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62 / SUPPLEMENT 3 Supplement 3 Current Processes for Allocating Federal R&D Funds The committeeâs 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 Standard Process for Allocating 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 âR&D budgetâ 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 and Technology Policy and its prede- cessors have set up formal coordinating bodies for R&D, sometimes at the encour- 62 62
SUPPLEMENT 3 / 63 agement of the Congress. The Clinton administrationâs National Science and Tech- nology Council is the most recent such effort, and it is too early to determine how effective it may be. However, previous bodies have had limited effect, owing to resistance by the affected agencies, the Office of Management and Budget, congres- sional authorizers and appropriators, and the press of political currents that are stronger than the impulse to coordinate. There is no equivalent congressional coordinating authority for R&D (see Box II.7). The House Committee on Science, which has oversight authority over all federal nondefense R&D, comes closest, although it does not have legislative author- ity over the National Institutes of Health or the Departments of Agriculture, Defense, and the Interior. As it considers the Presidentâs budget, Congress and its committees frequently augment or cut proposed budgets and may replace requested R&D funds with other types of spending, with little regard for a broader interagency strategy. Even such coordinated presidential initiatives as the Global Climate Change program BOX II.7 CONGRESSIONAL CONSIDERATION OF THE R&D BUDGET FOR FISCAL YEAR 1996 Students of R&D budgeting have long been frustrated by the absence of a mechanism in the Congress to consider the federal R&D budget on a comprehensive basis, to address propos- als from the administration for coordinated interagency R&D programs, to assess the adequacy of such funding on an aggregate basis, or to ensure against the emergence of imbalance in the federal portfolio.1 The 104th Congress has used some procedures that offer promise for more comprehen- sive congressional consideration of R&D funding in future years. In late January 1995, the House Committee on Science held a hearing on federal R&D featuring the heads of all major R&D 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 House 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 committeeâs jurisdiction. The appropriations subcommittee allocations, in turn, 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 Committeeâs jurisdiction, and their R&D budgets were not handled by the same Budget Committee working group. No similar process exists 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 the House, however, and so it is more usual for Senators to sit on multiple committees that are involved in the sequential steps of the R&D budget process. ___________________________ 1 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 Government, 1991). 63
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 Level 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 II.8 shows the percentages for Japan, Germany, and the United states through 1991. In 1994, the Clinton administration articulated a âreasonable long-term goalâ for total national R&D spending of 3 percent of GDP,1 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 Japan 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 3 2.5 2 Percent 1.5 United States 1 Japan 0.5 Germany* 0 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. 64
SUPPLEMENT 3 / 65 Strategic R&D Allocations Among U.S. National Goals Arise from a Decentralized Process In recent years, the Presidentâs budget submission to Congress has included a section that presents the budget requests for R&D from the individual departments and agencies, as well as the total amount requested to support R&D in all of them. However, this R&D âbudgetâ does not result from any comprehensive examination of all of the governmentâs R&D spending. Instead, it simply presents together in one place the outcomes of the negotiations among the individual departments and agencies, the Office of Management Budget, and the President regarding their separate budget plans. The departments and agencies operate under delegations of authority from the Congress and seek to use their R&D funds to accomplish the goals set out for them by Congress. Their performance is overseen by the individual committees and subcommittees of jurisdiction. R&D programs and funding are the responsibility of numerous committees and subcommittees in both houses. Table II.2 shows the 14 committees in the House and Senate that authorize the largest R&D activities in major R&D agencies. Many of the critical congressional decisions about R&D are made in appropriations subcommittees. Figure II.9 shows the por- tions of the R&D budget allocated by 7 of the 13 appropriations subcommittees in each house. Figure II.10 illustrates that 14 percent of federal discretionary spending TABLE II.2 Authorization Committees with Major R&D Programs Department or Agency Committee House Senate Department of Agriculture Agriculture Agriculture, Nutrition, and Forestry Commerce Science Commerce, Science, and Transportation Commerce Defense National Security Armed Services Energy Civilian Science Energy and Natural Resources Defense National Security Armed Services Health and Human Services Commerce Labor and Human Resources Interior Resources Energy and Natural Resources Transportation Transportation Commerce, Science, and Transportation Veterans Affairs Veterans Affairs Veterans Environmental Protection Agency Science Environment and Public Works National Aeronautics and Space Administration Science Commerce, Science, and Transportation National Science Foundation Science Labor and Human Resources Commerce, Science, and Transportation Office of Science and Technology Policy Science Commerce, Science, and Transportation NOTE: Main authorization jurisdictions for R&D programs are spread over seven committees each in the House and Senate. Some agenciesâ 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. 65
66 / SUPPLEMENT 3 Labor-HHS VA-HUD 16% 18% Energy-Water 8% Interior 2% Agriculture 2% Commerce-Justice-State 2% Others 1% Defense 51% 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 (U.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 (NIH, Centers for Disease Control, Department of Education R&D programs); (6) National Security (most DOD R&D programs); and (7) Veterans Affairs, Housing and Urban Development, and Independent Agencies (Department of Veterans Affairs, EPA, NASA, NSF, OSTP). Each of the remaining six subcommittees allocates less than 5 percent of its appropriations authority for R&D, most far less. SOURCE: Adapted from data provided by the R&D Budget and Policy Project, American Association for the Advancement of Science, Washington, D.C. went to R&D in fiscal year 1995 (the figures do not take into account recisions that took effect in July 1995). The fraction of funds going to R&D is a rough measure of the trade-off between R&D and other spending within subcommittees. The higher the fraction of budget devoted to R&D, the harder it is to increase R&D without impinging on other programs and the more tempting it is to cut R&D to fund other popular programs. Funding for the National Aeronautics and Space Administration, Environmental Protection Agency, and National Science Foundation, for example, competes for dollars allocated to the same appropriations subcommittee that funds veteransâ benefits and federal housing programs. Similarly, increases for the National Institutes of Health can come only at the expense of programs for education, labor, and health and human services. Given caps set by the budget process and projected steep declines in federal discretionary spending, preserving R&D funding increas- ingly conflicts with the desire to preserve such other programs. R&D intensiveness varies considerably, as shown for the major R&D subcommittees in Figure II.10. 66
SUPPLEMENT 3 / 67 Total Federal Discretionary Funds = $531 Billion R&D = $73 Billion 14% Defense R&D 14% Others R&D 2% Commerce-Justice-State R&D 6% VA-HUD R&D 19% Agriculture R&D 11% Labor-HHS Interior R&D R&D 13% 17% Energy-Water R&D 29% FIGURE II.10 Appropriations subcommitteesâ roles in funding R&D. NOTE: Fourteen percent of the federal governmentâs 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 committeeâs 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 funding 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 and 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 funds across its various R&D programs in support of fields or disciplines. 67
68 / SUPPLEMENT 3 Departments and 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 funding R&D or by supporting other kinds of programs in, for example, education, public health, regulation, or direct service delivery. For them, allocations to R&D result from a complex set of negotiations among the departmentâs 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 distinct second place to the intraagency struggles for resources. Most such agencies have external scien- tific 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 and performers, rather than on allocations among broad objectives or between R&D and alternative implementation modalities. Congress has always exercised its prerogatives in directing federal agencies to fund specific projects in particular locationsâso called âear-markedâ activities. Not 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 and 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 federal funds, a significant proportion of the academic ear- marks has gone to institutions and states that are also successful in the open compe- tition for federal agency funds. Competitive Merit Review Is Most Relevant to Allocations Among Projects One of the hallmarks of the postwar R&D system has been the detailed scien- tific and technical agenda influenced by the scientific and technical communities. To a first approximation, policymakers have set broad goals and directions, while members of the scientific and technical communities have designed projects, pro- posed priorities among them, and helped evaluate the results. Part of the âsocial contractâ between science and government struck after World War II was that scien- tists would play major roles in providing advice about the scientific agenda, while policymakers would set broad strategic goals and provide the resources needed to reach them. This model has been most clearly implemented through the use of the âpeer reviewâ system to choose among research projects supported by the National Science Foundation and National Institutes of Health (see Box II.8). The mission agencies have tended to employ their in-house scientific and technical staff to make funding decisions and to evaluate the outcomes of R&D projects focused on the governmentâs 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 68 augment the judgments of in-house staff.
SUPPLEMENT 3 / 69 BOX II.8 METHODS FOR SELECTING FEDERAL R&D PERFORMERS AND PROJECTS A number of approaches are used to decide which R&D projects receive federal funds, how much should be spent, and who should conduct the work. The approach used depends on the nature of the work, its relationship to specific government missions, and the history and culture of different research communities, programs, and agencies. Traditionally, agencies such as the National Science Foundation and National Institutes of Health that make grants to universities to support fundamental scientific and engineering re- search have used some form of prospective peer review to judge the quality of competitively submitted project proposals. Peers are established working scientists or engineers from di- verse research institutions who are deeply knowledgeable about the field of study and who provide disinterested technical judgments as to the competence of the researchers, the scien- tific significance of the proposed work, the soundness of the research plan, and the likelihood of success. Since the early 1980s, NSF has asked peers also to take into account the utility of the proposed research to the nation and its potential for contributing to graduate education and to the infrastructure of science itself. Since the middle 1980s, NSF has used the term merit review to indicate both that proposals are judged on their merits and that NSF program officers also have the authority to take into account various general policies of the Foundation when making awards. NIH makes limited use of a second level of review by institute councils that take into account national relevance and direction. Some programs in other departments and agencies, including the Department of Energy, National Aeronautics and Space Administration, U.S. Department of Agriculture, and Department of Defense, employ variants of peer or merit review. The various departments and agencies differ in the degree to which their program managers are bound to follow the recommendations of peer and merit reviewers in making awards. Practices vary even within the NSF and NIH across research fields and areas. Other agencies, including the Office of Naval Research and Advanced Research Projects Agency, use a strong 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 identifying and recruiting investigators to conduct research that they deem to be of greatest importance to the agencyâs mission. Program manag- ers often devote considerable energy to soliciting the views of peers about these matters but usually are not bound to heed their advice. Agencies seeking to contract for performance of R&D projects of direct interest to the government in industrial or other nongovernment organizations typically conduct competitive procurements for R&D services, using 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 and services. Federal laboratories use several approaches to project selection. In most cases, however, on-site technical and unit managers share responsibility with agency program managers for selecting project topics and performers. In some cases, the external peer community is asked for advice on specific projects, and in other cases, on an entire program of activity. Sometimes such advice is obtained on a prospective basis; sometimes it is obtained via formal reviews of ongoing or completed research activities. 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 industry. Formula funding is used by a few programs, principally in the USDA, to allocate R&D 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 not reflect the considered judgments of scientific experts or the funding agen- cies, and they often are determined instead by individual members of Congress acting on be- half of constituents. 69