President Barack Obama and Congressional leaders thought they dodged a bullet last August, when they hammered out a complex deal that spared the U.S. from the ignominy of defaulting on its debt. In return for an immediate $400 million debt-limit increase, the Budget Control Act of 2011 (BCA) called for several long-term measures to control federal spending and eliminate trillion-dollar annual deficits.
One of them required Congress to cut at least $1.2 trillion in spending over the coming decade, or face an equal amount in annual across-the-board budget reductions, or sequestration, starting on January 2, 2013; after subtracting $216 billion in interest savings, the actual amount is $984 billion. But in November, the 12-member “supercommittee,” or Joint Select Committee on Deficit Reduction, succumbed to political stalemate and failed.
Partisan squabbling continues: On May 9, the Republican-controlled House of Representatives moved to the floor the Sequester Replacement Act of 2012 (HR 4966). The bill would eliminate 2013 sequestration for discretionary programs and mandatory defense spending. Sequestration would continue every other year, with savings no longer evenly divided between defense and nondefense programs.
Until the political impasse is resolved—and that’s not expected until after Election Day—the biopharma research community faces the prospect of fewer grants, fewer decisions on new drugs, and less activity overall stemming from across-the-board cuts in the budgets of federal agencies. How steep will those cuts be? Depends on what’s being cut.
How confident are you that Congress can head off sequestration?
Amount to Be Cut
The Congressional Budget Office has projected across-the-board cuts to the discretionary appropriations of nondefense agencies—including NIH, NSF, FDA, and CDC—starting at 7.8% in FY 2013 and going down to 5.5% in FY 2021. However, the Center on Budget and Policy Priorities has projected a slightly higher 8.4% across-the-board cut.
Also, an analysis released April 16 by the Federation of American Societies for Experimental Biology (FASEB) showed the across-the-board impact to nondefense agencies would perhaps reach double digits. FASEB rightly noted that not all agency activities can be reduced by a set percentage as quickly as BCA envisions. Staff salaries are part of collective bargaining agreements. Within NIH, some operations largely consist of salaries, including the intramural program (costing $3.4 billion), research management and support ($1.5 billion), and the office of director Francis S. Collins, M.D., Ph.D. ($600 million).
If these activities, totaling $5.5 billion, are not cut, NIH would have to take 9.1%, or $2.8 billion, from the remaining extramural budget of $25.3 billion, requiring an 11.1% reduction for all other NIH programs, according to FASEB. “Our sense is that it’s hard to just jettison staff all of a sudden, so we think it’s most likely to come out of the extramural budget,” Jennifer Zeitzer, legislative director for FASEB, told GEN.
Areas that Stand to Lose
Even a best-case sequestration scenario of 7.8% across the board would have far-reaching consequences for NIH. Testifying in March before the Senate Appropriations Committee’s Labor-HHS-Education subcommittee, Dr. Collins said a 7.8% cut would chop $2.39 billion from NIH’s FY 2013 budget, assuming the agency starts with the same $30.86 billion program level as available in FY 2012 and as proposed by President Obama in his budget request for next fiscal year.
The result, he said, would be 2,300 fewer research grants. That’s almost a quarter of the estimated 9,415 new and competing grants NIH expects to award in FY 2013. “That would result in success rates of our applicants who come in with new applications or competing ones falling to historically low levels,” Dr. Collins noted.
United for Medical Research, a group committed to “seeking steady growth in the NIH budget over the long term,” concluded the 7.8% cut would result in 33,000 fewer jobs and more than $4.5 billion in lost economic activity in its report “Engine Stalled: Sequestration’s Impact on NIH.” Job loss is difficult to capture, however, because not every researcher who loses out on grants faces losing their job as a result. Yet, many do especially at nonprofit medical research institutions, where NIH grants account for 80% of all funding, as Sanford-Burnham Medical Research Institute CEO John Reed, M.D., Ph.D., noted.
If the across-the-board cut reaches just about halfway between 7.8% and FASEB’s worst-case scenario of 11.1%, 4,756 grants totaling $2.2 billion would be lost, according to FASEB—about half of the projected FY 2013 grants. Almost 15% of the grants set to be eliminated (687, totaling $332.3 million) would be lost by California researchers, followed by nearly 10% (463, totaling $235.7 million) by Massachusetts researchers.
FASEB did estimate that an 11.1% cut would slice $2.6 billion in grants but didn’t assess how many. Based on the dollar amount being 18.18% higher than $2.2 billion calculated at the midway mark, it could be estimated that the worst-case scenario would result in the loss of almost 5,621 grants—almost 60% of next fiscal year’s projected grants.
Research!America, an advocacy group for greater federal research funding, estimates that that a 7.8% across-the-board cut would result in NSF losing $538.2 million, CDC losing $444.6 million, and FDA, $191.1 million. It issued a 13-page report on May 11 called “Sequestration: Health Research at the Breaking Point.”
The report equated NSF’s projected loss to nearly 75% of NSF’s entire FY 2011 budget for all biological sciences research. CDC’s projected loss would be 95% of the $467 million spent in FY 2011 on Public Health Scientific Services. FDA’s loss is virtually the same amount spent on reviewing and approving biologic drugs in FY 2011.
Eleanor “Ellie” Dehoney, vp, public policy and programs for Research!America, told GEN that across-the-board budget cuts would leave researchers with few alternatives such as pursuing funding from other nonprofit sources. “The problem is that most of the wells are running dry. Fewer philanthropic dollars are available. Fewer university dollars are available, because universities—the big research universities—are state funded, and that state funding is drying up. So our best guess is that the amount of research will simply shrink. There won’t be anybody to step in to fill the gap,” Dehoney predicted.
While state budget cuts and endowment losses have squeezed university research programs, U.S. charitable giving is bouncing back after losses in 2008 and 2009. Giving USA Foundation™ and the Center on Philanthropy at Indiana University recorded a 3.8% gain in 2010, to $290.89 billion. A Nonprofit Research Collaborative survey released in April showed more than half the charities saw giving rise last year.
Research!America’s estimates are comparable to those of an October 14 analysis by Rep. Norm Dicks (D-WA), ranking member of the House Appropriations Committee. NSF’s projected loss of $530 million would mostly consist of a $430 million cut in research grant funding. “At this level, NSF would fund nearly 1,500 fewer research and education grants, supporting approximately 18,000 fewer researchers, students, and technical support personnel than it did in FY 2011.”
CDC’s projected loss of $440 million, according to Rep. Dicks, would cut funding for, among other programs, grants toward immunization for people without adequate insurance coverage, which “would mean that at least 22,000 children could no longer receive the recommended childhood vaccines through this program.”
Rep. Dicks, interestingly, projected a slightly larger loss of NIH grants than Dr. Collins, saying that about 2,500–2,700 fewer grants would be made by the agency.
The Congressman’s analysis included advice for the supercommittee that should be heeded by Congress: “Overcome partisan differences, agree on a balanced approach to long-term deficit reduction, focus on economic growth and job creation, and do no harm to the faltering economic recovery in the short-run.
“If you fail, dire consequences await our nation,” Rep. Dicks added. Whether Congress will heed that advice remains to be seen. As with the debt-ceiling impasse that led to BCA last year, an arrangement agreeable to both parties should eventually happen but not until after Election Day. This scenario will all but guarantee months of partisan posturing for politicos and sleeplessness for the researchers and institutions whose futures hinge on what happens in Washington.