Views & Estimates :: March 8, 2004
The government plays a unique role in meeting the nation's investment needs. Since the time of Adam Smith, it has been recognized that some public needs will go unmet unless the government steps in. Bridges, roads, seaports, airports, education, and research and development (R&D) are all areas where private investment would fall short of the true public need.
Today's globally competitive environment requires the Federal government to meet these needs as rapidly as possible. Each failure to invest in infrastructure, in education, or in innovation can contribute to the costs of doing business in America and create a rationale for businesses to close their doors, for jobs to be moved offshore, and for opportunities to simply slip away. Innovation is about responding to real public needs today to guarantee that our citizens have jobs and a better quality of life tomorrow.
At a time when we have suffered three years of recession and jobless recovery, and at a time when more businesses are moving work to foreign operations, a stagnant level of investment, as we find in the President's FY 2005 budget submission, is simply unacceptable.
We have to do better. We would concede that such a task is almost beyond our measure due to the horrific Federal deficit that we face. This year's budget request alone will probably add at least $600 billion to the national debt when costs of the occupation of Iraq are finally accounted for. Given that burden, it is hard to argue for increasing funding for investments, but it is just such investments in our economy and our people that can help get us out of the hole dug by this Administration's fiscal choices. So not only do we have to do better than the Administration's proposal, we cannot wait for a future Administration, having wrestled this irresponsible deficit to the ground, to take action. Investments have to happen in this next fiscal year.
Recommendation #1: Increase civilian R&D spending in function 250 and function 270 by at least five percent in the FY 2005 budget.
On December 19, 2002, President Bush signed into law H.R. 4664, which authorized a doubling of the NSF budget over the period of five years. The original NSF doubling bill was introduced in the House by Rep. Eddie Bernice Johnson several years earlier. Only after intense activity on the part of many interested scientific and industry groups, and by a bipartisan coalition of Members of Congress, was the NSF-doubling bill enacted. That bill, and other efforts to increase funding for the physical sciences, are emblematic of the broad recognition that funding for R&D in the physical sciences has lagged dangerously in recent years.
For this reason, and recognizing the staggering problem we face with the current deficit, we are recommending a modest 5 percent increase in funding for functions 250 (Science) and 270 (Energy) of the Federal budget. Any number for increased R&D investment is somewhat arbitrary. However, we believe that a 5% increase for these functions is a good place to start and hope that an improved budgetary climate will allow these figures to increase dramatically in future budgets. We simply must improve upon the President's budget for NSF, which falls $1.6 billion below the level he endorsed in H.R. 4664.
A 5% increase would also allow us to move towards the President's Council of Advisors on Science and Technology (PCAST) goal of bringing the physical sciences and engineering into parity with the life sciences. It was just 2 years ago that PCAST reported to the President that, "All evidence points to a need to improve funding levels for physical sciences and engineering. Continuation of present patterns will lead to an inability to sustain our nation's technical and scientific leadership. We recommend that beginning with the FY04 budget and carrying through the next four fiscal years, funding for physical sciences and engineering across the relevant agencies be adjusted upward to bring them collectively to parity with the life sciences."
We suspect there are many budgetary choices that could be made to meet our goal of a five percent increase in R&D funding. The Budget Committee has the cross-cutting responsibility and authority to tend to these needs right now, and we encourage that Committee to do so.
Recommendation #2: Until the Congress has better information on which to judge the long-term cost of the President's Moon/Mars initiative, we believe that NASA's FY 2005 funding request should be reallocated in a manner that strengthens NASA's existing programs, helps address the backlog of deferred maintenance at NASA's facilities, ensures that the Shuttle will continue to fly safely for as long as it is needed, ensures that the International Space Station will be a safe and productive facility, makes a start on a replacement means of getting U.S. astronauts into space, and enables the analyses that will be needed to develop a viable and sustainable exploration agenda.
A full description of this recommendation may be found later in this report.
Recommendation #3. Programs under the Committee's jurisdiction that enhance the competitiveness of U.S. manufacturing and promote innovation should be fully funded. These programs include the Manufacturing Extension Program (MEP) and the Advanced Technology Partnership (ATP) in the Department of Commerce, as well as cooperative government/industry/university programs funded through other civilian agencies, including NASA, NIST, and the Department of Energy.
A description of the benefits of the MEP and ATP programs may be found later in this document.
The President's science team, headed by Dr. Jack Marburger, contends that the FY 2005 R&D budget request is very robust, considering the fiscal pressures under which the Federal government is operating. We could dwell here - but we won't - on the fact that the policies of the President and his team have caused most of these fiscal pressures.
These are some of the points that Dr. Marburger has made in the past few weeks to buttress his argument:
Some of these statements are careful, selective arrangements of facts designed to put a positive spin on a dismal overall picture. Some of the statements are simply false. The fact of the matter is that the FY 2005 budget submission for R&D (excluding weapons development) is the most anemic R&D budget submitted to the Congress by any President in the past 20 years. It is an R&D budget unsuited to the challenges of the time.
Here are some of the problems that we find with the Administration's spin on their R&D submission:
The Request for Science Funding is Flat - The Administration brags about a 5% increase for R&D spending in 2005, but fails to mention that the increase is largely targeted for weapons development and other defense programs. In our view, the most representative measure of R&D funding, and the measure which best captures the economic and broader societal benefits of R&D funding, is the concept of the "Federal S&T budget" (FST), which the National Academy of Sciences developed several years ago. FST includes civilian R&D and defense R&D, but not weapons development. Page 61 of the "Analytical Perspectives" document, from the Administration's own package of FY 2005 budget documents, actually shows a decrease of 0.4 percent in proposed FST funding. This is the first time that any President has requested a decrease in the FST since it has been tracked. Further, government-wide funding for basic research would increase by only 0.6% and funding for applied research by only 0.5% - both well below the rate of inflation.
The President's Analysis Uses Highly Selective or Inaccurate Numbers - There is barely a number in the Administration's presentation that can't be questioned. For example, as cited above, there is a claim that "the non-security R&D growth rate is 2.5%;" in actuality, OMB's own category of "Federal S&T" shows a cut of 0.4 percent. Another claim is that "not since the Apollo program have we seen an investment in science of this magnitude." While R&D as a percent of discretionary spending is relatively high in historic terms, the elevated levels are due to defense development, not science. A more important measure - Federal R&D as a percentage of GDP - is near a 50-year low of 0.7 percent.
Tricky Accounting Is Used to Inflate Miniscule Increases in Agency Budgets - At NSF, the R&D numbers are deceptively inflated by adding close-out costs of unrelated education programs. Included in the Administration's purported $201 million increase for NSF research is $80 million for close-out funding for the Math & Science Partnership Program, which is current awarded under the K-12 education program. The actual increase for new science activities is therefore 2.7 percent rather than the advertised 4.7 percent.
At NIST, the Administration claims a 20 percent increase of $86 million for core laboratory programs. In fact, however, this supposed "increase" includes: $25 million for equipment normally listed in the working capital fund, $13 million to make up for ATP grants that will no longer be transferred to the laboratories, and $35 million to cover ATP close-out costs. Laying aside for a moment the devastation of NIST's MEP and ATP programs, almost no funding is actually left over for a real increase in NIST's in-house research.
The Budget Does Not Deal with the Challenge of Job Creation - The single best government program to provide immediate help to U.S. manufacturers - the Manufacturing Extension Partnership - is severely slashed. The Advanced Technology Program is eliminated. Technology transfer programs at NASA and DOE are cut, and there are no new ideas or initiatives for moving Federal technologies into the private sector, especially small businesses.
The President Takes Credit for Congressional Actions from Prior Years - When it appears to strengthen their case, the Administration brags about increases in various R&D accounts over the past four years, without distinguishing in any way between the President's requests and subsequent Congressional action. In fact, the Administration's R&D priorities have remained virtually unchanged since it submitted its first R&D budget in early 2001 (well before the September 11 terrorist attacks). Those priorities have been: funding weapons development at the Defense Department: signing on to the Congressional goal and completing the doubling of the NIH budget in FY 2002-03; and increasing homeland security R&D in 2004-2005. All other Federal R&D programs have fared very badly in the President's four budget submissions, but have been rescued year after year by Congressional action. By citing four-year trends, rather than the weak FY 2005 budget submission numbers, the Administration tries to leave the impression that it alone is responsible for R&D increases.
The Administration Treats Congressional Earmarks Hypocritically - The Administration decries R&D earmarks but does nothing (e.g., requiring competition) to lessen their impact. Furthermore, when it suits the Administration to count earmarks (e.g., when crowing about budget increases from 2001-2005), they do so. When it doesn't suit them to count earmarks (e.g., when claiming that one of their FY 2005 budget cuts isn't so bad when the FY 2004 earmarks are discounted), they don't.
The Administration Hasn't Followed Through On Its Commitments - Two years ago, the President signed an authorization bill doubling NSF funding over five years. The requests for NSF since the signing ceremony have been anemic - they might produce a doubling in about 25 years. In another example, Secretary of Energy Abraham late last year gave a well-received speech at the National Press Club touting DOE's long-term plan for construction of new scientific facilities. However, in the FY05 budget, funding for DOE facilities is cut severely. Also, DOD officials have supported the idea of targeting a significant increase - up to 3 percent of the DOD budget - for R&D, but defense R&D in this budget is cut severely. Finally, the President signed a bill last year authorizing greatly expanded funding at NSF and NIST for cyber-security R&D and training - a critical element in any strategy to deal with terrorist threats. The FY 2005 budget contains no new funding for this initiative.
While we welcome the President's announcement of long-term goals for the nation's civil space program, we are concerned that the budget request for the National Aeronautics and Space Administration (NASA) raises more questions about the President's initiative than it answers. Without more information on the costs and impacts of the President's proposal, it would be irresponsible at this time for us to endorse the initiative and the liens it would impose on the NASA budget over the next several decades.
The President's initiative is described as "affordable." However, at the Committee's recent hearing on the initiative, the NASA Administrator and the Director of the President's Office of Science and Technology Policy (OSTP) were unable to provide a clear answer when asked what the President was told about the costs of the initiative, and in particular the cost of returning humans to the Moon. Equally troubling, when asked if the Committee could assume that "what you are allocating and what you think is necessary to complete the mission is the same thing," the NASA Administrator replied: "No, sir. What is occurring in 2009 and out is a projection of what the transition, the transformation of the approach that we are taking here would import if you compare it to the annual cost of an inflation-level increase to the annual top line. That is all that this attempts to do.." When asked the clarifying question: "Does that projection try - is that projecting what it is going to cost to get us to the Moon?," the NASA Administrator responded: "No sir, it does not." We thus must conclude that the case for the affordability of the initiative has yet to be made. That concerns us as we contemplate committing the American taxpayer to an initiative whose major costs will be incurred after this Administration has left office. NASA's recent failure to pass its external financial audit for the second time in the last three years only compounds our concern.
We are also troubled by the impact of the President's initiative on other important NASA programs and activities. In order to pay for the proposed exploration agenda, NASA's aeronautics and Earth science programs - which have suffered over the last three years - would continue to languish for the next decade and a half. Research and development on next generation space transportation systems that could significantly reduce the cost and increase the reliability of access to space would be essentially curtailed. Exciting new avenues of research into fundamental mysteries of the universe would be deferred. Another three quarters of a billion dollars would be removed from the budget for research on the Space Station - research that until recently was touted by NASA as benefiting citizens here on Earth.
Moreover, in order to make the budgetary math work, the President's initiative requires NASA to abandon the Space Shuttle years before a replacement vehicle will be available. In short, the Administration has decided to make the United States dependent on Russia for getting our astronauts into space until the proposed Crew Exploration Vehicle becomes operational - if all goes well - a decade from now. At the same time, the Administration has steadfastly refused to explain how it intends to deal with the prohibitions contained in the Iran Nonproliferation Act against acquiring such crew transfer services from Russia.
We thus believe that the burden of proof is on the Administration to demonstrate both the affordability of the President's request and the wisdom of the policy decisions that have been made to fund it. Unless and until that happens, we believe that NASA's funding request should be reallocated in a manner that strengthens NASA's existing programs, helps address the backlog of deferred maintenance at NASA's facilities, ensures that the Shuttle will continue to fly safely for as long as it is needed, ensures that the International Space Station will be a safe and productive facility, makes a start on a replacement means of getting U.S. astronauts into space, and enables the analyses that will be needed to develop a viable and sustainable exploration agenda. That reallocation should start when Congress considers NASA's proposed FY 2004 Operating Plan and should continue in Congress's consideration of the FY 2005 budget request.
We agree with the President that we need a vision for the nation's civil space program. However, challenging goals have to be tied to a viable and prudent implementation plan if they are to be more than rhetoric. We hope that the Administration will step up to the task of developing such a plan.
The Advanced Technology Program (ATP) at the National Institute of Standards (NIST) is a modest program aimed at bridging the gap between the research lab and the marketplace. All too often we have heard that while the U.S. is at the forefront of basic research, U.S. companies often do not capitalize on these basic research results. The ATP is designed to address this market-place failure. Partnering with the private sector, ATP early-stage investment accelerates the development of innovative technologies that promise significant commercial pay-offs and widespread benefits for the nation. With a modest federal investment (approximately $180 million/year), the ATP fosters the development of technologies that create the industries and the jobs of the future. The Administration's own analysis for ATP shows that benefits from just a few ATP projects reviewed to date is projected to exceed $17 billion.
The ATP partners with companies of all sizes and non-profits, encouraging them to take on greater technical challenges with potentially that extend well beyond the innovators. For small start-up firms, early support from the ATP can spell the difference between success and failure. Universities and non-profit independent research organizations also play a significant role as participants in ATP projects with well over half the projects including university participation - more than 160 universities and over 25 national labs participate in ATP projects.
The ATP has several critical features that set it apart from other government R&D programs. It focuses on the technology needs of American industry, not those of government, has strict cost-sharing rules, and does not fund product development. Awards are made strictly on the basis of rigorous peer-reviewed competitions, and support does not become a perpetual subsidy or entitlement.
The Administration's proposed elimination of ATP is extremely short sighted as the U.S. continues to shed manufacturing jobs and high-tech service jobs. Rather than eliminating investments in our future, we must invest in proven programs that will develop the technologies providing jobs in the future.
The attitude that workers and manufacturers can fend for themselves also marks the Administration's position on funding for Manufacturing Extension Partnership (MEP) program. The Bush Administration continues to ignore the economic plight of our small manufacturers by gutting the MEP. The FY05 budget request is two-thirds less than what is required to maintain the existing MEP network of centers and services.
Approximately 350,000 small manufacturers account for over half the total value of U.S. production and represent 98.8% of all manufacturing establishments. They employ nearly 11.1 million people and account for two-thirds of all U.S. manufacturing employment. These jobs are high-skilled and high-wage, with production employees earning 50% more than retail employees per hour.
MEP is a national network of manufacturing extension Centers and field offices located throughout all 50 states and Puerto Rico. Centers are funded by federal, state, local, and private resources to serve small manufacturers. Each Center works directly with local manufacturers to provide expertise and services tailored to their most critical needs, which range from process improvements and worker training to business practices and information technology applications. Last year, the MEP served 18,422 small manufacturers across the country. In 2002, MEP assistance resulted in $2.79 billion in increased/retained sales, $681 million in cost savings, $940 million investment in modernization, and 32,000 jobs created or retained. At a time of continued bleeding of U.S. manufacturing jobs, it is hard to imagine a more ill-advised budget cut than the Administration's gutting of the MEP program.