The Fiscal Cliff and MIT Research – Effects of

Sequestration on Federal R&D

Claude R. Canizares

MIT Vice President for Research & Associate Provost

William B. Bonvillian, Amanda Arnold MIT Washington Office

MIT Alumni Association Webinar

December 7, 2012

The 5 Topics in this presentation: • Claude Canizares

– Overall federal R&D trends – Trends in MIT R&D funding – The “Sequestration/Fiscal Cliff”

and MIT Research • Bill Bonvillian

– The “Sequestration/Fiscal Cliff” and overall Federal R&D

– The Budget Deficit backdrop for this problem – long and short term

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FY 2012 Research Results

• Campus (on/off) Research Volume: $ 681 M

• Lincoln Lab Research Volume: $ 846 M

• Consolidated MIT Research Volume: $1,527 M

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MIT Research Funding by Type of Sponsor:

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Sequestration • Mandated by Budget Control Act of 2011 unless changed or rescinded

by Congress in lame-duck session • On Jan 2, 2013, will cut discretionary budgets by ~10% (Defense) or

~8% (non-Defense) • Last three quarters will absorb full federal FY reductions • Law requires cuts to be applied across the board, with few exceptions • OMB/Agencies have provided no details OMB Bulletin 12-02, 9/28/12: “…Unless and until the Bulletin is amended, however, agencies should continue normal spending and operations….” • Assume all current FY13 awards will be cut 9.4% or 8.2% (per OMB) • New award delays or cancellations and few no-cost extensions • Sequestration will continue stagnation/cuts for ten years • Any compromise will likely include at least partial “hair-cut”

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Some Mitigating Considerations for MIT

• Federal funding still dominates campus research at ~70% • Industry funding increasing but only ~15% • Proposal submissions by MIT researchers at an all-time

high • Federal (non-ARRA) R&D volume grew 8.7% from

MITFY10-MITFY12 (during period of stagnating federal budgets)

• Current award obligations = $423M, compared to total of $441M non-ARRA expenditures in MIT FY13

• Some on-going federal awards not subject to sequestration (funded by higher federal FY12 appropriations)

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Rough FY13 Sequestration Projections

• Assume flat non-ARRA funding (overall and agency by agency)

• Assume ARRA falls 50% • Assume cuts applied across all awards

including all current obligations • Assume ¾ of reduction in MITFY13

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Rough Projections for MITFY13 Agency FY12 FY12

ARRA FY13 Nominal

Federal FY 13 Sequester

MITFY13 proj

DOD 117.5 0.0 117.5 11.0 109.2 DOE 90.9 15.3 83.3 6.8 78.1 NASA 30.2 0.2 30.1 2.5 28.2 NIH 133.7 9.1 129.2 10.6 121.2 NSF 81.5 6.2 78.4 6.4 73.6 Other 18.8 0.5 18.6 1.5 17.4 TOTAL 472.6 31.3 457.0 37.5 428.8

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Expect full ~$35-40M reduction in FY14 and beyond for decade of sequestration

Amounts in $M

And - R&D Overall Now Faces Sequestration:

Overall R&D faces automatic sequestration (cut) of $1.2 Trillion – split evenly between defense and domestic spending –

– $500B cut from domestic discretionary funding

– $500B cut from defense discretionary funding

– This means an 8.2% across the board Domestic Discretionary spending cut and a 9.4% Defense Discretionary spending cut.

Cuts to take effect on Jan 2, 2013 – affect FY13; then a decade of cuts/stagnation from 2013-2023

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Congress: Appropriations, Tax, Debt, Sequestration Crisis on 1/2/13:

• No Appropriations bills have yet passed both Houses of Congress – a continuing resolution will continue the gov’t at FY12 levels until March 29, 2013 – but it doesn’t change sequestration, and agencies are now building reserves for sequestration

• The Bush era tax cuts expire this year; with no AMT extender middle class has a 20% tax hike; & the gov’t must have a debt ceiling extension.

• Economists: this = new recession • Sequestration automatically goes into effect unless

Congress changes the law before Jan, 2nd • The Prospect: “The Lame Duck Session From Hell!”

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1.2%-7.4%

-1.5%-1.5%

0.0%0.2%

1.4%2.2%2.4%

4.6%7.6%

9.3%9.6%

12.1%16.2%17.0%

31.7%18.1%

-10% 0% 10% 20% 30% 40%

TOTALDOD S&T

DOD OtherUSDA

NIHVA

EPANASA

DOE ScienceNSF

USGSOther HHS

DOE DefenseNOAA

DOE EnergyDOTDHSNIST

R&D in the FY 2013 Budgetpercent change from FY 2012

Source: OMB R&D data, agency budget justifications, and other agency documents.© 2012 AAAS

DOD "S&T" = DOD R&D in "6.1" through "6.3" categories

R&D Funding in the President’s Proposed FY 2013 Budget

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-7.8%-17.4%

-11.5%-9.5%

-8.0%0.2%

-6.6%-5.8%-5.6%

-3.4%-0.4%

1.3%-0.4%

4.1%8.2%9.0%

23.7%10.1%

-20% -10% 0% 10% 20% 30%

TOTALDOD S&T

DOD OtherUSDA

NIHVA

EPANASA

DOE ScienceNSF

USGSOther HHS

DOE DefenseNOAA

DOE EnergyDOTDHSNIST

R&D in the FY 2013 Budget + Sequester?percent change from FY 2012

Source: AAAS estimates based on OMB R&D data, agency budget justifications, and the Budget Control Act.© 2012 AAAS

DOD "S&T" = DOD R&D in "6.1" through "6.3" categories

Proposed Budget MINUS Sequestration – this unglues the bipartisan agreement on R&D support of the past 5 years

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Non-Defense R&D/Sequestration:

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Research faces a short-term budget problem

under the sequestration process,

and

a longer term budget

problem. 16

17 Re: Shorter Term Effects:

Source: 2011 OMB Data

Re: Shorter Term – Federal Outlays to Revenues as Percent of GDP:

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------------------------------------------------------------------------------------ <-Historical Federal Revenue/GDP Level

Re: Shorter Term - Deficit Causes: Debt as % of GDP, 2001-2019

Tax Cuts

Wars

Economic Downturn

ARRA

2001 2019

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Projected Federal Spending Longer Term – Role of Entitlements

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Longer Term: Medicare/Medicaid as a Future Factor in Federal Spending

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(Medicare Medicaid)

Longer Term - Fed Spending Factors:

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Sequestration and Other Budget Cuts In a Competitive Context

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

National R&D Investmentpercent of GDP

South Korea

Japan

U.S.

Taiwan

EU-27

China

Source: OECD, Main Science and Technology Indicators, April 2011.2009 data for South Korea is not yet available.© 2012 AAAS

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Closing… • Sequestration creates a major short term

challenge for federal R&D support • BUT: there is a long-term budget problem

•And discretionary spending is the easiest target

•Taxes and entitlements have major political constituencies

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What Can I do? A Call to Advocacy • Speak Out to Washington:

• Write your Congressman. We will provide a draft to get you started.

• Talk to you Community: • We will provide a sample Letter to the Editor that you

can customize and send to your local papers

• Support similar efforts: • Help gather signatures for the student Sign the Stand

With Science petition effort: http://standwithscience.org/theletter/ SWS is an MIT spin out organization helping students advocate for science research funding.

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MIT Legislative Advocacy Network (LAN)

A policy advocacy network that empowers and educates interested MIT alumni (“information army”) to contact their United States federal legislators, with guidance from MIT, in support of public policy of importance to MIT, the science and technology community, and the broader society.

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MIT Legislative Advocacy Network (LAN)

• MIT regularly contacts federal legislators to express opinions on a variety of topics.

• Policy advocacy network is a voluntary, opt-in network for alumni interested in science policy.

• Network participants will be contacted approximately quarterly by the Washington Office to advocate for specific policies.

• Network volunteers are not obligated to advocate for any specific policy positions.

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What should I do next?

• Join the LAN https://alum.mit.edu/lansignup

• What do I get from the Network? – Network Toolkit – NEWScience Policy weekly updates – Quarterly “Calls to Advocacy” – Policy webinars

• Call to Advocacy – Look for a communication

from the LAN on December 12.

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Charge from Past President Hockfield

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“[Congress] would be much aided hearing from the MIT alumni in a single voice to articulate the important role for federal funding of basic research and development as the foundation of America’s economy.”

President Susan Hockfield Technology Day Address June 4, 2011

Liv Gold

THANK YOU

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Join the LAN

https://alum.mit.edu/lansignup

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