Guide to the President's Budget: Research and Development FY 2017
This is the latest edition in AAAS' long-running series reviewing research and development proposals in the President's budget. An overview of the FY 2017 request, released in February 2016, is below. For agency breakdowns and tables, download the full report (2.7 MB).
UPDATE: This report has been updated with revised data and additional information on interagency initiatives as of September 2016. Please also see our appropriations roundup for Congressional updates and our funding primer for long-term perspectives.
The Spending and Political Context for FY 2017
After a delayed appropriations cycle, the October budget deal and the December FY 2016 omnibus allowed science agency budgets to continue their recent recovery from sequestration-level spending. In fact, thanks to relatively positive funding outcomes in two out of the past three omnibus bills, most major R&D agencies are now at or near their pre-sequestration spending levels in FY 2016, even adjusting for inflation (more on that below).
But the story threatens to be a bit different now at the start of the FY 2017 appropriations cycle. The aforementioned October budget deal – specifically, the Bipartisan Budget Act of 2015 – lifted the spending caps by $80 billion or 3.9 percent over two years, but that spending increase was front-loaded. In the first year, the discretionary spending cap increased by 5.2 percent in FY 2016, enabling some striking funding jumps – including a $2 billion boost for NIH and a 7.1 percent boost for NASA. But the caps are scheduled to remain basically flat from FY 2016 to FY 2017 before inflation, even with the budget deal’s nominal increase above sequestration levels (see Figure 1). The discretionary budget contains virtually all R&D, and represents a “center of gravity” around which science agency budgets tend to cluster, so constrained discretionary spending means limited room for science spending growth.
The situation coming into the FY 2017 cycle is actually a reasonable facsimile of the situation two years ago. Then, the second year of a two-year budget deal (the first Bipartisan Budget Act) also meant limited funding changes for FY 2015. And like the situation two years ago, an upcoming election provides an added wrinkle, with appropriations likely to ground to a halt as electoral activities heat up. This year, the success of anti-establishment candidates is helping to propel Congressional arguments from the right on the need to trim spending further. Those arguments have also been bolstered by the recurrence of a rising deficit, for the first time in several years. According to long-term projections from the Congressional Budget Office (CBO), the federal deficit is expected to rise by $105 billion in FY 2016, and continual deficits mean national debt could reach 86 percent of GDP by 2026. This trend is primarily due to long-term growth in entitlement spending, though that hasn’t kept discretionary spending – already on the decline – out of the budget-cutting debate.
Lastly, it’s worth noting that GOP leadership hopes to achieve an aggressive, productive timetable with appropriations; House Speaker Paul Ryan (R-WI) has said he’d like to see all appropriations passed through the House in July. But with continued conflict among the Congressional majority, the threat of “poison pill” policy riders, and the looming election, it’s not clear this Congress will have any more luck than prior Congresses in returning to regular order – that magical place in which budget resolutions and appropriations bills are drafted and approved on time, before the end of the fiscal year, and with minimal fuss.
The FY 2017 Budget: The Basics
Into this context the Obama Administration introduced its final budget. The budget does abide by the agreed-upon discretionary cap of $1.07 trillion in FY 2017, but adds on top of that base budget an unorthodox tweak for R&D: a package of proposals to be financed through new mandatory spending, which would not be subject to the spending caps. This mandatory package represents an alternative strategy for an administration unhappy with current spending levels. Again, there are echoes of the FY 2015 cycle of two years ago. Then, the Administration proposed a multibillion-dollar Opportunity, Growth, and Security Initiative of extra, supra-cap spending. That proposal was largely ignored; it remains to be seen what will come of this mandatory package, which will be discussed more fully below.
In all, the President’s FY 2017 budget proposes $4.1 trillion in outlays and a deficit of $503 billion, according to the Office of Management and Budget (OMB). Mandatory spending would reach 62.9 percent of the budget – a slight decline from FY 2016, but in line with the historical shift from discretionary to mandatory spending (see Figure 2). Mandatory outlays would increase by 4.8 percent, while discretionary outlays would increase by 0.8 percent. Net interest payments would jump by 26.1 percent.
Mandatory and Discretionary R&D
Understanding R&D in the President’s budget this year is made somewhat more complicated by the extensive use of new mandatory spending: of the proposed $6.2 billion increase for R&D, $4.2 billion is funded via mandatory dollars (see below for details). Again, remember that most R&D is typically contained in the discretionary budget, which is the part of the budget that Congress adjusts and allocates every year through the appropriations process. Those few mandatory R&D programs that have become law are small, or for particular activities like diabetes research. This year’s approach is atypical in that the Administration would use mandatory spending for a wide array of research activities across multiple agencies.
Before diving into the numbers, there are important differences between mandatory and discretionary spending worth understanding for those unfamiliar with the distinctions. Mandatory spending – also known as direct spending – refers to any spending written into, and required by, laws other than appropriations bills. Getting a mandatory funding stream established requires new legislation, and that legislation would have to come from the authorizing committees rather than the appropriations committees. For instance, the President’s FY 2017 proposal for an increase in competitive agricultural research would be achieved partly through the regular Agriculture appropriations bill and partly through new (hypothetical) legislation by the Committees on Agriculture to establish the mandatory component.
One reason mandatory spending is an attractive alternative for the Administration is that it is not subject to the discretionary spending caps. But it does come with some challenges. For one, appropriators don’t always favor mandatory spending, as it takes the power to allocate federal dollars out of their hands. In addition, new mandatory spending is subject to PAYGO rules, which means it must be deficit-neutral and offset by revenue increases or spending cuts elsewhere. The Administration has identified one such revenue stream through the 21st Century Clean Transportation Plan, which would levy a fee on oil companies to pay for infrastructure investments. Part of this plan would include R&D funding for the Departments of Transportation and Energy, and for NASA (see Table 2), accounting for $800 million of the $4.2 billion for mandatory R&D. Particular mechanisms for the remaining mandatory funding have not been specified, though the Administration has also issued a menu of savings in other parts of the budget that Congress could draw upon as offsets, if they are so inclined.
Because of this mandatory spending distinction, the tables contained in this report are more complicated than usual. For consistency, and to best reflect what appropriators will actually be working with, most tables and graphs in this report primarily display the base budget, which includes discretionary spending plus any previously-approved mandatory spending. However, data on new mandatory spending is also frequently included alongside the base budget in most aggregate and agency tables (as seen, for instance, at the bottom of Table 1). In practice, this means that there are effectively two different sets of budget numbers: those with mandatory spending included, and those with it excluded. This certainly complicates things, but the authors believe this approach most accurately and fairly captures the contours of the budget in an apples-to-apples fashion.
R&D in the FY 2017 Budget
According to AAAS estimates based on OMB and agency data, R&D in the base budget would rise to $150.1 billion in FY 2017, an increase of 1.2 percent above FY 2016 levels. With the additional R&D funded through mandatory spending, total R&D would reach $154.3 billion, a 4.0 percent increase. Table 1 and Figure 3 show the spending breakdown by agency, while Table 2 breaks out R&D funded through mandatory spending.
The top-line R&D figure can be divided in two ways: between defense and nondefense R&D, and by character. The defense and nondefense division is fairly straightforward. Defense only includes the Department of Defense (DOD) and defense-related R&D funded through the Department of Energy, mainly the National Nuclear Security Administration (NNSA). Nondefense R&D is everything else.
In the President’s base budget, defense R&D would increase by $2.9 billion or 3.7 percent, while nondefense R&D would decline by $1.0 billion or 1.5 percent (Table 1). The nondefense decline is entirely driven by sizable base-budget cuts at NIH at NASA coupled with only modest gains in other agencies. Also note that the $4.2 billion in new mandatory R&D is entirely on the nondefense side. If Congress were to provide all of this additional funding, nondefense R&D would exceed the defense increase at $3.1 billion, or 4.5 percent.
The character division is slightly more complex. There are five classes: basic research, applied research, development, facilities construction, and R&D equipment. Basic plus applied research yields "total research," while facilities plus equipment equals "R&D facilities" or "R&D plant." Defense and nondefense R&D have very different characters, as shown in Figure 4. Most defense R&D consists of technology development activities at DOD. On the other hand, nondefense R&D is very much focused on basic and applied research.
As shown in Figure 5, funding for different classes of R&D would fare very differently in the President’s base budget. In particular, basic research would decline by 2.1 percent per AAAS estimates, while applied research would drop by 0.7 percent. Total research – including both basic and applied – would thus see a 1.4 percent increase. Factoring in new mandatory proposals, which are mostly devoted to basic and applied research, makes the picture look very different, as shown; total research funding would rise by 3.5 percent to $73.8 billion in this scenario. See the appendix tables for complete breakdowns of R&D by agency and by character.
Priorities and Reductions
When identifying overarching priorities, it can be useful to arrange R&D spending by budget function, which are the 20 classifications used by OMB to divide up federal outlays. Figure 6 shows this data for the base budget, and major agencies within certain functions are identified (note General Science and Space are in a single function, but AAAS breaks these out into their subfunctions).
One major priority clearly jumps out: applied energy R&D. In particular, the Administration again proposes major increases for the Office of Energy Efficiency and Renewable Energy, the Office of Electricity Delivery and Energy Reliability, and the Advanced Research Projects Agency-Energy, or ARPA-E. This is not surprising, as low-carbon energy technology has arguably been the Obama Administration’s biggest R&D priority. Though harder to pick out, the energy priority is also present in the General Science function, as the Department of Energy’s Office of Science accounts for the bulk of the increase there. Investments would increase in several core research areas, including computing. See the Energy Department section of this report for more detail.
Also a priority in the base budget is Defense technology, specifically downstream development activities at DOD. The National Nuclear Security Administration also reports a large increase for R&D.
Environment and Natural Resources R&D also gets some attention, though more modest. The increase there is mostly driven by the U.S. Geological Survey and, to a lesser extent, the National Oceanic and Atmospheric Administration (NOAA).
Additional priorities emerge on the mandatory side, including cancer research, grants for competitive agricultural research, and National Science Foundation research. The Administration also again proposes nearly $2 billion for the National Network for Manufacturing Innovation, and a slate of activities related to low-carbon transportation and infrastructure (see Table 2). Other new initiatives include a new national cybersecurity modernization effort, and the multiagency Computer Science for All program.
The base budget provides more reductions than increases at the functional level, however. Most notably, NASA faces a steep cut, and the NASA budget would actually still be reduced even with the injection of new mandatory spending. These cuts mostly focus on the Science Mission Directorate and exploration development activities, as in years past.
NIH also faces a billion-dollar cut to its base budget, and the agency would entirely rely on mandatory spending to make up the difference.
Defense science and technology would also be reduced by over $500 million, including another proposed steep cut for Department of Defense basic research.
Once again, domestic fusion energy research would be cut at the Department of Energy, by over 15 percent.
The reader should note that while agricultural R&D shows a reduction in Figure 6, this is mostly due to a smaller request for facilities modernization following a large appropriation in FY 2016. Also, the Commerce reduction is actually driven by a smaller request for Census Bureau R&D, which tends to fluctuate, while NIST would receive a discretionary funding increase.
The FY 2017 Budget in Historical Context
Lastly, a few notes to place the budget in context. In historical terms, base budget funding would drop federal R&D to 0.75 percent of GDP, its lowest point since the Space Race (see Figure 7). This is mostly due to the nondefense R&D decline. Factoring in mandatory new R&D, however, would keep federal R&D steady from FY 2016 levels at 0.78 percent of GDP, according to AAAS estimates.
Finally, the President’s base budget would roll back the recent budget recovery for multiple agencies and programs. Figure 8 plots out changes in the budgets for several science and technology agencies, and base discretionary spending, since FY 2010. As can be seen, changes in the discretionary budget have had ripple effects on science agency budgets, with a decline and recovery pattern emerging over the past five years. Without new mandatory spending, NIH, NASA, USDA R&D, and DOD science and technology funding would all drop markedly under the request, erasing many of the fiscal gains since FY 2013. See those report sections for additional details.
See also budget analyses from our colleagues at other organizations:
- American Astronomical Society (AAS)
- American Institute of Biological Sciences (AIBS)
- Association of American Universities (AAU)
- Consortium of Social Science Associations (COSSA)
 For a summary of the budget deal, see http://www.aaas.org/news/two-year-budget-deal-means-room-rd-growth.
 See Appendix Tables I-2 and I-3.
 See appendix for definitions.
 See White House fact sheet: https://www.whitehouse.gov/the-press-office/2016/02/09/fact-sheet-cybersecurity-national-action-plan