This report summarizes current research and development priority-setting issues—in terms of spending priorities, topical or field-specific priorities, and organizational arrangements to determine priorities. Federal R&D funding priorities have shifted over time, reflecting presidential preferences, congressional appropriations, and national priorities. Defense R&D predominated in the 1980s but decreased to about 50% of total federal R&D in the 1990s, reflecting Clinton Administration policies. In non-defense R&D, space was important in the 1960s as the nation sought to compete with the Soviet Union in the space race; energy R&D joined space as a priority during the 1970s; and since the 1980s, health R&D funding has grown as the cohort of aged population increases and the promise of life sciences and biotechnology affects national expectations. Defense and counterterrorism R&D funding have been increased since the 9/11 terrorist attacks. Together, Department of Defense (DOD) and National Institutes of Health (NIH) funding total about 77% of the FY2007 R&D request. (See Figure 1 and the Appendix table.) R&D budgets are developed over an 18-month period before a fiscal year begins. Often advisory committees, influenced by professional scientific groups, recommend R&D priorities to agencies, which use this information, internally generated information, and the White House's Office of Management and Budget (OMB) and Office of Science and Technology Policy (OSTP) guidance to determine priorities. Agencies and OMB negotiate funding request levels during the preparation of the budget before it is sent to Congress. After standing committees recommend budget levels for matters within their jurisdiction to the budget committees, Congress is to pass a budget resolution, which sets spending levels and recommends levels for each budget function that appropriations committees use in setting discretionary (302b) spending allocations for each appropriations subcommittee. The resolution also gives outyear projections based on budget and economic assumptions. Each of the appropriations subcommittees is to report approved funding levels for agencies within their jurisdiction; appropriations bills, which give agencies spending authority, are to be sent to the floor, usually beginning in the summer. For FY2005, R&D appropriations totaled about $131.8 billion of budget authority, about 54% going to defense R&D. Non-defense R&D funding was increased about 0.2%. The largest increases went to R&D in NIH and DOD; smaller increases were made for R&D budget authority at the Department of Agriculture (USDA), the Department of Homeland Security (DHS), the Department of Transportation (DOT), the National Aeronautics and Space Administration (NASA), and NIH. FY2005 congressional action reduced the National Science Foundation's (NSF) budget by 0.3% below the FY2004 level. Congress appropriated less than the FY2004 level for R&D in the Department of Education and the Environmental Protection Agency (EPA). In the Department of Commerce (DOC), the President sought again to eliminate the Advanced Technology Program (ATP), whose R&D was funded at $134.0 million in FY2004. Congress increased R&D funding for the National Oceanic and Atmospheric Administration (NOAA) by 10%, and funded ATP R&D at $114.0 million, about 15% less than in FY2004. (See the Appendix table.) For FY2006, Congress enacted R&D budget authority of about $134.8 billion, $2.2 billion more than in FY2005. More than 90% of the increase went to DOD research, development, testing, and evaluation (RDT&E), largely for weapons development, and the rest to NASA, largely for space exploration. DOT received a 14% increase for R&D. Other agencies' R&D budgets were reduced or flat if inflation is considered. Congress also enacted a 1% across-the-board cut for all discretionary R&D, in effect lowering enacted appropriations amounts. Of the major R&D support agencies, FY2006 appropriations action reduced R&D funding below the FY2005 level for NIH, USDA, and DOE. (See the Appendix table.) For FY2007, R&D was requested at almost $137 billion of budget authority, about 1.8% more than enacted in FY2006. The request sought to double funding over 10 years (for a total of about $50 billion) for three key federal agencies that support basic research in physical sciences and engineering, that is for NSF, the Department of Energy's (DOE) Office of Science (for advanced energy research), and for the NIST laboratories, as part of the American Competitiveness Initiative (ACI) introduced in the 2006 State of the Union address to enhance U.S. innovation. Also, funding for NASA R&D would have been increased by about 8% largely for a development program called Constellation Systems to develop human space vehicles to replace the Space Shuttle. Cuts would have been made in NASA research programs in aeronautics, life sciences, and other research activities. Continuing previous emphases, the budget would have slightly increased over FY2006 support in real dollar terms for defense development. NIH funding would have been flat and R&D funding for all other agencies would have been decreased from FY2006 enacted levels. Over the next five years, the Administration's budget projected reducing budget deficits by cutting discretionary spending, so that while NASA and the three ACI-emphasized agencies would have continued to receive increases, other R&D funding agencies would have been subject to real dollar cuts after adjusting for expected inflation rates. (See the Appendix table.) The ACI initiative would also have made the R&D tax credit permanent, and increased support for mathematics and science education teacher training and curricula. For FY2007, two appropriations bills were signed before adjournment—for DOD and DHS. The rest of the government is operating on a continuing resolution through February 2007, but which incoming Appropriations Committee chairmen say they will seek to continue throughout FY2007, thereby funding all other R&D activities at FY2006 levels. FY2007 appropriations action increased support for defense development and decreased homeland security R&D funding. (See the Appendix table.) Current priority-setting debates focus on the functions and size of federal R&D funding as a part of national R&D and on how to balance priorities in the portfolio of federal non-defense R&D, especially between health and nonhealth R&D. The NSF projects that national (public + private) R&D expenditures will total $312.1 billion for FY2004, the latest year for which data are available, and about 51% more than in 1990. Federal R&D expenditures as a part of the total have also risen, to $93.4 billion (mostly to fund work performed in non-governmental sectors), but have declined significantly as a part of the total from 46% in 1983 to about 30% in 2004. The United States performs over twice as much R&D as the second largest funding nation, Japan. However, in terms of the ratio of R&D expenditures to gross domestic product (GDP), the United States ranks sixth, at 2.7%, following Israel, Sweden, Finland, Japan, and Iceland. Funding patterns figure prominently in priority-setting debates. Industry is the largest supporter and performer of the nation's R&D; universities and colleges are the second-largest performer. It is estimated that industry funded 64% of all U.S. R&D performed in 2004 and conducted 70%; industry funded about 89% of the R&D it conducted. The amount of R&D supported by various industries varies; most industrial R&D is for near-term applied work and product or prototype development. In 2004, industrial R&D expenditures supported 82% of the nation's development work and provided 36% of national research expenditures (exclusive of development), largely for applied research. Industry allocated 5% of its R&D expenditures to basic research, and supported 17% of the nation's total basic research. Federal support for development, which totaled about 34% of federal R&D, goes largely for defense R&D performed by industry. The federal government is the largest supporter of the nation's basic and applied research (i.e., research per se ), and supplied 49% of total national basic research expenditures in 2004. The federal government was the single largest supporter of the nation's basic research, funding 62% of national basic research expenditures, largely in universities, and, thus, is the largest supporter of the nation's scientific knowledge base. About 42% of total federal research dollars goes to universities and 22% to mission-oriented work in intramural federal agency laboratories, largely at DOD, NIH, and USDA. Universities and colleges conducted 55% of nationally funded basic research; the federal government funded about 65% of this university-performed basic research. According to a recent NSF report, "The share of academic R&D support provided by industry peaked at 7.4% in 1999 and declined every year thereafter, reaching 4.9% in 2004." One of the major reasons for this shift, according to NSF, was that "...U.S. companies increasingly choose to work with foreign rather than U.S. universities, encouraged by the more favorable [intellectual property] IP rights that foreign universities offer and the strong incentives for joint industry-university research that foreign governments provide." OMB's historical trend data indicate that in constant dollar terms, federal R&D funding declined from about 18% of total federal discretionary outlays in FY1965 to about 16% today. In part because of economic pressures and budgetary caps, during the years FY1991 to FY2002, federal R&D funding was below the previous constant-dollar high of FY1990.