    [Analytical Perspectives]
    [Special Analyses and Presentations]
    [8. Research and Development]
    [From the U.S. Government Publishing Office, www.gpo.gov]

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                           8. RESEARCH AND DEVELOPMENT

                                I.   INTRODUCTION

      Technological innovation and scientific discovery generated much of
    the Nation's economic growth over the last 50 years, creating millions
    of jobs, and improving the quality of life. For example, about two-
    thirds of the 80 percent gain in economic productivity since 1995 can be
    attributed to information technology. This innovation and discovery was
    possible because of both public and private investment in research and
    development (R&D).
      The United States' investment in R&D is unparalleled. Our country's
    investment in R&D plays a major role in the state of the world's science
    and technology. Not only does the U.S. continue to lead the world in
    total R&D spending, but, as the most recent data indicate in the
    accompanying figure, U.S. R&D expenditures--combining private and
    public--exceed those of the rest of the G-7 countries combined.
      The Nation's investments in innovation and discovery are also vital to
    strengthening our capabilities to combat terrorism and defend our
    country. The President's 2003 Budget focuses on winning the war against
    terrorism and securing the homeland, while moderating the growth in
    overall spending. These priorities have affected the way R&D is being
    funded and directed, as well as the way the results of R&D are being
    used. Within the federal government's research portfolio, agencies have
    been directing many of their programs to assist in the defense effort.
    For example, one focus of R&D at the Department of Defense (DOD) is to
    improve detection of biological and chemical threats; the National
    Institutes of Health (NIH) is financing and conducting research to
    discover new disease treatments; and the Department of Transportation
    (DOT) is performing R&D to improve aviation security technology.
    Investments today in R&D will translate into the new capabilities for
    tomorrow for detecting threats to our security, defending ourselves
    against them, and responding to emergencies should they arise.

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      If adopted, this budget will provide the highest level of funding for
    R&D in history, but the focus should not be on how much we are spending,
    but rather on what we are getting for our investment. Our current
    priorities also call for redoubling our efforts to meet the President's
    charge that we improve the management, performance, and results of the
    federal government. A dedicated effort to improve the overall quality of
    the total investment in R&D by strengthening effective programs and
    fixing lower performers through reforms or reallocations will increase
    the productivity of the federal R&D portfolio and transcend the all-too-
    common attention given to year-to-year marginal increases or decreases.
    Additionally, while it can be difficult to assess the outcomes of some
    research programs--many of which may not have a measurable effect for
    decades--it is important to establish meaningful goals for them and to
    measure annual progress toward them and performance in appropriate ways.
    Towards that end, the Administration is developing investment criteria
    for R&D programs across the government. Finally, the government must
    coordinate interrelated and complementary R&D efforts among agencies,
    combining programs where appropriate to improve effectiveness and
    eliminating redundant programs, to leverage these resources to the
    greatest effect.
      The federal government has multiple roles in achieving these goals.
    The government should be strong in its support of basic research, as it
    is the source of tomorrow's discoveries and new capabilities, and it
    will fuel further gains in economic productivity, quality of life, and
    national security. The government should also support those areas of
    applied research and development critical to the missions of the federal
    agencies, particularly in priority areas that private sources are not
    motivated to support. If the private sector cannot profit from the
    development of a particular technology, federal funding may be
    appropriate if the technology in question addresses a National priority
    or otherwise provides societal benefits. Finally, the federal government
    should help stimulate private investment and provide the proper
    incentives for private sources to continue to fuel the discovery and
    innovation of tomorrow. The Administration plans to do this through the
    permanent extension of the Research and Experimentation tax credit.
      To these ends, this chapter discusses how the Administration will
    improve the performance of R&D programs through new investment
    principles and other means that encourage and reinforce quality
    research. The chapter also highlights the priority areas proposed for
    R&D agencies and the coordinated efforts among them. The chapter
    concludes with details of R&D funding data across the federal
    government.

                   II.   IMPROVING PERFORMANCE OF R&D PROGRAMS

      R&D is critically important for keeping our Nation economically
    competitive. It will help solve the challenges we face in health,
    defense, energy, and the environment. As a result, and consistent with
    the Government Performance and Results Act, every federal R&D dollar
    must be invested as effectively as possible.

                            R&D Investment Principles

      The Administration is improving the effectiveness of the federal
    government's investments in R&D by subjecting investment decisions to
    transparent investment criteria. R&D requires special consideration in
    the context of performance assessment, as many R&D outcomes--especially
    those of basic research--may not be obvious for years or decades.
    Nevertheless, the government must improve its basis for deciding among
    R&D investments, including applying specific criteria that projects must
    meet and clear milestones for measuring performance.

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    ------------------------------------------------------------------------

      The Department of Energy (DOE) R&D Performance Pilot: As announced in
     the President's Management Agenda, the Administration developed
     investment criteria using DOE's applied energy R&D programs as a pilot.
     These are the Fossil Energy, Nuclear Science and Technology, and Energy
     Efficiency and Renewable Energy programs. The Administration is using
     the R&D criteria to recommend funding levels for the Department's
     applied R&D programs that support the President's National Energy
     Policy report.

      In the first year of the pilot project, application of the criteria
     indicated that data on the expected performance of many R&D projects
     are not readily available. For instance, using one energy-based metric,
     some of 19 Fossil Energy R&D programs failed to report any performance
     data at all, and those that did tended to report goals rather than the
     current cost performance of technologies under development. The
     Department, in conjunction with the Office of Management and Budget, is
     working to improve these performance metrics and data. DOE will improve
     the grading method to distinguish among programs more effectively. In
     this first year, about 80 percent of the criteria graded by DOE
     achieved a maximum score.

      Despite these initial problems, the criteria provided enough guidance
     to determine some opportunities for redirecting funds. In the fossil
     energy program, research to control greenhouse gases was increased,
     since there is little incentive for private investment in this area.
     Conversely, areas such as oil drilling technology, where the industry
     has the financing and incentive to do its own research, are funded at
     lower levels. Within DOE's renewable energy portfolio, wind power
     research will shift focus from technologies for high wind-speed areas
     to cost-effective technologies for low wind-speed areas, which are
     further from commercial viability and show great promise for greatly
     expanding the land area that can be used to capture this renewable
     energy resource. DOE will continue to work to integrate the R&D
     criteria more meaningfully into their budget formulation process in the
     coming year.

    ------------------------------------------------------------------------
      Based on lessons learned from the DOE pilot project and other inputs
    from experts and stakeholders, the Administration will develop R&D
    investment criteria to assist with budget allocation decisions at major
    R&D agencies starting in the 2004 budget process. While the specific
    criteria to be used in 2004 are still under development, several
    fundamental principles motivate and will guide them, including:
         Federal R&D priorities should be consistent with priorities
              identified by the President.
         Federal R&D programs should focus on activities that
              require a federal presence to attain national goals. To avoid
              public funds displacing private investment, federally funded
              R&D should focus primarily on areas where the private sector
              cannot capture the benefits of the R&D.
         Programs and proposals should have thorough plans for the
              research, with clear goals and planned end points or off-
              ramps, when appropriate.
         To maximize the quality of the research process and the
              efficiency of the public investment, research programs should
              use a competitive, merit-based process where appropriate.
              Exceptions must be well justified.
         Agencies and programs judged to be outstanding in
              conducting, awarding, and managing R&D should be identified
              and supported.
         Less successful programs should follow successful models to
              achieve improvements, or they should be reduced or moved to
              agencies where they can be managed more effectively.
        Resources for new R&D priorities will be increased by
              reducing or eliminating the funding for programs that have
              completed their mission or that are redundant or obsolete.
      The Administration recognizes that researcher time is best spent on
    research and that added administrative burden for researchers is
    counterproductive. During the development and implementation of the
    investment criteria, the Administration will take the necessary steps to
    minimize their administrative burden and maximize their utility.
      The Administration has been studying management strategies for R&D
    that some agencies use to promote particularly effective programs. OMB
    and the Office of Science and Technology Policy (OSTP) are developing a
    common analytical framework to assess the strengths and weaknesses of
    R&D programs across agencies, in order to identify and apply good R&D
    management practices across the government. For example, some agencies
    have more deliberate prioritization process, while other agencies have
    more experience estimating the returns of R&D and assessing the impact
    after the fact. The process of developing this framework will be
    iterative, involving the research agencies and the science and
    technology community.
      Due to the distinct goals and methods of basic research versus applied
    research and development, separate criteria are being developed. The
    Office of Science and Technology Policy (OSTP), OMB, and the federal
    agencies will work with the science and technology community to define
    helpful criteria and implement them effectively in preparation of the
    2004 budget.
      Using some of the principles identified above, the President's Budget
    begins to improve the performance of research programs across the
    government.

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      As an example of improving a program, the Administration is reforming
    the Department of Education's Office of Educational Research and
    Improvement (OERI) by implementing a more rigorous grant solicitation
    and peer review process. The Department is also developing a
    reauthorization proposal for OERI that should allow it to improve the
    quality, objectivity, coordination, and focus of the Department's
    research activities.
      The budget transfers some R&D programs between agencies. For example,
    the transfer of the U.S. Geological Survey's Toxic Substances Hydrology
    program and the National Oceanic and Atmospheric Administration's Sea
    Grant program to NSF's more competitive, peer-review award process will
    improve the scientific rigor of the research. The peer review process
    allows the assessment of merit by other experts in the field, while
    competition ensures that the grants ultimately awarded have demonstrated
    their merit, over other competitive proposals.

                                Research Earmarks

      The Administration supports awarding research funds based on merit
    review through a competitive process. Such a system ensures that the
    best research is supported. Research earmarks--in general the assignment
    of money during the appropriation process for use only by a specific
    organization or project--are counter to the competitive process of
    selection based on merit. The use of earmarks improperly signals to
    potential investigators that there is an alternative to creating quality
    research proposals for merit-based consideration, including the use of
    political influence or by appealing to parochial interests.

      Moreover, the practice of earmarking funds directly to colleges and
    universities for specific research projects has expanded dramatically in
    recent years. Despite broad-based support for merit review, earmarks for
    specific projects at colleges and universities have yet again broken
    prior records. According to The Chronicle of Higher Education, academic
    earmarks have steadily increased from a level of $296 million in 1996 to
    an estimated $1.67 billion in 2001. In 2001 alone, earmarked funds to
    colleges and universities increased nearly 60 percent (see figure).
    These funds represent an increasing share of the total federal funding
    to colleges and universities, which increasingly displaces competitive
    research, awarded by merit. For example, in 1996, academic earmarks
    accounted for 2.5 percent of all federal funding to colleges and
    universities. By 2001, the earmarked share of federal academic funding
    had increased to a high of 9.4 percent. While comparable figures for
    2002 are not yet available, the assessment of research allocation in
    Table 8-5 at the

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    end of this chapter suggests that this trend has continued to grow for
    non-defense agencies in 2002.
      Some argue that earmarks help spread the research money to the states
    that would receive less research funding through other means. However,
    The Chronicle of Higher Education reports that this is not the main role
    they play. In 1999, for example, only a small share of academic earmark
    funding went to the states with the smallest shares of federal research
    funds. In fact, the 25 states with the largest shares of federal
    research dollars also received 74 percent of the earmark funding to
    colleges and universities. Meanwhile, earmarks help some rich
    institutions become richer. In 1999, 13 of the 25 institutions receiving
    the most earmarks were also members of the top 100 for total research
    funds. Table 8-7 provides a list of the 30 colleges and universities
    that received the most earmarked funding in 2001, according to The
    Chronicle of Higher Education (results for 2002 are not available at
    this time).
      There is a tendency to confuse a high budget number appropriated for
    an agency with a good outcome for the agency, but this is often not the
    case. Often, earmarks drive these increases. Worse yet, the flood of
    earmarks within that level displaces important competitive programs that
    have to be deferred or terminated. For example, in 2002 appropriations,
    earmarked funding for constructing a low priority propulsion lab at the
    National Aeronautics and Space Administration (NASA) was paid for by
    cutting the very research that the lab is to support.
      Earmarks for research facilities can come at the cost of operations or
    research at those facilities. For example, earmarks in DOE's Office of
    Science increased 60 percent from 2001 to 2002. As a result, DOE has
    only the resources to operate its scientific user facilities at
    approximately 75 percent of the optimally available hours. Had these
    funds been allocated to facility operations as needed, a broader segment
    of the research community could have benefited, and the return on the
    federal investment in these facilities would have been higher.
      Some proponents of earmarking assert that earmarks provide a means of
    funding unique projects that would not be recognized by the conventional
    peer-review process. On the contrary, a number of agencies have
    procedures and programs to reward out-of-the-box thinking in the
    research they award. For example, DOD's Defense Advanced Research
    Projects Agency seeks out high risk, high payoff scientific proposals,
    and NSF program managers set aside a share of funding for higher-risk
    projects in which they see high potential.
      Many earmarks have little to do with an agency's mission. For example,
    Congress earmarked DOD's 2002 budget to fund research on a wide range of
    diseases, including breast cancer, ovarian cancer, prostate cancer,
    diabetes, and osteoporosis. Funding at DOD for such research totals over
    $600 million in that year alone. While research on these diseases is
    very important, it is not unique to the U.S. military and can be carried
    out and coordinated better within civil medical research agencies,
    without disruption to the military mission.
      The Administration is working with the scientific community to
    discourage the practice of research earmarks. Academic organizations,
    such as the Association of American Universities, and colleges and
    universities, including Massachusetts Institute of Technology and
    Washington University in St. Louis, have stated that they share the
    Administration's preference for merit review and recognize the problems
    with academic earmarks. The Administration will continue to work with
    such organizations and universities and the Congress to achieve our
    common objectives.

              III. PRIORITIES FOR FEDERAL RESEARCH AND DEVELOPMENT

      The 2003 budget requests record levels for federal R&D ($111.8
    billion, an 8 percent increase, as shown in Table 8-2). The
    Administration recognizes that investments in research--especially in
    basic research--will lead to the discoveries and technologies of
    tomorrow. The 2003 budget includes an emphasis on basic research,
    increasing associated funding across the agencies by $2.0 billion (or 9
    percent).
      In a 1995 report from the National Academy of Sciences, the scientific
    community proposed a ``Federal Science and Technology'' (FS&T) budget.
    Such a compilation highlights activities central to the creation of new
    knowledge and technologies more consistently and accurately than the
    traditional R&D data collection reported in Table 8-2. As shown in Table
    8-3, the 2003 budget requests $57.0 billion for FS&T (a 9 percent
    increase). The resulting FS&T budget is less than half of the total
    federal spending on R&D, though FS&T also includes some funding that is
    not R&D. Discussions of agency efforts in this section include the FS&T
    values from Table 8-3.
      Some in the science community call for greater ``balance'' across
    research agencies and disciplines, at times suggesting that all agencies
    should receive increases similar to those that NIH and other agencies
    have received. However, ``balance'' by that definition makes
    prioritization impossible. Increases in our top-priority research areas
    should logically be greater than increases for other areas. Instead, the
    2003 budget provides funding for top priority areas, while ensuring a
    good mix of basic, applied, and development in many fields of science
    and technology across the federal agencies. The Administration believes
    the focus should not be on how much we are spending, but rather on what
    we are getting for our investment and how well it is being managed.
      Over the past year, OSTP and OMB have worked with the federal agencies
    and the science community to identify top priorities for federal R&D.
    Some are in areas critical to the Nation, such as information
    technologies. Some are in emerging fields, such as nanotechnology, that
    will provide new breakthroughs

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    across many fields. Others, such as anti-terrorism R&D, address newly
    recognized needs. The discussion below identifies four multi-agency
    priority areas, followed by highlights of agency-specific R&D
    priorities.

                           Multi-Agency R&D Priorities

      The 2003 budget targets investments in important research that
    benefits from improved coordination across multiple agencies. Two of
    these multi-agency initiatives--nanotechnology and information
    technology R&D--have separate coordination offices under the auspices of
    NSF to ensure coordinated strategic planning and implementation. Both
    initiatives will be producing integrated plans to describe detailed
    research proposals for 2003. The Administration is in the process of
    forming new organizations and strengthening interagency coordination for
    two priority areas--anti-terrorism and climate change R&D. The
    Administration will continue to consider other areas of critical need
    that could benefit in the future from improved focus and coordination
    among agencies.

      Anti-terrorism R&D: Scientific and technological advances will be used
    to prevent and respond to possible future terrorist activities at home
    and abroad. Potential antiterrorism R&D applications span a wide range,
    including safeguarding the mail, developing new vaccines and air safety
    systems, and creating advanced materials and enhanced building designs.
    Most aspects of our national life are being assessed for vulnerabilities
    to terrorists. Often, the scientific and technological community will be
    asked to devise solutions in cost-effective ways that do not impinge on
    our way of life. Over the next six months, OMB, OSTP, and the Office of
    Homeland Security will be working through the National Science and
    Technology Council (NSTC) to develop a coordinated, interagency R&D plan
    for antiterrorism. This budget identifies many antiterrorism R&D
    priorities (such as rapid detection and verification of biological
    threats). The NSTC plan will chart a comprehensive and integrated course
    for these efforts as well as provide cross-agency budgetary information.
      Networking and Information Technology R&D: The budget provides $1.9
    billion (a 3 percent increase) for the multi-agency Networking and
    Information Technology Research and Development Program (NITRD). By
    coordinating key advanced information technology research efforts, the
    NITRD agencies leverage resources to make broader advances in computing
    and networking than a single agency could attain. For example, the NITRD
    agencies develop and deploy computing platforms and software that
    perform over a trillion computing operations per second, to support
    advanced federal research in the biomedical sciences, earth and space
    sciences, physics, materials science and engineering, and related
    scientific fields. Accomplishments include: development of end-to-end
    optical fiber networking, providing vast improvements in bandwidth and
    network security for research and commercial applications; new
    technologies enabling cluster, or ``grid,'' computing, providing for the
    first time access to high-performance computation for scientific
    researchers nationwide; technologies for network security protection
    such as intrusion detection and risk and vulnerability analyses; and
    technologies for archiving, managing, and using large-scale information
    repositories, or ``digital libraries.'' In 2003, research emphasizes
    include network ``trust'' (security, reliability, and privacy); high-
    assurance software and systems; micro- and embedded sensor technologies;
    revolutionary architectures to reduce the cost, size, and power
    requirements of high end computing platforms; and social and economic
    impacts of information technology.
      Nanotechnology R&D: The budget provides $679 million for the multi-
    agency National Nanotechnology Initiative, a 17 percent increase over
    2002. The initiative focuses on long-term research on the manipulation
    of matter down to the atomic and molecular levels, giving us
    unprecedented building blocks for new classes of devices as small as
    molecules and machines as small as human cells. This research could lead
    to continued improvement in electronics for information technology;
    higher-performance, lower-maintenance materials for defense,
    transportation, space, and environmental applications; and accelerated
    biotechnical applications in medicine, healthcare, and agriculture. In
    2003, the initiative will focus on fundamental nanoscale research
    through investments in investigator-led activities, centers and networks
    of excellence, as well as the supporting infrastructure. Priority areas
    include: research to enable efficient nanoscale manufacturing;
    innovative nanotechnology solutions for detection of and protection from
    biological-chemical-radiological-explosive agents; the education and
    training of a new generation or workers for future industries; and
    partnerships and other policies to enhance industrial participation in
    the nanotechnology revolution. The convergence of nanotechnology with
    information technology, modern biology and social sciences will
    reinvigorate discoveries and innovation in many areas of the economy.
      Climate Change R&D: In June 2001, the President announced that the
    Administration's climate change policy will be science-based, and it
    will encourage research breakthroughs that lead to technological
    innovation. To advance and bring focus to climate change science and
    technology, the President created two new initiatives: the Climate
    Change Research Initiative (CCRI) and the National Climate Change
    Technology Initiative (NCCTI). The Administration committed to funding
    high-priority areas where investments can make a difference. These new
    initiatives will complement ongoing research funded under the U.S.
    Global Change Research Program (USGCRP) and other related technology
    research programs that address climate change.
      The USGCRP has existed for more than a decade, and provides funding at
    nine different agencies for fundamental research on natural and human-
    induced

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    changes in the global environment, with the goal of attaining a more
    complete understanding of global climate change to better respond to the
    challenges it presents. In 2003, this program will continue, with a
    total funding level of $1.7 billion, an increase of 3 percent over the
    2002 enacted level. The 2003 budget will pause the development of
    follow-on NASA satellites, the largest single item in the USGCRP budget,
    consuming more than half of total program funding. NASA will not start
    new satellites until a review of the USGCRP, and its relationship to the
    new CCRI, is complete.
      In addition to increasing funding for USGCRP, the budget requests $40
    million in CCRI, to be shared among five agencies (NOAA, NSF, NASA, DOE,
    and USDA). This investment will begin to focus on answering key gaps in
    knowledge among those recently identified by the National Academy of
    Sciences in a report from 2001: ``Climate Change Science: An Analysis of
    Some Key Questions.'' This includes improving the capability of
    ``integrating scientific knowledge, including its uncertainty, into
    effective decision support systems.'' CCRI will adopt performance
    metrics and deliverable products useful to policymakers in a short time
    frame (2-5 years).

      The NCCTI will build on an existing base of research and development
    in climate change technologies, primarily at DOE, EPA, and USDA. The
    budget requests $40 million for NCCTI within the DOE budget. Specific
    research areas are being identified through an interagency review
    process.

                              Agency R&D Highlights

      Each federal agency conducts R&D in the context of that agency's
    unique mission, structure, and statutory requirements. Below are
    highlights of key R&D programs in selected agencies in the 2003 budget.
    Table 8-3 shows the FS&T budget. As shown in Table 8-2, these programs
    and those of other agencies are part of the larger federal R&D
    portfolio.

      National Institutes of Health: NIH comprises 25 Institutes and Centers
    whose collective mission is to sponsor and conduct biomedical research
    and research training that leads to better health for all Americans.
    While NIH does conduct research in its own laboratories, a majority of
    its funding supports more than 50,000 scientists working in 2,000
    institutions across the United States. With the help of NIH grants,
    these scientists have been making great advances in the detection and
    treatment of diseases. All NIH grants are peer-reviewed and are funded
    based on their scientific merit.
      During the presidential campaign, the President promised to double the
    budget of the NIH by 2003 to $27.3 billion, from the 1998 level of $13.6
    billion. The 2003 budget includes the final installment of $3.9 billion
    needed to fulfill the President's commitment, which will maximize the
    opportunity to expand scientific discovery by increasing the number of
    new research grants funded. With this increase, NIH will further its
    efforts to support research on diseases that affect the lives of all
    Americans. For example, the budget provides $5.5 billion for cancer-
    related research at the National Cancer Institute and other NIH
    Institutes.
      This NIH funding increase will also finance important research needed
    for the war against terrorism. As the country faces new and dangerous
    bioterrorism threats, the NIH will expand research on the effects of
    bioterrorism attacks and develop treatments in the event our Nation is
    ever attacked. The 2003 budget provides $1.75 billion for bioterrorism
    research, including genomic sequencing of dangerous pathogens,
    development of improved anthrax vaccine, and laboratory and research
    facilities construction and upgrades related to bioterrorism and Z-chip
    technology research. With the ability to identify a vast number of
    molecular signatures, the Z-chip can be used on the front line of
    medical response for nearly instant diagnosis of a wide array of
    biothreats or naturally occurring diseases, saving precious time and
    therefore lives in the first hours of a biological attack.

      National Aeronautics and Space Administration: The 2003 budget
    provides $8.8 billion for FS&T programs at NASA, an 8 percent increase
    over 2002. The 2003 budget restructures under-performing programs and
    provides funding to address key issues including establishing a long-
    term strategy for planetary exploration, emphasizing near-term results
    in climate change research, prioritizing research on the International
    Space Station, lowering the cost of access to space, and improving the
    safety and efficiency of the Nation's civil aviation system.
      In Space Science, the 2003 budget of $3.4 billion discontinues NASA's
    Outer Planets program due to substantial cost and schedule growth and
    redirects funding to a revamped New Frontiers program of competitively
    selected planetary missions focused on understanding the origins and
    existence of life beyond Earth. The 2003 budget also supports
    investments in safe and reliable nuclear power and nuclear-electric
    propulsion technologies to enable much faster and more frequent
    planetary investigations with greater science capabilities in this
    decade and the next. The 2003 budget for Earth Science ($1.6 billion)
    supports two important demonstrations--the National Polar-Orbiting
    Operational Environmental Satellite System (NPOESS) Preparatory Project
    and the Jason follow-on--which will measure key variables that are
    needed to provide long-term, climate quality data to understand how the
    Earth's climate is changing. In Biological and Physical Research, the
    2003 budget of $851 million will yield clear priorities for Space
    Station research and invests in space radiation and space biology
    research initiatives that will enable new space platforms through which
    biological and physical research can be pursued.
      The 2003 budget continues planned increases in funding for NASA's
    Space Launch Initiative ($759 million in 2003), a high priority program
    that will lead to safer and lower cost, commercial launch vehicles to
    replace the Space Shuttle. The 2003 budget maintains key in

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    vestments in technologies to improve aircraft safety and to reduce
    congestion in the Nation's civil aviation system ($220 million).

      National Science Foundation: The 2003 budget provides $5.0 billion, a
    5 percent increase, for research at NSF, whose broad mission is to
    promote science and engineering research and education. The budget
    provides: $678 million for NSF's lead role in NITRD, focusing on long-
    term computer science research and applications; $221 million for NSF's
    lead role in the National Nanotechnology Initiative; $15 million for NSF
    participation in the Climate Change Research Initiative--in addition to
    $188 million for USGCRP--for research on climate change risk management,
    understanding the North American carbon cycle, and computer modeling;
    $27 million (a $20 million increase) for NSF basic research programs in
    microbe genome sequencing and the transmission of infectious diseases,
    two research areas of importance in combating bioterrorism.
      Based on NSF's noted expertise and success in funding competitive
    research, the 2003 budget aims to improve the quality of a number of
    science and engineering programs by transferring them to NSF. The budget
    transfers the National Oceanic and Atmospheric Administration's Sea
    Grant program and the United States Geological Survey's toxic substances
    hydrology research program to NSF, where merit-based competition will
    improve overall program effectiveness. These transfers will take
    advantage of NSF's competitive culture and demonstrated quality of
    results.
      The President's goal to improve the quality of math and science
    education in Grades K-12 will be pursued through the President's Math
    and Science Partnerships Initiative, which allows states to join with
    institutions of higher education, particularly math and science
    departments, in strengthening math and science education. The initiative
    provides a mechanism to allow scientists and engineers to be part of the
    solution in improving grades K-12 education. Funding for the programs is
    proposed to increase by $40 million, to $200 million. The budget also
    aims to further attract the most promising U.S. students into graduate
    level science and engineering by increasing graduate stipends from
    $21,500 to $25,000 annually.

      Department of Energy: The 2003 budget provides $5.0 billion for FS&T
    at DOE. The budget proposes $3.3 billion, a 1.5-percent increase over
    2002, for DOE Science programs, the Nation's leading sponsor of research
    in the physical sciences. DOE has a special role in supporting research
    in particle physics, nuclear physics, fusion energy sciences, chemistry
    of the radioactive elements, nanoscience, genomic sequencing, and
    computational science. The Department also supports research that will
    reduce key scientific uncertainties inherent in climate change and
    carbon cycle models. These basic science programs support the DOE's
    applied missions in energy, national nuclear security and environmental
    quality. The Department contributes to national science stewardship, a
    cornerstone of the Department's mission, by operating a suite of 27
    scientific user facilities--such as x-ray light sources, fusion
    experiments, particle accelerators and colliders. Over 18,000 scientists
    from universities, industry and government agencies use these facilities
    every year. Consistent with the Administration's emphasis on shifting
    funds to higher priority programs, the budget redirects funding to
    maintain operations at Fermi National Accelerator Laboratory.
      The Department sponsors applied research and development programs with
    two primary interests. In the national security area, DOE sponsors R&D
    that sustains the safety, reliability, and performance of the Nation's
    nuclear weapons ($3.1 billion in 2003). Nonproliferation and
    verification research conducted by the Department advances technologies
    for detection of nuclear weapons proliferation, nuclear explosion
    monitoring, and chemical and biological response. In the energy area,
    DOE sponsors research in energy production and use, from fossil,
    nuclear, and renewable sources. The Department has had success in
    reducing the cost of renewable energy resources (wind, solar,
    geothermal, and biomass), and it will continue R&D efforts to make these
    energy sources more cost-competitive. Last year's budget provided $150
    million to existing coal research towards the President's commitment to
    spend $2 billion over ten years on clean coal research. In the 2003
    budget, all coal programs are brought under one umbrella--the
    President's Clean Coal Research Initiative. Using a more transparent
    budget structure, this approach will improve the management and
    oversight of this $326 million program.
      DOE also sponsors R&D to improve the energy efficiency of buildings,
    industry, the transportation sector, and the federal government ($589
    million in 2003). DOE's energy conservation efforts include the
    following examples. Cost-shared R&D with industry will to continue to
    increase industrial output per unit of energy input. Development of a
    web-based tool will assist contractors and homeowners in identifying the
    most efficient energy-saving retrofit activities, based on the age and
    condition of the home and the funds available. A partnership with the
    trucking industry will dramatically improve fuel efficiency by 2010.
    And, a program to increase energy efficiency in federal buildings will
    achieve a 35 percent efficiency increase by 2010, compared to 1985
    levels.

      Department of Defense: DOD funds a wide range of R&D to ensure that
    our military forces have the tools to protect the Nation's security.
    DOD's 2003 budget includes $5.0 billion that appears in the FS&T budget.
      Due in part to the events of September 11, 2001, research and
    development of technologies and systems that address terrorist threats
    have been the focus of additional funds and urgency. Systems or
    technologies under development include: improved detectors of chemical
    and biological threats (for both remote and on-site application); more
    comfortable and more effective troop protective gear for use under
    chemical and bio

    [[Page 167]]

    logical attack; vaccines to provide protection against biological
    agents; surveillance systems to provide longer range and earlier warning
    of possible attacks using weapons of mass destruction; and more
    effective cave and other ``hard target'' attack munitions.
      DOD's ``Science and Technology'' programs (over $9 billion in 2003)
    range from basic research and applied research (included in FS&T), to
    fabrication of component prototypes for potential future systems. These
    programs explore and develop technical options for new defense systems
    and help reduce the chance of being surprised by new technologies in the
    hands of adversaries. Areas of emphasis include computing and
    communications, sensors, nanotechnology, understanding the military
    environment (for example, oceans, atmospheric and geological sciences),
    propulsion systems, and technologies for the next generation of long-
    range strike aircraft. Promising technologies and processes may be
    incorporated into weapon systems of the future.
      Later stage development, test and evaluation funds ($45 billion)
    support development of new weapons and supporting systems, including
    testing the effectiveness of those systems and how they interface with
    other weapons or control systems. Systems under development in 2003
    include: the Joint Strike Fighter, ballistic missile defense systems, a
    new aircraft carrier, the DD(X) naval destroyer, space-based missile
    warning satellites, and unmanned underwater vehicles. Systems in the
    final stages of development include the F-22 fighter aircraft and the V-
    22 Osprey tilt-rotor aircraft. The Army continues development efforts in
    support of the Future Combat System as a major part of their
    transformation to a lighter, more mobile, and more effective fighting
    force.

      Department of Agriculture: The 2003 budget provides $1.9 billion, a
    one percent increase, for FS&T at the Department of Agriculture (USDA).
    The budget for USDA's research, education and extension programs
    proposes significant increases for high priority national needs and for
    competitive, peer-reviewed grants, while reducing or eliminating lower
    priority projects, particularly earmarks. Funded at $2.3 billion in
    2003, this program includes activities that are not part of the FS&T
    budget, such as USDA laboratory construction and rehabilitation,
    extension grants, and statistical programs. The 2003 budget adds $58
    million to the programs of the Agricultural Research Service (ARS) in
    the following areas: air and water quality and climate change, biobased
    products, bioenergy and biotechnology, protection against bioterrorism,
    emerging and exotic diseases, genomics and genetics, and library
    resources. In addition, the budget provides $240 million (a 100 percent
    increase) for the National Research Initiative (NRI), which funds
    competitive research grants covering a broad spectrum of agricultural
    research areas. The budget provides additional increases over 2002 of $7
    million for the expansion of the Agricultural Resources Management Study
    and of $15.5 million for necessary cyclical costs associated with the
    five year Census of Agriculture.
      The 2003 budget for Forest Service Research and Development programs
    ($254 million) includes $10 million for new priority research on
    biobased products and bioenergy and a quantitative planning and graphic
    data analysis tool for forest planning. The budget also places
    additional emphasis on annualized forest inventories.
      In order to fund these increases and ensure that taxpayer dollars are
    used most effectively in the public interest, the budget proposes to
    eliminate unrequested earmarks for specific purposes at specific
    locations that were provided in 2002. These total $205 million for in-
    house research ($89 million in ARS and $16 million in the Forest
    Service) and $123 million for research grants, for a total of over 400
    projects.

      Department of the Interior: Within the Department of the Interior
    (DOI), the 2003 budget provides $904 million for the United States
    Geological Survey (USGS), for science that emphasizes the mission
    responsibility of providing sound and impartial science to manage land,
    water, biological, energy, and mineral resources. The 2003 budget
    reduces direct federal funding for programs that support outside
    customers in order to increase the proportion of services paid for by
    these customers. The 2003 budget focuses resources on those programs
    that directly address the science needs of Interior bureaus, including
    funding for science to support ecosystem restoration in the Everglades.
    To support sound conservation decisions, USGS will combine natural
    resource monitoring and information technology that will promote
    conservation partnerships and better inform federal, state, and local
    land acquisition.
      The budget transfers USGS toxic substances hydrology research program
    funding to NSF. While the work of USGS is generally of high quality,
    this transfer will provide new emphasis on merit-based competitive
    selection. USGS will continue to play a role in identifying research
    priorities.
      Beginning in 2002, the Bureau of Land Management and USGS will help
    support the development of the E-Gov Geospatial One-Stop initiative.
    This initiative, led by the interagency Federal Geographic Data
    Committee, will make geospatial data more accessible and usable by
    developing government-wide data standards and deploying a user friendly
    web portal for geospatial data and mapping applications.

      Department of Commerce: The 2003 budget provides $861 million for FS&T
    at the Department of Commerce (DOC). For the National Institute of
    Standards and Technology (NIST), the budget provides $402 million--a 23
    percent increase over 2002--for research and physical improvements at
    NIST's Measurement and Standards Laboratories. In addition to funding
    ongoing research, the budget increase supports construction of new NIST
    facilities, including equipment for the Advanced Measurement Laboratory
    in Maryland. NIST labs work with industry to develop the measurements
    and standards needed to support technological innovation. Facilities
    modernization is needed to support NIST's groundbreaking research.

    [[Page 168]]

      The 2003 budget also provides $107 million for NIST's Advanced
    Technology Program (ATP), which makes R&D grants to commercial firms. In
    2003, ATP will modify its program regulations to increase university
    participation and allow cost-recoupment for successfully commercialized
    technologies.
      The 2003 budget provides $297 million for FS&T at the National Oceanic
    and Atmospheric Administration (NOAA) to improve understanding of
    climate change, weather and air quality, and ocean processes. In 2003,
    NOAA's R&D will also support economic growth through continued efforts
    in marine biotechnology and aquaculture, as well as a new initiative to
    demonstrate benefits to the energy sector through improved weather and
    river forecasting capabilities. The budget also transfers the National
    Sea Grant College Program to NSF to promote more rigorous, merit-based
    competition among researchers. NOAA and NSF will jointly manage the
    program, and NOAA will continue to play a role in identifying research
    priorities.

      Environmental Protection Agency: The budget provides $797 million for
    FS&T at the Environmental Protection Agency (EPA). The Office of
    Research and Development (ORD) performs the majority of EPA's research
    and provides a sound scientific and technical foundation for
    environmental policy and regulatory decision-making. EPA relies on
    strong science to achieve its mission and has a responsibility to ensure
    that efforts to reduce environmental risks are based on the best
    available scientific information. In 2003, EPA will work to improve
    methods for assessing the cumulative risks of complex pollutant
    mixtures, tools to describe the impact of exposures to them on
    cumulative risk, and the tools for decision makers to address cumulative
    risks. EPA will also focus essential scientific support on its highest-
    priority pending regulations to help strengthen its regulatory process.
    A new EPA effort to identify innovative environmental technologies
    through a national competition is expected to help solve such vexing
    problems as effluent trading programs and removing arsenic from drinking
    water. EPA will also fund a new biotechnology research effort to address
    information gaps and develop management tools for allergenicity, and
    ecological risk and resistance. The budget includes $75 million for
    research into technologies and procedures to cope with future biological
    or chemical incidents.
      Department of Transportation: The 2003 budget provides $548 million
    for FS&T at the Department of Transportation (DOT). DOT research funds
    are concentrated primarily in the federal Highway Administration (FHWA),
    the National Highway Traffic Safety Administration (NHTSA), and the
    Federal Airline Administration (FAA). The FHWA ($421 million in 2003)
    supports research to improve the quality and safety of the Nation's
    transportation infrastructure. Specifically, the research focuses on
    methods to increase the quality and longevity of roadways, identifies
    safety improvements possible through the use of Intelligence
    Transportation Systems (ITS), and analyzes the use of surveillance
    technology for improved traffic control, emergency evacuations and
    critical infrastructure. NHTSA's 2003 budget provides $58 million for
    R&D in crash worthiness, crash avoidance and data analysis to help
    reduce highway fatalities and injuries.
      In aviation research, and in light of the September 11th terrorist
    attacks, security will be the major focus for the FAA as it develops the
    best technologies to prevent future incidents. The 2003 budget provides
    $95 million for aviation security technology research.

      Department of Education: The 2003 budget provides $431 million for
    FS&T at the Department of Education. The vast majority of the
    Department's research and development is administered by three offices:
    the Office of Educational Research and Improvement (OERI), National
    Institute for Disability and Rehabilitation Research (NIDRR), and the
    Office of Special Education Programs (OSEP).
      OERI, which administers the largest share of FS&T funds through
    Research, Development, and Dissemination, conducts research on teaching,
    learning and achievement; develops materials and methods to help
    students succeed; and disseminates these techniques to teachers and
    schools. In 2003, OERI's research portfolio will include a program that
    builds on the substantial science of reading to study conditions under
    which children decode and ultimately comprehend what they read. A second
    new program will support trials of existing preschool curricula to
    identify which work best. A third will identify strategies to enhance
    the use of research findings by teachers, school administrators, and
    policymakers.
      The Administration is developing a reauthorization proposal for OERI
    that will address many of its perennial research quality issues through
    structural reform. The new structure should allow OERI to improve the
    quality, objectivity, coordination, and focus of the Department's
    research activities. Until reauthorizing legislation is enacted, the
    Assistant Secretary is improving the scientific quality of OERI-funded
    research projects through implementation of a more rigorous grant
    solicitation and peer review process.
      The Office of Special Education and Rehabilitative Services
    administers R&D related to persons with disabilities through NIDRR and
    OSEP. NIDRR conducts research and related activities to maximize the
    full integration, employment, and independent living of individuals with
    disabilities, consistent with the President's New Freedom Initiative,
    which aims to help individuals with disabilities lead more independent
    lives.
      OSEP supports special education research projects, demonstrations, and
    outreach in order to produce new knowledge in the fields of special
    education and early intervention, apply effective research in model
    demonstration projects, and put knowledge into the hands of those who
    work with children with disabilities.

      Department of Veterans Affairs: The 2003 budget provides $409 million
    for FS&T at the Department of

    [[Page 169]]

    Veterans Affairs (VA), an increase of 10 percent. In addition, the
    Department receives significant funding from other governmental agencies
    and private entities to support VA-conducted research, which brings the
    total of R&D VA performs to $1.4 billion. The 2003 budget provides $394
    million for clinical, epidemiological, and behavioral studies across a
    broad spectrum of medical research disciplines. Among the agency's top
    research priorities are improving the translation of research results
    into patient care, special populations (those afflicted with spinal cord
    injury, visual and hearing impairments, and serious mental illness),
    geriatrics, diseases of the brain (e.g., Alzheimer's and Parkinson's
    disease), treatment of chronic progressive multiple sclerosis, and
    chronic disease management.

                         Stimulating Private Investment

      Along with direct spending on R&D, the federal government has sought
    to stimulate private investment in these activities with tax
    preferences. The current law provides a 20-percent tax credit for
    private research and experimentation expenditures above a certain base
    amount. The credit, which expired in 1999, was retroactively reinstated
    for five years, to 2004, in the Tax Relief Extension Act of 1999. The
    budget proposes to make the Research and Experimentation (R&E) tax
    credit permanent. The proposed extension will cost $14 billion over the
    period from 2004 to 2007. In addition, a permanent tax provision lets
    companies deduct, up front, the costs of certain kinds of research and
    experimentation, rather than capitalize these costs. Finally, equipment
    used for research benefits from relatively rapid cost recovery.
      Table 8-1 shows a forecast of the costs of the tax credit.

                     Table 8-1.  PERMANENT EXTENSION OF THE RESEARCH AND EXPERIMENTATION TAX CREDIT
                                     (Budget authority, dollar amounts in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                2003     2004     2005     2006     2007   2003-2007
    ----------------------------------------------------------------------------------------------------------------
    Current Law.............................................    4,590    4,020    2,330      990      410    12,350
    Proposed Extension......................................        0      906    2,949    4,654    5,623    14,132
                                                             -------------------------------------------------------
        Total...............................................    4,590    4,926    5,279    5,644    6,033    26,482
    ----------------------------------------------------------------------------------------------------------------

                             IV.   FEDERAL R&D DATA

                               Federal R&D Funding

      R&D is the collection of efforts directed towards gaining greater
    knowledge or understanding and applying knowledge toward the production
    of useful materials, devices, and methods. R&D investments can be
    characterized as basic research, applied research, development, R&D
    equipment, or R&D facilities, and OMB has used those or similar
    categories in its collection of R&D data since 1949.

      Basic research is defined as systematic study directed toward greater
    knowledge or understanding of the fundamental aspects of phenomena and
    of observable facts without specific applications towards processes or
    products in mind.
      Applied research is systematic study to gain knowledge or
    understanding necessary to determine the means by which a recognized and
    specific need may be met.
      Development is systematic application of knowledge toward the
    production of useful materials, devices, and systems or methods,
    including design, development, and improvement of prototypes and new
    processes to meet specific requirements.
      Research and development equipment includes acquisition or design and
    production of movable equipment, such as spectrometers, microscopes,
    detectors, and other instruments.
      Research and development facilities include the acquisition, design,
    and construction of, or major repairs or alterations to, all physical
    facilities for use in R&D activities. Facilities include land,
    buildings, and fixed capital equipment, regardless of whether the
    facilities are to be used by the Government or by a private
    organization, and regardless of where title to the property may rest.
    This category includes such fixed facilities as reactors, wind tunnels,
    and particle accelerators.
      There are over twenty federal agencies that fund R&D in the U.S. The
    nature of the R&D that these agencies fund depends on the mission of
    each agency and on the role of R&D in accomplishing it. Table 8-2 shows
    agency-by-agency spending on basic and applied research, development,
    and R&D equipment and facilities.

    [[Page 170]]

                                                      Table 8-2.  FEDERAL RESEARCH AND DEVELOPMENT SPENDING
                                                         (Budget authority, dollar amounts in millions)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Dollar  Percent
                                                                                                        2000     2001     2002      2003    Change:  Change:
                                                                                                       Actual   Actual  Estimate  Proposed  2002 to  2002 to
                                                                                                                                              2003     2003
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    By Agency
      Defense.......................................................................................   39,664   42,235    49,171    54,544    5,373      11%
      Health and Human Services.....................................................................   18,051   21,037    23,938    27,683    3,745      16%
      National Aeronautics and Space Administration.................................................    9,242    9,675     9,560    10,069      509       5%
      Energy........................................................................................    6,892    7,772     9,253     8,510     -743      -8%
      National Science Foundation...................................................................    2,947    3,363     3,571     3,700      129       4%
      Agriculture...................................................................................    1,773    2,182     2,336     2,118     -218      -9%
      Commerce......................................................................................    1,110    1,054     1,129     1,114      -15      -1%
      Veterans Affairs..............................................................................      618      748       796       846       50       6%
      Transportation................................................................................      603      792       867       725     -142     -16%
      Environmental Protection Agency...............................................................      559      598       612       650       38       6%
      Interior......................................................................................      645      622       660       628      -32      -5%
      Education.....................................................................................      238      264       268       311       43      16%
      Other.........................................................................................      796      922     1,021       858     -163     -16%
                                                                                                     -------------------------------------------------------
        Total.......................................................................................   83,138   91,264   103,182   111,756    8,574       8%

    Basic Research
      Defense.......................................................................................    1,136    1,271     1,305     1,336       31       2%
      Health and Human Services.....................................................................   10,062   11,601    13,183    14,467    1,284      10%
      National Aeronautics and Space Administration.................................................    2,137    1,652     1,909     2,298      389      20%
      Energy........................................................................................    2,262    2,390     2,420     2,517       97       4%
      National Science Foundation...................................................................    2,540    2,894     3,093     3,242      149       5%
      Agriculture...................................................................................      684      801       860       880       20       2%
      Commerce......................................................................................       42       50        52        73       21      40%
      Veterans Affairs..............................................................................       52      301       344       367       23       7%
      Transportation................................................................................       10       17        13        25       12      92%
      Environmental Protection Agency...............................................................       58      105       107       101       -6      -6%
      Interior......................................................................................      266       56        58        55       -3      -5%
      Education.....................................................................................        2        2         2         1       -1     -50%
      Other.........................................................................................      170      190       196       183      -13      -7%
                                                                                                     -------------------------------------------------------
        Subtotal....................................................................................   19,421   21,330    23,542    25,545    2,003       9%

    Applied Research
      Defense.......................................................................................    3,405    3,673     3,656     3,616      -40      -1%
      Health and Human Services.....................................................................    7,692    9,064    10,249    12,379    2,130      21%
      National Aeronautics and Space Administration.................................................    1,534    2,533     2,766     3,099      333      12%
      Energy........................................................................................    1,874    2,330     2,874     2,866       -8       0%
      National Science Foundation...................................................................      184      181       192       199        7       4%
      Agriculture...................................................................................      831    1,045       988       946      -42      -4%
      Commerce......................................................................................      780      768       838       795      -43      -5%
      Veterans Affairs..............................................................................      520      432       436       462       26       6%
      Transportation................................................................................      396      445       522       396     -126     -24%
      Environmental Protection Agency...............................................................      388      370       381       431       50      13%
      Interior......................................................................................      367      534       570       541      -29      -5%
      Education.....................................................................................      151      172       178       212       34      19%
      Other.........................................................................................      344      413       432       348      -84     -19%
                                                                                                     -------------------------------------------------------
        Subtotal....................................................................................   18,466   21,960    24,082    26,290    2,208       9%

    Development
      Defense.......................................................................................   35,026   37,270    44,200    49,570    5,370      12%
      Health and Human Services.....................................................................       44      107       129       100      -29     -22%
      National Aeronautics and Space Administration.................................................    2,702    2,698     2,582     2,648       66       3%
      Energy........................................................................................    1,855    2,042     2,851     2,162     -689     -24%
      National Science Foundation...................................................................        0        0         0         0        0      N/A
      Agriculture...................................................................................      111      152       163       156       -7      -4%
      Commerce......................................................................................      130      170       162       109      -53     -33%
      Veterans Affairs..............................................................................       29       15        16        17        1       6%
      Transportation................................................................................      185      247       256       221      -35     -14%
      Environmental Protection Agency...............................................................       92      101       103        97       -6      -6%
      Interior......................................................................................       12       32        32        32        0       0%
      Education.....................................................................................       85       90        88        98       10      11%
      Other.........................................................................................      253      306       378       310      -68     -18%
                                                                                                     -------------------------------------------------------
        Subtotal....................................................................................   40,524   43,230    50,960    55,520    4,560       9%

    Facilities and Equipment
      Defense.......................................................................................       97       21        10        22       12     120%
      Health and Human Services.....................................................................      253      265       377       737      360      95%

    [[Page 171]]

      National Aeronautics and Space Administration.................................................    2,869    2,792     2,303     2,024     -279     -12%
      Energy........................................................................................      901    1,010     1,108       965     -143     -13%
      National Science Foundation...................................................................      223      288       286       259      -27      -9%
      Agriculture...................................................................................      147      184       325       136     -189     -58%
      Commerce......................................................................................      158       66        77       137       60      78%
      Veterans Affairs..............................................................................       17        0         0         0        0      N/A
      Transportation................................................................................       12       83        76        83        7       9%
      Environmental Protection Agency...............................................................       21       22        21        21        0       0%
      Interior......................................................................................        0        0         0         0        0      N/A
      Education.....................................................................................        0        0         0         0        0      N/A
      Other.........................................................................................       29       13        15        17        2      13%
                                                                                                     -------------------------------------------------------
        Subtotal....................................................................................    4,727    4,744     4,598     4,401     -197      -4%
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                      Federal Science and Technology Budget

      Table 8-3 contains the FS&T budget, which accounts for nearly all of
    federal basic research, over 80 percent of federal applied research, and
    about half of civilian development.

                                                        Table 8-3.  FEDERAL SCIENCE AND TECHNOLOGY BUDGET
                                                         (Budget authority, dollar amounts in millions)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Dollar  Percent
                                                                                                         2000    2001     2002      2003    Change:  Change:
                                                                                                        Actual  Actual  Estimate  Proposed  2002 to  2002 to
                                                                                                                                              2003     2003
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    By Agency

      National Institutes of Health \1\...............................................................  17,827  20,438  23,433    27,335    3,902      17%

      NASA \2\........................................................................................  7,013   7,789   8,113     8,774       661       8%
        Space Science.................................................................................  2,606   2,760   3,034     3,428       394      13%
        Earth Science.................................................................................  1,734   1,825   1,695     1,639       -56      -3%
        Biological and Physical Research..............................................................   839     944      828       851        23       3%
        Aero-space Technology.........................................................................  1,834   2,260   2,556     2,856       300      12%

      National Science Foundation.....................................................................  3,903   4,437   4,795     5,036       241       5%

      Energy..........................................................................................  4,338   4,911   5,099     5,027       -72      -1%
        Science Programs \3\..........................................................................  2,820   3,218   3,240     3,285        45       1%
        Renewable Energy..............................................................................   306     370      386       408        22       6%
        Nuclear Energy................................................................................   226     261      244       251         7       3%
        Energy Conservation \4\.......................................................................   577     619      641       589       -52      -8%
        Fossil Energy \5\.............................................................................   409     443      588       494       -94     -16%

      Defense.........................................................................................  4,541   4,944   4,961     4,952        -9       0%
        Basic Research................................................................................  1,136   1,271   1,305     1,336        31       2%
        Applied Research..............................................................................  3,405   3,673   3,656     3,616       -40      -1%

      Agriculture.....................................................................................  1,759   1,885   1,890     1,913        23       1%
        CSREES Research and Education.................................................................   488     514      552       563        11       2%
        Economic Research Service.....................................................................    67      69       70        82        12      17%
        Mandatory Research Grants \6\.................................................................   120     120        0         0         0      N/A
        Agricultural Research Service \7\.............................................................   866     936    1,017     1,014        -3       0%
        Forest Service \8\............................................................................   218     246      251       254         3       1%

      Interior (USGS).................................................................................   847     918      950       904       -46      -5%

      Commerce........................................................................................   826     828      948       861       -87      -9%
        NOAA (Oceanic and Atmospheric Research) \9\...................................................   285     325      362       297       -65     -18%
        NIST \10\.....................................................................................   541     503      586       564       -22      -4%

      Environmental Protection Agency \11\............................................................   683     746      750       797        47       6%

      Transportation..................................................................................   593     521      651       548      -103     -16%
        Highway research \12\.........................................................................   490     387      448       421       -27      -6%
        Aviation research \13\........................................................................   103     134      203       127       -76     -37%

      Education.......................................................................................   317     363      377       431        54      14%
        Special Education Research and Innovation.....................................................    64      77       78        78         0       0%
        NIDRR \14\....................................................................................    86     100      110       110         0       0%
        Research, Development, and Dissemination......................................................   167     186      189       243        54      29%

    [[Page 172]]

      Veterans Affairs \15\...........................................................................   321     363      373       409        36      10%
                                                                                                       -----------------------------------------------------
         Total........................................................................................  42,968  48,143  52,340    56,987    4,647       9%
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Notes: Levels adjusted to include the full share of accruing employee pensions and annuitants health benefits. For more information on these items,
      please see Chapter 14. Levels for 2000 are derived without accrual in most instances.
    \1\ The 2002 appropriation includes $100 million for the Global Fund to Fight HIV/AIDS, Turberculosis, and Malaria.
    \2\ All years normalized to reflect 2003 transfers of funding for Space Station research facilities, space communications activities, and associated
      institutional support from human space flight.
    \3\ Includes $36 million for programs transferred from Environmental Management.
    \4\ Excludes state grant programs.
    \5\ Excludes balances tranferred from the Clean Coal Technology program for activities in 2001 ($95 million), 2002 ($34 million), and 2003 ($40
      million).
    \6\ Initiative for Future Agriculture and Food Systems.
    \7\ Excludes buildings and facilities.
    \8\ Forest and Rangeland Research.
    \9\ Excludes Manufacturing Extension Program.
    \10\ The 2003 level does not include the Sea Grant program, which was transferred to NSF.
    \11\ Science and Technology, plus superfund transfer. The 2002 level does not include anti-terrorism supplemental funding, which is primarily for
      drinking water vulnerability standards. The 2003 level includes an additional superfund transfer for security research related to building
      decontamination.
    \12\ Includes research and development funding for the Federal Highway Administration, the Federal Motor Carrier Safety Administration, and the National
      Highway Traffic Safety Administration.
    \13\ Federal Aviation Administration Research, Engineering, and Development. Excludes funding for aviation security research in all years, now funded
      through the Transportation Security Administration.
    \14\ National Institute on Disability and Rehabilitation Research.
    \15\ Medical and Prosthetic Research.

                             Interagency R&D Efforts

      Table 8-4 shows agency spending for Networking and Information
    Technology R&D, the National Nanotechnology Initiative, and the climate
    change research and technology initiatives.

                              Table 8-4.  AGENCY DETAIL OF SELECTED INTERAGENCY R&D EFFORTS
                                     (Budget authority, dollar amounts in millions)
    ----------------------------------------------------------------------------------------------------------------
                                                                                                     Dollar  Percent
                                                                         2001     2002      2003    Change:  Change:
                                                                        Actual  Estimate  Proposed  2002 to  2002 to
                                                                                                      2003     2003
    ----------------------------------------------------------------------------------------------------------------
    Networking and Information Technology R&D
      National Science Foundation.....................................   636      676       678        2       0%
      Health and Human Services.......................................   277      310       336       26       8%
      Energy..........................................................   326      312       313        1       0%
      Defense.........................................................   310      320       306      -14      -4%
      National Aeronautics and Space Administration...................   177      181       213       32      18%
      Commerce........................................................    38       43        42       -1      -2%
      Environmental Protection Agency.................................     4        2         2        0       0%
                                                                       ---------------------------------------------
        Total.........................................................  1,768   1,844     1,890       46       3%

    National Nanotechnology Initiative
      National Science Foundation.....................................   150      199       221       22      11%
      Defense.........................................................   125      180       201       21      12%
      Energy..........................................................    88       91       139       48      53%
      Commerce........................................................    33       38        44        6      16%
      National Institutes of Health...................................    40       41        43        2       6%
      National Aeronautics and Space Administration...................    22       22        22        0       0%
      Environmental Protection Agency.................................     5        5         5        0       0%
      Department of Transportation....................................     0        2         2        0       0%
      Department of Justice...........................................     1        1         1        0       0%
                                                                       ---------------------------------------------
        Total.........................................................   464      579       679      100      17%

    Climate Change Research Initiative................................
      Commerce........................................................     0        0        18       18      N/A
      National Science Foundation.....................................     0        0        15       15      N/A
      National Aeronautics and Space Administration...................     0        0         3        3      N/A
      Energy..........................................................     0        0         3        3      N/A
      Agriculture.....................................................     0        0         1        1      N/A
                                                                       ---------------------------------------------
        Total.........................................................     0        0        40       40      N/A

    U.S. Global Change Research Program
      National Aeronautics and Space Administration...................   1,176   1,090    1,109       19       2%
      National Science Foundation.....................................   181      188       188        0       0%
      Energy..........................................................   116      120       126        6       5%

    [[Page 173]]

      Commerce........................................................    93      100       100        0       0%
      National Institutes of Health...................................    54       60        68        8      13%
      Agriculture.....................................................    51       56        66       10      18%
      Interior........................................................    27       28        28        0       0%
      Environmental Protection Agency.................................    23       21        22        1       5%
      Smithsonian.....................................................     7        7         7        0       0%
                                                                       ---------------------------------------------
        Total.........................................................  1,728   1,670     1,714       44       3%
    ----------------------------------------------------------------------------------------------------------------
    * Includes $9 million in offsetting collections in 2003 for the Agency for Healthcare Research and Quality.
      These activities were funded at $15 million in 2001 and $14 million in 2002.

                         Allocation of Research Funding

      Federal funds appropriated to Executive Branch agencies may be used in
    different ways, ranging from grants awarded to university researchers to
    supporting research at federal laboratories. The Administration supports
    the competitive, merit review process for funding research in most
    cases. However, there are appropriate roles for other modes of
    allocating research funding in some circumstances, such as funding
    research at specific facilities that have unique capabilities.
      In order to better understand and characterize the methods agencies
    use to allocate their research funding, agencies reported how research
    funds are allocated by the following five categories:

      Research performed at congressional direction consists of intramural
    and extramural research programs where funded activities are awarded to
    a single performer or collection of performers with limited or no
    competitive selection or with competitive selection but outside of the
    agency's primary mission, based on direction from the Congress in law,
    in report language, or by other direction.
      Inherently unique research is intramural and extramural research
    programs where funded activities are awarded to a single performer or
    team of performers without competitive selection. The award may be based
    on the provision of unique capabilities, concern for timeliness, or
    prior record of performance (e.g., facility operations support for a
    unique facility, such as an electron-positron linear collider; research
    grants for rapid response studies such as Pfisteria, an environmental
    hazard that arose suddenly).
      Merit-reviewed research with limited competitive selection is
    intramural and extramural research programs where funded activities are
    competitively awarded from a pool of qualified applicants that are
    limited to organizations that were created to largely serve federal
    missions and continue to receive most of their annual research revenue
    from federal sources. The limited competition may be for reasons of
    stewardship, agency mission constraints, or retention of unique
    technical capabilities (e.g., funding set aside for researchers at
    laboratories or centers of DOD, NASA, EPA, NOAA, and NIH; Federally-
    Funded Research and Development Centers; formula funds for USDA).
      Merit-reviewed research with competitive selection and internal
    (program) evaluation is intramural and extramural research programs
    where funded activities are competitively awarded following review for
    scientific or technical merit. The review is conducted by the program
    manager or other qualified individuals from within the agency program,
    without additional independent evaluation (e.g., merit-reviewed research
    at DOD).
      Merit-reviewed research with competitive selection and external (peer)
    evaluation is intramural and extramural research programs where funded
    activities are competitively awarded following review by a set of
    external scientific or technical reviewers (often called peers) for
    merit. The review is conducted by appropriately qualified scientists,
    engineers, or other technically-qualified individuals who are apart from
    the people or groups making the award decisions, and serves to inform
    the program manager or other qualified individual who makes the award
    (e.g., NSF's single-investigator research; NASA's research and analysis
    funds).
      Table 8-5 lists how federal R&D agencies report allocating research
    funding among these categories.

    [[Page 174]]

                                                                    Table 8-5.  ALLOCATION OF FEDERAL RESEARCH FUNDING, 2001 and 2002
                                                                             (Budget authority, dollar amounts in millions)
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Research         Inherently      Merit-Reviewed    Merit-Reviewed    Merit-Reviewed         Total
                                                                                            Performed at    Unique  Research   Research  with    Research  with    Research  with  -----------------
                                                                                            Congressional  ------------------      Limited         Competitive       Competitive
                                                                                              Direction                          Competitive     Selection  and    Selection  and
                                                                                         ------------------                       Selection         Internal          External
                                                                                                              2001     2002  ------------------    Evaluation        Evaluation       2001     2002
                                                                                            2001     2002                                      ------------------------------------
                                                                                                                                2001     2002     2001     2002     2001     2002
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    By Agency
      Health and Human Services.........................................................       89      142      206      230    2,392    2,718      201      216   17,777   20,126   20,665   23,432
      Energy............................................................................      134      223    1,078    1,068    2,382    2,820      305      395      821      788    4,720    5,294
      Defense *.........................................................................      678      426      295      350    1,012    1,014    2,712    2,950      247      221    4,944    4,961
      National Aeronautics and Space Administration.....................................      230      287      152      149      532      398    1,377    1,550    1,894    2,291    4,185    4,675
      National Science Foundation.......................................................        0        0        0        0      191      206      184      192    2,700    2,887    3,075    3,285
      Agriculture **....................................................................      105      122      815      893      720      676        0        0      206      157    1,846    1,848
      Commerce..........................................................................       18       21      354      377      100      108      204      218      142      166      818      890
      Veterans Affairs..................................................................        1        0        0        0        2        2      349      370      381      408      733      780
      Interior..........................................................................       27       48      156      154      379      392       26       31        2        3      590      628
      Transportation....................................................................       55       82       69       73        0        0      338      380        0        0      462      535
      Environmental Protection Agency...................................................       39       60       39       38      195      192       69       68      133      130      475      488
      Education.........................................................................        5        0        0        0        0        0        0        0      169      180      174      180
      Smithsonian Institution...........................................................        0        0      108      111        0        0        0        0        0        0      108      111
      Other.............................................................................      385      413       11        7       17       17       76       74        6        6      495      517
                                                                                         -----------------------------------------------------------------------------------------------------------
        Total...........................................................................    1,766    1,824    3,283    3,450    7,922    8,543    5,841    6,444   24,478   27,363   43,290   47,624
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
      * Allocation among categories is preliminary.
    ** Does not include net mandatory funding for USDA research grant programs of $120 million in FY 2001.

                                    Earmarks

      Table 8-6 lists the top 30 recipients of individual academic earmarks
    in 2001, as identified by The Chronicle of Higher Education. In addition
    to $1.2 billion in earmarks to specific colleges and universities, there
    is another $431 million in earmarked funding to be shared in an
    unspecified distribution among these and other colleges and
    universities.
      Table 8-6. 30 Colleges and Universities Received Over 40 Percent of
    Unshared* Academic Earmarks in 2001

                              Table 8-6.  COLLEGES AND UNIVERSITIES RECEIVED OVER 40 PERCENT OF UNSHARED* ACADEMIC EARMARKS IN 2001

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                     Number of      Sum of
                                       College or University                                                   State                  Earmarks    Earmarks*
                                                                                                                                      Received    (millions)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1.   University of Alaska at Fairbanks.....................................................   Alaska                                     20        $35.0
    2.   Loma Linda University.................................................................   California                                  4        $35.0
    3.   Marshall University...................................................................   West Virginia                               6        $27.6
    4.   University of New Hampshire...........................................................   New Hampshire                              14        $27.5
    5.   Dartmouth College.....................................................................   New Hampshire                               5        $25.9
    6.   University of Missouri at Columbia....................................................   Missouri                                   21        $23.7
    7.   University of Mississippi.............................................................   Mississippi                                20        $23.7
    8.   University of Alabama at Birmingham...................................................   Alabama                                    12        $22.1
    9.   University of Nebraska................................................................   Nebraska                                    4        $19.5
    10.  Kansas State University...............................................................   Kansas                                     12        $18.3
    11.  University of Florida.................................................................   Florida                                    14        $18.3
    12.  Mississippi State University..........................................................   Mississippi                                33        $18.2
    13.  Pennsylvania State University at University Park......................................   Pennsylvania                               14        $16.7
    14.  Wheeling Jesuit University............................................................   West Virginia                               9        $16.3
    15.  University of Maine...................................................................   Maine                                       9        $16.2
    16.  West Virginia University..............................................................   West Virginia                              17        $15.6
    17.  Auburn University.....................................................................   Alabama                                    17        $15.2
    18.  University of South Carolina at Columbia..............................................   South Carolina                              6        $14.6
    19.  Southern Illinois University at Edwardsville..........................................   Illinois                                    3        $14.3
    20.  University of Alabama at Tuscaloosa...................................................   Alabama                                    10        $14.2
    21.  University of South Florida...........................................................   Florida                                     8        $13.2
    22.  University of Minnesota--Twin Cities..................................................   Minnesota                                   5        $12.7
    23.  University of Louisville..............................................................   Kentucky                                    9        $12.5

    [[Page 175]]

    24.  New Mexico Institute of Mining and Technology.........................................   New Mexico                                  7        $12.5
    25.  University of Southern Mississippi....................................................   Mississippi                                11        $11.8
    26.  Montana State University at Bozeman...................................................   Montana                                    17        $11.1
    27.  Washington State University...........................................................   Washington                                 18        $10.5
    28.  University of Hawaii, Manoa...........................................................   Hawaii                                     20        $10.4
    29.  Medical University of South Carolina..................................................   South Carolina                              3        $10.0
    30.  University of Miami...................................................................   Florida                                     4         $9.5
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    * Totals do not include earmarks split among institutions, where the distribution was not specified.