The legislative accomplishments of the previous session of Congress have given advocates of more robust innovation and industrial development investments much to be excited about. This is especially true for the bipartisan CHIPS and Science Act (CHIPS), which committed the nation not just to compete with China over industrial policy and talent, but to advance broad national goals such as manufacturing productivity and economic inclusion while ramping up federal investment in science and technology.
Most notably, CHIPS authorized rising spending targets for key anchors of the nation’s innovation ecosystem, including the National Science Foundation (NSF), the Department of Energy’s Office of Science, and the National Institute of Standards and Technology (NIST). In that regard, the act’s passage was a breakthrough—including for an expanded focus on place-based industrial policy.
However, it’s become clear that this breakthrough is running into headwinds. In spite of ongoing rhetorical support for the act’s goals from many political leaders, neither the FY 2023 Consolidated Appropriations Act nor the Biden administration’s FY 2024 budget request have delivered on the intended funding targets. This year’s omnibus funding remained nearly $3 billion short of the authorized levels for research agencies, while the 2024 budget request undershoots agency targets by over $5 billion. And with the debt ceiling crisis coming to a head this month—and House legislation on the table that would substantially roll back federal spending—it’s even harder to be optimistic about the odds of fulfilling the CHIPS and Science Act’s vision of resurgent investment in American competitiveness.
Instead, delivery on the CHIPS and Science Act paradigm can only be fractional as of now, with a $3 billion (and growing) funding gap for research and less than 10% of the five-year place-based vision funded to date.
All of which underscores how much work remains to be done if the nation is going to deliver on the promise of a rejuvenated innovation and place-based industrial strategy. Leaders need to make an energetic and bipartisan reassertion of the CHIPS vision without delay if the government is to truly follow through on its bold promises.
CHIPS has a broad, Innovative policy menu to support renewed American Competitiveness
Recently, Rep. Frank Lucas (R-Okla.), chair of the House Committee on Science, Space, and Technology, rightly pointed out that the “science” portion of the CHIPS and Science Act (i.e., separate from its subsidies for semiconductor factories) will be “the engine of America’s economic development for decades to come.” One way the act seeks to achieve this is by creating the Directorate for Technology, Innovation and Partnerships at NSF, and focusing it on an evolving set of technological and social priorities (see Tables 1a + 1b). These won’t just drive NSF technology work, but will guide the development of a more concerted whole-of-government strategy.
|Table 1b: Societal, national, and geostrategic challenges
|U.S. national security
|Climate change and sustainability
|Manufacturing and industrial productivity
|Inequitable access to education, opportunity, services
|Workforce development and skill gaps
In light of these priorities, it’s no mistake that Congress placed the NSF, the Energy Department’s Office of Science, NIST, and the Economic Development Administration (EDA) at the core of the “science” portion of the act. The first three agencies are major funders of research and infrastructure for the physical science and engineering disciplines that undergird many of these technology areas. The EDA, meanwhile, is the primary home for place-based initiatives in economic development.
Meanwhile, in keeping with the larger strategy of countering the nation’s science and technology drift, Congress adopted five years of rising “authorizations” for these core innovation agencies. However, it bears remembering that these authorizations are not actual funding, but multiyear funding targets that, if fully funded year by year, would result in an aggregate budget doubling. In short, Congress has declared that the national budget for science and technology should go up, not down, over the next five years.
It’s also worth noting that the act seeks to boost investment in many different areas, including:
- Fundamental science and curiosity-driven research funded by science agencies at federal labs, universities, and companies.
- Use-inspired research, translation, and production to expand the ability of federal agencies to invest in emerging technology, enter partnerships, and drive manufacturing innovation.
- STEM education and workforce development to create or expand programs to foster opportunities and up-skilling.
- Research facilities and instrumentation at national labs and universities across the country, including modernization of aging research infrastructure.
- Regional innovation to broaden the nation’s innovation map.
The upshot: Supporters are not wrong in seeing the CHIPS and Science Act as a major moment of aspiration for U.S. innovation efforts and ecosystems.
Government Appropriations are falling short on CHIPS funding by billions of dollars
Yet for all the act’s valuable programs and focus areas, not all is well. As of now, there have been two rounds of proposed or adopted funding policy for CHIPS research agencies—and the results are mixed to disappointing as details a new funding update on the CHIPS and Science Act from the Federation of American Scientists.
The first funding round was the FY 2023 omnibus package Congress adopted last December. There, the aggregate appropriations for the NSF, Office of Science, and NIST amounted to $2.7 billion—a 12% shortfall below the aggregate FY 2023 target of $22.4 billion.
Table 2: Major research agency appropriations vs. CHIPS authorizations
|CHIPS FY23 Authorizations
|FY23 Omnibus Appropriation*
|CHIPS FY24 Authorizations
|FY24 OMB Budget
|National Science Foundation
|DOE Office of Science
|National Institute of Standards & Technology
|Dollars in millions
|*FY23 omnibus figures include NIST earmarks and supplemental NIST and NSF spending for CHIPS and Science activities
Then, in March, amid what was already a yawning funding gap, the White House released its FY 2024 budget proposal. That proposal would have the three CHIPS research agencies falling further behind: $5.1 billion, or 19% below the act’s authorization.
In both the omnibus and the budget, NSF funding was the biggest miss. This can be divided into a few segments:
- Core research directorates. Most NSF science research is channeled through six research directorates that focus on biology, computing and information science, engineering, geoscience, math and computer science, or social science, alongside offices focused on multiple crosscutting activities. This research lays a foundation for innovative advances and funds several mechanisms for industrial research partnerships, roughly in line with the CHIPS and Science Act’s broader industrial innovation goals. Funding for these collective activities stood at about $591 million (8% below the authorized level) in FY 2023 and $846 million (10% below the authorized level) in the FY 2024 budget request.
- Directorate for Technology, Innovation and Partnerships (TIP). This new directorate established in CHIPS is meant to support translational, use-inspired, and solutions-oriented research and development through a variety of novel modes and models, including the NSF’s Regional Innovation Engines (more on these below), translation accelerators, entrepreneurial fellowships, and test beds. Authorizers set a TIP funding target of $1.5 billion in FY 2023 and $3.4 billion in FY 2024—the most ambitious CHIPS appropriations targets by far. However, actual funding was $620 million short in FY 2023 and $2.2 billion short in the FY 2024 budget request.
- STEM education. The NSF’s Directorate for STEM Education houses activities across K-12 education, tertiary education, informal learning settings, and outreach to underserved communities. CHIPS authorized boosts for multiple directorate programs, including Graduate Research Fellowships, Robert Noyce Teacher Scholarships, and CyberCorps Scholarships, while establishing new Centers for Transformative Education Research and Translation to conduct education research and development. Collectively, these STEM education activities fell $579 million short of their $1.4 billion authorized level in the FY 2023 omnibus, and $1.1 billion short in the FY 2024 budget request.
With these shortfalls at NSF and other agencies, it will be difficult for federal science and innovation programs to have the transformative impact that CHIPS envisioned.
Funding for place-based industrial policy programs is also coming up short
In addition to decreased agency support, actual funding for what we call the “place-based industrial policy” in the CHIPS and Science Act is also coming up short, by even greater relative margins. Where the agency research funding gaps are a substantial restraint on innovative capacity, the diminished place-based funding is an out-and-out emergency.
These programs are important because after years of uneven economic progress across places, CHIPS saw Congress finally accelerating large-scale, direct investments to unlock the innovation potential of underdeveloped places and regions. Thanks to some of those investments, including several new challenge grants, scores of state and local leaders across the country have thrown themselves headlong into the design of ambitious strategies for building their own innovation ecosystems.
Yet for all of the legitimate excitement and interest of stakeholders in literally every state, the numbers that permit actual implementation are not all good. Looking at several of the most visible new place-based programs, the funding news is so far mixed to outright disappointing.
- Regional Technology and Innovation Hubs: Authorized at $10 billion over five years, the program received just $500 million in the FY 2023 omnibus—one-quarter of its authorized level for the year. This has greatly limited the resources available to the EDA for “development” grants to build out the program’s 20 forecasted hubs. Currently, the EDA is planning to make only five to 10 much smaller development grants instead of the authorized 20 very large grants, with more uncertainty ahead. Meanwhile, a $4 billion request in the president’s FY 2024 budget for mandatory funding outside the normal appropriations process (as opposed to discretionary spending, which is funded through annual spending bills) faces long odds.
- Regional Innovation Engines: This NSF program received $200 million in FY 2023 appropriations, and would receive $300 million under the FY 2024 request. It was authorized somewhat differently than other CHIPS line items, receiving a joint $6.5 billion authorization over five years for the Engines along with NSF’s newly authorized Translation Accelerators program. If one counts $3.25 billion as the five-year Engines authorization, then the program has received only about 6% of its authorization so far, or 15% if it receives the FY 2024 request level.
- Distressed Area Recompete Pilot Program: This EDA program—designed to deliver grants to distressed communities to connect workers to good jobs—is a relative bright spot funding-wise. Authorized at $1 billion over the FY 2022 to FY 2026 period, the program received its full $200 million in FY 2023 and has secured the same amount in the FY 2024 request. With that said, the program could still be under threat if the debt ceiling face-off leads to spending cuts.
Table 3: Placed-based innovation authorized in CHIPS and Science Act
|What It Does
|CHIPS and Science Authorizations
|Appropriation So Far
|FY24 OMB Budget
|Percent of Authorization Funded To Date
|EDA Regional Technology and Innovation Hubs
|Planning grants to be awarded to create regional technology hubs focusing on technology development, job creation, and innovation capacity across the U.S.
|$10 billion over five years
|$48.5 million discretionary; $4 billion mandatory
|EDA Recompete Pilot Program
|Investments in communications with large prime age (25-54) employment gaps
|$1 billion over five years
|NSF Regional Innovation Engines
|Up to 10 years of funding for each Engine (total ~$160 million per) to build a regional ecosystem that conducts translatable use-inspired research and workforce development
|$3.25 billion* over five years
|NIST Manufacturing Extension Partnership
|A network of centers in all 50 states and Puerto Rico to help small and medium-sized manufacturers compete
|NIST Manufacturing USA
|Program office for nationwide network of public-private manufacturing innovation institutes
|Totals (including MEP and M-USA FY23 authorizations)
|* The NSF Regional Innovation Engines is assumed to have received 50% of a $6.5 billion CHIPS and Science Act provision that also authorized the Translation Accelerators program
Besides these new CHIPS programs, two established mainstays of place-based development in the manufacturing domain are also facing funding challenges.
- NIST Hollings Manufacturing Extension Partnership: This program was slated for sizable boosts, with a $275 million authorization in FY 2023 and $300 million in FY 2024. The FY 2023 appropriation ended up $87 million short, while the FY 2024 request seeks a degree of catch-up, to within $23 million of the authorization. The request would support the National Supply Chain Optimization and Intelligence Network, to be established in FY 2023, and expand workforce up-skilling, apprenticeships, and partnerships with historically Black colleges and universities, minority-serving institutions, and community colleges.
- NIST Manufacturing USA: This program received $51 million in FY 2023 (about half of what was authorized), while the FY 2024 request again gets closer to the authorization, at $98 million. In FY 2024, NIST seeks to establish Manufacturing USA test beds, support a new NIST-sponsored institute to be completed in FY 2023, and further assist small manufacturers with prototyping and scaling of new technologies. As with all FY 2024 initiatives, outcomes depend partly on how tough the debt ceiling deal is for annual appropriations.
Overall, the current and likely future funding shortfalls facing many of the nation’s authorized place-based investments appear set to diminish the reach of these programs.
Should funding for critical technology areas be mandatory?
The CHIPS and Science Act establishes a compelling vision for U.S. innovation and place-based industrial policy, but that vision is already being hampered by tight funding. And now, the looming debt ceiling crisis is only going to make the situation worse.
Nor are there any silver bullets to resolve the situation. Somehow, Congress has to keep in sight the long-term vision for U.S. economic and military security, and find the political will to make the near-term financial commitments necessary for U.S. innovators, firms, and regions.
But it’s not just up to Congress. As we’ve seen, the White House budget also contains sizable funding shortfalls for research agencies. Federal agencies and the Office of Management and Budget will be formulating their FY 2025 budgets this summer in preparation for release next year. As they do so, they should prioritize long-term U.S. competitiveness across strategic technology areas and geographies more so than they have to date.
Lastly, while the mandatory spending proposal mentioned above for the Regional Technology and Innovation Hubs program may not get anywhere this year, mandatory funding as a mechanism for science and innovation investment is not a bad idea in principle. Nor is this the first time policymakers have pitched such an idea: The Obama administration attempted to make aggressive use of mandatory spending to supplement its base research and development requests, and congressional leaders have also floated the idea in recent years. Given the long-term nature of science and innovation, sustained and predictable support would be a boon, and a mandatory funding stream could provide much-needed stability.
Given all this, the moment may be approaching try again to leverage mandatory funding of innovation programs. With caps on discretionary spending on the horizon but bipartisan support for the CHIPS technology agenda still in place, the time to consider a mandatory funding measure may have arrived. Such a measure—structured by, say, a “Critical Technology and National Security Fund”—would go a long way toward ensuring more sustained, stable support for critical technologies in economic and military security. This is exactly the kind of support that CHIPS provides for the semiconductor industry, which is far from the only advanced technology sector subject to global competition.
In short, as we enter the summer months and face down a looming budget crisis, Congress should do for the “science” part of its watershed bill what it did with the “chips” part. Leaders in Washington must move now to ensure that we can deliver on the commitments set forth in the CHIPS and Science Act—all of them.
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