Science Budget Cuts Under Sequestration
Federal agencies and laboratory instrument companies are now bracing for the effects of sequestration. On March 1, the Office of Management and Budget (OMB) officially announced fiscal 2013 (FY13) across-the-board reductions to all federal US agencies (see IBO 11/30/11). The $85 billion total budget cuts for FY13 are part of the Budget Control Act of 2011, which will result in $1.2 trillion in cuts through FY21. The cuts will force agencies to prioritize funding and eliminate certain programs and projects.
Sequestration slashes nondefense spending by 5.0%, which is less than the 8.2% budget officials predicted in September 2012. The reduction is less severe because sequestration took effect March 1 instead of January 1 as originally planned. However, since the continuing resolution agencies have been operating under since October 1, 2012, expires March 27, agencies will only have seven months to make the cuts, as the fiscal year ends September 30. Because of the shortened fiscal year, the OMB estimates that the percentage reductions are more equivalent to 9.0% for nondefense programs.
The percentage reductions for sequestrable funding can vary by account and budgetary resource. However, within each budget account, all programs, projects and activities must be reduced by the same percentage. A bill proposed by Barbara A. Mikulski, Chairwoman of the Senate Appropriations Committee, on March 13 would allow some agencies, including the NSF and the National Institute for Standards and Technology (NIST), to have more freedom to move their funds around.
In a February 27 memo, the OMB encouraged each agency to “minimize impacts on core missions and anticipate challenges that could raise concerns over life, safety or health.” The memo also urged the agencies to determine any key contracts or grants that they intend to terminate, delay or reduce. Agencies must present their budgets to the OMB before March 30. Despite direction from the OMB for federal agencies to not detail specific cuts, some agencies have revealed the areas to which they anticipate making reductions.
Some laboratory instrument companies will likely feel the impact of sequestration as well, although executives seem more optimistic than university officials or directors at the agencies themselves. “NIH funding is maybe 3% to 4% of our revenue,” stated Bruker Chairman, President and CEO Frank H. Laukien on the company’s fourth-quarter 2012 conference call. “We’re modeling the present uncertainty, which leads to very restrained academic spending in the United States.”
On Illumina’s fourth-quarter 2012 conference call, CEO and President Jay Flatley estimated that sequestration would cause a 2% to 4% decrease for the company, while the estimate of Life Technologies’ President and CEO Mark P. Stevenson on the firm’s fourth-quarter 2012 conference call was that company revenues would be reduced by about 1%. The company stated that it did not believe next-generation sequencing would be affected by the sequestration. On PerkinElmer’s fourth-quarter 2012 conference call, Chairman and CEO Robert F. Friel stated that “if there was a 10% decline, it would be about a 50 basis point headwind on our organic growth. We’re probably assuming something like half of that, which is probably what we saw in 2012.” He added that NIH funding was not significant for the company.
The NIH’s FY13 budget will be cut by $1.57 billion. The cuts will be 5.1% for each of the NIH’s 27 institutes and centers, although how to apply the cuts among programs will be at the discretion of institute directors. According to NIH Director Francis Collins, the NIH does not expect to eliminate positions. However, the agency does expect to reduce grants, and each grant supports as many as seven research positions. Grants account for 80% of the NIH’s funding. The NIH funds nearly 50,000 grants, comprising more than 300,000 researchers at 2,500 universities, medical schools and other research institutes each year. Currently, each grant provided by the NIH averages $431,000, and the NIH said that amount will likely be reduced by several percentage points. Grants that were funded by the fiscal 2012 budget will not be affected. Many recently approved FY13 NIH grants have not yet received funding. The NIH does not anticipate furloughs.
The NIH cuts will likely be particularly detrimental for Affymetrix, for which the NIH comprises approximately 25% of the customer base, according to the company’s fourth-quarter 2012 conference call. CEO and President Frank R. Witney said in the call that not all areas of the company will be affected. “Our Cyto business would not be largely impacted, or at all, by the sequestration. Our business is shifting to areas that are less impacted by government funding.” Illumina, too, is shifting its business to be less dependent on government funding, but will likely feel the NIH’s cuts. “In fiscal 2012, approximately 30% of our total revenue came from commercial customers who are not reliant on government agencies for funding,” Illumina stated in its 2012 10K SEC filing. In the filing, the company estimated that approximately one-third of its revenues “continues to be derived, directly or indirectly, from funding provided by the NIH.”
Also within the Department of Health and Human Services, the FDA’s budget will be reduced by $209 million. According to Health and Human Services Secretary Kathleen Sebelius, the cuts could result in 2,100 fewer food inspections at domestic and international facilities. In a February letter to employees, FDA Deputy Secretary Daniel Poneman stated that the FDA will consider furloughs and also mentioned that integral programs may be restricted, although he did not specify which ones.
Like the NIH, the NSF does not plan to institute furloughs. Reductions at the NSF will total $288 million. In a letter to presidents of universities and directors of NSF-supported institutions last month, NSF Director Subra Suresh, PhD, said that the major impact of sequestration at the agency will be reduced research grants. Although existing grants are unlikely to be affected, the number of new research grants will be slashed by approximately 1,000 if Ms. Mikulski’s proposed bill does not pass.
The EPA plans to institute up to 13 furlough days, which will result in a temporary closure of the agency, according to a March 1 memo sent to employees from Acting Administrator Bob Perciasepe. Funding for EPA programs will decrease by $472 million, including a $40 million cut to science and technology programs. The budget of the EPA’s Superfund will decline by $100 million. Other cost savings will come in the form of 2,600 less inspections, termination of air pollution monitors and elimination of water quality programs, according to a February 6 letter to Ms. Mikulski from Mr. Perciasepe. The Environmental Programs and Management Account, which supports regulatory programs for air, waste, water, toxins and climate, will be reduced by $135 million.
The DOE’s budget will decline by $422.5 million. The Department’s budget for energy programs will be reduced by $104.5 million. The DOE’s Office of Science will face $245 million in cuts. Ten national labs operated by the Office of Science will be affected. According to former Energy Secretary Steven Chu, who announced his resignation last month, the labs’ operations will decrease, which could affect more than 25,000 researchers and other personnel who use the facilities. He added that almost all plans to replace the national labs’ aging infrastructure will be abandoned. Further, he stated that research grants will be reduced, although he did not divulge details.
The NIST’s cuts will total $38 million, including a $29 million reduction to the Scientific and Technical Research and Services account. In a February 8 letter, Acting Commerce Secretary Rebecca Blank indicated that at least 100 research associates would be terminated because of decreased funding for core labs. In addition, she cited grants, contracts, equipment purchases and NIST facility upkeep as areas that will suffer under sequestration.
FY13 Estimated Sequestration Budgets Cuts for Selected Federal Agencies
Agency Sequestrable Budget($M) Sequester Amount($M)
NIH $31,049 $1,553
NSF $7,184 $352
EPA $9,418 $472
Science & Technology $799 $40
FDA $4,178 $209
DOE - Energy Programs $9,708 $494
DOE - Office of Science $4,904 $245
NIST $765 $38