Appendix D
Defense and Other Domestic Spending: Program Options

As described in Chapter 7, the committee adopted a twofold approach for distributing spending across the defense, domestic discretionary, and other mandatory categories for the four illustrative options. First, it set targets for other mandatory spending (which excludes Medicare, Medicaid, and Social Security). In Options 1 and 2, devolution-related cuts, reductions in commercial subsidies and “low-value” activities, and the use of a smaller inflation adjustment in indexed programs would bring other mandatory spending from 2.8 percent of the gross domestic product (GDP) in 2008 to 2 percent in 2019. The latter number can be compared with 2.1 percent in the study baseline for that year. In Options 3 and 4, other mandatory spending in this category simply follows the baseline.

Second, the committee allocated spending among the defense (nearly all of which is discretionary) and domestic discretionary categories. According to baseline projections, defense spending will stabilize at approximately 53 percent of total discretionary spending by 2019, with domestic discretionary spending constituting the remaining 47 percent. The committee decided that a plausible approach would be to roughly reproduce that ratio in Options 1, 2, and 4. Given Option 3’s emphasis upon public investments, however, the committee decided to allocate extra resources to the domestic discretionary category by having defense spending follow the study baseline. Table D-1 presents spending details for the defense, domestic discretionary, and other mandatory categories.

Once the committee determined its share-of-GDP targets for 2019, it created plausible spending trajectories for 2012-2019; see Tables D-2, D-3, and D-4.



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Appendix D Defense and Other Domestic Spending: Program Options As described in Chapter 7, the committee adopted a twofold approach for distributing spending across the defense, domestic discretionary, and other mandatory categories for the four illustrative options. First, it set targets for other mandatory spending (which excludes Medicare, Medicaid, and Social Security). In Options 1 and 2, devolution-related cuts, reductions in commercial subsidies and “low-value” activities, and the use of a smaller inflation adjustment in indexed programs would bring other mandatory spending from 2.8 percent of the gross domestic product (GDP) in 2008 to 2 percent in 2019. The latter number can be compared with 2.1 percent in the study baseline for that year. In Options 3 and 4, other mandatory spending in this category simply follows the baseline. Second, the committee allocated spending among the defense (nearly all of which is discretionary) and domestic discretionary categories. According to baseline projections, defense spending will stabilize at approximately 53 percent of total discretionary spending by 2019, with domestic discretion- ary spending constituting the remaining 47 percent. The committee decided that a plausible approach would be to roughly reproduce that ratio in Options 1, 2, and 4. Given Option 3’s emphasis upon public investments, however, the committee decided to allocate extra resources to the domestic discretionary category by having defense spending follow the study base- line. Table D-1 presents spending details for the defense, domestic discre- tionary, and other mandatory categories. Once the committee determined its share-of-GDP targets for 2019, it created plausible spending trajectories for 2012-2019; see Tables D-2, D-3, and D-4. 

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 APPENDIX D After 2019, total defense and domestic discretionary spending fluc- tuates slightly as a share of GDP in the study baseline (see Table F-1 in Appendix F). Correspondingly, spending also fluctuates slightly for Op- tions 1-4, with the defense, domestic discretionary, and other mandatory TABLE D-1 Defense, Domestic Discretionary, and Other Mandatory Spending, as a Percentage of GDP 2008 2019 Study Spending Category Actual Baseline Option 1 Option 2 Option 3 Option 4 Defense 4.3 3.4 2.6 3.1 3.4 4.2 Domestic Discretionary 3.7 3.0 2.3 2.8 3.5 3.7 Other Mandatory 2.8 2.1 2.0 2.0 2.1 2.1 Total 10.8 8.5 6.9 7.9 9.0 10.0 TABLE D-2 Defense Spending, 2008-2019 Year Baseline Option 1 Option 2 Option 3 Option 4 In Billions of Dollars 2008a 609 NA NA NA NA 2009 671 NA NA NA NA 2010 734 NA NA NA NA 2011 755 NA NA NA NA 2012 717 692 707 717 775 2013 684 637 665 684 794 2014 670 601 643 670 812 2015 673 581 637 673 827 2016 683 566 637 683 842 2017 693 551 638 693 856 2018 705 536 639 705 869 2019 717 545 650 717 881 As a Percentage of GDP 2008a 4.3 NA NA NA NA 2009 4.8 NA NA NA NA 2010 5.1 NA NA NA NA 2011 5.0 NA NA NA NA 2012 4.5 4.4 4.5 4.5 4.9 2013 4.1 3.9 4.0 4.1 4.8 2014 3.9 3.5 3.7 3.9 4.7 2015 3.7 3.2 3.5 3.7 4.6 2016 3.7 3.0 3.4 3.7 4.5 2017 3.6 2.8 3.3 3.6 4.4 2018 3.5 2.7 3.2 3.5 4.3 2019 3.4 2.6 3.1 3.4 4.2 NOTE: NA = not applicable. aActual spending.

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 APPENDIX D TABLE D-3 Domestic Discretionary Spending, 2008-2019 Year Baseline Option 1 Option 2 Option 3 Option 4 In Billions of Dollars 2008a 524 NA NA NA NA 2009 576 NA NA NA NA 2010 640 NA NA NA NA 2011 623 NA NA NA NA 2012 584 564 577 640 644 2013 584 544 571 657 665 2014 589 528 570 672 685 2015 596 514 571 686 704 2016 610 505 577 699 722 2017 623 494 583 711 741 2018 634 481 586 723 758 2019 635 482 587 734 776 As a Percentage of GDP 2008a 3.7 NA NA NA NA 2009 4.1 NA NA NA NA 2010 4.4 NA NA NA NA 2011 4.1 NA NA NA NA 2012 3.7 3.6 3.7 4.1 4.1 2013 3.5 3.3 3.5 4.0 4.0 2014 3.4 3.1 3.3 3.9 4.0 2015 3.3 2.9 3.2 3.8 3.9 2016 3.3 2.7 3.1 3.7 3.9 2017 3.2 2.5 3.0 3.7 3.8 2018 3.1 2.4 2.9 3.6 3.8 2019 3.0 2.3 2.8 3.5 3.7 NOTE: NA = not applicable. aActual spending. categories; they have the same relative shares in 2020 and beyond as they did in 2019 (see Tables F-4, F-6, F-8, and F-10 in Appendix F). DEVOLUTION POLICIES: OPTIONS 1 AND 2 The committee identified illustrative candidates for devolution and budget reduction by selecting from a list of federal grants to state and local governments (U.S. Office of Management and Budget, 2009). The committee’s candidates are in education, training, employment, and social services. Indian education: supports the efforts of local educational agencies • and tribal schools to improve teaching and learning for the nation’s Native American children

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 APPENDIX D TABLE D-4 Other Mandatory Spending, 2008-2019 Year Baseline Option 1 Option 2 Option 3 Option 4 In Billions of Dollars 2008a 397 NA NA NA NA 2009 1108 NA NA NA NA 2010 566 NA NA NA NA 2011 488 NA NA NA NA 2012 400 397 397 400 400 2013 414 407 407 414 414 2014 399 389 389 399 399 2015 397 384 384 397 397 2016 405 389 389 405 405 2017 404 385 385 404 404 2018 399 377 377 399 399 2019 444 419 419 444 444 As a Percentage of GDP 2008a 2.8 NA NA NA NA 2009 7.9 NA NA NA NA 2010 3.9 NA NA NA NA 2011 3.2 NA NA NA NA 2012 2.5 2.5 2.5 2.5 2.5 2013 2.5 2.5 2.5 2.5 2.5 2014 2.3 2.3 2.3 2.3 2.3 2015 2.2 2.1 2.1 2.2 2.2 2016 2.2 2.1 2.1 2.2 2.2 2017 2.1 2.0 2.0 2.1 2.1 2018 2.0 1.9 1.9 2.0 2.0 2019 2.1 2.0 2.0 2.1 2.1 NOTE: NA = not applicable. aActual spending. impact aid: provides money to school districts that are financially • burdened by the presence of tracts of land that do not pay property taxes (such as military bases or Indian lands) education for the disadvantaged: allocates funds for local programs • that provide extra academic support to help raise the achievement of eligible students in high-poverty schools or, in the case of school- wide programs, help all students in high-poverty schools to meet challenging state academic standards school improvement programs: includes funds for improving • teacher quality, developing and implementing state assessments, rural education, and other activities innovation and improvement: funds charter school grants and • magnet school assistance, the teaching of American history, teacher incentives, and other activities

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 APPENDIX D safe schools and citizenship education: funds alcohol abuse reduc- • tion, mentoring, character education, elementary and secondary school counseling, physical education, civic education, and other activities English-language acquisition: provides formula grants to states • to improve services for limited-English-proficient and immigrant students special education: assists state and local educational agencies to • provide children with disabilities with access to high-quality educa- tion, helps states provide a comprehensive system of early interven- tion services, and links states, school systems, and families to best practices to improve results for infants, toddlers, and children with disabilities rehabilitation services and disability research: funds vocational re- • habilitation, assistive technology, and rehabilitation research, and other activities American Printing House for the Blind: supports the production • and dissemination of free educational materials for students below the college level who are blind, research related to developing and improving products, and advisory services to consumer organiza- tions on the availability and use of materials career, technical, and adult education: provides formula grants to • states to help eliminate functional illiteracy among the nation’s adults, to assist adults in obtaining a high school diploma or its equivalent, to promote family literacy, and other activities promoting safe and stable families: funds a broad range of child • welfare services, including family preservation and family support services children and families services programs: funds Head Start, child • welfare services, abstinence education, and other activities aging services programs: provide nutrition, supportive services, and • caregiver support services throughout the aging network operation of American Indian programs: provides a wide range • of services and benefits to Native Americans in the areas of tribal government, human services, natural resources management, edu- cation, public safety and justice, and community and economic development training and employment services: funds adult employment and • training, dislocated worker employment and training, youth services, reintegration of ex-offenders, Job Corps, and other activities community service employment for older Americans: provides part- • time work experience in community service activities to unem- ployed, low-income persons aged 55 and older

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 APPENDIX D state unemployment insurance and employment service operations: • provides administrative grants to state agencies that pay unemploy- ment compensation to eligible workers, and collects state unem- ployment taxes from employers, and funds a nationwide system that provides no-fee employment services unemployment trust fund: provides support for the financial trans- • action of the federal-state and railroad unemployment insurance systems federal unemployment benefits and allowances: funds the Trade • Adjustment Assistance Program, which provides weekly cash ben- efits, training, and job search and relocation allowances to certain workers displaced by international trade; and the Alternative Trade Adjustment Demonstration Program of wage insurance for older workers Corporation for National and Community Service operations: • provides funds to foster civic engagement and responsibility by working with nonprofit organizations, faith-based groups, schools, and other civic organizations to engage Americans in community service school improvement for Washington, DC: supports efforts to im- • prove the quality of kindergarten through high school education in the District of Columbia social services block grants: funds such services as day care, pro- • tective services for children or adults, special services to per- sons with disabilities, adoption, case management, health-related services, transportation, foster care, substance abuse, housing, home-delivered meals, independent and transitional living, and employment services To generate cost savings relative to the baseline by 2019, the committee inflated the 2009 budget authority for these programs (taking into account the presumably temporary nature of some of the stimulus spending) at a rate of 2 percent and estimated the lagged outlay effects of cutting the pro- grams by 50 percent starting in 2012. COMMERCIAL SUBSIDIES AND “LOW-VALUE” ACTIVITIES: OPTIONS 1 AND 2 In addition to possible candidates for devolution to state and local gov- ernments, the committee considered candidates for eliminating or reducing commercial subsidies (as well as raising user fees) for a range of programs and activities and for eliminating or reducing “low-value” activities. For its illustrative candidates, the committee drew on a list of potential budget

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 APPENDIX D savings identified by the Congressional Budget Office (2009). They are presented here by agency. Overseas Private Investment Corporation Overseas Private Investment Corporation (OPIC)—elimination: of- • fers private U.S. companies subsidized financing for foreign invest- ment and insurance against political risks to those investments, including nationalization National Science Foundation National Science Foundation (NSF) spending on elementary and • secondary education—elimination: supports advanced teacher training and continuing education and is also used for development of instructional and assessment materials Department of Homeland Security research and development programs in the Science and Technology • Directorate—reduction: includes basic and applied research; devel- opment and testing of standards, prototypes, and preproduction hardware; and procurement of products, systems, and equipment Department of Energy applied research for fossil fuels—elimination: funds research into • applied technologies for finding and producing petroleum, coal, and natural gas ultra-deepwater and unconventional natural gas and other petro- • leum research programs—elimination: funds applied research using federal revenues from old and gas leases nuclear energy research and development—elimination: three pro- • grams seek to develop new ways to generate and harness nuclear energy while reducing radioactive waste and guarding against the potential for nuclear proliferation FreedomCAR and Fuel Partnership—elimination: a joint effort of • the federal government and private industry to promote research on fuel cells in energy-efficient vehicles applied research on energy-efficiency and renewable-energy tech- • nologies—elimination: support for the development of technology to increase energy conservation and efficiency in the transportation, building, and industrial sectors of the economy and to make greater

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 APPENDIX D use of such renewable resources as solar, wind, and geothermal energy and biomass-based fuel grants to states for energy conservation and weatherization— • elimination: support for state and municipal efforts in energy conservation and building weatherization nuclear waste fund fee—index to inflation: funds the disposal of • the radioactive wastes of civilian nuclear power plants through a fee per kilowatt-hour of electricity that they generate power marketing administrations—increase rates: generate electric- • ity, mainly from hydropower facilities constructed and operated by the Army Corps of Engineers and the Bureau of Reclamation, with rates to customers that are much lower than those of other utilities Southeastern Power Administration (SEPA) and related power- • generating assets—sell: generate and sell electricity from hydro- power facilities constructed and operated by the Army Corps of Engineers Tennessee Valley Authority parts of the electric power assets—sell: now one of the largest pro- • ducers of electricity in the nation in contrast to original function of managing the region’s hydropower resources Army Corps of Engineers permits for dredging—increase fees: needed to dredge or place fill • material in navigable waters federal funding for beach replenishment projects—eliminate: op- • erations designed to counter beach erosion, typically by dredging sand from offshore locations and pumping it onshore to rebuild eroded areas Department of the Interior authority to collect maintenance and location fees for hard rock • mining on federal lands—permanently grant: mineral production on federal lands is less costly than on private lands unlike the ex- traction of other minerals or fossil fuels from public lands, royalties are not charged on the value of hard rock minerals grazing fees for federal lands—use state formulas: grazing fees for • federal lands differ from those for state-owned lands

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 APPENDIX D Pick-Sloan Missouri Basin Program—reassign reimbursable costs • to the beneficiaries it serves: provides subsidized service because customers receive benefit from but do not pay for the extra capacity that was built into the federal facilities that support irrigation Environmental Protection Agency federal grants for wastewater and drinking water infrastructure— • eliminate: provides funds to the states to help communities build or replace municipal wastewater and drinking systems to meet federal standards Energy Star Program—eliminate: product-labeling and certification • program whose goal is to help consumers and organizations save energy and reduce greenhouse-gas emissions by choosing products or management practices that are energy efficient or that rely on clean forms of energy Science to Achieve Results (STAR) Program—eliminate: provides • grants to scientists and fellowships for graduate work in environ- mental sciences Department of Agriculture timber sales that lose money—reduce funding: management of • federal timber sales from national forests Conservation Stewardship Program (CSP)—scale back: provides • agricultural producers financial and technical help to promote the conservation and improvement of soil, water, air, energy, and plant and animal life on lands used for agricultural purposes Conservation Reserve Program (CRP)—limit enrollment: promotes • soil conservation, improved water quality, and protection of wild- life habitat by removing land from active agricultural production payments to producers of certain agricultural commodities— • impose limits: supports producers of various farm commodities (including cotton, feed grains, oilseeds, peanuts, rice, and wheat) through direct and countercyclical payments and loan benefits acreage payments—reduce by 1 percentage point: direct and coun- • tercyclical payments to agricultural producers, calculated as 85 percent of a producer’s base acreage times an assumed yield per acre times a payment rate per unit of production reimbursement rate paid to private insurance companies in the • Crop Insurance Program—reduce: this program protects farmers from losses caused by drought, flooding, pest infestation, and other natural disasters

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0 APPENDIX D Foreign Market Development Program—eliminate: provides part- • nerships in joint ventures with “cooperators”—such as agricultural trade associations and commodity groups—to develop markets for U.S. exports Market Access Program—reduce funding: provides funds to trade • associations, commodity groups, and for-profit firms to help them build markets overseas for U.S. agricultural products export credit guarantees—limit the repayment period: protects ex- • porters and banks in the United States against default on financing they provide to foreign importers and banks to cover purchases of U.S. goods financing of rural water and waste disposal—create revolving fund: • assists rural communities through a program that provides loans, loan guarantees, and grants for water and water-disposal projects Department of Commerce trade promotion activities of the International Trade Adminis- • tration—eliminate or charge the beneficiaries: trade development programs that assess the competitiveness of U.S. industries and promote exports and U.S. and foreign commercial services, which counsel U.S. businesses on issues related to exporting Hollings Manufacturing Extension Partnership and the Baldrige • National Quality Program—eliminate: improve the performance of U.S. businesses by providing them with technical assistance Federal Communications Commission authority to auction licenses for use of the radio spectrum— • permanently extend: licenses for all circumstances in which more than one private applicant has sought a license (thereby increasing the role of competitive bidding in license assignment) Small Business Administration secondary market guarantees—impose fees: guarantees for 50 to • 85 percent of the principal amount of qualifying loans to small businesses Department of Transportation highway trust fund—reduce highway funding to maintain posi- • tive balances: provides grants to states for highways and other

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 APPENDIX D surface transportation projects through the Federal Aid Highway Program New Starts Program—eliminate: provides funding for the construc- • tion of new rail and other “fixed-guideway” systems and for the expansion of existing systems Amtrak—reduce subsidy: provides federally subsidized rail pas- • senger service grants to large and medium-sized hub airports—eliminate: provides • grants to airports to expand runways, improve safety and security, and make other capital investments under the Airport Improve- ment Program aviation security—increase fees: covers a greater portion of the • federal government’s costs for aviation security Saint Lawrence Seaway—impose fees on users: through the St. • Lawrence Seaway Development Corporation, operates and main- tains the U.S.-controlled portion of the seaway between the Port of Montreal and Lake Erie Department of Housing and Urban Development Community Development Block Grant Program—drop wealthier • communities: provides annual grants to communities to help them aid low- and moderate-income households, eliminate slums and blight, or meet emergency needs by rehabilitating housing, im- proving infrastructure, and carrying out economic development activities NeighborWorks America (Neighborhood Reinvestment Corpora- • tion)—eliminate: oversees a network of locally initiated and op- erated groups called NeighborWorks Organizations engaged in activities involving housing, neighborhood revitalization, and com- munity building Treasury Department Community Development Financial Institutions Fund—eliminate: • expands the availability of credit, investment capital, and financial services in distressed communities Appalachian Regional Commission, the Denali Commission, and the Delta Regional Authority regional development agencies—eliminate: federally funded re- • gional development agencies that attempt, among other things,

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 APPENDIX D to create jobs, improve rural education and health care, develop utilities and other infrastructure, and provide job training Federal Emergency Management Agency flood insurance subsidy on selected older structures—eliminate or • reduce: through the National Flood Insurance Program, charges premiums to insure buildings and their contents Department of Education grants for safe and drug-free schools and communities—eliminate: • support programs to discourage violence and the use of illegal substances—such as alcohol, cigarettes, and drugs—among young people in and around schools Even Start Program—eliminate and redirect some funds to other • education programs: provides education and related services to parents who have not finished high school and to their young children Leveraging Educational Assistance Partnership Program (LEAP)— • eliminate: helps states provide grants and work-study assistance to financially needy Department of Labor Senior Community Service Employment Program—eliminate: funds • part-time jobs for people aged 55 and older who have low income and poor prospects for employment Veterans Administration veterans’ disability compensation—reduce to account for Social • Security Disability Insurance payments: disabled veterans eligible for Social Security disability payments receive payments from both programs, with no offset Department of Justice grant—reduce for selected programs: provide various types of as- • sistance to nonprofit community organizations and state and local law enforcement agencies The Congressional Budget Office (2009) shows the budgetary effects of each option over a 10-year period, from 2010 to 2019. To generate savings

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 APPENDIX D estimates relative to the study baseline by 2019, the committee mapped the first 8 years (2010-2017) from the CBO report onto the first 8 years (2012-2019) of the spending trajectories for Options 1 and 2. Because CBO provided annual estimates of savings only for the first 5 years, the commit- tee relied on CBO’s estimate for overall 10-year savings to calculate what the savings reasonably might be by the eighth year. These estimates adjust for the minor overlap with programs targeted for devolution. HUMAN CAPITAL DEVELOPMENT, RESEARCH AND DEVELOPMENT FUNDING, AND INFRASTRUCTURE: OPTIONS 3 AND 4 This section offers illustrative examples of public investments that would be expected to have high payoffs in the future. early childhood and postsecondary education and training: a num- • ber of policy experts have identified expanded early childhood education as a sound investment where benefits are likely to exceed costs over an extended time horizon. For example, an expansion of Head Start/Early Head Start for 3- and 4-year-olds from low- income families has been proposed by researchers and policy ana- lysts (see Boots et al., 2008; Isaacs, 2007). The estimated costs for covering 100 percent of eligible children in 2008 would have been around $20 billion. adult training and work assistance programs targeted at disadvan- • taged populations: some analysts have proposed additional spend- ing on human capital in the neighborhood of $3-5 billion per year, as well as expansion of Pell grants and college assistance programs (see Blank, 2007; Holzer and Martinson, 2008). research and development in areas with long-term strategic na- • tional importance: these areas are likely to change over time as the nation’s needs and strategic interests shift. At present, alternative energy sources or green environment adaptations are often men- tioned as areas for public research investment. Others talk about research on effective provision of health service and alternative care options that might help reduce health costs. Plausible estimates for additional research and development funding are about $20 billion a year—$15 billion for energy and $5 billion for health services (see Holubowich and Antos, 2008; Nemet and Kammen, 2007). infrastructure: CBO estimated that additional transportation infra- • structure investments by state and federal governments of about $164 billion per year (net of higher user fees of approximately $20 billion per year) could be justified (Congressional Budget Office,

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 APPENDIX D 2008). Expansions in other infrastructure categories also may be warranted (Association of State Dam Safety Officials, 2002). REFERENCES Association of State Dam Safety Officials. (2002). The Cost of Rehabilitating Our Nation’s Dams. Lexington, KY: Association of State Dam Safety Officials. Blank, R. (2007). Improving the safety net for single mothers who face serious barriers to work. The Future of Children, (2), 183-197. Boots, S.W., Macomber, J., and Danziger, A. (2008). Family Security: Supporting Parents’ Employment and Children’s Deelopment. New Safety Net Paper 3. Washington, DC: Urban Institute. Congressional Budget Office (2008). Issues and Options in Infrastructure Inestment. Wash- ington, DC: Congressional Budget Office. Congressional Budget Office (2009). Budget Options, Volume . Washington, DC: Congres- sional Budget Office. Holubowich, E.J., and Antos, J.R. (2008). Treading water: The no growth investment in health services research. American Health & Drug Benefits, , 34-42. Holzer, H., and Martinson, K. (2008). Helping Poor Working Parents Get Ahead: Federal Funds for New State Strategies in Systems. Washington, DC: Urban Institute. Isaacs, J. (2007). Cost-Effectie Inestments in Children. Washington, DC: Brookings Institution. Nemet, G.F., and Kammen, D.M. (2007). U.S. energy research and development: Declin- ing investment, increasing need, and the feasibility of expansion. Energy Policy, , 746-755. U.S. Office of Management and Budget (2009a). Budget of the United States Goernment, Fiscal Year 00: Analytical Perspecties. Washington, DC: U.S. Government Printing Office.