OMB Drawing Lines in Sand for TBED and the FY12 Budget

Investments in innovation, research, education and other technology-based economic development priorities have been receiving considerable amplification since President Obama took office last year. For the past 18 months, the key agencies that support R&D and TBED initiatives have been promoting the need to move federal investments in economic development and research more toward innovation. The question is: will the White House Office of Management and Budget (OMB) let that happen?

OMB issued two memoranda on June 8 that present significant challenges to affecting real change in federal economic development priorities and launching any new programs. Reining in the federal deficit will require significant cuts in spending. The cuts that begin in FY12 should be done surgically rather than across-the-board, OMB asserts.

President Obama has set a goal of halving the deficit by the end of 2012. To accomplish that, OMB has asked each non-security agency to submit FY12 budget requests that are five percent below the discretionary spending the agency requested in FY11. [Note: the FY11 budget has not been approved by Congress and, according to all reliable sources, is not likely to be until after the November elections at the earliest. Agencies will operate under a continuing resolution at FY10 levels in the interim.]

Across-the-board cuts of five percent for all activities within agencies are not encouraged by OMB. Instead, agencies are advised to "restructure their operations strategically" by eliminating low-priority programs and activities, "re-engineering staffing plans" and streamlining grant management, processing and improving IT capabilities.

Also increases in mandatory spending must be fully absorbed as well, resulting in increased pressure for agencies like Agriculture, Health & Human Services, and Labor.

So what does this mean for the commitment to double the budgets of the National Institute of Standards & Technology research, the National Science Foundation and the Department of Energy's Office of Science within five years? To stay on target for this goal, deeper cuts will have to come elsewhere in the Department of Commerce in the case of NIST and the rest of DOE to meet the OMB directive. Or other agencies will have to absorb bigger cuts for the innovation-oriented agencies.

How will the National Institutes of Health adapt to cuts, given it already disbursed an extra one-time $8 billion to the biomedical research community as a result of the stimulus act? The May 7, 2010 Science summed up the issue's seriousness in the simple article title, "Peering over a Cliff at the Poststimulus World." Will NIH be spared the knife — or at least a less shallow cut?

On the more granular level, new initiatives targeting innovation and TBED will have to be supported through redirected funding either by cuts to existing programs or residing within existing program authorities, as is explored in the FY11 budget request for Agriculture, Commerce, Labor and the Small Business Administration.

Either approach, coupled with cuts of five percent or more already, pits traditional constituencies of those programs against any move toward innovation. Champions in Congress of existing economic development strategies and interests developed around those programs also present challenges to change.

While the administration's FY12 request will not be released until next February, the implications of the two recent OMB memoranda suggest much more active engagement by the TBED community and its related constituencies will be required for innovation, funding for TBED and real change in economic development strategies to become realities.

Agencies are to submit their draft budgets to OMB, reflecting the five percent cuts, by Sept. 13.

The OMB memoranda are available here:

• M-10-19 "Fiscal Year 2012 Budget Guidance": http://www.whitehouse.gov/omb/assets/memoranda_2010/m10-19.pdf
• M-10-20 "Identifying Low-Priority Agency Programs": http://www.whitehouse.gov/omb/assets/memoranda_2010/m10-20.pdf