Five takeaways from the administration’s FY 2019 budget

The White House released a budget this week that would substantially reduce federal spending for innovation and entrepreneurship. Regional Innovation Strategies and the entire Economic Development Administration, Manufacturing Extension Partnership, Advanced Research Projects Agency – Energy, Innovative Technology and Advanced Vehicles loan programs, Growth Accelerator Program and Regional Innovation Clusters would all be eliminated. Only in an addendum related to last week’s budget deal does the administration suggest funding workforce and several agencies’ R&D at or near FY 2017 levels. Still, whereas the previous two budgets featured nearly-universal cuts to non-defense initiatives, the FY 2019 budget provides better insights into the administration’s priorities.[1] The following are five budget takeaways for TBED practitioners.

1. Elimination of innovation programs 

The FY 2019 budget continues to send a clear message that the administration does not see a role for federal support in tech commercialization or startup formation. The budget would eliminate several important programs:

• Regional Innovation Strategies program, as part of eliminating the entire Economic Development Administration;
• Hollings Manufacturing Extension Partnership, as part of reducing the U.S. National Institute of Standards and Technology budget by one-third; and,
• Regional Innovation Clusters and Growth Accelerator Program, as part of reducing the U.S. Small Business Administration’s entrepreneurial development budget by 20 percent.

These proposals mirror previous suggestions in FY 2018 and FY 2017. Further, the White House’s R&D priority memo directs agencies to prioritize basic science over later-stage investments. Given the mixed signals in most other relevant policy areas, the administration’s consistent proposals to defund innovation suggests a particular negative focus on this area of TBED.

2. Moderation on R&D (and workforce)

The administration did most of its budget development work before the Congressional deal to raise the budget caps on discretionary spending by $85 billion for defense and $68 billion for non-defense activities in FY 2019. Rather than rework its budget, the administration released its original document and an amendment that would advise Congress on how to spend the increased caps. Arguably, the differences between the budget and amendment suggest areas where the administration’s preferences for budget cuts are weaker.

The increased spending proposed in the amendment emphasizes funding federal R&D at FY 2017 levels, instead of the cuts suggested in the full budget proposal. Specifically, the initiatives suggested for additional funding (with amounts) are:

• Agriculture – Agricultural Research Service ($192 million);
• Energy – Science ($1.2 billion), Fossil Energy R&D ($200 million) and Energy Efficiency & Renewable Energy ($120 million);
• NIH – agency-wide authority ($9.2 billion);
• NASA – Planetary Science ($30 million), Aeronautics research partnerships ($25 million) and Exploration Research & Technology ($90 million); and,
• NSF – basic research, STEM education, facilities and new interdisciplinary research ($2.2 billion).

Similarly, the amendment proposes restoring the Workforce Innovation and Opportunity Act (WIOA) main programs to FY 2017 funding levels.

Despite restoring funding for these programs, the administration’s budget amendment would leave nearly $75 billion in non-defense budget authority on the table. Specifically, the proposal shifts $17.7 billion of spending from “mandatory” to “discretionary” budget categories and is still $57 billion under the new cap.

3. Infrastructure plans lacks most innovation considerations

The budget reveals some of the administration’s infrastructure plan, and more details were covered by many news outlets the same day. The bottom line is that the federal spending piece is $200 billion, and the proposal’s references to innovation are limited:

• Research infrastructure (e.g., research parks or labs) is not part of the plan;
• New technologies and construction innovation may have a competitive advantage for $100 billion in infrastructure incentives (that must be matched 4:1); and,
• Rural broadband may be addressed by either the $50 billion that would be set aside for rural projects and by the proposed inclusion of rural broadband projects as eligible for private activity bonds.

Although not highlighted in the budget itself, the longer infrastructure proposal [pdf] that is available through multiple news outlets also outlines workforce initiatives. These provisions do not appear to incorporate additional funding and emphasize modifying existing programs to support certificate programs. Pell Grants would be able to fund short-term programs; the Career and Technical Education program would emphasize STEM and apprenticeship programs; and Federal Work Study funds would emphasize work-relevant employment and expand eligibility to community colleges.

4. New support for Appalachia and apprenticeship

The administration does have new support for two innovation-related initiatives: Appalachian Regional Commission and apprenticeships.

ARC’s support in the FY 2019 budget (level funding) is particularly noteworthy because the FY 2017 budget proposed to eliminate the office, and the FY 2018 proposal would have reduced funding by about 80 percent. ARC has a major initiative underway to support economic development activities in communities reliant on coal.

Apprenticeships have received vocal support from the White House previously, including in an executive order promising to expand the program and funding. True to the order, the FY 2019 budget proposes to increase spending on the Department of Labor’s program from $95 million to $200 million. Further support for the concept of apprenticeships is given in directions to reform the Trade Adjustment Assistance program and in the infrastructure plan. 

5. Federal reorganization on the horizon

The budget intro devotes five pages to outlining a plan for federal reorganization that will be released in March. The outline indicates that the top consideration will be efficiency and that this will mean terminating positions, better alignment of common processes and shifting activities across agencies. The exact implications are not clear, but the section’s language emphasizes updating the work and skill sets of employees, making contracting easier and sharing infrastructure and processes across agencies. The implications of this plan could be consequential — for better and for worse — for science and innovation programs across the federal government, as well as for state, local and private partners.

Budget outlook

The FY 2019 process will not gain momentum until the FY 2018 process is complete. With the two-year deal on spending caps, Congress can begin the process of appropriating its new discretionary authority. The current continuing resolution (CR) expires on March 23.

With the late resolution of the FY 2018 budget and spending levels for FY 2019 already being set, a smooth finish to the FY 2018 process could help FY 2019 finish relatively quickly. The minimal changes in caps between the two years and limited number of policy changes suggested by the administration’s budget (when the amendment is included) may make the FY 2019 negotiations easier. New House budget chairman Steve Womack (R-AR) has suggested streamlining the year’s process by skipping an initial resolution and reconciliation.

On the other hand, several issues could delay the FY 2019 process. The White House is encouraging Congress not to spend up to the new cap deal and to make existing spending become subject to the caps, which should be of considerable concern to innovation proponents and would presumably raise challenges for a wide range of issues funded by the non-defense budget. This year’s process has been held up while Congress debated indirect budgetary issues: health care, tax reform and immigration. In addition to these issues being a continuing concern, some Republicans have indicated that they are eager to address mandatory spending reform, which could also bleed into discretionary budget arguments.