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NSF Reclassifies R&D Budget, Cutting SBIR Funds

January 09, 1998

The National Science Foundation (NSF) has decided to reclassify its R&D budget, which will result in a reduction of funding available for its Small Business Innovation Research program (SBIR). The reclassification was recommended by Inspector General Linda Sundro. NSF Director Neal Lane has concurred with the recommendations.

Each agency with an extramural R&D budget in excess of $100 million must set aside a percentage of their extramural R&D funding for the SBIR program. In FY 1997, the SBIR set-aside was 2.5%. Congress also authorized a smaller set-aside, currently 0.15% of the extramural R&D budget, for the Small Business Technology Transfer (STTR) program.

To determine the amount of the set-aside from the R&D budget, Congress defined research or research and development as the "systematic, intensive stud[ies] directed toward greater knowledge or understanding of the subject studied, or a systematic application of that knowledge to produce new technologies." In the opinion of the Inspector General, many of the expenditures included in NSF's extramural R&D budget do not fit this definition.

In particular, the report recommended that NSF exclude $58.36 million in education and training funds and $42.25 million in program support costs from the R&D budget amount used to calculate the SBIR and STTR set-asides. By doing so, the SBIR and STTR set-asides will be reduced annually by approximately $2.5 million and $150,000 respectively. NSF staff are in the process of defining the new base from which the SBIR and STTR allocations will be calculated.

By reclassifying the extramural R&D, "Over a 5-year period, $13.25 million that would have been used for these set-asides would be available for NSF to use for the highest priority programs to further scientific research and education," the IG's report says. The report quotes Director Lane as saying "this will lead to better utilization of NSF resources."

This reclassification concerns SBIR advocates in part because NSF piloted the initial SBIR program and has been a strong supporter of the program. Concern has been raised regarding the possibility that other agencies may attempt to reclassify their R&D budgets as well resulting in greater reductions in funding.

A copy of the report may be viewed on the web at www.nsf.gov/cgi-bin/getpub?oig17 or by contacting SSTI at 614/421-SSTI (7784).