Research and Development Patterns by Sector


Federal Research and Development

R&D accounts for only a small portion-roughly 5 percent-of the total Federal budget. Yet trends in Federal R&D support-like overall Federal spending-reflect shifting national priorities. These changes are easily detected by examining the most recent data on Federal R&D obligations. They reflect the Nation's growing emphasis on deficit reduction and a shift in the balance between defense and domestic programs. For example, the level of total Federal R&D obligations in 1995 was actually lower, in real terms, than in 1990. Almost all of this decline is attributable to cutbacks in defense-related programs made possible by the virtual cessation of Cold War hostilities. At the same time, the reduction in defense-related R&D was somewhat counterbalanced by an increase in Federal support for civilian R&D programs, including those aimed at improving diagnosis and treatment of disease, cleaning up the environment, and enhancing technological competitiveness and economic prosperity.

Although Federal R&D financing has traditionally received strong bipartisan support, there are some definite signs that it has become more politicized in recent years. There are clear differences in emphases and priorities. For example, the major political parties are not in tune with each other on the role of the Government in supporting technology development. This disagreement has been brought sharply into focus with the 1994 election of the first Republican Congress in 40 years. The congressional turnover-combined with a Democratic Administration committed to a role for the Federal Government in civilian technology development-has set the stage for this difference of opinion to be thrashed out in the political arena.

It is impossible to know at this time what the final resolution will be. Therefore, the following sections cover recent, not future, trends in Federal R&D obligations.

Patterns of Federal R&D Support

Although 25 Federal departments and agencies fund R&D, 7 account for the vast majority (95 percent) of Government R&D support. (See figure 4-12.) Each of these seven agencies had an R&D budget exceeding $1 billion in FY 1995. In descending order, these agencies are: DOD ($34.9 billion in FY 1995); HHS ($11.5 billion); NASA ($8.6 billion); DOE ($6.4 billion); NSF ($2.2 billion); USDA ($1.4 billion); and the Department of Commerce (DOC) ($1.2 billion). DOC is a recent addition to this list of the largest Federal R&D agencies. (See appendix table 4-17.)

The decline in total Federal R&D support during the 1990s is almost entirely attributable to cutbacks at DOD. DOD R&D support fell in both current and constant dollars in 5 of the past 6 years. DOD accounted for about half of all Federal R&D obligations in FY 1995, down from nearly two-thirds of the total in 1986, at the height of the Reagan Administration defense buildup. (See figure 4-13.) Defense-related R&D programs financed by DOE were also curtailed during the early 1990s, causing the DOE R&D budget to shrink slightly in real terms during the first half of the decade.

The curtailment of defense-related R&D programs was somewhat counterbalanced by R&D funding gains at other agencies. For example, HHS R&D obligations registered an estimated 3.5-percent average annual real increase between 1990 and 1995. This agency, which is a distant second to DOD in terms of total R&D support, increased its share of the Federal R&D budget from 11 percent in 1986 to 17 percent in 1995. This growth reflects the mission interests of the National Institutes of Health (NIH). NIH accounts for 95 percent of HHS R&D obligations. In addition, two other agencies-NASA and NSF-each had comparable annual average increases of 2.7 percent during the period.

Among all R&D-funding agencies, the Commerce Department experienced the largest percentage increases in R&D support during the late 1980s and early 1990s, although its R&D budget is still relatively small compared with those of the other major R&D agencies. This agency's R&D obligations increased threefold between FY 1988 and 1995. Nearly all of this gain is attributable to the funding of projects awarded under the National Institute of Standards and Technology's (NIST) Advanced Technology Program (ATP), which is currently being re-examined.21

Funding of the USDA's R&D programs has been fairly stable in real terms during the 1990s. The National Research Initiative, a merit-reviewed competitive grants program started in FY 1991 to support research in natural resources, the environment, nutrition, and food health and safety, now has a budget exceeding $100 million.

Two other agencies with relatively small R&D programs-the Department of Transportation (DOT) and the Environmental Protection Agency (EPA)-experienced sizable gains in R&D obligations in the early 1990s, averaging 11 percent and 5 percent per year, respectively, in real terms between 1990 and 1995. The expansion of R&D programs funded by these agencies reflects the current emphasis on R&D related to environmental protection and transportation advancements in the areas of fuel efficiency and emissions, including the Partnership for a New Generation Vehicle, or "clean car" initiative.

Federal Research and Development Support by Character of Work

Federal obligations for basic research, applied research, and development were an estimated $14.2 billion, $14.0 billion, and $41.2 billion, respectively, in FY 1995. (See appendix table 4-17.) Among these three items in the Federal R&D budget, applied research is estimated to have registered the largest absolute ($3.5 billion) and percentage (34 percent) gains in the first half of the 1990s.

Basic Research

Government funding of basic research has always received strong bipartisan support. Five agencies obligate more than $1 billion annually for basic research; these five agencies also account for 9 out of every 10 Federal dollars spent on basic research. HHS is by far the largest supporter of basic research. This agency's FY 1995 obligations, an estimated $6.2 billion, were more than triple NSF's, which ranks second ($2.0 billion). The other leading supporters of basic research are NASA ($1.8 billion); DOE ($1.7 billion); and DOD ($1.2 billion).

During the 1980s, Federal basic research obligations more than doubled, increasing from $4.7 billion in FY 1980 to $11.3 billion in FY 1990. Basic research support continued to increase during the 1990s, but at a much reduced rate-1.8 percent per year in constant dollars, compared with 4 percent during the previous decade. Among the five leading supporters of basic research, HHS registered the largest absolute and percentage gains, the latter averaging 3.2 percent per year during the 1990s, followed by DOD and NSF, with average annual increases of 2.7 percent and 2.3 percent, respectively. NASA and DOE, which registered the highest growth rates in basic research obligations among the five agencies in the late 1980s, had slight reductions in the 1990s, averaging 1.0 percent and 0.8 percent, respectively.

Applied Research

Federal funding sources for applied research are somewhat less concentrated than those for basic research dollars; i.e., four agencies (NSF drops out of the group) obligate more than $1 billion annually for applied research; those four agencies account for approximately two-thirds of all applied research obligations.

HHS is the leading supporter of applied research, with an estimated $3.1 billion in obligations in FY 1995. (A large portion of these monies support research related to the treatment of various diseases, including cancer and acquired immune deficiency syndrome [AIDS].) DOD is second ($2.7 billion), followed by NASA ($1.7 billion), and DOE ($1.6 billion). HHS recorded a slightly above average increase in applied research obligations in the 1990s, and NASA had a somewhat below average gain. Although both DOD and DOE recorded healthy increases in applied research obligations in the early 1990s, a turnaround is expected in subsequent years. DOD FY 1995 obligations are estimated to be 18 percent lower in real terms than FY 1993 obligations, and DOE's are expected to be down 5 percent between 1992 and 1995.


DOD is the source of approximately three-fourths of all Federal money spent on development. In FY 1995, DOD obligations for development were an estimated $30.7 billion. DOD development obligations have been falling almost continuously in real terms since FY 1989, the year they were at a peak level of nearly $34 billion.

The other Federal agencies that obligate more than $1 billion annually for development are NASA ($3.9 billion in FY 1995); DOE ($2.7 billion); and HHS ($1.6 billion). All of these agencies realized real gains in development obligations between FY 1993 and FY 1995, ranging from about 1 percent for DOE to 12 percent for HHS. The DOE gain partially offset a decline that the agency suffered between 1990 and 1992.

Research and Development Agency-Performer Patterns

Most Federal R&D funds are actually spent in other sectors of the economy. R&D funding relationships between supporting agencies and performing sectors are well established and tend to be fairly stable over time. (See appendix tables 4-18 and 4-19 and text table 4-6.) For example,

Most Federal basic research dollars are spent at universities and colleges; this sector receives most of its basic research support from HHS (52 percent in FY 1995) and NSF (22 percent). Federal obligations for basic research conducted by private firms are concentrated in the research budgets of NASA (43 percent), HHS (23 percent), and DOD (14 percent). Federal in-house work on basic research programs is distributed among several agencies, with the largest portions conducted by HHS (37 percent), NASA (18 percent), and USDA (16 percent).

Fields of Science and Engineering Research

Among fields receiving Federal research support, life sciences garner the largest share of both basic and applied research obligations. (See appendix table 4-21.)

An estimated $6.9 billion was obligated for basic research in the life sciences (which includes the biological, medical, and agricultural subfields) in FY 1995, nearly half the basic research total of $14.2 billion. This support has grown steadily since the early 1980s, although the rate of increase slowed considerably during the mid-1990s, consistent with the growth pattern for all of HHS, the major funding agency for life sciences. (See figure 4-14 and appendix tables 4-22 and 4-23.)

DOE provides most of the funding for basic research in the physical sciences, which accounted for an estimated 20 percent of all basic research obligations in 1995. Support for research in this field has been falling since 1991. Almost all of the decrease occurred in the physics subfield, where funding for the Superconducting Super Collider was eliminated in an effort to reduce the Federal deficit.

Life sciences received the largest applied research funding support-an estimated $4.7 billion in FY 1995, 34 percent of the total. Engineering was close behind with $4.3 billion in obligations, 31 percent of the total. All fields-except the social sciences-registered real gains between FY 1990 and FY 1993; mathematics and computer sciences outpaced the others, with an average annual increase of 14.4 percent. Gains in the other fields ranged from 6.5 percent in the physical sciences and engineering to 2.9 percent in the environmental sciences during that period. Between FY 1993 and FY 1995, however, all fields except the mathematical and computer sciences are expected to have rates of change below or close to zero. (See appendix table 4-23.)

Cross-Cutting Research and Development Initiatives

The current Administration, through its National Science and Technology Council, has articulated the following goals for U.S. S&T programs (Clinton and Gore, 1994):

These goals currently serve as guideposts for setting S&T priorities, along with additional policy directives that emphasize the importance of peer review, cost-shared partnerships, human resources development, international cooperation, and environmental objectives in awarding funding for S&T programs.

The previous Administration adopted-and the current Administration has continued to use-a new approach to planning, budgeting, and coordinating Federal support for S&T. In the President's annual budget, several S&T programs are singled out for special attention because they (1) have been deemed vitally important to the country's future growth and prosperity and (2) involve multiagency and multidiscipline collaboration and support; hence, they are usually referred to as cross-cutting initiatives. Each of these cost-sharing partnerships involves not only the participation and financial support of several Federal agencies, but also private sector participation.

In its most recent budget proposal, the Clinton Administration included funding that amounted to a total of $7.8 billion for six cross-cutting initiatives:

The largest of these initiatives in terms of the dollar support is the Environment and Natural Resources program (this program is primarily, but not exclusively, for R&D). Twelve agencies are expected to contribute a total of $5.3 billion in FY 1996; $2.2 billion of those funds will support the U.S. Global Change Research Program.

The other initiative with a proposed budget exceeding $1 billion is the High Performance Computing and Communications program, which has nine agency participants. Its purpose is to secure U.S. leadership in information and communications technologies and to support the National Information Infrastructure initiative.

Congress is deliberating on the appropriate funding levels and priorities for these initiatives. Priority is being placed on basic research as opposed to technology programs.



21 Since 1990, more than $1 billion in public and private funds have been invested in ATP projects. (In addition to the ATP, NIST's Technology Portfolio includes the Manufacturing Extension Partnership, laboratory research and services, and the Baldrige National Quality Program.) Similar to DOD's Technology Reinvestment Project (see section on Defense-Related R&D), ATP was designed to spur the formation of partnerships between industry and the government to develop and exploit high-risk, enabling technologies. Key terms associated with the ATP are industry-driven and cost-shared; i.e., R&D priorities for the program are established by industry, not the Government, and firms seeking ATP support must provide a portion of, and in the case of multifirm projects, at least half the financing.