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Government Affairs Update

Federal Relations

FY2003 Budget

After a four-month delay, the Congress on February 13 finally completed the federal budget for FY2003, which technically began on October 1, 2002. The omnibus measure included the 11 unfinished individual appropriations bills.

The FY2003 Budget completes the five-year doubling of the budget for the National Institutes of Health (NIH), providing a total of $27.2 billion in funding, an increase of 15.4 percent. The measure provides $120 million for extramural construction, and maintains the salary cap for extramural researchers at Executive Level I.

Funding for the National Science Foundation (NSF) is set at $5.3 billion, an increase of $536 million (8.8 percent). NASA funding is increased by $513 million for a total of $15.4 billion; this includes $50 million to investigate the recent Columbia tragedy. The measure includes $3.3 billion for Department of Energy science programs, an increase of $72.8 million over last year.

The bill provides a 7-percent increase for international education programs. These include domestic and overseas international education programs, and also foreign language studies.

Also included in the omnibus measure is language that provides increased Medicare payments to physicians. Physicians will see an increase of 1.6 percent to 2003 payments; previously existing statute would have implemented a 4.4-percent cut.

However, the news was not as good for other agencies and programs of importance to the higher education community. The National Endowment for the Humanities (NEH) receives $126 million, while the National Endowment for the Arts (NEA) is funded at $116 million, an increase of $1 million over FY2002 for each.

The bill provides a maximum Pell Grant of $4,050, an increase of $50. However, the Department of Education projects a cumulative funding shortfall of close to $2 billion for the Pell program due to greatly increased participation in the program. All other student aid programs are flat funded at last year's levels.

In order to secure White House approval of the measure, lawmakers were obliged to include a 0.65-percent cut for all programs.

President Bush's FY2004 Budget Proposal

President Bush on February 3 released his budget proposal for FY2004. According to the President, this budget seeks to achieve three national priorities: "winning the war against terrorism, securing the homeland, and generating long-term economic growth."

The proposed budget sets out significant challenges to the research community.

The budget calls for overall spending of $2.23 trillion, an increase of 4 percent over his budget request for FY2003. (As this year's federal spending had not yet been enacted at the time when this budget was announced, increase figures are based on President Bush's FY2003 budget request.)

The lion's share of the increase is geared toward defense and homeland security. Defense spending is set to rise by $15.3 billion (4.2 percent) to $380 billion, while homeland security funding would increase by $1.5 billion, or 5.5 percent, to $28.2 billion. Discretionary spending not related to defense or homeland security would increase by 3.8 percent overall.

The budget projects a deficit of $307 billion for FY2004 and similar or larger deficits for the next five fiscal years. It also includes $1.46 trillion in new tax cuts over the next 10 years. The tax provisions mainly speed implementation of and make permanent the measures in the President's 2001 tax bill.

The President's proposal by agency is as follows:

  • The President proposes a $499 million increase for the NIH, only 1.8 percent above his FY2003 request and approximately 2.4 percent above the likely FY2003 appropriation. This would bring total funding to $27.9 billion. The huge funding drop-off from the past five years' budget increases, which were part of the NIH doubling effort, would cause serious problems. The challenge to research universities is to defeat these proposals to decrease the "value" of funded grants–which would drop in real terms–and the proposal to eliminate the extramural construction program.
  • The President's budget generally level-funds student financial aid programs including Pell Grants, the Federal Work Study program, and the TRIO and GEAR UP early intervention programs aimed at encouraging middle-school students to attend college. It provides no increases for the Graduate Assistance in Areas of National Need and Jacob Javits Fellowship programs, which support graduate education. It also funds international education programs at last year's levels.
  • The budget provides $10.2 billion for Department of Defense research–including basic, applied, and advanced technology development. Research funding represents just 2.7 percent of the total Department of Defense budget.
  • The full budgetary impact of the loss of the Space Shuttle Columbia is not yet known. President Bush requested $15.469 billion for NASA for FY2004, an increase of 5 percent ($469 million) over his request for last year.
  • The President's budget proposes $5.48 billion for the NSF, an increase of $453 million (9 percent), over his FY2003 request. The budget request for the Department of Energy's Office of Science is $3.311 billion, an increase of just 1.4 percent ($47 million) over last year's request by President Bush.
  • In its first-ever budget request, the new Department of Homeland Security is slated to receive $900 million for R&D to combat terrorism. About $800 million of this money comes through the Science and Technology Directorate, which includes $583 million for "research and acquisition of technology" and $163 million for "construction and facilities."
  • The National Endowment for the Humanities is a big winner in the President's budget proposal, with a request of $152 million, a 19.7 percent ($25 million) increase. This increase comes after years of flat funding requests from the White House; it is intended to support the "We the People" initiative, designed to fund project proposals that "advance our knowledge of the events, ideas, and principles that define the American nation." All other NEH programs are level funded for the second year in a row, except for the regional humanities centers program, which is eliminated. The President is requesting level funding of $116 million for the National Endowment for the Arts
  • In addition, President Bush proposed a "major research and production effort" across several agencies to combat bioterrorism, called Project Bioshield. The President will ask for $6 billion in funding for this initiative, which will focus on development and distribution of vaccines and treatments against biological agents such as anthrax, botulinium toxin, and Ebola.

The President's budget proposal is just the first step in the federal budget process. Working with this proposal–but only using it as a very rough guideline–the House and Senate Budget committees will create a budget resolution to generally direct Congressional spending for the coming year. Once the budget resolution is completed, individual Appropriations committees will set spending levels for specific programs. The goal is to complete the process by October 1, 2003, the official beginning of FY2004.

Tax-Exempt Bonds

Included in President Bush's budget proposal is a provision that would repeal the $150 million cap on 501(c)3 bonds.

In 1997, the bond cap was lifted prospectively. For capital expenditures (or, in certain cases, working capital) incurred after the date of enactment of the legislation, expenses could be paid with the proceeds of a tax-exempt bond. These bonds were not subject to a cap.

In order to keep down the costs of this provision, the cap was not repealed "retroactively." Thus, the $150 million cap continued to apply to any tax-exempt bonds used to finance expenditures incurred before August 5, 1997.

The Bush proposal would repeal the "prospective-only" rule from 1997.

Department of Homeland Security

The Department of Homeland Security (DHS) officially "opened for business" on January 24. Congress completed legislation creating the Department on November 19, 2002, and President Bush signed the measure into law on November 25, 2002.

DHS is formed through the consolidation of cabinet-level and independent agencies; the mission is to prevent future terrorist attacks in the United Sates. Some agencies that will be part of the DHS include the Coast Guard, the Customs Service, the Federal Emergency Management Agency, and the Immigration and Naturalization Service. It is expected to take months for these and other government agencies to be transferred to the new department, and even longer for existing programs to be consolidated and new programs created.

The DHS will house significant research programs. An Under Secretary for Science and Technology will coordinate these programs through the Directorate of Science and Technology, one of the four main areas of the new Department. The President has announced his intention to nominate Charles E. McQueary for this post. Dr. McQueary is a retired President of General Dynamics and a former member of the National Defense Industrial Association. He received his Ph.D. in engineering mechanics, as well as his bachelor's and master's degree, from the University of Texas at Austin. The Under Secretary will set homeland-security research goals and priorities throughout the government, fund homeland security research, facilitate the transfer and deployment of technologies for homeland security, and advise the DHS Secretary on all scientific and technical matters. A 20-member Homeland Security Advisory Committee representing first responders, citizen groups, researchers, engineers, and businesses will help guide these activities.

DHS research initiatives include:

  • the Homeland Security Advanced Research Projects Agency, which will fund new research on homeland security technologies. HSARPA will administer the Acceleration Fund, which will award merit-reviewed grants for basic and applied research. The legislation authorizes $500 million for the Fund, but money will have to be appropriated as part of the unfinished FY2003 budget process.
  • one or more university-based centers for homeland security. This provision has been controversial. The original legislation contained a list of 15 criteria for such a center; it was widely believed that the criteria ruled out all schools except for Texas A&M University. The Senate omnibus budget legislation eliminated several of these criteria, so the field is now more open.
  • a new Federally Funded Research and Development Center (FFRDC), the Homeland Security Institute, to serve as a think tank for risk analyses and assessments, simulations of threat scenarios, and strategic planning. (DHS will also be able to contract with existing FFRDCs.)
  • the Office of National Laboratories, to coordinate with Department of Energy national laboratories.

The creation of the DHS will rearrange federal research spending in FY2003 and beyond. The new Department will take over small research programs in the Departments of Agriculture, Transportation, and Energy. It will not, however, include the bioterrorism research programs in the NIH and the CDC.

The House of Representatives will reorganize its appropriations committee, which provides funding for federal programs, to create a separate subcommittee for the Department of Homeland Security. The Senate appropriations committee, on the other hand, is not planning to reorganize.

Homeland Security Committee

The Members of the House Committee on Homeland Security were announced on February 13. Congressman Curt Weldon, a Republican who represents some of the suburban areas around Philadelphia, has been appointed to serve on the new committee. It is charged with coordinating all oversight of the Department of Homeland Security. Penn has a strong working relationship with Congressman Weldon. The Homeland Security Committee is an authorizing committee, which is responsible for creating and maintaining federal programs as opposed to appropriations committees.

– Carol R. Scheman, Vice President for Government, Community and Public Affairs

NOTE: Updates for the Office of Government, Community and Public Affairs' Commonwealth Relations, and City and Community Relations activities will appear in the March 18 edition of Almanac.


  Almanac, Vol. 49, No. 23, February, 2003