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FINANCING SCIENCE

Science and the 2009 Budget

Federal Budgets Matter Tremendously for Science

Growth of inflation-adjusted total R and D SOURCE: John Irons President Bush’s last budget is unlikely to expand dedicated and critical federal spending on science. It’s a problem that must be overcome.

In early February, the president will release his last budget proposal of his tenure in office. For policy analysts, the annual budget ritual is an interesting chance to take a look behind the political rhetoric and to gauge the priorities of the president and, shortly thereafter, Congress. It is easy to give a speech promoting science and technology, but concrete action will only arise if science programs are adequately funded through the budget.

Overall, the slight increase in the dollars for nondefense R&D was more than surpassed by projected inflation.

This is not to say that budgets cannot contain “fiction,” especially when trying to make the bottom line deficit numbers look nice. Case in point—earlier budgets submitted by President Bush did not contain a full accounting for the war in Iraq, or contained politically unrealistic cuts to health programs. But on the spending side, they do give a sense of priorities.

Last year, the president’s budget for science spending contained “cuts for most areas” but some gains for weapons research, energy, and physical sciences, according to the American Association for the Advancement of Science. Overall, the slight increase in the dollars for nondefense R&D was more than surpassed by projected inflation.

The upcoming budget debates will be of particular interest this year. First, this will be the final submission of a lame-duck president who seems to be determined to reverse the perception (among many conservatives) that he and his allies in congress have let spending run amok. As such, we might very well expect a variety of proposed cuts to domestic programs and services—perhaps including science funding.

Second, the deficit situation has eased a bit recently. In 2008, federal deficits will be around 1.5 percent of GDP, according to Congressional Budget Office projections. Federal deficits of this magnitude are sustainable. Thus, there is an opportunity in the short run to increase commitments to investments in science without breaking the bank.[1]

This article will explore historical and recent federal funding for science and R&D, to put into context the coming budget submissions by the president and Congress.

Science Funding: Historical

Federal funding for R&D has increased throughout the last half century, albeit at an uneven rate. Figure 1 shows the growth of inflation-adjusted federal R&D expenditures. The growth of this funding fluctuates from year to year, but has generally been positive.

Figure 1

Source: Bureau of Economic Analysis’s Research and Development Satellite Account (1959-2004),  AAAS (2005-2007) and author's calculations.Source: Bureau of Economic Analysis’s Research and Development Satellite Account (1959-2004), AAAS (2005-2007) and author’s calculations.

These expenditures, however, often do not keep pace with overall economic growth. Figure 2 shows the path of federal R&D funding as a share of the economy over the last half century. In the early 1960’s federal investments in R&D totaled around 2 percent of GDP, but are today about half of that.

Figure 2

Source: Bureau of Economic Analysis’s Research and Development Satellite Account (1959-2004),  AAAS (2005-2007) and author's calculations.Source: Bureau of Economic Analysis’s Research and Development Satellite Account, AAAS, and author’s calculations.

Over the last 15 years, federal R&D as a share of the economy has largely stagnated, experiencing a drop in the 1990s and a jump in the early 2000s. The decline in the 1990s reflected, in part, a decline in defense R&D as well as a stong economy. The 2000 increase was largely due to a surge in defense R&D, but was also accompanied by a jump in funding for the National Institute of Health.

Recent Experience

For fiscal year 2008, the federal government has enacted legislation to allocate about $140 billion to R&D. Just under half (42 percent) of this is nondefense R&D. The nondefense component is about 0.4 percent of GDP, or about 2.2 perent of total federal expenditures.

Chart 3 shows the inflation-adjusted growth of R&D by governmental agency from FY2007 to FY2008.[2] While some programs did see increases after a broad negotiation between Congress and the president, total R&D declined after inflation by about 1.9 percent. While energy research conducted through the department of energy saw a substantial increase, other core, basic science funding (via the National Science Foundation and NIH) will see declines.

Figure 3

Source: AAAS R&D Budget and Policy Program (funding levels), Bureau of Economic Analysis (price data), and author's calculations.Source: AAAS R&D Budget and Policy Program (funding levels), Bureau of Economic Analysis (price data), and author’s calculations.

Outlook for 2009

Between fiscal years 2007 and 2008, budget authority for R&D will decline by about 1.9 percent after adjusting for inflation. The president’s budget proposal submitted in early 2007 contained cuts nearly twice that—about 3.6 percent. Given this history, it is reasonable to expect that the president will again propose after-inflation cuts to overall R&D funding, but will likely include some targeted increases to select programs.

With the Democrats in charge of Congress, however, the President’s budget may not carry much weight, especially in a presidential election. His budget may well be declared “dead on arrival.”

Investments in basic science can lead to breakthroughs that lead to economic spillovers across companies and across economic sectors.

Either way, though, there will probably be prolonged budget negotiations between the president and Congress, and there will certainly be competing priorities for federal resources. This may be especially true this year if the economic downturn is as severe as many predict, in turn placing a further strain on the federal budget.

These factors all seem to point to a “status quo” funding environment across the federal government, including science. Political gridlock in an election year will mean changes on the margin.

Prospects for a large boost in funding may await a renewed call by our leaders, perhaps after the elections later in the year. In particular, candidates on both sides of the political spectrum have talked about science as part of the solution to energy independence. And many are interested in expanded stem cell research. These programs may eventually be a catalyst for more basic research as well.

Conclusion

From an economic perspective, there is a strong case to be made that investments in basic science are essential to maintaining innovation and economic growth. Investments in basic science can lead to breakthroughs that lead to economic spillovers across companies and across economic sectors. As such, the private economy will not engage in an optimal amount of research, necessitating a strong role for federal funding.

As my co-author, Tom Kalil, and I outlined in our recent paper, “A National Innovation Agenda: Progressive Policies for Economic Growth and Opportunity Through Science and Technology”, research does require a federal funding commitment. This funding is essential to maintaining our economic competitiveness and our innovative capacity. While the rhetoric in Washington is usually supportive of science and technology, this support often fails when budget time approaches.

In the upcoming budget debates in Congress, and then amid the back and forth between Congress and the president, policymakers need to commit the funds needed for the future of U.S. science. At the very least, they have to prepare the ground for the next Administration, which will have a unique opportunity to embrace expanded and dedicated federal spending on science as it confronts the challenges of global warming, rising energy costs and the need to revitalize the cutting edges of our national economy.

John Irons is the Research and Policy Director at the Economic Policy Institute and an advisory board member of Science Progress.

Notes

1) Long-term budget challenges still remain. For example, extending the Bush tax changes in their entirety would be very costly: extending the tax bills enacted in 2001 and later would cost the government over $3 trillion in lost revenue including interest expenses. (This estimate also assumes that the alternative minimum tax is adjusted for inflation.)

2) FY2008 finding levels are adjusted using the GDP deflator for federal non-defense government consumption and investment expenditures, assuming FY2007 inflation of 3.1 percent will be continued in FY2008.

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