The current issues with federal science funding are well documented. Anyone familiar with the science blogging world or running their own lab will be way too familiar with the downturn in support for science in the US. But even before the overall funding decline, there's been a stagnation that is really catching up with us.
Drugmonkey has talked about the static modular budget at NIH. Briefly, the budget for your average NIH R01 hasn't changed in years, whereas all the costs have increased. Consumables, salary, tuition, travel, services... they are all more expensive than the were 10 years ago. Substantially.
NSF is similarly impacted. A big difference here is that indirect rates are calculated into the overall NSF proposal budget. Guess what else has risen 10% since I started my position? So, we have costs of everything climbing and a static budget. The reality is that we can't afford the same work we could 5 and 10 years ago. Period.
When writing a proposal there's pressure to keep the budget down. As such, we whittle away (often negotiating for crumbs with collaborators on the proposal). Once funded, the budget is almost certainly cut by some amount, further reducing the buying power. NIH grants can even be cut substantially during the funded period!
But, in the increasingly competitive environment, does anybody dial the science in their proposals back? Hell. No. The demand is higher than ever.
So here is the reality of running a lab right now: You need multiple sources of funding that can offset one another. I am watching people taking the one grant-at-a-time approach and falling short in big ways. Without substantial resources from somewhere that allow you to add personnel or leverage grant funds, completing the work as written gets harder by the day.
Think broadly, my friends. Collaborate. Leverage funds against departmental, college or university resources. Apply for local money that will allow you to offload a salary for a bit. Be on the lookout for these additional pots of money, because a single grant can easily collapse under its own weight these days.