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Supplement 3 Current Processes for ARocat~ng Federal R&D Funds The committee's recommendations argue for changes in how Congress and the Executive Branch allocate funds for federal science and technology. This supple- ment describes the current process and gives some historical background. There Is Currently No Stanciard Process for ABocat~ng Federal R&D Funds Policymakers and the research community share control over the allocation of federal funds to R&D. in practice, decisions to allocate federal R&D funds among national goals and among federal departments and agencies are made by elected officials, senior civil servants, and congressional staff in a political process. Alloca- tion decisions among projects and performers at the program-level within depart- ments and agencies are made by technical experts in the agencies, often with advice from the research community via formal competitive merit review or other approaches to assessing scientific and technical merit. On occasion, nongovernment scientists and engineers influence high-level strategic federal allocations to specific initiatives. Political leaders sometimes seek to influence allocations at the working level. At all levels in the process of allocating R&D funds to various elements in the federal portfolio, there is no substitute for human judgment, informed by specialized knowledge, experience, and an understanding of the processes of research and development. There is an inherent uncertainty in anticipating the outcomes of R&D programs. Therefore, economic and financial investment models, such as cost/ benefit analysis, are applicable only for those development programs for which technical and financial uncertainties are fairly well understood. The overall federal R&D portfolio is determined in a bottom-up process. The executive and legislative branches together establish R&D budgets for departments and agencies. Historically, an"R&D budget" as such has been determined only after the fact when budget analysts learn what the overall federal R&D budget is by aggregating the results of the individual departmental and agency decisions. The Bush and Clinton administrations have sought to impose greater order on the prepa- ration of the overall R&D budget submission, as discussed below. Both the President and the Congress Influence the Federal R&D Portfolio Presidents have used a variety of institutional arrangements to coordinate the formulation of R&D budgets across the departments and agencies, sometimes in hopes of orchestrating coordinated approaches to particular national problems, and other times in hopes of reducing overlap and duplication among them. Since the early 1960s, the White House Office of Science end technology Policy and its prede- cessors have set up formal coordinating bodies for R&D, sometimes at the encour 62

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SUPPlEMENT3 / 63 agement of the Congress. The Clinton acIministration's National Science andTech- nology Council is the most recent such effort, ant! it is too early to determine how effective it may be. However, previous boclies have hac! limited effect, owing to resistance by the affected agencies, the Office of Management and Budget, congres- sional authorizers ant! appropriators, and the press of political currents that are stronger than the impulse to coordinate. There is no equivalent congressional coordinating authority for R&rD (see Box TI.71. The House Committee on Science, which has oversight authority over all fecleral nonclefense R&D, comes closest, although it does not have legislative author- ity over the National Institutes of Health or the Departments of Agriculture, Defense, ant! the Interior. As it considers the President's buciget, Congress and its committees frequently augment or cut proposed budgets and may replace requested Rut) funds with other types of spencling, with little regarc! for a broader interagency strategy. Even such coorclinated presiclential initiatives as the Global Climate Change program Box Il.7 CONGRESSIONAL CONSIDERATION OF ~ R&D BUDGET FOR FISCAL YEAR 1996 Students of R&D budgeting have long been frustrated by the absence of a mecharusm In the Congress to consider the federal R&D budget on a comprehensive basis, to address propos- als from the a~rustration for coord Hated interagency RED programs, to assess the adequacy Of such funding on an aggregate basis, or to ensure against the emergence of imbalance in the federal portfolios The 104th Congress has used some procedures that offer promise for more comprehen- sive congressional consideration of R&~) funding in future years. In late January 1995, the House Committee on Science held a hearing on federal ROD featuring the heads of all major RED departments and programs under its legislative jurisdiction. The House Budget Commit- tee has established several working groups, including one on natural resources and science. One working group function,pursued~with special vigor this year,was coordination with mem- bers of relevant authorization committees and appropriations subcommittees. The working group that covered science included the chair of the Science Committee (who is also vice-chair of the Budget Committee). The lIouse Science Committee reported authorization bills within limits set by the Budget Committee in preparing its Omnibus Civilian Science Authorization bill,which also bundled together the major R&D functions under the committee's jurisdiction. The appropriations subcommittee allocations, in tum, took greater account of Science Com- mittee and Budget Committee recommendations than in previous years. A number of impor- tant R&D budgets such as those for the National Institutes of Health and Department of De- fense programs, however, do not come under the Science Committee's jurisdiction, and their RED budgets were not handled by the same Budget Committee working group. No similar process emses in the Senate to review the R&D budget and to link different steps in the budget process across committee lines. The Senate has more committee assignments per member than me House, however, and so it is more usual for Senators to sit on multiple conllIiittees that are involved in the sequential steps of the R&D budget process. Carnegie Commission on Science,Technology, and Government, Science, Technology, and Congress: Expert Advice and the Decisionmaking Process (Washington, D.C.: Carnegie Commission on Science, Technology, and Govemment, 199:11.

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64 / SUPPLEMENT 3 may emerge from the congressional budget and appropriations processes in a form quite different from that initially proposed in the budget. International Comparisons Offer Imperfect Insight Into the Desirable [eve} of Total U.S. National R&D Spending Judgment, experience, and a willingness to take risks play key roles in estab- lishing an optimal level of national R&D spending, by the federal government or by private firms, philanthropies, and other levels of government. Comparisons with R&D efforts of other leading nations offer some insights. For example, the propor- tion of gross domestic product (GDP) that is devoted to R&D is of some interest. in recent years, most of the larger and wealthier industrial nations have spent between 2.5 and 3 percent of GDP on R&D, including both government and private industry funding. Figure Il.S shows the percentages for Japan, Germany, and the United states through 1991. in 1994, the Clinton administration articulated a "reasonable long-term goal" for total national R&D spending of 3 percent of GDP, as compared with the present level of about 2.6 percent.2 However, nations face different circumstances and value their national goals differently; as a consequence, they do not all spend their funds for the same purposes or in similar institutions. For example, if private industrial R&D spending is adjusted to account for the smaller role of manufacturing indus- tries in the economy of the United States as compared with lap en or Germany, then the United States compares adequately with those nations in the ratio of R&D to GDP.3 On the other hand, the United States has for the past 5 decades supported a large national defense R&D effort that has not existed In Germany or Japan, as well as newly emerging sectors that are research intensive but are not included in manu- facturing, such as software and communications. Similarly, the United States spends a great deal more on health-related R&D than do other major nations, even when adjustments are made for the relative sizes of countries. 3.5 2.5 a) c' 1.5 1 0.5 United States Japan --- Germany* O- 1 1 1 1 1 1 1 1 1 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 *German data are for West Germany only. FIGURE II.8 Funding of R&D (both public and private) as a percentage of GDP for three leading nations, 1970 through 1991. SOURCE: National Science Board, Science and Engineering Indicators: 1993, NSB 93-1 (Washing- ton, D.C.: National Science Foundation), p. 375.

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SUPPLEMENT 3 / 65 Strategic R&D ABocations Among U.S. National Goals Arise from a Decentralized Process in recent years, the Presiclent's budget submission to Congress has included a section that presents the budget requests for R&D from the indiviclual departments and agencies, as well as the total amount requested to support R&D in all of them. However, this R&~ "budget" floes not result from any comprehensive examination of aU of the government's R&D spending. ]:nsteact, it simply presents together in one place the outcomes of the negotiations among the incliviclual departments and agencies, the Office of Management Budget, and the President regarding their separate budget plans. The departments and agencies operate under clelegations of authority from the Congress ant! seek to use their R&D funds to accomplish the goals set out for them by Congress. Their performance is overseen by the inctiviclual committees and subcommittees of jurisdiction. R&D programs ant! funding are the responsibility of numerous committees and subcommittees in both houses. Table TI.2 shows the 14 committees in the House ant! Senate that authorize the largest R&D activities in major R&~ agencies. Many of the critical congressional decisions about R&D are macle in appropriations subcommittees. Figure TI.9 shows the por- tions of the Rim budget allocates! by 7 of the ~ 3 appropriations subcommittees in each house. Figure Il.10 illustrates that 14 percent of federal discretionary spending TABLE Il.2 Authorization Committees with Major R&D Programs Department or agency House Committee Senate Department of Agriculture Commerce Agriculture Science Commerce Agriculture, Nutrition, and Forestry Commerce, Science, and Transportation Defense National Security Armed Services Energy C r Van Defense Health and Human Services Interior Transportation Veterans Affairs Environmental Protection Agency NationalAeronautics and Space Administration National Science Foundation Office of Science and Technology Policy Science National Security Commerce Resources Transportation Veterans Affairs Science Science Science Science Energy and Natural Resources Armed Services Labor and Human Resources Energy and Natural Resources Commerce, Science, and Transportation Veterans Environment and Public Works Commerce, Science, and Transportation Labor and Human Resources Commerce, Science, and Transportation Commerce, Science, and Transportation NOTE: Main authorization jurisdictions for R&D programs are spread over seven committees each in the House and Senate. Some agencies' R&D programs are split between two or more committees because changes in Congress do not always parallel those in the Executive Branch. This table shows only main authorization jurisdictions and does not show all split authorities.

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66/ SUPPLEMENT 3 VA-HUD 18% \ Labor-HHS , 16/~ Energy-Water 8% Interior _ 20/~ Defense 51% ~ Agriculture Commerce-Justice-State poll FIGURE II.9 Appropriations subcommittee roles In funding R&D. NOTE: The $70 billion of federal R&D, as traditionally calculated, is allocated mainly by seven appropriations subcommittees each in the House and Senate. The seven subcommittees that allocate most R&D funding and the activities over which they have appropriation -authority are (1) Agricul- ture, Rural Development, Food and Drug Administration, and Related Agencies (most USDA R&D programs; FDA); (2) Commerce,.Justice, State, the Judiciary, and Related Agencies (NIST, NOAA); (3) Energy and Water Development (most DOE R&D programs; civilian aspects of DOD, such as the Army Corps of Engineers); (4) Interior and Related Agencies (IJ.S. Geological Survey; DOE programs on fossil fuel, coal, and conservation; and USDA Forest Service); (5) Labor, Health and Human Services, Education, and Related Agencies OCR for page 62
SUPPLEMENT3 / 67 Total Federal Discretionary Funds = $531 Billion R&D=$73Billion Defense VA-HUD at= I. ?L . R&D /14/^ R&D 19% Labor-HHS _ R&D 17% ~,~ ~,~.~i~j~,,~ ~ ~ alit ~ ~ . ..'~.~I.~::~,.~','~ Energy-Water '~ R&D i _ micro/ :~ .. ~ _ ~O ,0 \ ~-~ ~ _ ....... -A Interior R&D 13% ~> ~.~.~,~.i:~. . . .. FIGURE II.10 Appropriations subcommittees' roles in funding R&D. Others R&D Com merce-J ustice-State A_ R&D <~ 6% ...~. A...- . ~ ~ ~,~ I. ~ it.. Agriculture R&D ~ 11% I-. .) NOTE: Fourteen percent of the federal government's total discretionary funds went for R&D, based on fiscal year 1995 appropriations prior to the July 1995 recisions. The discretionary budget ex- cludes mandatory federal spending and spending for entitlements, leaving $531 billion, of which $73 billion was appropriated initially for R&D by current definitions (in contrast to the committee's recommended FS&T definition discussed in Part I of this report and in Supplements 1 and 2). R&D funds are concentrated in the jurisdictions of 7 of the 13 appropriations subcommittees, which allocate from 6 to 29 percent of their discretionary funds to R&D. The largest R&D allocations are made by the Defense,Veterans Affairs-Housing and Urban Development, and Labor-Health and Human Services subcommittees. For committee names and their R&D jurisdictions, see note for Figure II.9. This information is based on 1995 appropriations prior to the July 1995 budget recisions, which reduced R&D Finding by a total of $ 1.9 billion, taken from several programs. SOURCE: Adapted from data provided by the R&D Budget and Policy Project,American Association for the Advancement of Science,Washington, D.C. Tactical Allocations Among Programs, Fields, and Disciplines Are Made Largely Within Departments anti Agencies, with Some Specific Congressional Direction The mission of the National Science Foundation is to support R&D across a wide range of topics. For the National Science Foundation, tactical allocation is largely a matter of allocating funcis across its various R&D programs in support of fields or disciplines.

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68 / suPPlEMENr 3 Departments ant! agencies with more focused missions, however, such as the Department of Energy or the Department of Health and Human Services can, to some degree, choose whether to pursue their ultimate objectives by funcling R&D or by supporting other kinds of programs in, for example, education, public health, regulation, or direct service cielivery. For them, avocations to R&D result from a complex set of negotiations among the cIepartment's various bureaus, congressional oversight committees, and the Office of Management and Budget. Coordination of R&D in such agencies with that in other agencies may take a ctistinct second place to the intraagency struggles for resources. Most such agencies have external scien- tif~c or technical review and advisory boards, but these groups tend to focus on identifying R&D needs and opportunities and on allocating funds among projects anti performers, rather than on allocations among broad objectives or between R&D and alternative implementation modalities. Congress has always exercised its prerogatives in directing fecleral agencies to funci specific "oroiect~c in nartic:~lar loration.c cry r~ll~1 "fear marls 1" ~ti~riti~e l~T^t ~ ~ J ~ ~ ~ ^~ ~_~^ v I. 1 ~ ~ until the early 1980s, however, was this practice used for funding R&D facilities and projects. Since then, R&D earmarks have become commonplace, especially in the jurisdictions of certain appropriations subcommittees ant! in the budgets of certain agencies, such as the Department of Defense and Department of Energy. Earmarks to academic institutions have amounted to more than 5 percent of federal R&D funding to colleges and universities in recent years. While one rationale for such funding is that some institutions and some regions are less well prepared than others to compete for fecleral funcIs, a significant proportion of the academic ear- marks has gone to institutions and states that are also successful in the open compe- tition for fecleral agency funds. Competitive Merit Review Is Most Relevant to ADocations Among Projects One of the hallmarks of the postwar R&D system has been the cletailecl scien- tif~c anct technical agenda influenced by the scientific and technical communities. To a first approximation, policymakers have set broad goa;Is and directions, while members of the scientific and technical communities have clesignec! projects, pro- posecl priorities among them, and helped evaluate the results. Part of the "social contract" between science ant! government struck after WoriciWar IT was that scien- tists wouict play major roles in providing acIvice about the scientific agenda, while policymakers wouIc! set broaci strategic goals and provide the resources needed to reach them. This mocle} has been most clearly implemented through the use of the "peer review" system to choose among research projects supported by the National Science Foundation and National Institutes of Health (see Box Il.~. The mission agencies have tented to employ their in-house scientific and technical staff to make funcling decisions and to evaluate the outcomes of R&D projects focuseci on the government's own needs. This practice reflects the fact that government agencies must be accountable for achieving the results they set out to reach and that such work is carried out under contracts rather than grants. Increas- ingly, however, such agencies as the Environmental Protection Agency, U.S. Depart- ment of Agriculture, and Department of Energy have used external peer reviewers to augment the judgments of in-house staff.

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SUPPLEMENT 3 / 69 : ~ ::~ it: ~ ~Box~;~II.8: ~ ~:~:~ :: : ~ : : :: ~ ~ :: : :: ~ : : A:: :: : : : : : :: i: ~ ~ METHODS FOR SELECTING FEDERAL R&[) PE~ORMERS~ AND :PROIECTS :~ :: ~ ~ : ~:A: number of :approaches are used ~:to:~decide which :l~:~pr~ects receive :federal fiends: : : , ~ how ~much~::should be spent arid who Should conduct he ~work. The approach used depends:: I:: , ~ ~ on the nature of the~:work its: relationship to:~specific goverruT~ent~missions~and the:::history and : : ~, , culture~oldifferentresearchcornmunities,programs,and:agencies.~ ~ ~ :~ ~:~ :~ ~:~ ~ ~ I: : ::~: it: :~TraditionaDy,~agencies such as Me National Science ~Foundation: end: National: :~stitutes: of ~ ~ ~ ~ ~ ~ : : ~ :: : : : : : :: : : ~ ~ ~ Wheels: that make grants to universities to: :supp~: fundan~en~: scientific and engineering: re- I; :: ~ ~ . ~ ~ ~ ~ ; I: ~ search:~ha Bused some Arm of: prospective peer revzew:to judge the quality of competitively: ::~subm~tted:Droiect Proposals. :Peers~are~established workir~g~scientists or;engineers~from do- v*rse~research~ mstitutions~ who are deeply knowledgeable about the field of study and who provide disinterested tech judgments as to the competence~of the researchers, the~:scien-~ tific significance of Reproposed work,~the~ soundness of the Research plan, ante likelihoods ~success. ~ Since ~l:he~early 1980s,~NSF has asked peers~dlso to take into~account~the futility of the proposed :resear~ to the nation And its potential for contributing to graduate education and:to the ir~frastructure~olscience itself. Since the middle 1~980s NSF has~used the~term~merit , :~ i: : :: ~ : :: : : it: :~ : ::: : i: :: : : ::: : : :: : : : ~ ::: ~ : : : :: :: : : : :: :: : : :: :: review~to irl(iicate both that proposals Are judged on fir merits and~that~NSF~progrmn of ricers also have~the authority to take into account various gene policies of the Foundation~when ~ ~ ~ ., in.. ~ ~ makidg~awards~. ~NIH makes limited use of a second level;of review~by institute councils that ~ ~ i . ~ ~ take into account national relevance and direction. ~ Some programs in other depanments~and :: : : :: : : agencies,~indu~iing the Department of Energy, NatiobalAeronautics and ~paceAdministration,~ U.S. Department of Agriculture, arid Department of Defense~ex~ploy variants of peer or merit review. Me various ~deparunents and agencies differ in the~;degree to which their program managers are bound into follow the recommendations of peer and merit reviewers in making awards. practices vary even within the NSF and OH across research fields and areas. : ~ ~ i : : :: : : :: : : :: ~ : ~ Other agencies' including the Office: of Naval Research and Advanced Research Projects Agency, use a~s:tro~program~manager approach to~prospective;assessment of the scientific or~technical merit of research proposals particularly those that are of a more fundamental , nature. ~ Strong technical staff members have responsibility~for being well informed about the state of the art of their specialties and for iclend;f~ go anti recruiting investigators to conduct research that they~deem to be of Neatest impor~ce~to the agency's mission. Program~manag- ers~often devote considerable energy to ~soliciting; the News ~ peers about these matters but Unusually are not bound to heed their advice. ~ ~ ~ ~ : ~ : : : :: : Agencies seeking to contract for performance~of~R&D~pr~ects of direct interest to Me government in itldustIiaI or oth~er~nongovernment organizations typically conduct competitive procurements for R&D services, fusing government technical employees and, occasionally, consultants to judge~the~prospective merit of contract~proposals. This approach has Much In common with standard procedures used by the federal government to procure other goods alla services. Federal laboratories use several approaches to project selection. In most cases however , , on-site tech'~ical and unit managers share responszbil~ with agency program: managers for selecting project topics and performers. In some cases, the external peer cod is asked for advice on specific projects and in other cases, on an~entire~ program of activity. Sometimes such avarice is obtained on a prospective oasis, somenmes~ it iS owned via forms : : : : : ~ ~ ~ ~ : :: ~ : : reviews of ongoing or completed research jacti~ties. In some agencies and some programs, proposals to begin new projects at the federal laboratories compete across several laboratories or even with proposals submitted from academia or mdustry.~ : Formula funding is used by a few programs, principally in the USDA, to allocate R&O funds among performing institutions such as the land-grant colleges and universities. ~ Executive agency decisions about R&D allocations to institutions and projects have in- creasingly been specified in detail by congressional appropriations committees. These alloca- tions often do riot reflect Me considered judgments of scientific experts or the funding agen- cies, and they often are determined instead by~mdrvidual members of Congress acting on be- half of constituents.