Letter to the Speaker of the House of Representatives on the 1958 Budget.

Dear Mr. Speaker:

I am sure many Members of the Congress are as gratified as I am to note the growing awareness of private citizens that the dollars spent by the Federal Government are in fact their own dollars, and that Federal benefits are not free but must be paid for out of taxes collected from the people. It is good to see this realization developing into a widespread insistence that Federal activity be held to the minimum consistent with national needs. As this sentiment grows, our country will be strengthened in many ways.

The evident responsiveness of the Congress to this attitude I find equally encouraging. I assure you and your colleagues that the Executive Branch will continue to cooperate fully with Members of the Congress who work for sensible control of Federal spending.

In House Resolution 190 adopted last March, I noted the assertion that the public interest requires a "substantial reduction" in the 1958 budget and also the request that I advise the House where a reduction of that magnitude could best be made.

You will recall that last January, immediately after the budget was presented to the Congress, I requested the Director of the Bureau of the Budget to resurvey the expenditures of every Department and agency in an effort to find additional items that could properly be reduced. I have kept in close touch with those efforts. Some of the principal results are outlined in this letter.

You realize, of course, that the 1958 budget, as all Federal budgets, is in effect two budgets within one. One consists of requests for new spending authority to enable Federal agencies to obligate themselves to make expenditures sometime in the future. The other concerns the actual expenditures of the agencies in the next fiscal year. These expenditures will be made partly pursuant to spending authority granted in previous years and partly under new spending authority. For example, onethird of the total actual expenditures in the 1958 fiscal year will be made pursuant to spending authority granted not on the basis of the 1958 budget but on the basis of spending authority requested in earlier budgets. This problem I emphasize because of its importance in appraising the effect of cuts in new spending authority which, one might assume, will reduce the level of current spending but in fact may affect only future spending.

The House Resolution, for instance, does not distinguish between these two budgetary problems, so its call for a "substantial reduction," I assume, applies to both and contemplates the reduction of both by a considerable number of billions of dollars.

There are thousands of items in the budget, each an individual fiscal plan to carry forward a new program or a program previously authorized by the Congress. The preparation of these items begins long before the Congress acts, with the result that the budgetary process places a high premium on judgment and foresight. Because Departmental needs must be forecast a year or more in advance, no responsible official would realistically contend that every estimate for every item is precisely correct and could be changed only at the risk of serious public injury, or that the funds requested are certain to meet all future needs.

Nevertheless, painstaking efforts were made in preparing the budget to pare to the minimum all projected expenditures and programs, whether large or small. Estimates were substantially reduced before the Budget Document was submitted to the Congress, and at my request a searching re-examination by all Departments and agencies has continued to go forward since that time in an effort to reduce expenditures whenever possible. I will later discuss possible reductions in new spending authority disclosed by these months of continuing review.

Before turning to budgetary specifics, however, I invite attention to certain general guidelines that, to the extent existing law permitted, were applied in formulating the 1958 budget. These may be helpful to the House in reaching its own budgetary decisions:

First, the Federal Government should undertake only essential activities that the people cannot sufficiently provide for themselves or obtain adequately through private voluntary action or local or State government. Both the Congress and the Executive Branch should adhere closely to this principle in the interest of sound, economical government.

Second, in times like these Government spending should be held below income in order to lead the way to further reductions in taxes and the public debt.

Third, all governmental expenditures should remain under close scrutiny in the interest of strict economy and, in the currently prevailing prosperity, to help relieve competing demands for economic resources.

Such guidelines have proved their practical worth. Today Federal civilian employees are almost a quarter of a million fewer than in January 1953. The $7.4 billion tax cut in 1954 has already saved our people almost $25 billion in taxes. For the first time in a quarter of a century we have in prospect three balanced budgets in a row. In fiscal year 1956 the surplus was $1.6 billion. It promises this fiscal year to be about the same size, and next year perhaps as much as $ 1.8 billion. If we hold to this course, we should have paid in these three years about $5 billion on the public debt, and the annual necessity to raise the statutory debt limit should have become a thing of the past.

By adhering to the same or similar guidelines, the House can help continue the progress already made.

Regarding the House appeal for guidance on specific budgetary items, I will comment first on the actual expenditures projected for next fiscal year and will later discuss possible reductions in new spending authority.

At the outset, we need to remind ourselves that, as in every household budget, all Federal expenditures are not equally subject to control. Many Federal expenditures are rigidly prescribed by law. Others are bills that simply have to be paid. In the 1958 fiscal year, such unavoidable expenditures will total about $17.6 billion, or 24 percent of all Federal expenditures. These funds must be spent for such items as veterans' pensions, public assistance, and the interest on the public debt. The "substantial reduction" called for by House Resolution 190 cannot be made in this part of the budget until and unless the Congress revises or repeals the governing laws.

In the second place, 63 percent of projected expenditures next fiscal year--some $45 billion--will support programs related to the protection of our country. Departmental estimates in this area were most carefully examined and prudently reduced before they were sent to the Congress. I foresee no early lessening of international tensions and dangers as would justify a significant downward revision in our defense and related programs. The fact is, as we carry forward our efforts for more peaceful world conditions, rapid technological advances in ships, aircraft, nuclear weapons, missiles and electronics press constantly for more, not fewer, Federal dollars. I most solemnly advise the House that in these times a cut of any appreciable consequence in current expenditures for national security and related programs would endanger our country and the peace of the world.

The remaining expenditures projected in the budget approximate $9 billion, 13 percent of the total. These support the rest of the Federal Government--such activities as public health, the various housing programs, all operations of most Executive Departments, the civil functions of the Corps of Engineers, the nationwide functions of the General Services Administration, the worldwide operations of the Department of State. Additional savings in such widely varied activities may well be found by the Executive Branch and the Congress. But a multi-billion-dollar reduction as evidently envisaged by the House Resolution would destroy or cripple many essential programs if concentrated in this limited area of the budget.

Thus, it is clear that a "substantial reduction" in Federal expenditures next fiscal year in keeping with House Resolution 190, whether in any one or a combination of these major segments of the budget, would weaken the nation's defenses, or cut back or eliminate programs now required by law or proposed in the public interest, or both. That forces the conclusion that a multibillion-dollar reduction in 1958 expenditures can be accomplished only at the expense of the national safety and interest.

Turning now to requests for new spending authority, as distinguished from actual expenditures, we find a more promising outlook. Budgetary reviews since last January have disclosed the feasibility of postponing certain of these requests without serious damage to program levels. A number of the following actions, which I commend to the House, I have already suggested:

First, that new spending authority for the military assistance portion of the Mutual Security Program be reduced by $500 million. This reduction results mainly from the new management techniques through which lead time financing has been reduced (notably for spare parts), maintenance support not justified by the rate of consumption of our allies has been eliminated, and items have been removed from grant aid which countries can now pay for themselves. If the funds previously appropriated are continued available, this reduction will not impair the operation of military forces of other countries at mutually agreed levels.

Second, that, by delaying less urgent projects, new spending authority for military public works be reduced by $200 million.

Third, that resulting from new projections of its operating rate and related financial requirements, the new spending authority for the Soil Bank Program be reduced by $254 million.

Fourth, that the investment of the Federal National Mortgage Association in special assistance functions be reduced from $250 million to $200 million, a reduction in new spending authority of $50 million.

Fifth, that the college housing authorization be reduced from $175 million to $150 million, a reduction in new spending authority of $25 million.

Sixth, that resulting from adjustments of construction schedules, the new spending authority of the Corps of Engineers be reduced by $ 13 million.

The House may wish to give attention to an additional item of $516 million requested for Army procurement and production. The existing authority, granted by the Congress during the Korean War, plus certain reimbursements received since then have made it unnecessary to request new spending authority for this purpose in recent years. Beginning in fiscal year 1959, the Army's need for such spending authority will recur. The $516 million item is requested now to enable the Army to phase efficiently into this new period and to ease the impact of this adjustment in fiscal year 1959. At the expense of efficient programming, the sum can be withheld if the House so chooses. Such action would, of course, increase by $516 million the large amount that will have to be authorized for Army procurement and production in fiscal year 1959.

Exclusive of the Army item just mentioned, but including a possible reduction of $300 million in the amount budgeted for contingent expenses, these reductions and postponements total $1.342 billion. Once again I remind the House that less than half of this reduction in new spending authority can be reflected in reductions in expenditures during the next fiscal year, and even a part of these expenditure reductions will have to be restored in the future. Such expenditure reductions as may result, however, will add to the $1.8 billion surplus already projected by the budget. Given continuation of healthy economic growth and of strict expenditure control, these figures combined will begin to lay a firm fiscal foundation for the time when we can be sufficiently assured that our income will so exceed our expenses as to justify a reasonable tax cut for every taxpayer while we continue to reduce the Government's debt.

I am, of course, aware of the cuts thus far proposed by the House. These will be absorbed wherever possible without serious injury to programs essential to the public interest. Where such cuts cannot be so absorbed, the Executive Branch must and will seek restoration of the needed funds. Some of the House "cuts" have involved large sums that the Executive Branch is compelled by law to pay. "Cuts" of that kind do not save money and must be later restored through supplemental appropriations unless the governing statutes are revised.

Aside from scrutinizing individual expenditures and reducing new spending authority as suggested above, I strongly urge the House also to improve the Federal budgetary situation by taking such steps as these, most of which I have urged before:

First--adjust postal rates as soon as possible to reduce and eventually eliminate the postal deficit.

Second--establish interest rates for Government loan programs that will induce private funds to participate in their financing and, at the least, require that such rates cover the borrowing costs of the Federal Government.

Third--provide user charges as, for instance, for the use of Federal airway facilities, that will relieve the general public of having to subsidize governmental services affording special benefits.

Fourth--require State financial participation in Federal disaster assistance programs.

Fifth--encourage State and local groups to engage in partnership with the Federal Government in major water resources development.

Sixth--reject new projects not approved by the Board of Engineers for Rivers and Harbors and not reviewed by all interested parties, including the affected States; provide where appropriate for more local participation in approved projects; and withhold authorization and construction of all but urgently needed projects.

Seventh--enact bills approved by the Administration to implement Hoover Commission recommendations, such as the authorization of appropriations on the basis of annual accrued expenditures and the extension of the Reorganization Act of 1949.

Eighth--establish procedures that will facilitate the return of surplus Federal land and other property to private, local or State use.

Ninth--before adopting unbudgeted programs, project the costs they would impose on the Federal budget in years ahead, and reappraise the necessity for and rate of implementation of each program.

And, tenth, to help assure continuing economy on the part of the Congress as well as the Executive Branch, take action that will grant the President the power now held by many State Governors to veto specific items in appropriations bills.

An improved budgetary situation and greater efficiency in our government will result from prompt approval of these recommendations by the Congress. All elements of the budget, meanwhile, will remain under searching examination by the Executive Branch in its continuing effort to find additional savings, large or small, that are possible under existing law. Any additional reductions found possible in new spending authority will be promptly reported in the usual way to the Senate and House of Representatives.

Finally, I repeat that as this effort to hold Federal costs and activities to the minimum proceeds sensibly in the Executive and Legislative Branches of our Federal Government, the public interest is bound to be well served.

Sincerely,

DWIGHT D. EISENHOWER