Ambitious American Science Requires Reliable and Effective Federal Funding

Federal financial assistance, a type of funding including grants and cooperative agreements, is one of the government’s most powerful tools for seeding breakthroughs and improving the lives of Americans. A recent rule proposed by the White House Office of Management and Budget (OMB) aims to enact sweeping reforms to the grant process. These reforms include giving the government the ability to terminate any discretionary grant at any point and mandating that senior political appointees do a pre-issuance review of all awards.

The stated goals of these changes are to improve accountability and oversight, increase transparency, and reduce burden on awardees. These are worthy goals, but OMB’s proposed rule would undermine them. If enacted, the rule will degrade the government’s ability to pursue long-term strategic goals, lower the quality of America’s research portfolio, and increase the burden on grantees. Individuals and organizations from both political parties have objected to this rule.¹

By requiring agencies universally build in the ability to terminate grants at any point without compensating grantees, the rule would significantly reduce federal financial assistance funding credibility. Uncertainty about funding across administrations would limit long-term planning across critical sectors, including housing, energy, transportation, infrastructure, healthcare, and research and development. For science in particular, this would undermine the pursuit of “bold, ambitious projects whose most important results may take years to emerge,” a goal of the Office of Science and Technology Policy’s (OSTP) recently released Science: A New Golden Age report.²

By mandating that senior political appointees control the pre-issuance review of all discretionary awards and prohibiting routine deference to expert recommendations, the rule would degrade the government’s ability to select the most scientifically feasible proposals. The empirical evidence is clear that the exercise of expert judgement is essential to get the best possible outcomes from the merit review process. This would produce funded portfolios with lower potential for “longer-term, breakthrough results,” one of OMB’s own stated goals for grants.³

Despite classifying the rule as “not economically significant,” OMB’s own analysis concedes over $300 million per year in new costs transferred to grantees. Simple estimates suggest the rule would result in an additional $200–400 million in annual costs because of procurement requirements and delays from political review. These large costs were not considered by OMB and result in increased burden without weighing those against their other stated goals. 

There are multiple ways of achieving better oversight of grants that would be significantly less costly, but OMB did not consider them. Financial assistance reform efforts should address the problems that make research administration inefficient and not as effective as it could be. This rule would make those problems worse. To enact more durable reforms, the science community, researchers themselves, agencies, the Administration, and Congress should all have a meaningful role.

For these reasons, we submitted a joint public comment with the Niskanen Center opposing OMB’s proposed rule. We summarize our conclusions below. For more detailed analysis, see the full comment here.

The proposed rule will fundamentally destabilize federal financial assistance

OMB’s proposal would fundamentally alter the relationship between the federal government and its grantees.

Until recently, it has been difficult for the government to terminate grants and other financial assistance based solely on changes in priorities. Once a grant was awarded, awardees could count on receiving the money they were promised as long as they performed and complied with award conditions. This certainty allows grantees to hire teams, build facilities, and spend years tackling difficult problems. 

The proposed rule would change this by adding a universal, mandatory mechanism to allow the cancellation of an award when a recipient is performing well and has done nothing wrong, because priorities have changed. Unlike contracts, the government would have no obligation to compensate them for the lost expectation. This is not hypothetical. Under existing law and over the objections of courts reviewing terminations, in the state of Texas alone $124M has been cancelled or frozen from NIH and NSF grants on national interest grounds, resulting in $366M in economic loss and 2,000 jobs lost. The proposed rule would make this an expected standard in every future administration of either party.

The constant risk of cancellation would significantly reduce the value of a federal grant, especially as the next political transition approaches. The rational response for grantees would be to price in the new risk, doing less work for the same dollars or declining to participate at all. The risks would fall hardest on ambitious, long-term research or infrastructure projects.

This kind of uncertainty has already hampered government priorities in other contexts. In an interview with the leadership of the CHIPS Program Office, a bipartisan initiative, the team said the industry’s initial reaction to their draft awards was “very negative” for precisely this reason:

“[The companies] would say, “We’re nervous. This agreement is going to last for 10-plus years. Who’s going to be at the CHIPS Program Office in 10 years?” They were making decisions on billions of dollars of investment… They wanted certainty that, “If we hold up our end of the bargain, we’re going to get that money.”⁴

If the federal government cannot reasonably commit to doing what it says it’s going to do, rational actors in the private or nonprofit sector may pull out or simply decline to engage in the first place.

Political review and funding uncertainty from the proposed rule will degrade federal science investments

The proposed rule will also lower the quality of federal research more broadly through requiring political reviews. Today, most decisions the government makes about what science to fund are informed by the judgment of subject matter experts (e.g., peer reviewers for NSF grants or program managers DARPA). The OMB’s proposed rule, however, requires senior political appointees to control the pre-issuance review of all discretionary awards and prohibits routine deference to expert recommendations.

Empirical evidence suggests demoting the results of subject matter expert peer review below the “independent judgment” of senior appointees will diminish the quality and expected benefits of federal R&D investments. Peer review is imperfect at the margin and biased against novelty.⁵ But it is far better than non-expert judgment. Li and Agha (2015) find that higher peer review scores are correlated with more impact,⁶ and Li (2017) shows that even small differences in the level of scientific expertise in a given subfield can affect the quality of decisions.⁷ Park, Lee, and Kim (2015) have similar findings.⁸

The responsibilities of these senior appointees will necessarily span more scientific fields than any individual could evaluate in depth. The process proposed in the rule will distance scientific decisions from those with the most scientific expertise. And the prohibition on routine deference to experts will encourage (or even mandate) senior appointees to arbitrarily overturn the results of peer review. 

Further, because there will be so many grants to evaluate and so few senior appointees, political review will either become a bottleneck, slowing down awards across the entire scientific ecosystem, or a rubber stamp, failing to deliver any oversight. 

Here the OMB again goes against its stated goals. According to the rule, research grants should fund a mix of projects “likely to produce immediately demonstrable results” and those with the potential for “longer-term, breakthrough results.” But by demoting scientific expertise, the rule will make the government less likely to select the most scientifically feasible proposals, producing fewer immediate results and fewer breakthroughs. 

Alternative oversight mechanisms would be less costly and more effective than the proposed rule

The proposed rule imposes large, unaccounted for costs. First, OMB’s own analysis estimates the rule will result in over $300 million per year in new costs to grantees. In addition, there are several other quantifiable costs they don’t consider including bottleneck costs of political reviews, domestic procurement requirements, and long-term financial uncertainty. For example, we estimate another $50–200 million per year from a part of the rule that requires awardees to use US-produced goods as much as is practicable.⁹

OMB should create their own estimate of these costs and weigh them against the presumed benefit of increased oversight.¹⁰ The risk to grantees from funding uncertainty is more difficult to quantify but clearly significant.

Credible commitment, speed, flexible execution, mechanism diversity, and agency experimentation are fundamental to effective R&D awards. Those conditions determine whether research grants enable or distort the science with the largest potential for breakthrough results.

Alternative approaches to improving oversight exist, including ones that would not impair each agency’s scientific decision making and distort the financial assistance mechanism itself. In our comment, we described an approach that is much more purpose-sensitive than the proposed rule’s universal, “one-size-fits-all” set of mandates. For example, if OMB’s goal is to ensure oversight catches awardees that may be abusing federal funding, then Inspectors General at Agencies should be empowered to go after fraudsters and ensure fidelity with existing cost accounting rules. This way, the oversight would be aimed at wrongdoers. Instead the rule’s proposed processes would increase the burden on everyone.

OMB could also pursue some of the burden-reducing reforms suggested in the rule separately: multi-year awards, streamlined funding notices, a two step process for applicants, and increasing plain language. None of them require universal discretionary termination and political pre-issuance review to improve the effectiveness of financial assistance.

Working with Congress would produce more durable reform

OMB’s proposal equates accountability to alignment with executive branch priorities. The proposed text, for example, justifies burdening agencies and grantees with new administrative procedures by asserting that  “sometimes program goals or Federal agency priorities may change in response to new direction from politically accountable leadership.” But accountability and legitimacy are derived not just from alignment to executive branch priorities but also from faithful execution of priorities set by Congress.

A better path toward reform would involve the Administration engaging with Congress as a governing partner. If OMB and Congress pursued structural reforms to the government’s funding mechanisms, making legislative compromise between the parties, the reforms would be more enduring. Each administration would not need to issue new versions of 2 CFR 200 every four years knowing that their successors will just reverse all these changes.

Government funding should align with administration and congressional priorities. But this rule would degrade the very things that make federal financial assistance work as a tool for governing. By underweighting the value of reliable commitments, expert judgment, and procedures in reasonable proportion to risk, the proposed rule would destabilize one of the core mechanisms in the government’s funding toolkit and distort its congressionally-defined purpose.

We urge OMB to withdraw this proposed rule. Universal discretionary termination and political pre-issuance review are not a durable or effective solution for accountability, transparency, oversight and burden reduction.