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What the Ryan/Murray Budget Deal Might Mean for R&D Budgets

The recent deal represents a step in the right direction, but a small one.

As has been widely reported, the Congressional budget conference led by Rep. Paul Ryan (R-WI) and Sen. Patty Murray (D-WA) has reached a deal that partially rolls back the spending cuts required under sequestration over the next couple years (see the House Budget Committee website for the full legislative text and detailed summaries).

For R&D, the key point is the deal's impact on discretionary spending, since virtually all science and innovation spending is found within the discretionary budget. The Ryan/Murray deal would establish discretionary spending targets of $1.012 trillion in 2014 (a nominal increase of about 2.6 percent above 2013) and 1.14 trillion in 2015. For 2014, this would mean about a $45 billion increase above sequester-level spending, or a rollback of about half the cuts required under sequestration, split between defense and nondefense. The rollback for 2015 is a bit less ambitious: discretionary spending would rise by only about $19 billion above sequester-level spending. This means about 75 percent of the spending reduction required under sequestration would remain in effect.

In spite of these spending increases, the deal would still manage to reduce the deficit by around $23 billion, through increases in certain fees and other steps (see this post from the Committee for a Responsible Federal Budget for more info). The deal is not guaranteed to pass Congress and has already drawn criticism, but the odds are decent.

Estimated Impact on R&D

To be clear, the deal does not tell us much about what might actually happen to the budgets of, say, the Department of Energy or the National Institutes of Health. The deal only grapples with overall spending figures, and not spending at the science agency level. Those details now must be worked out by appropriators, who may or may not be able to pick up where they left off.  In other words, the Ryan/Murray deal just establishes the size of the box, and appropriators now must figure out what they’ll put in it. They must do so prior to January 15, when the current continuing resolution runs out and another shutdown would take place.

However, the lack of detail in the budget deal doesn’t mean we can’t make some educated guesses. Since R&D doesn’t tend to change much as a share of the discretionary budget, and the size of the discretionary budget is one of the biggest macro-level determinants of the R&D budget, it’s reasonable to expect the one to track the other over time.

Our current estimates place 2013 R&D at $132.8 billion. Under the current sequester, one would expect this spending to come down by around 2 percent or so in 2014 due to additional defense cuts. With the changes in the Ryan/Murray deal, we might instead expect a small increase of, say, 2.7 percent in the R&D budget in 2014, to around $136 billion – well below the President’s request of $144 billion, but also well above where it could have been otherwise. R&D would also increase slightly in 2015 and continue growing in 2016 and beyond at sequester levels.

However, things get a little more complicated when you factor in expected inflation, which renders each dollar less valuable over time. Inflation would eat away at most of the R&D increase from 2013 to 2014, and adjusting for inflation means R&D might drop again in 2015, by more than 1.5 percent. R&D in constant dollars would drop again in 2016 as spending returns to the original sequester trajectory. After 2016, discretionary spending (and R&D) would continue growing slightly ahead of inflation (see chart). Because of the reductions that would be pushed into 2015 and 2016, federal R&D in 2021 would actually not be much above where it was in 2013.

One can also look at things cumulatively. From 2014 to 2021, and again assuming R&D remains roughly constant as a share of the discretionary budget, we might have expected federal R&D to add up to around $1.15 trillion under the Budget Control Act (BCA) caps before the sequester, and around $1.04 trillion after the sequester, a gap of $105 billion. The Ryan/Murray deal might result in the restoration of perhaps $8 billion over the next two years.

Similarly, the deal might help to slow the decades-long decline in federal R&D as a share of the economy, but only slightly (see chart). Note, of course, that even without sequestration, federal R&D would likely have continued its precipitous drop relative to GDP; sequestration simply accelerates the trend, and the deal is something of a speed-bump on the path down. For perspective, if policymakers were to attempt to fix federal R&D at its share of GDP as of 2012, it could require investments of an additional $226 billion above a reasonable pre-sequester baseline over the next eight years. Fixing federal R&D as a share of GDP at 1980 levels would require an additional $670 billion in investments above the pre-sequester baseline. This is a tall order, perhaps beyond the capacity of current politics to resolve.

Ultimately, then, the deal would likely make some clear progress, but the gap between the pre- and post-sequester R&D trajectories would remain quite large. More positively, the parties deserve some credit for working together and making even this limited progress – especially if the deal passes Congress as the negotiators hope. Whether it can serve as a segue to a bigger and better deal later remains to be seen.

Next Steps

The House and Senate will each be voting on the Ryan/Murray deal very soon, after which appropriators can resume their work. It’s anyone’s guess as to what the final appropriations outcomes might yield, but our recap of appropriations from September might yield some clues. The biggest gaps so far are in energy and natural resources R&D, which may yet offer the biggest fights. The clearest areas of agreement include defense and homeland security R&D, while most other areas fall somewhere in the middle. Lastly, NIH remains something of a mystery, as House appropriators were never able to reveal proposed figures in what may have been a controversial bill.