State Advised to Focus COVID-19 R&D Spend on California

The state Legislative Analyst’s Office has some advice for those in charge of California’s research and development spend on the novel coronavirus (COVID-19): Start by doing what directly benefits Californians the most, and let the feds take care of the bigger picture.

“Given the considerable federal focus on developing COVID-19 testing, treatments, and vaccines, the state could focus on other R&D objectives that specifically benefit Californians,” the LAO said in Wednesday’s report, titled “Overview of Federal COVID-19 Research Funding.”

“As California’s experience with the COVID-19 outbreak deepens and lengthens, state-specific R&D objectives might arise,” the report says. “Were this to be the case, the state at that time might explore whether existing R&D spending could be repurposed to meet the emerging challenges.”

The report cites the three pieces of COVID-related federal legislation that have significant shares of funding targeted at the disease: the Coronavirus Preparedness and Response Supplemental Appropriation Act; the Coronavirus Aid, Relief, and Economic Security (CARES) Act; and the Paycheck Protection Program and Health Care Enhancement Act, shorthanded as PPP.

By way of background, the LAO report notes that in 2017, more than 25 percent of national spending on R&D, or about $151 billion, was spent in California — a disproportionately high percentage given that the state accounts for about 12 percent of the U.S. population and 14 percent of its gross domestic product.

“As California R&D entities usually receive a sizable portion of federal external R&D funding,” the report says, “we would expect them to receive at least some of the R&D funds — perhaps in the range of hundreds of millions of dollars to the low billions of dollars.”

Typically, states provide much less R&D funding than the federal government. Focusing specifically on California, the report notes that in 2017‑18, the state spent $3.4 billion for R&D. About half of that amount was spent on tax credits for California corporations engaging in R&D activities. The other half was spent on R&D programs at the University of California (UC) and several other state entities. Also in 2017, $17 billion — or about 20 percent — of external federal R&D funding went to California. And in addition to this external funding, the federal government spent around $1.9 billion in federal offices located in California.

About 80 percent of direct state R&D support for UC comes from the General Fund. The university system has discretion in what research it supports with this funding, the report notes.

Other than UC’s research, “California supports several relatively small state R&D programs,” the report says.

Other state agencies with notable R&D programs include the California Institute for Regenerative Medicine and the California Energy Commission. These agencies, in turn, generally fund contracts and grants to universities and other entities to conduct research. UC campuses, for example, receive support through some of these programs.

The remainder of state R&D support comes from various special funds, especially research into breast cancer and tobacco-related health problems.

The brief report concludes with an acknowledgement of the state’s dire fiscal plight — an anticipated budget deficit of $54.3 billion — amid the COVID-19 shutdowns and shelter-in-place orders still prevailing in most of the state.

“With its deteriorating budget condition, the state likely will find augmenting its support for R&D difficult,” the LAO says. “The state might even have to cut spending in this area.”

But, the report notes, California should spend its R&D budget in ways that most directly benefit residents of the state.

“Regardless of the level of support the state ultimately provides for R&D, we encourage the Legislature to link state R&D funding with specific state R&D objectives,” the report says. “As a guiding principle, we believe state-funded R&D should be designed to yield benefits that are particularly important for California.”