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Government Affairs Update

  • Federal Budget
  • Commonwealth Budget
  • City Budget
  • Federal Budget

    On February 6, the Administration’s FY07 budget proposal was presented by the President. This represents the first step in the crafting of the federal budget for the next fiscal year. The budget proposal requests an overall spending level of $2.77 trillion for FY07, which is an increase of approximately two percent over FY06.  Discretionary spending in the budget proposal is $870.7 billion, representing an increase of 3.3 percent, which would primarily be allocated to defense and homeland security.  Non-defense (and homeland security) discretionary spending is proposed at $398.3 billion, a 0.5 percent reduction.

    The budget proposal also contains the American Competitiveness Initiative (ACI) for research.  Over a 10 year period, the ACI proposes to double the “investment in innovation-enabling research” at three federal agencies: the NSF, the Department of Energy’s Office of Science, and the National Institute of Standards and Technology (NIST) at the Department of Commerce.  For FY07, the ACI proposes $10.7 billion for these agencies, representing a $910 million, or 9.3 percent, increase.  According to budget materials, this would represent:

    • a $439 million (7.8 percent) increase for NSF, that “is expected to support as many as 500 more research grants in 2007 and 6,400 additional researchers, students, post-doctoral fellows and technicians contributing to the innovation enterprise;”

    • a $500 million (14 percent) increase for DOE Office of Science. “In addition to supporting 2,600 (10 percent) more researchers in 2007 than in 2006, the initiative provides for the construction of a number of cutting-edge scientific research tools with direct implications for economically-relevant R&D, including the world’s most powerful civilian supercomputer and an x-ray light source user facility with world-leading capabilities to study materials, chemicals, and biological matter at the scale of an individual atom.”

    • and a total of $535 million for NIST “core programs” which represents a 24 percent increase after accounting for one-time projects in FY06. The budget refers to the agency as “a high-leverage Federal research agency that supports economically significant innovations such as new materials and processes, electronics, computing and information technologies, advanced manufacturing integration, biotechnology, new energy sources such as hydrogen, and nanotechnology. NIST also plays a critical role in supporting standards development activities that are used by industry and government agencies.”

    In terms of R&D funding, the budget proposal includes an increase of $3.42 billion, or three percent, for an overall R&D funding level of $137.3 billion.  The proposed funding for basic research across agencies would increase by $357 million, or one percent, to a level of $28.25 billion.  Government-wide applied research spending would see a decrease of $1.83 billion, or seven percent, to a level of $26.1 billion.  The following is a list of FY07 R&D funding recommendations for some key agencies:

    • Department of Defense (DoD): R&D funding would increase by $2.29 billion, or three percent

    • Department of Homeland Security: an increase of $24 million, or two percent, for R&D

    • National Institutes of Health: essentially level-funded at $28.43 billion

    • NASA:  an increase of $851 million, or seven percent, to a level of $12.25 billion

    The President’s budget also highlights five continuing interagency R&D initiatives. These initiatives include:

    • Combating Terrorism R&D. The budget documents provide no overall budget for antiterrorism R&D across federal agencies in FY07. R&D includes funding for such work as “finding and applying quick and cost-effective decontamination capabilities following a biological, chemical, nuclear or radiological incident; strengthening predictive modeling capabilities to augment our ability to assess the rate of geographic spread of infectious diseases or chemical agents or predict the impact of key policy decisions on factors affecting disease transmission; enhancing the safety of the Nation’s food supply and agricultural systems through research directed at the epidemiology and ecology of emerging plant and animal diseases, and the development of more effective vaccine and diagnostic technologies; and enhancing cyber security through the Networking and Information Technology R&D program.”

    • Networking and Information Technology. The budget would provide $3.1 billion in FY07, an increase of two percent over FY06 spending, for the multi-agency Networking and Information Technology Research and Development Program. The program “plans and coordinates agency research efforts in high-end computing systems, large-scale networking, software development, high-confidence systems, information management, cyber security, and other information technologies.”

    • Nanotechnology R&D. The budget would provide $1.28 billion for the National Nanotechnology Initiative, a two percent reduction. In FY07, agencies participating in the initiative, “will continue to focus on fundamental and applied research through investigator-led activities, multidisciplinary centers of excellence, education and training of nanotechnology workers, and infrastructure development, including user facilities and networks that are broadly available to researchers from across the scientific research community. In addition, agencies continue to maintain a focus on the responsible development of nanotechnology, with attention to the human and environmental health impacts, as well as ethical, legal, and other societal issues.”

    • Climate Change R&D. The budget requests $1.72 billion for the government-wide Climate Change Science Program, an increase of $4 million, or essentially level funding. The budget document says the program will continue to “support the implementation of the CCSP Strategic Plan, which was released in July 2003,” and in FY07 will continue research into “important scientific uncertainties and preparation of a series of Synthesis and Assessment reports.”

    • Hydrogen R&D. No specific funding for this multi-agency initiative is provided in the FY07 budget. Budget documents indicate that the Department of Energy will continue its Hydrogen Fuel Initiative, which includes a 54-percent increase in “targeted basic research investments in 2007” and “focuses on research to advance hydrogen production, storage, and infrastructure.”

    The Administration’s FY07 budget request for the Department of Education proposes $82 billion for federal student financial aid, which represents a $4.6 billion, or six percent, increase over FY06. The budget would provide $12.7 billion for Pell Grants while maintaining the maximum award at the current $4,050 level.  Campus-Based Aid Programs (Perkins Loans, Work-Study, and SEOG) funding is proposed at $1.8 billion, which represents a $65.4 million, or 3.6 percent, reduction. The budget proposal also assumes elimination of the Perkins Loan program.  The budget request also includes $850 million for the new Academic Competitiveness and SMART grants as part of the Campus-Based Aid programs. The FY07 request would also provide $1.1 billion for higher education programs, with the following program recommendations:

    • GAANN:  level funded at $30.1 million

    • Javits Fellowships:  level funded at $9.7 million

    • International Education and Foreign Language Studies:  $106.8 million, a $1 million increase

    • National Security Language Initiative:  $24 million

    • TRIO Programs:  $380 million, which is a reduction of $448 million

    • GEAR UP:  funding eliminated

    • FIPSE:  $22 million

    The President’s FY07 budget would provide $141 million for the National Endowment for the Humanities (NEH), the same amount as FY06. Within this total, the request for the We the People program is $15.2 million, Research Programs is $12.4 million, and Education Programs is $12 million.

    The Office of Government and Community Affairs, in conjunction with the higher education community, continues to monitor closely the budget and appropriations process, and other issues of relevance to Penn, and will update the Penn community on developments and work aggressively to advocate for Penn’s interests.

    University of Pennsylvania Non-Preferred Appropriation

    (in thousands of dollars)




    HB 829

    Gov. Rec.

    % Inc.
    Over 2006

    Medical Instruction







    Dental Clinics







    Cardiovascular Studies







    Veterinary School







    Penn Museum*







    Total University








    Commonwealth Budget

    On February 8, Governor Edward Rendell released his proposed FY 2006-07 budget for the Commonwealth.  The Governor is proposing a total of $46,206,000 in the University’s direct appropriation, an increase of $1,340,000, or 3.0 percent, over the amount the University is receiving in the current fiscal year (see chart above).  This represents the highest recommended budget increase for Penn during the Rendell administration. All four line items funded through the Department of Education were increased 3 percent—Veterinary School ($39,254,000); Medical School ($4,037,000); Cardiovascular Studies ($1,601,000); and Dental Clinics ($1,083,000).  The Governor proposed to keep the Penn Museum at level funding ($231,000). All other directly aided museums were treated similarly.

    Apart from the direct non-preferred appropriation, the Governor made other budget recommendations within the Department of Public Welfare’s budget that would have a significant impact on Penn Medicine. The Governor is proposing the elimination of two hospital supplemental payments —Medical Assistance (MA) medical education and the Community Access Fund. In addition, the Governor is proposing to reduce by 50 percent inpatient disproportionate share payments. There will be no reduction to the Tobacco Settlement uncompensated care payments. The annual impact of the proposed payment cuts to Penn’s hospitals is estimated to be $15 million.

    The Governor is also proposing a significant restructuring of the Tobacco Settlement health research program. He is proposing the creation of a new $500 million fund, entitled the Jonas Salk Legacy Fund, to support biosciences research. Under this program, half of the current funds allocated for health research would be “securitized” to pay the debt on a $500 million borrowing.

      The proceeds of the bond issuance would be used over the next two years to support biomedical research infrastructure, including facilities, labs, equipment, and recruiting researchers. All grants provided under this program must be matched by the institution on a one to one basis.  The Governor is promoting this program as a way to accelerate investment in biosciences research in the Commonwealth.  It is expected that legislation providing more specifics will be forthcoming in the near future.  Penn currently receives between $9 and $11 million annually in formula health research funds through the Tobacco Settlement.

    The release of the Governor’s proposed budget begins the budget process, with the Legislature now starting budget hearings.  Penn is scheduled to testify before the House Appropriations Committee on February 27.  Following budget hearings the legislative leadership and Governor will begin budget negotiations leading to a final budget resolution by June 30.

    City Budget

    On January 24, 2006, Mayor John Street presented his $3.6 billion FY07 budget to City Council and members of his Administration. Highlights of his budget include:

    • The “New River City Economic Development Fund” of $125 million that will make investments in neighborhoods, other Neighborhood Transformation Initiative (NTI) related projects, and will leverage private investment along Philadelphia ’s waterfront. Mayor Street indicated that making Philadelphia the “New River City” in America is the centerpiece of his economic agenda. The Mayor’s budget specifically calls for continued support of the implementation of the Schuylkill River Development Corporation (SRDC) mixed-use Master Plan.

    • The FY07 Operating Budget and Five Year Financial Plan contain debt service to borrow $150 million dollars to provide funding for Arts and Culture institutions and neighborhood commercial corridors. The Mayor highlighted the use of these funds for capital infrastructure needs of the City’s arts institutions. The Philadelphia Zoo, and a new Please Touch Museum in West Philadelphia were cited as recipients of these funds. In FY07, the Administration will undertake a major initiative, NTI’s ReStore Commercial Corridor Initiative, supported in part by $65 million in bond proceeds proposed as a part of the FY07 Operating Budget.  This initiative will invest in long neglected commercial corridors by putting in new curbs, sidewalks, lighting, trees and façade work. The Mayor also signaled support for a Small Business Guarantee Fund proposal sponsored by Councilman W. Wilson Goode in which the City would guarantee 20% of a small business loan in the event of default.

    • Mayor Street called for an added $2.5 million in the City's budgets for both fiscal 2007 and 2008 to capitalize on a run of good media coverage Philadelphia received last year that has helped to boost hotel occupancy and increase visits to attractions.

    • The City budget calls for an increase in the City’s funding and commitment to the Knowledge Industry Partnership, the intiatitive to retain more college students in Philadelphia upon graduation. The City makes a financial commitment of $1 million over the next three years to support an enhanced KIP service delivery model, and is funding an additional position in its Commerce Department to support this work.

    • The City will finalize negotiations for its “Wireless Philadelphia” initiative with service provider Earthlink, offering discounted Internet access to qualifying Philadelphia residents, and discounted Internet access and affordable rates to other residential subscribers. Under Earthlink’s plan, no City dollars will be used to fund the construction of the Wi-Fi infrastructure. Earthlink will build a 135 square mile citywide Wi-Fi mesh network, with the first 15 square-mile area expected to be operational in FY07. In addition to providing inexpensive wireless internet access, the network will also provide free internet access in some parks and public spaces, daily and weekly access for occasional users and visitors, and small business connectivity.

    • The Mayor called for greater diversity within the executive ranks of Philadelphia’s business community. He emphasized the City will do more to ensure the economic inclusion of minorities and women on City contracts, and more diversity on union job sites. The goal is to make Philadelphia a national model for MBE/WBE participation in the local economy.

    • The Mayor’s budget accelerates the pace of the reductions in the gross receipts portion of the Business Privilege Tax. A total of $12 million of BPT reductions will occur in FY07, including a $5 million boost in gross receipt reductions in FY07 alone.

    • The Mayor announced the “Conditional Forgiveness Policy” to enhance Philadelphia’s ability to collect outstanding real estate taxes, while simultaneously giving needy homeowners who qualify the chance to enroll in an affordable program to pay off their overdue real estate taxes. Approximately 17,000 homeowners may qualify for the long-term financial hardship payment plans. Taxpayers who own and occupy their homes and whose income is at or below 250 percent of the poverty level are eligible. If the taxpayer meets all of the obligations of the payment plan, the City will forgive all penalties and interest owed on the real estate taxes,

    • To help reduce crime in the City, the Police Department will launch a citywide Adolescent Violence Reduction Partnership, which will provide intensive services to high-risk children between the ages of 10 and 15, in an attempt to keep them in school and out of our juvenile justice system. He also included $10 million in additional overtime pay for existing Police Department personnel, but did not include funding for the hiring and training of new officers.

    • The budget initiates a citywide Violence Prevention and Reduction Program. The strategy will focus on violent criminals and predictable violence, and relies on data, a redeployment of resources, coordination of law enforcement agencies, coordination with the Department of Human Services and other social services departments, and community engagement in “hot spots” in areas throughout the City.

    With an anticipated $168 million surplus, the Mayor’s proposed budget does not contain the kinds of cuts in popular services, such as fire stations and libraries, that incited opposition last year. This year’s spending plan offers funding to promote programs that have broad appeal, but require heavy borrowing to achieve. The Mayor’s proposal would increase the City’s existing $1.9 billion debt. City Council initiated the budget hearing process on February 16.



      Almanac, Vol. 52, No. 23, February 21, 2006


    February 21, 2006
    Volume 52 Number 23


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