending on existing Medicare, Social Security, Medicaid, and other
entitlements would continue to grow far faster than the rate of inflation. In
addition, mandatory payments of interest on the national debt would also climb
because the national debt is growing rapidly from the accumulation of record
annual deficits.
Even in times of record budget deficits, the FY 2005 budget proposes more
tax cuts. As a result of large tax cut laws enacted in each of the
last three years, the federal government is expected to take in less
than 16 percent of the U.S. Gross Domestic Product (GDP) in tax revenues
this year, down sharply from nearly 21 percent just four years ago in
2000. These reduced revenues, primarily from tax cuts but also from
slumping tax collections in a slowing economy, are the primary reason
for record deficits. In order to make the total costs of past tax cut
laws appear smaller, nearly all of the tax cut provisions enacted over
the last three years expire over the next several years, with some income
tax provisions expiring as early as 2005. The FY 2005 budget’s tax proposals
would reduce revenues by $175 billion over the next five years, mostly
from extending expiring tax provisions.
But the real costs
of the FY 2005 budget lie beyond 2009. The Bush Administration proposals
to extend expiring tax provisions would reduce revenues by $1.1 trillion
over the next decade, with more than 80 percent of the revenue losses
in the second five years. Similarly, two-thirds of the Medicare drug
benefit’s ten-year costs come in the second five years. The fiscal impacts
of these proposals would come just as current budget law already foresees
enormous increases in Social Security, Medicare, and Medicaid costs
as the Baby Boom generation begins to hit retirement age over the next
decade.
The four years
of surpluses between FY 1998 and FY 2001, backed up by bipartisan promises
in the last presidential election to keep the federal budget balanced,
now seem like a distant mirage. There is little appetite in Washington
for making the hard choices necessary to get the budget back in balance.
Only in the area of domestic discretionary spending, out of which nearly
all the R&D funding agencies get their budgets, do lawmakers advocate
some fiscal restraint. But since future discretionary spending levels
need only be set in the aggregate, the hard program-level choices necessary
to implement domestic spending cuts do not need to take place until
well into the future.
Because appropriations
decisions are made annually, projections are always wrong. They are
not predictions. The FY 2005 appropriations process is just now getting
under way in a Congress with different priorities than the President,
and future appropriations will be decided one year at a time. But the
projections illustrate the consequences of reducing the budget deficit
almost exclusively by restraining growth in domestic discretionary spending
rather than a balanced mix of entitlements reductions, increasing revenue,
domestic spending cuts, and defense / homeland security cuts. While
the specific reductions contained in these projections are not inevitable,
similar cuts will be necessary if future Congresses and Administrations
focus on restraining domestic spending instead of considering
other budget options.
