Determining Principles for Allocating Federal Funds

The federal government has played a pivotal role in developing the world's most successful system of research and development. Over the past 5 decades the U.S. scientific and technical enterprise has expanded dramatically, and the federal investments in it have produced enormous benefits for the nation's economy, national defense, health, and social well-being. Science and technology will be at least as important for our nation's future as they have been for our past, but further expansion of federal funding for research and development is unrealistic in the next several years. Both the current administration's 10-year budget plan and the 7-year plans passed by the House and Senate propose significant reductions in federal discretionary spending. Maintaining the vigor of research and development is important—indeed essential—to the nation's future and will require the ability to increase funding for new opportunities selectively, even while reducing the overall budget.

The Committee on Criteria for Federal Support of Research and Development believes that it will be possible to sustain this country's scientific and technological preeminence and the strong federal role within current fiscal constraints if the recommendations in this report are adopted. Ensuring the nation's future health, however, may well require augmented investments later—after the current period of reorganization and consolidation has helped control costs and sharpen focus.

As we consider how to restructure federally funded research and development to meet today's budget realities, it is important to recognize the considerable strengths of the current system (see Supplement 1 for historical background). Those strengths should not be lost. "Top-down" mission-oriented management and "bottom-up" investigator-initiated research projects have combined to create a powerful research and development engine that is the envy of the world. Computer science, surface science, molecular biology, and other fields have emerged in response to new opportunities, and widely disparate fields have been combined to create entirely new applications. Competitively funded research and development projects subject to national merit review and conducted in every state of our nation have proven particularly effective. Federally funded university science and engineering, in addition to yielding new discoveries, has produced new generations of scientists and engineers who serve in academia, industry, and government and also fill critical management positions there. Investments in science have dramatically expanded our knowledge of ourselves and our universe, and new technologies have improved our daily lives. The fruits of federally funded research and development have been applied effectively by U.S. industry. Drawing on the support provided by many sponsoring agencies and the results from a wide range of performing institutions, the American entrepreneurial spirit has tapped federally funded research and development to form entirely new industries in areas such as microelectronics, biotechnology, and communications and information technology, among others.

The federal government invests in a portfolio of highly diversified activities in research and development in many disciplines—but there has not been an actively managed federal "budget." With the exception of selected recent initiatives, the federal R&D budget has been tallied up after the fact—it is the sum of R&D expenditures from federal departments and agencies used mainly for comparison with other federal expenditures or with the R&D budgets of other industrialized nations. Because it is added together after the individual budget and appropriations decisions have been made, it has never been ''managed'' as a coherent whole. Yet there is a federal process—one that engages a broad range of issues, complex interactions, and conflicts—from which de facto priorities emerge. Those priorities reflect contending goals, different performers (public or private; university, industry, or federal laboratories), multiple funding sources (almost every federal department and agency), competing jurisdictions (executive and legislative branches; budget, appropriations, and authorization committees within Congress), and international economic competition (proprietary national investment or international cooperation).

The extraordinary success of U.S. research and development can be continued within current budget constraints. However, ensuring continuing success will require rigorous discipline and a coherent and comprehensive approach for deciding how resources are used. This report proposes a new process for allocating and monitoring federal spending for science and technology across disciplines and government agencies. With an integrated view and a coherent federal science and technology budget, it will be possible to make selective reductions in some areas, so as to free badly needed resources for more productive investments and new opportunities that arise.

Defining a Federal Science and Technology Budget

To obtain advice on an appropriate budget design, Congress asked this committee to recommend criteria for federal support of research and development. Federal research and development expenditures are reported in current budget documents as being more than $70 billion annually.1 Almost half of this amount, however, is spent on such activities as testing and evaluation of new aircraft and weapons systems in the Department of Defense, nuclear weapons work in the Department of Energy, and missions operations and evaluation in the National Aeronautics and Space Administration. Those activities are very important, but they involve the demonstration, testing, and evaluation of current knowledge and existing technologies. Even when they are technologically advanced, these functions do not involve the creation of new knowledge and the development of new technologies. The federal research and development budget as currently reported is thus misleading, because it includes large items that do not conform to the usual meaning of research and development.2

In studying how to ensure the continuing vibrance of U.S. research and development, the committee focused on the $35 billion to $40 billion in federal research and development spent annually on expanding fundamental knowledge and creating new technologies (see Supplement 2). Those are the expenditures that constitute federal support for a national science and technology base that underlies not only defense and space programs, but also the advancement of scientific knowledge and new technology used in many fields and industries. To focus discussion and more clearly identify this investment component of the federal research and development budget, the committee developed the term federal science and technology (FS&T) and an accompanying budget index (for details, see Supplement 2, especially Boxes II.3 and II.4). FS&T is used throughout this report to describe federal funding for those science and technology activities that produce or expand the use of new knowledge and new or enabling technologies (for examples, see Table I.1).

Table I.1. Federal Science and Technology: Examples of Work That Enables Continuing U.S. Innovation.

Table I.1

Federal Science and Technology: Examples of Work That Enables Continuing U.S. Innovation.

The committee recommends that, in the future, government support for basic and applied science and technology be presented, analyzed, and considered in terms of an FS&T budget. The current FS&T budget of $35 billion to $40 billion, including both training and research and development, represents about 0.5 percent of the nation's gross domestic product (see Box II.3 for background and definition). The distribution of funds for research and development as traditionally reported, compared to FS&T, illustrates the difference between the two concepts. Private industry performs the largest share of federally funded research and development as traditionally reported, but most of this work is downstream product demonstration, testing, and evaluation that is excluded from the committee's recommended new measure. When the FS&T measure is used instead, industry drops from first to third. Federal laboratories (both in-house and contractor-run) account for the largest share (39%) of FS&T, followed by academic institutions (31%), industry (21%), and nonprofit and other institutions (9%). (See Supplement 2 for additional details.)

The committee's definition of FS&T deliberately blurs any distinction between basic and applied science or between science and technology (see Table I.1). A complex relationship has evolved between basic and applied science and technology. In most instances, the linear sequential view of innovation is simplistic and misleading. Basic and applied science and technology are treated here as one interrelated enterprise, as they are conducted in the science and engineering schools of our universities and in federal laboratories. For further explanation of why the committee aggregates these activities within a single budget, see Supplements 1 and 4.

Structure and Approach of This Report

Part I of this report focuses on the committee's 13 recommendations for improving the process of allocating federal funds for science and technology. The conclusions, recommendations, and discussion are organized and presented to serve the following five purposes:

  1. Make the allocation process more coherent, systematic, and comprehensive;
  2. Determine total federal spending for federal science and technology, based on a clear commitment to ensuring U.S. leadership;
  3. Allocate funds to the best projects and people;
  4. Ensure that sound scientific and technical advice guides allocation decisions; and
  5. Improve federal management of research and development activities.

Part II contains four supplements that provide critical background for and explain the rationale behind the committee's recommendations. Supplement 1 briefly surveys science policy and the impact of federal support since World War II; Supplement 2 describes the derivation of the FS&T budget number; Supplement 3 outlines the existing process for allocating funds; and Supplement 4 treats the distinction between basic and applied research and the interplay between federal and industrial funding. Four appendixes give details that bear on committee process and background. A fifth lists the acronyms used in this report.

Footnotes

1

The Budget of the United States Government, Fiscal Year 1996, Chapter 7, "Investing in Science and Technology" (Washington, D.C.: U.S. Government Printing Office, 1995), p. 94.

2

The phrases research and development and science and technology are often used interchangeably. The committee has chosen to use research and development, except when it is explicitly referring to its proposed budget index, federal science and technology (FS&T), and the work encompassed by it.