An Investment Budget

Budget proposals in the House of Representatives for FY 1996 served as the shadow of the hangman’s noose in capturing the attention of the science community. The House budget proposal that year called for reductions in support for civilian R&D programs of more than 30 percent by 2002. The science policy community watched that budget debate with growing horror, like a prisoner listening to the hammering of workmen raising a gallows.

In the two years since then, I have witnessed an unprecedented level of cooperation, coordination, and mobilization by my friends in the science community. After 30 years in Washington, I can say that I have never seen scientists more effectively and broadly active; indeed, the collective wailing and gnashing of teeth in the R&D community has taken on proportions that can fairly be described as Biblical. On balance, I think that has been a good thing.

One result is that the projected decline in science and technology (S&T) funding has slowed, so that the FY 2002 budget is expected to be only 17 percent below the FY 1995 level. Moreover, members of Congress are more aware of science issues now than they have been in a long, long time. I think it is the growing activism of the science community that explains the sudden conversions of some of my friends in the Senate who, late in life, have discovered that not only is science full of wonders but talking about supporting science may be good politics too.

So I am heartened that the community has answered the call to come to Washington, visit their representatives, and reach out to people in their local communities to let all of them know how important their work is. To the degree that politics is the source of problems for science, then playing politics, dirty as some may perceive that game to be, is a way to make those problems dissolve.

However, there has been an unfortunate tendency to ascribe all of these funding challenges to short-term political perturbations-that is, misguided priorities in the current administration and/or a Republican-led Congress generally hostile to R&D. Yes, these political factors matter, but they are not the sum and substance of the barriers that stand between S&T programs and sufficient funding. This deceptive fantasy has resulted in an unwarranted degree of comfort for many in the science community and in an unfounded faith that better politics will lead to better funding.

Better politics will certainly produce better funding than no politics at all, but it simply guarantees a larger slice of a shrinking pie. The reason for this is that not all of the problems with funding for science are simply a result of political machinations. There are problems in the structure of the federal budget process itself that will not allow science to receive the kind of treatment that it deserves and that the nation needs. Unless the community comes to recognize this and works to redress the situation, growth in funding will remain an elusive chimera for most fields.

In addition, the science community has its own internal problems that money alone can’t fix. However, if the community doesn’t address those issues, it risks its credibility, standing, and support in the long run. Although I have some thoughts about internal reform of science, I will limit my discussion to the structure of the budget process.

Fundamental challenges in the budget process

Surely, politics has played some role in the recent decline of science funding, and the more activist approach by the science community has done some good in softening this fall. However, what may have been overlooked is the degree to which the underlying budget process and budget dynamics create structural pressures on all discretionary spending.

Well before the 1992 elections or the 1994 turnover in control of Congress, the budget for R&D had begun to stagnate. In 1990, Congress passed the Omnibus Budget Reconciliation Act, which for the first time placed numerical caps on defense and domestic discretionary spending. Under this agreement, federal discretionary spending was intended to decline each year until the deficit was eliminated. Not long after the passage of this legislation, these domestic spending caps began to take their toll on programs such as R&D.

More recently, a consensus between Congress and the administration has emerged concerning eliminating the deficit by the year 2002. Although many economists remain skeptical that the present deficit, which has been reasonably stable as a fraction of the gross domestic product (GDP), has any major influence on interest rates or the economy, the concept of a five-year balanced budget has been transformed into a political imperative. These pressures to balance the budget result in an ever-shrinking pot for discretionary spending and a scramble by scientists to preserve their share of a shrinking pie.

What is missing in the annual debates about the budget and how to balance it is any fundamental understanding of how budgetary items differ one from another in their impact on the economy. Without an overarching policy or vision to guide the process, annual budget discussions are reduced to a debate about an accounting framework that is intended to reward a disparate group of political constituencies.

The recently announced budget agreement worked out between President Clinton and the Republican leadership of the House and Senate is a perfect example of balancing the budget without any responsible vision guiding the process. That agreement does nothing to protect domestic discretionary accounts or to contain entitlement spending, and the tax cuts it assumes lead to ballooning revenue losses after 2002. The end result is a budget that balances in 2002 and then swings out of balance again, leaving true solutions to our budget woes for a future administration and Congress to grapple with.

As if that weren’t enough, the budget agreement between the White House and Republican leaders is awash in uncertainties. It is not clear that it will bind the appropriations process this year or during the next four years. This agreement is crippled because it fails to address the institutional defects of the budget process itself and because of the profound lack of clarity regarding the actual goals of the agreement. No wonder it was necessary to hold weeks-long negotiations after the agreement was announced to clarify what had actually been agreed to.

A budget with vision

In my mind, the underlying imperative as we balance the budget is to do it in a manner that leaves the U.S. economy in a position to sustain growth after 2002. To do so, we need to begin to distinguish between investment, which yields long-term economic benefits, and consumption, which satisfies immediate social needs. This double challenge, to shift public discourse about the budget from whether it balances to how it balances and to shift public spending from consumption toward productive investments, is an inherently political one.

I recently introduced a Concurrent Resolution on the Budget aimed at addressing this double challenge head-on. This “investment budget” seeks to achieve three major goals. First, it establishes moderate budgetary growth and sustained investments in capital expenditures associated with future productivity. Second, it incorporates a new structure for the budget process that more clearly identifies investments and enforces the budgetary goals we set for these investments in the future. Third, this investment budget meets the current year’s caps on discretionary spending and reaches balance by the year 2002.

In order to meet these objectives, the investment budget contains much-needed changes in entitlement programs, curbs the growth of other noninvestment discretionary programs, and postpones any tax cuts until the budget is balanced. Although Congress did not accept my proposal as an alternative to the recent agreement with the administration, it is my hope that Congress will consider this a first step in reversing the dramatic decline in investments that we have witnessed over the past decade (see Figure 1).

The case for investments rests on the long-recognized strong relationship between public investments and economic growth. Growth in GDP is due to growth in the size of the labor force, which is entirely dependent on demographics, or to growth in productivity, which is strongly influenced by investments in technology, capital infrastructure, and human resources. That is, productivity depends directly on the availability of private capital stock, workforce skill and training, and the rate at which technology is improved and applied in the workplace.

Generally, there are three major categories of public spending that can be considered productivity-related investments: R&D, capital infrastructure such as transportation systems, and education and training. The investment budget is intended to specifically identify these as investments throughout the budget process and to set long-term spending targets for them that link them more directly to the desired economic growth.

The overall goal for R&D spending in this budget is to keep pace with the growth in GDP. The investment budget assumes a direct and linear relationship in which increases in economic growth depend partially on the rate of technological growth. Thus, I propose that federal R&D spending increase 5 percent per year (see Table 1).

The goal for physical infrastructure funding is to achieve productivity gains over the near term by improving surface, water, and air transportation systems and enhancing their efficiency. This is accomplished by increasing discretionary spending to a level that can be sustained by the existing trust fund revenues. Despite an ambitious funding profile, this still falls short of what many consider to be the needs of our decaying transportation system, but it is optimized with respect to the current tax system.

The third critical element relates to human resources. Aggressive education and training programs will ensure that all Americans can participate in and benefit from these productivity gains. The goal is to narrow the income gap and to produce a workforce that can be integrated into the overall growth in the economy that technology and transportation investments will bring.

In the aggregate, the investment budget identifies $910 billion in public investments over the five-year period ending in 2002. This exceeds the president’s request for these investments by over $70 billion.

A process for change

In order to fully address the investment problem, however, it is not enough to simply propose higher spending levels in the future. It is also necessary to fix the budget process in a manner that distinguishes investments from consumption and enforces targets for these two categories of spending. This would provide a remedy to an irrationality in the budget process, in which the differing outlay rate of investment and consumption programs is specified but no effort is made to take the differing economic effects of these two very different types of expenditures into account.

There are two reasons for this apparent irrationality. First, the president’s budget does not specifically identify investments in a manner that can be addressed in the congressional budget process. Second, the present structure of the congressional budget process for allocating discretionary resources is strongly influenced by the Cold War concern for maintaining a strong defense.

Thus, Congress has acted to construct a budgetary firewall between defense and nondefense discretionary expenditures. The decisionmaking process then takes place in two separate vacuums. Funding for advanced defense technologies is pitted against funding for troop readiness, funding to advance new cutting-edge civil technologies is pitted against new prisons, the space program is pitted against veterans, and so on.

The investment budget includes a feature that requires that the defense-civilian firewall be replaced by a wall between investments and noninvestments. That is, once the allocations required by the budget act are made, funding cannot be transferred from investments to noninvestments in any appropriations bill.

In summary, the passage of the Omnibus Reconciliation Act of 1990, together with the more recent pressure to eliminate the deficit in 2002, have defined an equation for R&D funding that has been effectively bounded both in the near term and in the long term. No matter how compelling the case for science as a public good, the budget process and structure have been institutionalized in such a way that such arguments are nearly irrelevant.

The challenge is not simply to gain more money for R&D but also to construct a new system of budgetary choices. R&D, as a component of our national investment portfolio, has much in common with other public expenditures such as transportation and education. Almost by definition, expenditures that have long-term payoffs will always be perceived as less urgent and compelling. Yet the true measure of a healthy economy is not that the federal deficit be zero but that there be sustained growth in productivity and broader economic opportunity for our citizens. Such growth will occur only through prudent investments. The investment budget can play a valuable role in focusing on this crucial issue.

I was not surprised when my budget was not immediately embraced by my congressional colleagues. But I believe that it is time to engage in a broader debate about the budgeting process and priority setting in the federal government. I encourage the science community, newly confident from recent political successes, to take on the task of educating the public and public policy leaders about the importance of science, yes, but also about the importance of protecting investments more broadly conceived. This requires that the community develop a different notion of what they are fighting for and move from simply trying to defend their turf to helping Congress redefine the terrain itself. Even though the investment budget failed this year, the debate deserves to continue and, as with most issues in politics, there is always next year.