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Harry S. Truman: Annual Budget Message to the Congress: Fiscal Year 1953
Harry
Harry S. Truman
18 - Annual Budget Message to the Congress: Fiscal Year 1953
January 21, 1952
Public Papers of the Presidents
Harry S. Truman<br>1952-53
Harry S. Truman
1952-53
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To the Congress of the United States:

I transmit herewith my recommendations for the Budget of the United States for the fiscal year ending June 30, 1953.

Expenditures are estimated at 85.4 billion dollars, an increase of 14.5 billion dollars over the current fiscal year, and 45.3 billion dollars over 1950, the last full fiscal year before the attack on Korea.
Receipts under present tax laws are estimated at 71.0 billion dollars, an increase of 8.3 billion dollars over the current fiscal year, and 34.0 billion dollars over 1950.

The increase in receipts will fall short of meeting the increase in expenditures. In the absence of new revenue legislation, a deficit of 14.4 billion dollars is in prospect for the fiscal year 1953, 6.2 billion dollars greater than the estimated deficit for the current fiscal year.

BUDGET TOTALS

[Fiscal years. In billions]

1950 1951 1952 1953

actual actual estimated estimated

Receipts (under existing tax laws) $37.0 $48.1 $62. 7 $71.0
Expenditures 40.1 44.6 70.9 85.4

Deficit(-)or surplus(+) --3.1 +3.5 -8.2 -14.4

Eighteen months ago, the unprovoked attack upon the Republic of Korea made it clear that the Kremlin would not hesitate to resort to war in order to gain its ends. In the face of this grim evidence, this Nation and the other nations of the free world realized that they must rearm in order to survive.

Since then, we have made significant progress in rebuilding our defenses. We have more than doubled the strength of our armed forces. We have increased the number of our Army divisions from 10 to 18. We have returned to duty more than 160 combatant vessels from our "mothball" fleet. We have added more than 40 wings to our Air force. We have greatly expanded our production of military equipment and our ability to mobilize for any emergency. We have provided our allies overseas with the critical margin of aid necessary to help them to grow stronger.

This Budget reflects the progress we have made thus far, and it lays the groundwork for further progress.

It reflects our progress to date in two ways. First, the high rate of expenditures for military equipment estimated for 1953 reflects the results of the tremendous effort that has been made during the past 18 months in getting the flow of production started. Second, the smaller amount of new obligational authority which I am recommending indicates the substantial portion of the financial requirements for our military build-up that has been met in the appropriations already made by the Congress.

This Budget lays the groundwork for further progress by providing for additional increases in the strength of our armed forces, additional deliveries of arms to our allies overseas, continued requirements of our atomic energy program, and further development of our economic strength. By the end of the fiscal year 1953, we will have reached or passed the peak production rates for all of our major military items except some of the newer model aircraft and some weapons not yet in production.

This Budget calls for the largest expenditures in any year since World War II. It will involve a heavy burden for our taxpayers, because the job of building. the strength we need to safeguard the security of this Nation is enormously expensive.

Despite its size, this is not a Budget for all-out mobilization. It is a Budget carefully planned to carry us a long way forward on the road to security--at a pace which is not only within our present economic capacity, but which will enable us to grow stronger in the years to come.

If new international tensions do not develop, and if no further aggressions are attempted, I hope we will be able to reduce Budget expenditures after the fiscal year 1954. By then we should have completed most of our currently planned military expansion.

BUDGET EXPENDITURES

More than three-fourths of the total expenditures included in this Budget are for major national security programs--military services, international security and foreign relations, the development of atomic energy, the promotion of defense production and economic stabilization, civil defense, and merchant marine activities. Major national security programs not only dominate this Budget but also account for practically all of the increase in total Budget expenditures since the attack on Korea. As the table on the following page indicates, expenditures for all other Government programs have declined 9 percent since the fiscal year 1950. This decline has occurred during the period when the costs of goods and services which the Government buys have been rising.

For the fiscal year 1953, expenditures for all other Government programs will be nearly a billion dollars below the level of the present fiscal year. Within this net decrease, some programs have been reduced, others have been held to current levels, and still others have been expanded.

BUDGET EXPENDITURES

[Fiscal years. Amounts in billions]

Percent
increase
or decrease (-)

1950 1951 1952 1953 1953 over
actual actual estimated estimated 1950

Expenditures for major national security programs $17.8 $26.4 $49.7 $65.1 266
Expenditures for all other Government programs 22.3 18.2 21.2 20.3 -- 9

Total Budget expenditures 40.1 44.6 70.9 85.4 113

I have sharply reduced expenditures for those programs which can be deferred or eliminated, even though these programs bring clear benefits to the Nation and would be highly desirable in normal times. For example, many long-range programs for the development of our natural resources are being deferred in order to place greater emphasis on meeting current defense requirements. This Budget contains funds for only half as many general flood-control projects as my Budget of 2 years ago. New starts on flood control, reclamation, and river and harbor works have been limited to urgently needed power projects, flood-control projects in the Kansas-Missouri area, and emergency rehabilitation work which cannot be deferred. The Federal-aid highway program will remain below the authorized level of 500 million dollars, and major emphasis is being placed on improving the network of roads most essential to defense and civilian traffic. Expenditures for rural electrification and rural telephones have been reduced. All major programs for housing and community development outside critical defense housing areas will be held substantially below the levels authorized by basic legislation.

Many other programs, which are necessary for preserving the basic strength of this Nation, have been maintained at approximately their present levels. Finally, a number of programs contributing directly to the defense effort have been expanded--such as defense housing, aid for schools in defense areas, projects for expansion of electric power generation, and the port security program of the Coast Guard.

A Budget of the scope and size that I am recommending makes it imperative that each department and agency of the Government enforce every possible economy in spending the money for which it is responsible. The Department of Defense, in particular, must continue to place the greatest emphasis upon efficiency in the administration of the military programs. In the past year, many improvements have been made in the management of the Government's affairs. Some of these improvements are outlined in the final section of this Message.

NEW OBLIGATIONAL AUTHORITY

To provide for further progress toward reaching our national objectives, I am recommending in this Budget a total of 84.3 billion dollars in new obligational authority for the fiscal year 1953. This is 9.2 billion dollars less than the amount of new obligational authority available for the current fiscal year.

This Budget also includes 3.2 billion dollars of appropriations to liquidate prior year contract authorizations.

The obligational authority either already enacted or recommended in this Budget will have an important effect on expenditures in future fiscal years. Under the expanding security program, there is an extended time lag between the enactment of obligational authority and actual expenditures. Many months elapse between the time the Congress authorizes expenditures for ships, planes, tanks, and other items of military equipment and the time when these items are produced, delivered, and completely paid for. Under these circumstances, the new funds authorized in one fiscal year may not be entirely spent until several years later. For example, of the new obligational authority recommended for 1953, nearly half will be spent in later years. By the end of the fiscal year 1953, virtually all of this authority will have been obligated, in the form of contracts for necessary goods and services for which delivery and payment cannot be made until the fiscal year 1954 or later.

According to present indications, total Budget expenditures will continue to be high in the fiscal year 1954, even thou new obligational authority may decline further.

BUDGET RECEIPTS

The following table shows the source estimated Budget receipts for the fiscal 1953, based on existing tax legislation, pared to revised estimates of receipts the current fiscal year and actual receipts the fiscal year 1951.

BUDGET RECEIPTS

[Fiscal years. In millions]

1951 1952 1953

Source actual estimated estimated

Direct taxes on individuals:
Individual income taxes $23, 365 $29, 324 $32, 235
Estate and gift taxes 730 740 770
Direct taxes on corporations:
Income and excess profits taxes 14, 388 22, 900 27, 800
Excises 8, 693 9, 046 9, 744
Customs 624 575 575
Employment taxes:
Federal Insurance Contributions Act 3, 120 3, 850 4, 030
Federal Unemployment Tax Act 233 257 269
Railroad Retirement Tax Act 577 740 690
Railroad Unemployment Insurance Act 10 10 11
Miscellaneous receipts:
Existing legislation 1,629 1,598 1,598
Proposed legislation 15
Deduct:
Appropriation to Federal old-age and survivors
insurance trust fund --3, 120 --3, 850 --4, 030
Refunds of receipts --2, 106 --2, 510 --2, 709

Budget receipts 48, 143 62, 680 70, 998

NOTE.--Estimated receipts for 1953 exclude new tax proposals.

FINANCING THE SECURITY EFFORT

When we embarked on the defense program to keep our country strong, I stated that sound financial policy required us to pay for the increased defense costs by current taxation, and that we should avoid adding substantially to the public debt. This policy is important to the preservation of the financial strength of our Government, to the success of the stabilization program, and to the sharing of defense costs fairly.

To carry out this policy, I proposed to the Congress two separate tax measures during the latter half of 1950 and another early in 1951. The Congress responded promptly to my earlier recommendations but enacted only part of the proposals I made last year.

I recommended last year that the Congress provide at least 10 billion dollars of additional revenue and laid stress on the importance of improving the equity of the tax system. The legislation enacted by the Congress late last year will contribute little more than half of the amount I recommended.

Since then, the needs of adequate defense have become clearer. For the fiscal year 1952, total Budget expenditures are estimated at about 71 billion dollars, and they are expected to rise nearly 15 billion dollars in the fiscal year 1953.

While revenues under present tax laws are expected to rise, they will still fall short of meeting expenditures by a substantial amount in 1952 and an even larger amount in 1953.

A pay-as-we-go tax policy is difficult to regain once we fall behind.

We cannot now undertake, on a strict pay-as-we-go basis, the dual job of making up for the inadequate revenue legislation last year and meeting the increases in expenditures immediately ahead. However, there is still time to insure more nearly adequate financing for the defense program as a whole. In my judgment this calls, at the very least, for the amount of additional revenue by which last year's legislation fell short of my recommendations.

The need for improving the equity of the tax system gives me as much concern as the need for revenue. The tax laws should not be used as a means of granting special favors or hiding special subsidies. Glaring injustices in our tax laws should be eliminated before those with modest means are asked to shoulder additional burdens.
The Congress has made some progress in this direction, but unhappily it has also added new loopholes, as I stated at the time I signed the Revenue Act of 1951. When the Congress practices favoritism in writing tax laws, it encourages self-seekers to try to gain favored treatment.

The attainment of the revenue objectives I have outlined would not fully resolve our revenue problem this year or next. The Congress should be clear about the risks involved in this course. But economic growth will continue to increase the productivity of the tax system in future years. Moreover, I hope that world conditions and the buildup of our defensive strength will permit a reduction in Federal expenditures after the fiscal year 1954. Thus, the problem of financing defense should be eased once the build-up of our defensive strength has been attained.

How we meet the situation in the meantime will depend greatly on the reaction of producers and consumers in the face of unavoidable shortages and the rise in incomes stemming from Government expenditures. One of the key factors will be the adequacy of savings to restrain demand and to meet the investment requirements of business.

We cannot, however, be complacent. It is cause for grave concern that, partly as a result of inadequate revenue legislation last year, we are now confronted with the impracticability of financing Government expenditures currently out of taxes for the next year or two.

Prudence demands that we return to a pay-as-we-go policy as quickly as practicable. In the meanwhile, we must be continually alert to threats to economic stability and be prepared to deal with the situation as it develops.

MISCELLANEOUS RECEIPTS

The Bureau of the Budget, in cooperation with the other Federal departments and agencies, has undertaken a comprehensive study of the fees charged by Government agencies for services to private individuals and groups. The objective of this study is to place these services on a self-supporting basis wherever practicable, in accordance with the policy I first stated in my 1948 Budget Message and with the provisions of title V of Public Law 137, enacted in the first session of this Congress. Some of these results are reflected in this Budget, in the form of an additional 37 million dollars in reimbursements to appropriations and miscellaneous receipts. Some of the more significant adjustments in fee schedules, however, cannot be made without legislative authority. The legislative proposals to effect these adjustments will be submitted to the Congress as they are prepared.

BORROWING AND THE PUBLIC DEBT

On the basis of present tax rates, it is estimated that the public debt will increase from 255 billion dollars at the beginning of the current fiscal year to 260 billion dollars by June 30, 1952, and 275 billion dollars by June 30, 1953--the present statutory limit.

The prospective debt increase makes it essential that the Government continue to follow policies in the new financing and the refunding of maturing issues which reinforce the economic stabilization program. The American people can help the stabilization program by continuing to purchase savings bonds and by taking other steps to increase new savings. The millions of people who own savings bonds maturing in the near future can also help to combat inflation by keeping their bonds and allowing them to continue accumulating interest, rather than cashing them at this time. Legislation enacted last year permits the holders of these bonds to earn interest on them for another 10 years without the necessity of exchanging them for new bonds.

EXPENDITURES AND AUTHORIZATIONS BY

MAJOR FUNCTION

The following table shows estimated expenditures and recommended new obligational authority for the fiscal year 1953, classified by major function. It also compares, by major function, estimated expenditures in the fiscal year 1953 with revised estimates for the current fiscal year and with actual expenditures in 1951.

EXPENDITURES AND AUTHORIZATIONS BY MAJOR FUNCTION

[Fiscal years. In millions]

Recommended
Expenditures new obligational
1951 1952 1953 authority
function actual estimated estimated for 1953

Military services $20, 462 $39, 753 $51,163 $52, 359
International security and foreign relations 4, 727 7, 196 10, 844 8, 238
finance, commerce, and industry 176 751 833 l, 171
Transportation and communication 1,685 2, 153 1, 643 1,521
Natural resources 2, 051 3, 082 3, 237 2, 694
Agriculture and agricultural resources 650 1, 408 l, 478 1, 327
Labor 228 240 246 259
Housing and community development 602 881 678 1, 421
Education and general research 115 238 624 688
Social security, welfare, and health 2, 380 2, 680 2, 662 2, 578
Veterans' services and benefits 5, 339 5, 166 4, 197 4, 181
General government 1,209 1, 353 1,484 1,443
Interest 5, 714 5, 955 6, 255 6, 255
Reserve for contingencies 25 100 125
Adjustment to daily Treasury statement --705

Total 44, 633 70, 881 85, 444 84, 260

MILITARY SERVICES

The cost of expanding and strengthening our armed forces continues to be the largest item in the Budget.

During the past 18 months our fighting men and their allies have repulsed two waves of aggression in Korea. At home we have not only supported our forces in Korea but also have made substantial progress in building military strength for use in the event of an all-out emergency. We now have almost 3 million men and women in our armed forces, more than twice as many as we had when Korea was attacked. Our monthly production of guns, tanks, planes, ships, and other military hard goods has increased fivefold since Korea and will continue to increase in the months ahead.

This Budget provides not only for maintaining our present military strength, but also for building toward somewhat higher goals than we had planned a year ago. These new goals contemplate an Air force of 143 wings, an Army of 21 divisions, a Navy with 408 major combatant vessels in the active fleet and 16 large carrier air groups, a Marine Corps of three divisions and essential supporting elements for all these services.

Expenditures for military services are estimated at 51.2 billion dollars in the fiscal year 1953 as compared to 39.8 billion dollars in 1952, 20.5 billion dollars in 1951, and 12.3 billion dollars in 1950. The increase is due largely to the fact that the rate of military production has risen sharply from the levels of 18 months ago and will continue to rise through the fiscal year 1953. It also reflects the costs of modern weapons, which are much higher than in World War II.

I am recommending 52.4 billion dollars in new obligational authority for military services in the fiscal year 1953 as compared to 61.7 billion dollars in 1952. This reduction is possible because a substantial portion of the obligational authority required to finance our military expansion has already been provided by the Congress.

MILITARY SERVICES

[Fiscal years. In billions]

Expenditures
1951 1952 1953 New obligational authority
Cost category, program or agency actual estimated estimated 1951 1952 1 1953 2
Department of Defense, military functions:
Military personnel $7.2 $10.1 $11.0 $8.2 $11.1 $11.9
Major procurement and production:
Aircraft 2.2 5.8 11.0 8.7 14.9 14.1
Other 2.1 7.2 9.0 13.3 14.5 7.6
Acquisition and construction of real property 4 2.7 3.5 2.4 4.0 2.5
Operation and maintenance 5.8 10.4 12.1 11. 5 13.0 12.4
Civilian components 6 .7 .8 .8 .7 .8
Research and development 8 1.0 1.4 1.2 1.5 1.7
Industrial mobilization 1 .2 .2 .3 .1 .1
Department-wide activities 5 .8 1.0 1.3 1.2 1.0
Activities supporting military services:
Stockpiling of strategic and critical materials .7 .8 1.1 2.9 .6 .2
Other .1 .1 .1 .1 .1 .1

Total 20.5 39.8 51.2 50.7 61.7 52.4

1 Includes proposed legislation and supplementals of $1.5 billion.
2 Includes proposed legislation of $3.5 billion.

Military personnel.--This Budget provides for an increase in total active armed strength from 3.6 million men at the end of the current fiscal year to 3.7 million men during the fiscal year 1953 and for an increase in expenditures for military personnel from 10.1 billion dollars in 1952 to 11.0 billion dollars in 1953. These expenditures include provision for pay, clothing, subsistence, and transportation of our men and women in uniform.

It is likely that we shall have to maintain relatively large military forces for a long time to come. This fact raises three problems with respect to the welfare of military personnel that will require legislative action. The first is legislation proposed by the Administration to make increases in military pay and allowances comparable to the increases granted civilian employees of the Government last year. The military budget includes, under proposed legislation, an amount estimated to be sufficient to cover the cost of such an increase.

Second, present laws do not in many cases provide adequate benefits for the families of servicemen who die, either while serving their country or after retirement. In recognition of this need, the Congress is now considering survivors benefit legislation which would authorize a self-sustaining system based on contributions from the servicemen themselves. This legislation, however, does not provide protection if service in the armed forces is terminated before retirement. I believe that protection should be continuous and that the most equitable way to achieve this protection is to extend the coverage of the old-age and survivors insurance system to all members of the armed forces. Such coverage would provide the same basic protection for our service men and women that is now enjoyed by most other Americans. A military survivors benefit system should be designed to provide supplementary benefits scaled to the earnings in excess of those covered by the old age and survivors insurance system. These new military benefits would supplement the payments under the old-age and survivors insurance and veterans' laws in these higher pay ranges.

Third, I am concerned about the very large future obligations which are being accumulated under the present military retirement system. At the present time, these future obligations are not funded and annual appropriations cover only the military retirement costs for that year. I believe that the Congress should examine all the Federal retirement laws and the experience which we have gained under them with a view to determining whether future obligations for military retirement should be met by a contributory system in which career military personnel and the Government share in the establishment and maintenance of a retirement fund adequate to meet the rapidly increasing costs of military retirement benefits.

Major procurement and production.-funds for major procurement are used to provide our expanding armed forces with modern tanks, ships, aircraft, vehicles, ammunition, guided missiles, electronic equipment, and other hard goods ranging from the largest bomber to the smallest pistol cartridge.

More than half of the expenditures for major procurement in the fiscal year 1953 will be for aircraft. These very large costs reflect the fact that the airplanes which we are building are much heavier and very much more complex in design and equipment than those of even a few years ago. In some of the new models, for example, the cost of the electronic equipment alone represents more than the entire cost of World War II planes designed for the same type of mission.

Most types of military equipment require many months to manufacture. Thus, much of the expenditures for major procurement in the fiscal year 1953 will be from funds appropriated in earlier years. On the other hand, a large portion of the new obligational authority which I am recommending for the fiscal year 1953 will be used to place contracts for military equipment that will be delivered and paid for in subsequent fiscal years. I am recommending new authority of 21.7 billion dollars for major procurement in 1953, as compared to 29.4 billion dollars enacted for the current fiscal year.

In addition to supplying our active forces with the weapons and equipment required to carry out their missions, this Budget will provide some reserves of equipment which would help supply the armed forces in the event of an all-out emergency. However, in a long-term mobilization effort such as that on which we have embarked, our policy is to rely primarily on a continuing flow of production and the ability to achieve rapid expansion of production if necessary rather than on the accumulation of large inventories of military equipment.

This policy means that we will try to avoid production peaks and troughs which would unnecessarily disrupt the economy. We will also strive for the type of balance between military and civilian production which will permit us to maintain both a strong economy and a strong military posture. At the same time, we will be producing weapons of the most advanced design and will keep fresh the know-how of military production. Our production effort therefore must be judged by how well it achieves these results as well as by the speed with which the goods are delivered.

Acquisition and construction of real property.--The rapid expansion and modernization of our armed forces necessitates considerable new military construction as well as major repair and modernization of existing facilities. Obligational authority for much of this work has already been enacted by the Congress, but, as is true with procurement funds, expenditures take place many months after the letting of contracts. Expenditures in 1953 are estimated at 3.5 billion dollars as compared to 2.7 billion dollars in the current fiscal year. These expenditures take account of the recommendations for certain additional military construction which I shall submit to the Congress in the near future.

Operation and maintenance.--The operation and maintenance of our military equipment and our military establishments require the services of many people and the purchase of many things. These funds are used to purchase fuels, lubricants, spare parts, and other supplies. They are also used to pay for storage, repairs, maintenance, and handling of armor, armament, and ammunition; to operate and maintain supply depots, service-wide transportation and communication facilities, and medical establishments of the Army, Navy, and Air force. As we continue to expand our military strength, these tasks grow in both magnitude and complexity.

A considerable portion of these funds is for the pay of civilian employees engaged in operation and maintenance. Total civilian employment in the Department of Defense for military functions will reach approximately 1.3 million in the current fiscal year. In fiscal year 1953, it is expected to be slightly higher and will represent about half of all Federal civilian employment. Approximately 60 percent of the Department's civilian employees are engaged in industrial activities at arsenals, ship yards, ordnance depots, repair shops, and similar military installations.

Civilian components.--The civilian components of the armed forces consist of the National Guard; the Air National Guard; the Organized Reserve units; and reserve officers' training units of the Army, Navy, Air force, and Marine Corps. A vital part of our long-range policy of increasing the potential military strength of this Nation consists of increasing the size and improving the preparedness of these units.

Since Korea it has been necessary to draw upon our Reserves for active duty. The number of men in the Organized Reserves and the National Guard units declined from 837,000 in June 1950 to 525,000 in October 1951. This Budget provides for an increase to a strength of 932,000 men in the civilian components by the end of the fiscal year 1953.

Three legislative proposals which would strengthen our civilian components are now before the Congress. The universal military training bill would provide for 6 months of military training for every able-bodied young man. The Armed forces Reserve bill establishes three classes of Reservists-the ready, stand-by, and retired Reserves-and prescribes a more equitable and uniform policy applicable to Reserve personnel of all services. The Reserve Officers' Training Corps bill provides for a reorganization and strengthening of the college officer procurement programs of the services.

It is contemplated that, if the statutory basis is provided, the universal military training program will be put into effect on a limited basis as early in the fiscal year 1953 as possible. It will be gradually expanded until all qualified young men enter the program. With the increase in the size and strength of our Reserve forces brought about through universal military training, we can ultimately work toward a progressive decrease in the size of our Regular standing forces.

These three bills, if enacted without delay, would progressively increase the size and improve the quality of our civilian components and provide us with Reserve strength that can be rapidly mobilized in event of emergency.

Research and development.--In building our military strength we are providing our forces with the best and most advanced weapons possible. In present-day warfare, and to an even greater extent in the future, technical superiority in weapons can mean the difference between victory and defeat. A strong research and development program is essential to insure that our productive and material resources go into weapons and equipment that are superior in quality and performance to those of any aggressor and that we will be able to maintain this superiority in the years to come.

As a result of research and development work done in the past few years, our forces are now being equipped with new types of weapons and equipment far superior to those of World War II. More new and improved weapons are now going into production, and we are perfecting the development of still others which will add to our military strength in the years immediately ahead.

Expenditures of the Department of Defense for research and development are estimated at 1.4 billion dollars in 1953, an increase of 400 million dollars over 1952.

Stockpiling.--for the fiscal years 1947 through 1952 the Congress provided obligational authority totaling 5.0 billion dollars for the stockpiling of strategic and critical materials. In the four years preceding Korea, exclusive of transfers of materials acquired under other authority, 783 million dollars was spent for materials. Since Korea there has been a rapid acceleration of the rate of stockpiling. Materials contracts valued at 2.3 billion dollars were placed in the 16 months ended October 31, 1951. Deliveries in this same period amounted to 886 million dollars.

Taking into account these expenditures and transfers, as well as price changes, the stockpile inventory at the end of October was valued at 3.3 billion dollars. We expect to have in our stockpile at the end of the fiscal year 1953, strategic and critical materials worth about 5 billion dollars at September 1951 prices and will have under contract an additional 1.7 billion dollars' worth of vital materials for delivery after 1953. This reserve of rubber, copper, tin, manganese, chromite, tungsten, cordage fibers, and more than 60 other materials will be an important source of strength in the years to come.

I am recommending 155 million dollars in new obligational authority for stockpiling in the fiscal year 1953. This is about 435 million dollars less than the Congress enacted for the current fiscal year. Two developments account in large measure for the decrease. First, additional expansion of supply will be financed from Defense Production Act borrowing authority, thereby reducing the need to place long-term contracts under stockpile authority. Second, the quantity of materials available for stockpiling in 1952, although large, will be less than originally anticipated because of the increase in consumption of materials for military purposes and expansion of productive capacity. Therefore, a portion of the funds provided in earlier years will be available to acquire materials in 1953.

Expenditures for stockpiling in fiscal year 1953 are estimated at 1.1 billion dollars as compared to 800 million dollars in 1952. This increase reflects the fact that, because of actions taken in earlier years to expand supplies, more material will be available for stockpiling in 1953.

Other activities supporting military services.--Included in this part of the Budget are the net receipts of the Reconstruction finance Corporation for production and sale of tin, synthetic rubber, and abaca fibers and for the liquidation of certain assets and liabilities remaining from its World War II programs. Other activities supporting the military services are mainly the research programs of the National Advisory Committee for Aeronautics, the activities of the Selective Service System, and the National Security Training Commission.

INTERNATIONAL SECURITY AND FOREIGN RELATIONS

The vast rearmament program upon which this Nation has entered has a single objective--the building of defensive forces and a mobilization base which will serve as a deterrent to communist aggression and which can, if the deterrent fails, give us and our allies the strength to defeat the aggression.

For that purpose, strength within the United States is not enough. The areas most vulnerable to aggression are not in the Western Hemisphere. They are in Europe, in the Middle East, and in Asia. To deter aggression and provide for our own security require not only building up our own strength but also building strength in these areas.

The foreign policy and international programs of the United States, as well as our own military program, recognize that fact. That is why American forces are now serving with our allies in Korea and Europe. That is why the Congress last year authorized the mutual security program of military and economic assistance to nations which have common security interests with us and a determination to preserve their freedom.

The bulk of expenditures for international security in this Budget are for military and economic assistance. Other major expenditures are for the campaign of overseas information and education, for participation in the United Nations and other international organizations, and for the regular activities that make up the conduct of foreign affairs.

Military and economic assistance.--I will soon submit to the Congress specific recommendations for the mutual security program totaling about 7.9 billion dollars.

INTERNATIONAL SECURITY AND FOREIGN RELATIONS

[Fiscal years. In millions]

Recommended
Expenditures new obligational
1951 1952 1953 authority
Program or agency actual estimated estimated for 1953

Military and economic assistance:
Present programs $4, 497 $6, 868 $7,186 $14
Mutual security program (proposed legislation) 3, 339 7, 900
Conduct of foreign affairs:
Overseas information and education 40 110 157 170
Participation in international organizations,
and other 190 218 162 154

Total 4, 727 7, 196 10, 844 8, 238

Expenditures for military, economic, and technical assistance in the fiscal year 1953 are estimated at 10.5 billion dollars, as compared with 6.9 billion dollars in the present fiscal year. The bulk of the assistance will go directly toward helping to build adequate military defenses. The program will also include substantial sums for technical assistance and development work, under the Point four concept, to help the people of economically underdeveloped areas move forward in solving their most pressing problems. The solving of these problems is of vital importance in meeting the threat of subversion, which in many areas of the free world is graver than the threat of military attack.

The increase in mutual security program expenditures will be due to a sharp acceleration in deliveries of military equipment to our allies overseas. Expenditures for these deliveries and for certain other forms of military assistance, such as training, are estimated at 4.0 billion dollars in the current fiscal year and 8.0 billion dollars in the fiscal year 1953. During the past 18 months these deliveries have been smaller than originally planned, partly because of the demands of the Korean conflict, and partly because of the time required for the production of complex long-lead-time equipment. Our production of weapons is now increasing at a rate which will make possible deliveries in the magnitudes required for the scheduled build-up of free world forces. Accordingly, I have directed that a policy of allocating military equipment be established which will assure that United States forces in Europe and NATO forces, as well as other forces of certain foreign countries which in the case of war are most likely to be first attacked, are adequately equipped.

Our mutual security program is a vital and indispensable element in building security for the free world as a whole and for this country. Under this program, friendly nations overseas will be able to obtain the crucial margin of resources--military or economic--which they need in order to develop rapidly their own potentials of strength against aggression and subversion. The strength they can build will be joined with the strength we are building in the total fight for security and peace.

We cannot, as two world wars have proved, isolate ourselves from threats to other free men. This Nation cannot stand by and see free peoples overrun. In the end, that could only mean isolation of this country in a world organized against it by Soviet masters.

Military and economic assistance to Europe.--Through the efforts of the Europeans themselves, combined with the additional resources we are making available through our military and economic assistance programs, real progress is being made in Europe toward the urgent objective of achieving adequate defense forces.

As of 18 months ago, the North Atlantic Treaty countries in Europe had virtually no combat-ready defensive units in all of Continental Western Europe, except for certain naval forces and the ground divisions and air squadrons on occupation duty in Germany. Since then, the active strength off their forces has been substantially increased; in terms of men on active duty, their effective ground strength now exceeds that of our own Army. Air cover and naval support are being provided in increasing amounts. Moreover, the units have been brought to a higher state of effectiveness through longer periods of service and more thorough training and through substantial additions to equipment including replacement of obsolete weapons. Finally, many of the scattered units of the various countries are now, under the command of General Eisenhower, being welded into a single fighting force, and supporting systems of communications, supply, and bases are being developed. Combined defense expenditures of the nine European members of the North Atlantic Treaty Organization have been increased sharply, from the equivalent of 4.5 billion dollars in fiscal year 1950 to an amount estimated at more than 9.0 billion dollars in the current fiscal year.

Over the coming months progress in building European defenses will be even more rapid, under plans recently developed by the North Atlantic Treaty Organization's Temporary Council Committee, under United States chairmanship. This Committee has reviewed the present status of European defenses and the further requirements estimated by the military leaders of the member nations and by General Eisenhower's international headquarters. It has developed a realistic plan of action for a rapid build-up of effective defense forces backed by well-trained and quickly mobilizable reserves. This plan of action is designed to see that nonessentials and duplications are stripped out and that the highest priority jobs are done first. In spite of these reductions, it will still be necessary for many of the member countries to make substantially larger efforts than previously planned, and we, in addition to our contribution of forces, will have to provide expedited deliveries of military equipment and economic assistance.

On the basis of this new plan of action two important conclusions emerge. First, it is now clear that within 12 more months Western Europe can have a compact force which would offer strong resistance in the event of an attack. Secondly, under the new plan it is now dear that within a few years it will be possible to attain a level of Western European defenses which would make invasion there so costly, and so unlikely of success, that the danger of its being attempted would become remote.

Our mutual security aid is an essential component required to achieve the new defense plan on schedule. We will provide planes, tanks, guns, production equipment, raw materials, and other supplies which are needed to carry out the plan but which the Europeans cannot obtain from their own resources.

The largest part of this aid will be in the form of military equipment. The equipment we provide will have the direct effect of bringing to combat readiness additional air wings, ground divisions, and naval units defending Western Europe against aggression. To an increasing extent, the equipment we provide will be procured in Europe. This will somewhat lighten the production burden on this country, and by stimulating European military production will help to bring nearer the day when Europe will be able to maintain her forces without further assistance from us.

To enable the European countries to expand their defense programs on schedule, other aid in the form of commodities--economic aid--will be needed. The economy of Europe is undergoing a serious strain, in part because of its own expanding defense programs and in part because of world price movements associated with the defense buildup of the free world as a whole. Two of the key countries, Britain and France, have been unable in recent months to pay for essential imports except by dipping deeply into their limited dollar reserves. As the European defense programs expand, and industry and manpower are directed toward defense rather than producing for export, European dollar deficits will continue to be serious although not nearly so large as those which had to be dealt with in the immediate postwar years.

To meet these problems it will be necessary for the European countries to take additional measures to facilitate allocation of resources to defense and to prevent internal inflation. But despite such measures, the Europeans will require our aid in meeting the problem of dollar deficits without interruption of the defense build-up.

The mutual security program will also include assistance to certain European countries not included in the North Atlantic Treaty. This Budget includes funds for military and economic assistance to help maintain the independence of Yugoslavia, which stands as an example to Soviet satellites that independence can be achieved. Greece and Turkey, key barriers to Soviet expansion into the eastern Mediterranean, are maintaining large forces which are expected to be integrated soon into the North Atlantic Treaty defense system. Through military and economic assistance we will burden. Negotiations are also in process continue to assist them in carrying this heavy leading toward German participation in European defense.

Assistance to other areas of the free world.--The vulnerability to internal and external aggression of many parts of the non-European free world, especially the Middle East and Asia, requires that we make the strongest efforts to help these areas gain in strength and stability.

Our mutual security program for these areas, as compared with Europe, will place proportionately more emphasis on economic aid and technical assistance than on supplying military equipment. So long as conditions exist to feed the fires of communist agitation--conditions of poverty, disease, illiteracy, and economic stagnation--there will be the continuous danger of subversion and internal collapse. These problems are deep rooted and stubborn, but they can be solved. Under the Act for International Development and other legislation, this country adopted a long-range policy of working directly with the underdeveloped countries to help them solve these problems and lay a firm foundation upon which they can build with their own resources. This policy has helped them to achieve progress within their own economies, and to increase their contribution of vital raw materials to the rest of the free world. In each instance our assistance is predicated on the maximum possible effort by the recipient country to solve its own problems.

In the Middle East, events during the past year have emphasized the urgency of achieving stability and more adequate defenses. Much can be accomplished by programs of technical assistance to deal with basic problems of low productivity which underlie much of the region's difficulties. This Budget provides funds for our contribution for the second year of the 3-year program for reintegration of Arab refugees, and other funds for assistance to the Arab states, Iran, and Israel.

In Asia, the mutual security program for the fiscal year 1953 will provide for a continued flow of military equipment, to assist the troops of France and of the Associated States of Vietnam, Laos, and Cambodia, in their gallant fight against the communist insurgents in Indochina. We are providing, and will continue to provide under this Budget, military equipment and other supplies to the Chinese forces defending formosa. Philippine troops, with weapons supplied under the mutual security program, are making good progress in suppressing the communists who have been dangerous threat to the economic and political development of the republic.

The needs of Asian countries for aid vary substantially from country to try. Some countries are rich in here the great need is for technical to help them more quickly master the complex problems of developing and organizing their resources for the welfare of their people. In Indonesia, for example, technical assistance will be provided to help this young republic develop its resources and establish essential administrative, health, and educational facilities, so as to increase the stability of its democratic government. To other countries in Asia we are supplying technical assistance and also developmental to supplement their own development grams. In India, for example, the government has undertaken a large-scale program of agricultural expansion, in order to meet the increasing pressure of population in relation to food production. In spite mobilizing every resource it can, India will require some aid from us to help solve her agricultural problem.

In Latin America it is essential that we continue our part of the jointly financed programs of technical assistance, which are making an important contribution toward solving problems of health, education, and agricultural productivity. The Latin-American economy continues to attract a large flow of private American capital. Key development projects, including those for strategic materials, will continue to be financed primarily on a loan basis, especially by the Export-Import Bank under its recently increased loan authority. This Budget also contains limited funds for military assistance to Latin America.

We are also contributing to United Nations technical assistance programs. In addition, the broad purposes of the Point four concept are being furthered by private investment, by loans from our Export-Import Bank, many of them for strategic materials development, and by loans from the International Bank for Reconstruction and Development. In preparing the mutual security program for underdeveloped countries, careful consideration has been given to all loan possibilities.

Overseas information.--Expenditures for our overseas information and educational exchange program, basic to our Campaign of Truth, are estimated at 157 million dollars in the fiscal year 1953. The increase of 47 million dollars over the current fiscal year will be needed for expanded radio facilities, including ship-borne transmitters, capable of reaching more and more people behind the Iron Curtain, and overpowering Soviet "jamming" attempts; for transfer of the Army's information program in Japan to the State Department; and for a general intensification of our efforts in the most critical areas of the world.

This vital program is coordinated with other parts of our total security effort. Soviet propaganda and agitation use every possible device, direct and concealed, to pervert the hopes and play upon the fears of free peoples. Internal subversion, buttressed by propaganda techniques rather than the commitment of Soviet armies, has played the leading part since World War II in the expansion of the Soviet Empire. Against these menacing instruments of the cold war, the Campaign of Truth has been making substantial gains. The overseas information program, speaking through every possible medium--radio, press, motion pictures, information centers, exchange of persons--is exposing the true nature of the communist menace and explaining to the rest of the world the truth about our objectives.

Other foreign affairs.--In addition to the funds for overseas information and education, this Budget includes expenditures of 162 million dollars for the conduct of other foreign affairs. We and our allies must make sure, through the United Nations and other channels, that war does not come about from a misunderstanding of our true motives or from a failure to understand our determination to resist tyranny.

FINANCE, COMMERCE, AND INDUSTRY

The authority granted under the Defense Production Act has been indispensable in broadening the economic base for our security effort and in increasing defense output. With this authority, we are giving extensive financial aid to defense industries through Government loans, guarantees of private loans, and contracts to purchase raw materials and equipment. Through allocations, scarce materials are channeled to essential users. Controls over prices, wages, and rents, as well as selective credit controls, are necessary for economic stabilization. Unfortunately the act is not strong enough to insure that we can hold the line on prices. I therefore urge that the act be improved as well as extended beyond the present expiration date of June 30, 1952.

Net expenditures for finance, commerce, and industry during the fiscal year 1953 are estimated at 833 million dollars, compared to 751 million dollars in 1952 and 176 million dollars in 1951. The sharp increase since 1951 has been due entirely to the expansion of programs promoting defense production and economic stabilization. The proposed extension of the Defense Production Act accounts for all except 40 million dollars of the new obligational authority of 1,171 million dollars recommended for 1953.

FINANCE, COMMERCE, AND INDUSTRY

[Fiscal years. In millions]

Recommended
Net expenditures or net receipts (-) new obligational
1951 1952 1953 authority
Program or agency actual estimated estimated for 1953
Promotion of defense production and economic
stabilization:
Expansion and allocation of production:
funds appropriated to the President:
Present programs $138 $501 $301
Proposed legislation 285 $900
Department of Commerce:
Present programs 13 50 9 6
Proposed legislation 41 45
Small Defense Plants Administration:
Present programs 2 4
Proposed legislation 9 28
Other:
Present programs 1 5 ( 1 )
Proposed legislation 5 8
Price, wage, and rent controls:
Economic Stabilization Agency:
Present programs 26 112 14
Proposed legislation 135 150
Business loans and guarantees (Reconstruction
finance Corporation) -19 78 -1
Promotion or regulation of trade and industry:
Department of Commerce 17 17 18 18
Antimonopoly programs and other 9 9 9 9
Promotion or regulation of financial institutions:
Reconstruction finance Corporation -16 -30 -3
Securities and Exchange Commission and other 7 7 7 7

Total 176 751 833 1,171
1 Less than one-half million dollars.

Expansion of production.--The expansion of defense production is primarily the job of private enterprise. The Government's responsibility is to guide and assist the expansion wherever necessary.

Under the general supervision of the Director of Defense Mobilization and the Defense Production Administrator, Federal agencies with defense responsibilities are using the authority of the Defense Production Act and related legislation to give broad financial aid to defense industries. Nine Government agencies engaged in defense procurement have guaranteed about 1.5 billion dollars in loans by private banks to meet working capital requirements of defense contractors and subcontractors.

Substantial progress also has been made in expanding defense production by loans, commitments to purchase, and purchases of equipment and materials under the borrowing authority of 2.1 billion dollars granted in the Defense Production Act. The Defense Materials Procurement Agency has already been authorized to make 600 million dollars in purchases and purchase commitments for rubber, magnesium, copper, aluminum, manganese, and other critical materials, and 260 million dollars in advances and purchases to finance the expanded production of urgently needed machine tools. Under the same authority the Department of Agriculture is financing expansions in supply of a few key agricultural products, and the Department of the Interior is making advances for exploration and development of domestic mineral resources.

The Reconstruction finance Corporation has been authorized to use 275 million dollars from the same borrowing authority for loans, mainly to expand facilities for production of machine tools, copper, aluminum, and steel. These loans are in addition to the substantial volume of loans for defense purposes made by the Corporation under its regular authority. Similar loans in foreign areas will be made by the Export-Import Bank.

Using these and other means, we are making great strides toward achieving increased economic strength. By the end of the fiscal year 1953, we will have steel ingot capacity of about 119 million tons compared to 109 million tons at present and 100 million tons 18 months ago. Programs already underway will enable us to nearly double 1950 primary aluminum production by the end of 1953, and further increases in capacity are being planned. Production of machine tools is making good progress. Magnesium production will soon be more than seven times the pre-Korean level. Increases in supplies of other critical raw materials such as manganese, tungsten, and molybdenum are also assured over the next few years. At the same time, we are helping friendly nations to expand their productive capacity. These efforts will continue until our total supplies are adequate to meet both military and civilian requirements.

The immediate effect on the Budget and the ultimate net cost to the Government of all these programs will be small compared to the size of the transactions and their contribution to the security effort. Most of the loan guarantees will not require any net expenditures, since premiums paid are expected to cover all expenses and losses.

According to present plans, the existing borrowing authority in the Defense Production Act will be fully obligated by the end of the fiscal year 1952. I therefore expect to recommend that the borrowing authority be increased by 900 million dollars to permit the financial assistance necessary primarily for long-range development of new sources of strategic raw materials. This will involve additional net expenditures of 285 million dollars in the fiscal year 1953.

Allocation of resources.--Defense production is absorbing a steadily increasing share of the Nation's resources. For some time, defense needs and normal civilian demand for some materials and products have been greater than the supply. Under the general supervision of the Defense Production Administration, the National Production Authority in the Department of Commerce has established allocations and other controls over the use of these items in order to increase our defense production quickly and efficiently. The Controlled Materials Plan has been a valuable aid in shifting steel, aluminum, and copper to the uses which best promote the security effort. The needs of defense and other essential users are assured preference through a priorities system. The burden on small business has been minimized through exemptions for small orders, self-certification procedures, and speedier processing. Exports also are being channeled by the Department of Commerce to meet the most essential requirements of friendly nations.

These controls are necessary to make sure that defense programs and essential civilian activities will receive necessary equipment and materials and that other users get their fair share of any remaining supply.

Small business.--The security effort has necessarily disturbed the normal peacetime patterns of business activity. The problem of adjustment has been especially serious for many small businesses. The newly established Small Defense Plants Administration, the Department of Commerce, and other agencies are helping small business make this adjustment. Major attention is being given to increasing the opportunities of small business to participate in defense production, as either prime contractors or subcontractors, and to obtain a fair allocation of materials. Where other public and private credit facilities prove inadequate, the Reconstruction finance Corporation will make loans upon the recommendation of the Small Defense Plants Administration. The agency is also planning to help groups of small businesses organize production pools to handle larger defense contracts. Finally, where necessary to assure adequate participation by small business, the Small Defense Plants Administration will itself take prime defense contracts, subcontracting the work to small plants. Appropriations required for the revolving fund to finance these contracting and subcontracting operations account for 25 of the 28 million dollars in appropriations recommended for the agency under proposed legislation in the fiscal year 1953.

Price, wage, and rent controls.--As military production increases, inflationary pressures also increase. This is so because military production adds to private incomes while decreasing the supply of goods which consumers can buy.

Increased taxes, coupled with price, wage, rent, and credit controls, together with voluntary restraints by consumers, business, and labor, have prevented a sharp rise in prices during the past year. The increase in inflationary pressures expected during the coming fiscal year, however, will require not only higher taxes, increased restraints on credit, and voluntary saving to absorb excess purchasing power, but also more effective direct controls. If the price-control program is to be both effective and fair, the staff of the Office of Price Stabilization must be strengthened. The agency has now reached a crucial stage in the development of its price-control program, the establishment of regulations specifically designed for individual commodities, industries, and geographical areas--including definite dollars-and-cents ceilings wherever possible. The administration of these regulations during the period of increasing pressure on prices requires a larger staff able to handle complaints and applications for price adjustments promptly, and to assist businessmen in complying with the regulations.

The Wage Stabilization Board and Salary Stabilization Board have established their major policy regulations. Both Boards must expand their present staffs to enforce these regulations and to handle the increasing backlog of cases. Ineffective enforcement would give violators an unfair advantage in recruiting employees, and thus hurt both the defense effort and economic stabilization.

The influx of military personnel and defense workers into key defense areas has caused a sharp increase in the demand for rental housing. To meet the danger of excessive rent increases, the Director of Defense Mobilization and the Secretary of Defense have already authorized the imposition of rent controls in about 100 areas. In each case, special aids--discussed under Housing and Community Development-are also being provided to encourage rapid expansion in the supply of rental housing. The Office of Rent Stabilization is now administering rent controls in these and other areas covering about 6.8 million rental units. It is estimated that by the end of the fiscal year 1953, tenants in 10 million rental units will be protected by Federal rent control.

In the fiscal year 1953, under the proposed extension of the Defense Production Act, the Economic Stabilization Agency will require new obligational authority of 150 million dollars for administration of price, wage, and rent controls. Total expenditures are estimated at 149 million dollars, 37 million dollars more than estimated for the fiscal year 1952. This additional amount will be required largely to keep the agency--particularly the Office of Price Stabilization--at the level of operations which it should reach by the end of this fiscal year.

Business loans and guarantees.--At the same time that we are making certain that credit is not a bottleneck in the defense effort, we are curtailing nondefense loans. The Reconstruction finance Corporation is making only those loans which assist military or essential civilian production. New commitments--including loans recommended by the Small Defense Plants Administration are estimated at 166 million dollars in the fiscal year 1952 and 260 million dollars in 1953, compared to 285 million dollars in 1951. Increased collections on outstanding loans are a major reason for the anticipated decline in net expenditures.

TRANSPORTATION AND COMMUNICATION

Efficient transportation and communication services are critical factors in an economy mobilizing for defense. Current economic activity has already created traffic loads which in total exceed any peacetime peak levels. Further traffic increases are in prospect as defense production continues to expand.

The Federal Government is assisting the transportation and communication industries to adjust their operations to these expanding needs. In addition, the Government has temporarily undertaken new activities to meet abnormal requirements arising out of the defense emergency. Among these are the port protection activities of the Coast Guard, the direct operation of merchant vessels by the National Shipping Authority, and the transportation controls of the Defense Transport Administration and other agencies.

TRANSPORTATION AND COMMUNICATION

[Fiscal years. In millions]

Recommended
Net expenditures or net receipts (--) new obligational
1951 1952 1953 authority

Program or agency actual estimated estimated for 1953

Promotion of merchant marine:
Maritime Administration $101 $287 $164 $72
Inland Waterways Corporation 1
Provision of navigation aids and facilities:
Coast Guard 162 230 239 239
Corps of Engineers 121 118 100 115
Panama Canal Company 18 10 9 3
Promotion of aviation (Civil Aeronautics
Administration) 160 181 166 143
Provision of highways:
Bureau of Public Roads:
Present programs 430 454 459 12
Extension of Federal-aid and forest
highway programs (proposed legislation) 417
Alaska roads and other 26 26 21 20
Postal service (deficit):
Present programs 626 814 669 669
Postal rate increase (proposed legislation) --225 --225
Regulation of transportation:
Interstate Commerce Commission 11 11 12 12
Civil Aeronautics Board 3 4 4 4
Defense Transport Administration:
Present programs 1 2
Extension of Defense Production Act
(proposed legislation) 3 3
Other services to transportation:
Reconstruction finance Corporation --8 --5 --13
Coast and Geodetic Survey 12 12 12 13
Alaska Railroad 16 12 15 16
Treasury Department --1 --11 ( 1 )
Regulation of communication 7 7 8 8

Total 1,685 2,153 1,643 1,521
1 Less than one-half million dollars.

Net expenditures for transportation and communication will be reduced from 2.2 billion dollars in the present fiscal year to 1.6 billion dollars in 1953, assuming enactment of the further increases in postal rates which I am recommending.

Merchant marine.--The primary objective of our merchant marine policy is to assure an active nucleus of trained maritime labor and management, which can serve as the foundation for the expansion of shipping operations in the event of full mobilization. To achieve this objective, the Government provides operating and construction subsidies for shipping services on essential trade routes. Abnormal requirements arising from the present emergency are being met through temporary new programs rather than by adding to our permanent subsidy legislation.

One such emergency program is the construction of modern cargo ships, capable of operating at high speeds for greater safety from possible submarine attack. The Maritime Administration in the Department of Commerce is now building 35 such vessels and may have to undertake additional construction in future years. Expenditures for this new program, which were less than 1 million dollars in the fiscal year 1951, will increase to an estimated 134 million dollars in 1952 and 144 million dollars in 1953.

The present emergency has also made it necessary for the Government to undertake direct operation of merchant vessels in order to supplement privately owned shipping capacity. The National Shipping Authority, within the Maritime Administration, is operating about 470 vessels reactivated from the reserve of war-built ships. This represents nearly one-fourth of our active merchant fleet. Through this program, the Government has relieved a world-wide shortage of dry cargo vessels and has helped to stabilize cargo rates at a reasonable level. The National Shipping Authority is now' handling much of the abnormal traffic resulting from the Korean conflict, coal shipments to Europe, grain shipments to India, and other emergency needs. Revenues derived from these operations are expected to exceed expenditures by 99 million dollars in 1953. These net receipts into the Authority's revolving fund will account for most of the decline in over-all maritime expenditures between 1952 and 1953.

The long-term development of a healthy, privately owned merchant marine is dependent upon the sound administration of the direct subsidy programs authorized by the Merchant Marine Act of 1936. The Federal Maritime Board now has under review the subsidy determinations for postwar years and is developing improved procedures for determining such subsidy rates in the future. As these determinations are brought up to date, operating subsidy expenditures will reflect substantial retroactive payments for past years, as well as a more complete coverage of current obligations. Expenditures for this program are estimated at 60 million dollars for the fiscal year 1952 and 75 million dollars for 1953.

In addition to the direct subsidies for vessel operation and construction, the Merchant Marine Act provides the shipping industry with substantial indirect aid in the form of special tax concessions. While. I strongly favor all assistance necessary to maintain an adequate merchant marine, I again recommend to the Congress the immediate reduction of present unwarranted tax benefits for the shipping industry as an initial step toward the elimination of this hidden form of subsidy.

Whenever the Congress finds that public policy requires Government assistance in any field, it should provide that assistance directly through appropriations and not indirectly through preferential tax measures. Such tax provisions generally fail to distribute the assistance where it is most needed and where it will produce the best results. Moreover, they provide concealed benefits which are exempt from the annual scrutiny the Congress normally gives appropriations. Because they are concealed, these benefits are difficult to reduce or to eliminate when the need for them no longer exists.

For more than a quarter of a century, the Government has operated the Inland Waterways Corporation, primarily to promote the development of common carrier barge service on the Mississippi and Warrior Rivers and their tributaries. In establishing the Corporation, the Congress intended that it be sold to private operators after it had demonstrated the economic feasibility of full-scale common carrier operations. That possibility has never been demonstrated with sufficient certainty to encourage any substantial offer for these properties. The equipment has deteriorated seriously and will require rehabilitation if the Government is to continue these services. I recommend that the Congress consider promptly whether to relax the statutory conditions which now limit sale of the Corporation or whether to appropriate sufficient funds to permit the line to be rehabilitated.

Navigation aids and facilities.--The Coast Guard, which has important peacetime responsibilities for promoting marine safety and enforcing our maritime laws, must also be ready to provide direct assistance to the Navy in the event of war. To increase its state of readiness for any future emergency, the Coast Guard is increasing the crew complement of its vessels and of its shore stations outside the continental limits. It is also expanding its reserve training program. These emergency measures, together with its new program for protecting the Nation's ports against sabotage, will increase expenditures from 162 million dollars in the fiscal year 1951 to an estimated 230 million dollars in 1952 and 239 million dollars in 1953.

River and harbor improvements by the Corps of Engineers will be held to a low level in 1953, in keeping with the over-all policy of restricting public works activity during the present emergency. Only one new navigation project is being recommended, and construction of existing projects will be curtailed. River and harbor navigation expenditures will decline from an estimated 118 million dollars in the fiscal year 1952 to 100 million dollars in 1953.

On July 1, 1951, the Panama Canal Company was established to permit integrated operation of the Canal and its supplementary commercial activities on a more businesslike basis. The Company is now reviewing the level of its commercial charges. Apart from necessary capital outlays, its operations will be placed on a self-sustaining basis in the fiscal year 1953.

Aviation.--Federal promotion of civil aviation has contributed to the spectacular growth of air transportation since the end of World War II. During the past six years, aircraft capacity operated by scheduled and nonscheduled airlines has expanded tenfold. This increased capacity, together with its supporting ground facilities, represents an important mobilization reserve--as demonstrated by the present participation of civil carriers in carrying military personnel and supplies to Korea.

The Civil Aeronautics Administration in the Department of Commerce operates navigation and landing aids, enforces safety regulations, provides financial assistance for local airport construction, and conducts various other programs aimed at increased safety and efficiency of aviation operations. Many of these facilities and services are essential for military as well as civil aircraft and have been developed with full attention to the needs of both groups.

The present emergency, which has substantially increased air traffic, has correspondingly increased the normal workload for aviation programs. It has also required the inauguration of new activities such as the identification and control of air traffic for purposes of air defense. Despite these increased responsibilities, expenditures for the fiscal year 1953 will be held below the level of 1952. This results largely from the limitation of airport grants and airway modernization to those projects which are most essential in this emergency period.

In addition to basic facilities and services, the Federal Government also provides financial aid to the airlines for their commercial development. These subsidies, which are now merged with compensation for carrying mail, should be provided separately so that the Congress and the public may have a full opportunity to evaluate them. The Civil Aeronautics Board recently completed a study estimating the amount of subsidy contained in air-mail payments to domestic carriers and now has under way a similar study for international lines. Although these studies represent a significant step in the right direction, the full benefits of subsidy separation will be obtained only when the Board is able to make direct subsidy payments from funds appropriated for that specific purpose. I therefore recommend again that airline subsidies be completely separated from payments for carrying the mail. Any such separation should apply uniform standards to all carriers, international as well as domestic.

For the fiscal year 1951, the CMI Aeronautics Board has estimated that the subsidies to domestic airlines alone amounted to nearly 35 million dollars, or 56 percent of the total mail payments received by those lines. In view of the increased profitability of airline operations, the Board is taking immediate steps to reduce or eliminate subsidies wherever possible. The airline industry as a whole has now reached a stage of development where it needs less Government support than in former years, and this subsidy should be curtailed. As an important further step in the direction of financial independence, the industry should begin in the near future to bear its fair share of the cost of Federally provided facilities through a system of airway user charges.

Highways.--The Nation's highways require major improvement if they are to handle adequately the steadily increasing levels of motor vehicle traffic. Under the Federal-aid highway program, the Bureau of Public Roads in the Department of Commerce provides grants-in-aid to assist State and local governments in the financing of needed highway construction. Partly as a result of the steel shortage, this program will remain below the authorized annual level of 500 million dollars, with expenditures estimated at 412 million dollars in the fiscal year 1952 and 400 million dollars in 1953. Within this program, special emphasis is being placed on the Interstate Highway System--a limited network of roads most essential to both civilian and defense highway traffic.

Federal-aid highway authorizations under existing legislation have been fully apportioned to the States, and this legislation should be extended in the present session of the Congress for an additional two year period. Although a need clearly exist, a high level of road improvement, State local governments must continue to the primary responsibility for financing construction. Under present circumstances, the Federal Government should concentrate its highway aid on those projects of national interest which are most urgently needed for defense and essential civilian transportation. A new authorization of 400 million dollars annually--100 million dollars below the present authorization--should enable the Government to discharge this responsibility.

Nearly 25 million dollars will be spent in the fiscal year 1953 for direct Federal construction of main highways through the national forests. I recommend that this program be extended for an additional two years at an annual level of 17.5 million dollars, or 2.5 million dollars below the current authorization.

In addition to its continuing highway programs, the Bureau of Public Roads now has responsibility for constructing access roads to military installations, defense plants, and sources of strategic materials. The authorization for this program was recently increased to 45 million dollars, and expenditures are estimated at 8 million dollars in the fiscal year 1952 and 27 million dollars in 1953. Only roads of special defense urgency, which are not required for normal civilian traffic, will be constructed under this authorization.

Postal service.--I am seriously concerned about the excessive levels to which the postal deficit has risen in postwar years. For the fiscal years 1946 through 1952, the cumulative postal deficit will exceed 3 billion dollars. This huge loss reflects the failure of postal rates to keep pace with the substantial postwar increases in salaries, transportation charges, and other operating costs. Postal rates were raised during the first session of the present Congress, and most of the new rates will take effect by the beginning of the fiscal year 1953. However, these increases--insufficient even in relation to the costs existing at the time of their enactment--were more than offset by salary increases which were concurrently enacted. They have since been made even more inadequate by railroad rate increases recently authorized by the Interstate Commerce Commission.

The Postmaster General is continuing his program of mechanizing operations and is taking other steps to improve the efficiency of the postal service. The Department is modernizing its motor vehicle service. It has instituted an improved money-order system, revised its accounting procedures, and made other improvements in the management of its affairs. The average output of postal employees per man-hour has increased by more than 10 percent since 1945. To further improve efficiency, I again recommend early enactment, with certain amendments, of the Post Office Department reorganization bill. This legislation would permit appointment of postmasters by the Postmaster General under the classified civil service and would otherwise strengthen the administration of the postal operation. However, the maximum potential improvements in efficiency cannot in themselves result in any major reduction of the postal deficit. The only effective means of reducing the deficit to a reasonable level is through a substantial increase in postal rates.

On the basis of postal rates now enacted, the postal deficit for the fiscal year 1953 would be nearly 670 million dollars. With the exception of first-class mail, all postal services will be operated at a loss in 1953. According to preliminary estimates of the Post Office Department, the loss on second-class mail alone will amount to roughly 250 million dollars. The newspapers and magazines which use this class of mail now benefit from rates which cover only a small fraction of cost, thus receiving a large and unjustified subsidy. Another major subsidy goes to those who distribute advertising circulars and other material through third-class mail, on which the loss in 1953 is estimated at about 150 million dollars. Parcel post and foreign mail will sustain losses estimated at approximately 125 million dollars and 75 million dollars, respectively.

In the interest of sound fiscal and postal policy, the heavy losses experienced on these various classes of mail should be immediately reduced and eventually eliminated. The postal deficit as a whole should be reduced to a level representing the cost of Government mail, other services to Federal agencies, and similar items which are properly chargeable to general tax revenues. To achieve this objective, additional revenue of about 500 million dollars annually must be raised through increased postal rates. I recommend that a major part of this increase be authorized during the present session of the Congress and that the balance be provided one year later so as to permit a reasonable transition to the new rates. Specifically, I recommend immediate rate increases adequate to yield 300 million dollars on an annual basis. Part of this increase can be effected by administrative action of the Postmaster General and will not require action by the Congress. This Budget assumes that the new rates will become effective for only part of the fiscal year 1953 and that additional revenue actually received in that year will amount to 225 million dollars. The Postmaster General will shortly present specific rate proposals designed to carry out this recommendation, and I most strongly urge prompt and favorable action by the Congress.

NATURAL RESOURCES

Natural resources are strategic assets in our effort to build the military strength necessary to discourage aggressors. But we must look beyond the short term and provide for continued expansion of our economy. This requires an adequate supply of basic resources--minerals, fuels, water, power, agricultural and forest products. Such a supply can no longer be taken for granted. If we are to continue to strengthen our Nation, we must improve our use and conservation of existing resources and increase our efforts to find and develop new
Ones.

NATURAL RESOURCES

[Fiscal years. In millions]

Recommended
Expenditures new obligational
1951 1952 1953 authority

Program or agency actual estimated estimated for 1953

Atomic energy (Atomic Energy Commission) $897 $1,725 $1,775 $1, 255
Defense production activities:
Department of the Interior:
Present programs 2 6 ( 1 )
Proposed legislation 5 5
Land and water resources:
Corps of Engineers:

Flood control and multiple-purpose projects 491 503 562 547
St. Lawrence project (proposed legislation) 15 20
Department of the Interior:
Bureau of Reclamation:
Present programs 295 276 257 228
Hells Canyon power project (proposed
legislation) 6 8
Power transmission (Bonneville, Southeastern,
and Southwestern Power Administrations) 44 62 71 83
Indian land resources 27 36 48 57
Bureau of Land Management and other 7 12 13 12
Tennessee Valley Authority (net) 72 190 200 200
International Boundary and Water Commission,
United States and Mexico 6 12 15 16
Federal Power Commission 4 4 5 5
Forest resources:
Forest Service and other Agriculture 79 96 97 98
Payments to counties from land grant funds 2 7 7 7
Mineral resources:
Department of the Interior:
Bureau of Mines and other 19 22 22 21
Payments to States, Mineral Leasing Act 17 15 18 18
Department of Defense:
Naval petroleum reserves 15 19 21 22
Fish and wildlife resources (Fish and Wildlife
Service and other) 26 37 39 31
Recreational use of resources (National Park
Service) 30 38 33 32
General resource surveys (Geological Survey) 18 22 28 29

Total 2,051 3,082 3,237 2,694
1 Less than one-half million dollars.

My 1953 Budget recommendations represent a balanced approach to both the national emergency needs and the long-term objectives. They continue our policy of postponing many desirable long-range projects in order to place greater emphasis on meeting current defense requirements. But they provide for those long-range developments which cannot be postponed without serious harm to our economy.

Expenditures for the development of natural resources in the fiscal year 1953 are estimated at 3.2 billion dollars, compared to 3.1 billion dollars in the current fiscal year. More than half of the 1952 and 1953 expenditures, and most of the billion-dollar increase in expenditures since 1951, will be for our expanding atomic energy program. Expenditures for flood control and irrigation and for multiple-purpose river basin development, including hydroelectric energy, account for most of the remainder of the total.

Atomic energy.--Although the past year has brought considerable progress in the industrial and other peacetime applications of atomic energy--including more widespread participation by private industry-the principal emphasis of this program continues of necessity to be placed on the national security. The major program initiated in October 1950 for expanding the productive capacity of our atomic energy plants is well under way, and major production facilities now under construction will begin to contribute to output in the fiscal year 1953. This program is under constant study in order to make the adjustments necessary to continue our leadership in this field.

Funds recommended for the Atomic Energy Commission include increased amounts for the procurement of uranium ores and concentrates, the production of fissionable materials and atomic weapons, and the development of improved and more effective weapons. The several tests of atomic weapons and devices carried out during the past 12 months demonstrate the effectiveness of recent research. Increases are also provided for an expanded effort to develop improved nuclear reactors for the production of fissionable material as well as reactors for the propulsion of submarines and aircraft. The development of propulsion reactors complements other studies under way in contributing to the ultimate goal of economical production of electricity for civilian use. The Commission will also continue its vigorous programs in basic and applied research in the physical sciences and in biology and medicine.

Land and water resources.--Pre-Korea plans for development of our land and water resources have been modified to reflect the urgent needs of the defense emergency. The few new starts recommended since the attack on Korea have been restricted to urgently needed projects, principally those providing power benefits.

Many river basin development projects for flood control, navigation, or irrigation provide hydroelectric power which is not only a valuable asset to the civilian economy but is of utmost importance to defense production. This Budget contains funds to make it possible for power features of these multiple-purpose projects to go forward according to schedule. Funds provided for ether projects already under construction will bring them to completion at an orderly and economical construction rate, or to a point where they can be stopped without losing benefits already gained or impairing the value of investments already made.

Many desirable projects have been retarded or suspended since the beginning of the Korean emergency. For example, the Budget which I transmitted to you two years ago included funds for 122 general flood-control projects. After the attack on Korea, the number was reduced to The 1953 Budget recommends funds for 64 general flood-control projects, 60 of which were initiated in previous years. Some the projects for which funds were recommended two years ago have been completed,. but many of them have been suspended. Seventeen of the 64 projects in this Budget will be completed or virtually completed! with the funds recommended for 1953. Thus the scope of this program has been reduced substantially since the Korean emergency. This is also true of the reclamation program. As a result of these actions, combined expenditures for flood control, irrigation, and multiple-purpose projects now under construction by the Corps of Engineers and the Bureau of Reclamation will be held to about the fiscal year 1952 level, despite the fact that expenditures on some large projects with power features will increase substantially.

Only a limited number of new starts for these programs are recommended in this Budget. They are restricted to urgently needed power projects in critical shortage areas, too&control projects in the Kansas-Missouri area, and emergency rehabilitation work which cannot be deferred.

The Kansas-Missouri area during the past summer suffered one of the worst flood disasters in the history of our country. This Budget includes 21 million dollars for starting construction on Tuttle Creek and Glen Elder Dams, both in Kansas, and for flood protection work at Topeka, Kansas, and Cape Girardeau, Missouri. Furthermore, by Executive order I have established a Missouri Basin Survey Commission to review the many different kinds of problems that exist in the large area of the basin and to advise the country as to the best way to proceed to achieve an orderly, businesslike development of the resources of the basin resulting in the greatest benefits for all the people of the basin and the Nation.

The accelerating pace of defense production, coupled with the anticipated expansion in civilian needs, is placing a growing demand on our power-producing facilities. Of the 735 million dollars of expenditures for projects under way by the Corps of Engineers and the Bureau of Reclamation in 1953, about 390 million dollars--or over 50 percent--will be spent on multiple purpose projects providing power benefits. In order to further expand our power potential, four new river development projects are recommended for initiation in fiscal year 1953. These are the St. Lawrence project, Hells Canyon power project and Ice Harbor Lock and Dam on the Snake River, and the Hartwell Reservoir in South Carolina.

If there has ever been a water resource project with great strategic benefits, it is the St. Lawrence development. The large hydroelectric power potential alone offers ample justification for undertaking this project without further delay. But the emerging iron ore problem makes it a strategic necessity. Beyond one end of the waterway are the large steel-producing centers and the declining high-grade iron ore deposits of the United States. Beyond the other end are the large new discoveries of high-grade ore in Canada. In view of the importance of this project, the Government of Canada has recently announced that it is prepared to proceed independently with its construction, rather than wait indefinitely for United States participation. I have already indicated my intention to support such action by Canada, if that is the only way to obtain immediate construction of this project. However, if Canada built the waterway, she would, of course, control its operation. I feel strongly that our Nation's interest in the development of this resource on the basis which I have recommended is so vital that we should join as a full partner in its construction and operation.

The Ice Harbor and Hartwell projects are authorized, but the St. Lawrence development and Hells Canyon power project require authorization by the Congress. again urge the Congress to authorize these two projects without delay. The 37 million dollars recommended for the four projects would permit the starting of construction on these important developments.

I also recommend 63 million dollars to begin installation of 11 additional steam electric and hydroelectric generation units in the power system of the Tennessee Valley Authority. The additions are needed not only to meet the steady growth in the power needs of the area but also for the large increase in the requirements for the atomic energy facilities in this area.

These new projects and units will provide ultimate capacity of 3.5 million kilowatts. This capacity, together with the 8.3 million kilowatts presently installed in Federal projects and the 10.3 million kilowatts to be installed ultimately in projects under way, will make a substantial addition to our power supply.

Funds recommended for the fiscal year 1953 for the Bonneville, Southwestern, and Southeastern Power Administrations, Bureau of Reclamation, and Tennessee Valley Authority will provide properly scheduled facilities to transmit available power to load centers.

I am also including funds in this Budget to continue planning the urgently needed redevelopment of Niagara power facilities made possible by the treaty with Canada. In addition, I recommend the enactment of legislation to permit construction of facilities that would enable us to realize the full power potential of the Niagara site.

In order to make it possible to meet defense power requirements in the Pacific Northwest, I also recommend legislation to authorize the construction, operation and maintenance of fuel-fired electric-generating plants. Such plants would provide an early increase in capacity and would make more effective existing hydroelectric facilities.

Because of the large increases in costs that have been experienced on some projects I have asked the Director of the Bureau of the Budget to prepare for the consideration of the Congress, appropriation language which would require further congressional approval before work could go forward where the total cost of the authorized improvement has increased by more than 10 percent above the last estimate approved by the Congress, after allowance for changes in construction cost levels. This will permit a reappraisal to be made to determine whether we would be justified in proceeding with the work.

The Water Resources Policy Commission has submitted to me a comprehensive report and recommendations on Federal responsibility for and participation in the development, utilization, and conservation of our water resources and related land-use activities. The recommendations of the Commission have been under intensive study during the past year by representatives of the Executive Office and interested agencies. The Commission's report and this study indicate the need for improved means for comprehensive planning and coordination in the development of these resources, including wider State and local participation, as well as for broadening the scope of some programs. Legislative recommendations for better development of the Nation's water resources and related land-use activities are now being prepared.

Mineral resources.--To meet our immediate defense objectives, programs in the field of mineral resources are aimed at assuring this Nation and the free world adequate supplies of metals, minerals, and fuels at reasonable prices. To this end, the Defense Materials Procurement Agency has been established with central responsibility for procurement and development operations for the current mobilization effort.

The Bureau of Mines and the Geological Survey appraise known sources and make surveys for new sources of critically needed materials--such as uranium, nickel, cobalt, tungsten, copper, and lead--and conduct research aimed at improving mining practices and methods of extracting minerals, recovery of secondary metals, and increased efficiency in the use of substitutes. Research and operation of pilot and demonstration plants for production of synthetic liquid fuels from oil shale and coal will be continued.

National forests and public lands.--Programs of the forest Service and the Bureau of Land Management provide for the management, development, and increasing use of the valuable timber, range, and mineral resources of our national forests and public lands.

The small increases over fiscal year 1952 will permit some expansion in timber sales activities, thus adding to the supply of forest products which are needed for defense activities.

Developmental programs for the Indians.--Most of our Indian citizens live on and make their living from the 56 million acres of land held in trust for them by the United States. Much of this land is in need of further development work, but even after development the lands will support, at an adequate American standard of living, only about half of the Indian population.

The goal of Federal Indian policy is to equip the Indians to take their place as independent, self-supporting citizens of this Nation. To do this job properly will require a substantial investment of Federal funds and time enough to complete the task on an orderly basis. For the fiscal year 1953 I am recommending new obligational authority of 57 million dollars for Indian land resources. This will provide for acceleration of soil-conservation work and further development of urgently needed water supplies and timber and range resources, as well as additional roads and other construction needed to carry out the various developmental programs for the Indians.

To insure effective use of their lands, the Indians are in need of credit facilities. I recommend legislation to augment the loan fund previously authorized in an amount sufficient to meet demands for credit over the next 5 or 10 years.

AGRICULTURE AND AGRICULTURAL RESOURCES

To meet increased military and civilian requirements, farm production was expanded in the 1951 crop year and should continue to increase in 1952.

AGRICULTURE AND AGRICULTURAL RESOURCES

[Fiscal years. In millions]

Recommended
Net expenditures or net receipts (-) new obligational
1951 1952 1953 authority

Program or agency actual estimated estimated for 1953

Stabilization of farm prices and farm income:
Price support, supply, and purchase programs --$781 $70 $240 $120
Removal of surplus agricultural commodities 46 55 50 181
International Wheat Agreement 180 183 188 182
Sugar Act 69 70 70 70
Federal crop insurance 4 6 4 9
Agricultural production programs 21 10 15 15
Financing farm ownership and operation:
Farm Credit Administration and agencies 185 51 35 23
Farmers' Home Administration 156 165 162 162
Disaster loans --1 29 11
Financing rural electrification and rural telephones 276 250 223 83
Agricultural land and water resources:
Agricultural conservation program (Production
and Marketing Administration) 284 302 261 257
Soil Conservation Service, flood control, and
other 62 68 68 69
Research and other agricultural services:
Present programs 149 149 147 152
Extension of Defense Production Act (proposed

legislation) 4 4

Total 650 1,408 1,478 1,327

Despite floods and droughts, farmers achieved a total production in 1951 as high as that in any previous year. In 1952, with present production goals, farmers will be aiming at a new record, 6 percent above 1951 and 50 percent above the 1935-39 average. These goals represent the maximum practicable increase in the production of corn and other feed grains which are necessary for meeting the increasing demand for meat, poultry, and dairy products. Cotton production will be continued at a high level, and the goal for wheat is materially above the 1951 production when 16 million acres of winter wheat were ruined by unfavorable weather.

Recommendations for agricultural programs in this Budget recognize the desirability of expanding farm production and maintaining the capacity of the Nation's farms to produce foods and fibers in abundance.

Total expenditures for agriculture and agricultural resources are estimated at 1.5 billion dollars in the fiscal year 1953. This compares with 2.8 billion dollars in 1950, 650 million dollars in 1951, and an estimated 1.4 billion dollars in 1952. Most of the fluctuation in expenditures is in the agricultural price support program.

Stabilization of farm prices and farm come.--Programs designed largely to aid in supporting farm prices and farm income include the agricultural price support program, the permanent appropriation for removal of surplus agricultural commodities, the International Wheat Agreement, and payments to farmers under the Sugar Act. These programs are all required under basic legislation. Expenditures depend more on crop conditions and world economic conditions than on current Budget authorizations.

The price support program is being used to encourage farm production by keeping support prices on cotton, corn, wheat, soybeans, milk, wool, and certain other commodities at maximum levels of 90 percent of parity. This level of support should help to give farmers the economic incentive necessary to maintain high production. In the crop year 1952, with present production goals, we should be able to reverse the downward trend in carry-over stocks of cotton, wheat, and corn and begin to build up reserves to meet possible crop shortages in future years. If production is not reduced by poor growing conditions, some of the increased carry-over--principally cotton and wheat--will come into Commodity Credit Corporation inventories, and its acquisition will result in a net Budget expenditure in the fiscal year 1953. The Corporation had large net receipts in 1951, and expenditures are estimated to be lower in 1952 than in 1953 because of the liquidation of inventories acquired in 1949 and 1950.

The permanent appropriation for removal of surplus agricultural commodities was established in 1935 at a time when the Nation was in the midst of a depression and farmers were faced with burdensome surpluses. Under present economic conditions only a fraction of the funds available will be needed. In the fiscal year 1953 the funds available will include the carry-over of 176 million dollars from prior years plus 181 million dollars of new authorization. Expenditures under this program, however, are estimated to be 50 million dollars in 1953.

Expenditures under the International Wheat Agreement have risen to a higher level than was anticipated at the time the agreement was negotiated. Although we expected a downward trend in world wheat prices after World War II the Korean crisis and the increased demand for wheat have caused increased prices since 1950. The Agreement, which expires July 31, 1953, guarantees the export each year of a certain quantity of wheat at the maximum price of $1.80 per bushel. The loss arising from the difference between this export price and the higher domestic price of wheat is met initially from Commodity Credit Corporation funds, with reimbursement later from appropriated funds. The cost of the wheat agreement has risen from 76 million dollars in the fiscal year 1950 to 180 million dollars in 1951 and is estimated to increase somewhat in 1952 and 1953.

Financing farm ownership and operation.--All credit agencies of the Department of Agriculture are maintaining a careful review of loan policies to emphasize credit needed for defense requirements and to keep them consistent with the voluntary credit restraints followed by private lenders.

Expenditures of the farm Credit Administration are estimated to decline from 185 million dollars in the fiscal year 1951 to 51 million dollars in the current fiscal year and
35 million dollars in 1953.

The loan programs of the farmers' Home Administration aid low-income farm families unable to obtain credit from other sources to expand production and to achieve efficient farming units. These, as well as many other programs of the Department of Agriculture, encourage the economic development of family-size farms and the better use of underemployed farm resources.

The unusually large net expenditure for disaster loans in 1952 represents mainly loans made in the Kansas-Missouri flood area. Net expenditures for these loans are expected to decline in 1953.

Financing rural electrification and rural telephones.--The continuing shortage of critical materials has made it necessary to reduce allocations of copper and aluminum for rural electrification. The decline in Rural Electrification Administration expenditures in the fiscal years 1952 and 1953 reflects the shortage of materials. In view of the estimated carry-over into the fiscal year 1953 of 118 million dollars of unused loan authorizations, I recommend that the new loan authorization for the fiscal year 1953 be reduced to 75 million dollars. This will permit continuance of new approved electrification and telephone loans at the 1952 level of 190 million dollars, materially less than the 260 million dollars of loans approved in 1951. In this way we can avoid building up excessive commitments for loan expenditures one, two, or three years in the future when we cannot now forecast the availability of scarce materials.

following the pattern established by the Congress, I also recommend a contingency authorization of 50 million dollars for electrification loans to be used if the Secretary of Agriculture certifies that such funds are necessary to provide a fair distribution among the States under the allocation formula, but still keeping within the over-all level of loans approved in the fiscal year 1952.

Conservation.--An increase in funds for the Soil Conservation Service in the fiscal year 1953 is required largely because of the increasing number of new soil-conservation districts established by farmers and the increased responsibilities for supervising permanent practices financed from the conservation payments program. With the growing demands on our soil resources, we cannot afford to relax our efforts in this direction. I also recommend that the advance authorization for the agricultural conservation payment program in the crop year 1953 be continued at 256.5 million dollars, the level authorized by the Congress for the 1952 crop year.

Research and other agricultural services.--The ability of the Nation's farmers to meet the increasing demands for food and fiber products rests on the continued improvement of the technology of agriculture. My recommendations for research and other agricultural services, which hold these programs close to the fiscal year 1952 level, represent a desirable balance between the immediate needs of the security effort and the need to strengthen our economy for the years ahead.

LABOR

In order to help meet the manpower needs of defense production and essential civilian activities without jeopardizing existing labor standards, which are essential to sustained high productivity, we are shifting the emphasis of Federal labor programs.

More effort is going into assisting employers in recruiting and training. Mediators are giving special attention to settling disputes in defense industries. Safety training programs are concentrating on the prevention of accidents in hazardous defense work. Statistics on prices, wages, and employment are being collected more promptly and in more detail so that Government and industry can have a better basis for decisions on contract placement and plant location, and on price and wage stabilization programs.

In the fiscal year 1953 expenditures for all activities included under labor will amount to 246 million dollars, 6 million dollars more than in the current year. The increases are in the placement and defense production activities of the Department of Labor and in operations of the Federal Mediation and Conciliation Service and the National Labor Relations Board. Three-fourths of the total expenditures for labor programs will be direct grants to the States for the administration of placement services and unemployment compensation.

Placement and unemployment compensation administration.--Employment service and unemployment insurance administration-which is almost all under State control but is entirely financed by the Federal Government--will reflect the continuing impact of defense production. More placements and fewer claims for unemployment benefits are expected on a national basis as total employment rises. Generally, employment conditions are very good. However, in some communities, such as Detroit, serious local increases in unemployment have developed. Efforts are being made to improve these local situations through the placement of defense work in these areas.

The employment services offer the best means for the orderly recruiting of workers for defense plants. As defense production continues to expand, increasing manpower stringencies will place an even greater responsibility on the employment services. Special efforts are being made to reduce unnecessary migration and avoidable strains on housing and community facilities by recruiting all local workers, including women, older workers, members of minority groups, and the handicapped, before arranging for out-of-State recruitment. The public employment offices have the assistance of labor-management committees in helping communities with labor shortages to solve their manpower problems. These State activities will be administered by an estimated 40,800 employees--l,200 fewer than this year. However, expenditures will increase because of salary increases for State employees.

LABOR

[Fiscal years. In millions]

Recommended
Expenditures new obligational
1951 1952 1953 authority

Program or agency actual estimated estimated for 1953

Placement and unemployment compensation
administration:
Department of Labor $183 $189 $192 $204
Railroad Retirement Board 6 10 11 11
Defense production activities:
Department of Labor:
Present programs 1 2 ( 1 )
Proposed legislation 3 3
Labor standards and training:
Department of Labor 13 14 14 14
Mine safety (Department of the Interior) 4 4 4 4
Labor relations 12 13 14 15
Labor information, statistics, and general
administration 9 8 8 8

Total 228 240 246 259

1 Less than one-half million dollars.

Shifts to defense employment have contributed to a serious farm-labor shortage. To help meet this shortage, a new program to recruit farm laborers from Mexico for work in the United States was started last fall under authority of legislation passed by the Congress and in accordance with a temporary agreement with the Mexican Government, which expires February 11 The United States has been operating five recruiting stations in the interior of Mexico and five reception centers in this country. Under this program, about 150,000 workers have been brought into this country for work on farms when need has been demonstrated. Their employment has been under contracts which protect their rights and assure that American labor standards will not be undermined.

The United States and Mexico have agreed that both countries must take appropriate actions to prevent the trafficking in and employment of aliens who cross the border from Mexico illegally if we are to preserve the labor standards of American workers and of legal Mexican entrants. On our part, this requires the tightening of our immigration law with respect to illegal entrants and increased appropriations to the Immigration and Naturalization Service for more inspectors. I strongly urge prompt and favorable consideration of legislation for this purpose. A supplemental appropriation for operation of the recruiting and reception centers will be necessary if the agreement is renegotiated.

Defense production activities.--While we shall continue to rely on voluntary methods rather than Government controls in the field of manpower, the Federal Government must provide the assistance which is essential to help employers and communities in solving their labor-supply problems. Defense Production Act funds finance the Labor Department staff which directs the manpower work in the several Bureaus of the Department, and also pay for four special programs-helping employers plan training for new workers, assisting State safety inspectors to conduct accident-prevention campaigns in hazardous defense industries, recruiting workers from other States for jobs in areas with labor shortages, and providing employment information on additional labor market areas to enable Government agencies to consider labor-supply factors as they make procurement and materials allocation decisions.

Labor standards.--Sound labor standards must be maintained not only because of the human rights involved but also because they contribute directly to the high productivity essential in a defense emergency. For this reason, the Secretary of Labor has urged that such standards as those on hours of work and employment of women and young people be held except where they need to be temporarily relaxed to meet urgent production problems.

The recent coal mine explosion in West frankfort, Illinois, is a tragic demonstration of the need for new legislation to give federal safety inspectors power to enforce their recommendations. Under existing law, the Bureau of Mines has only the power of persuasion.

With the establishment of the Committee on Government Contract Compliance, the Executive Branch has acted, within the limits of its present powers, to see that discrimination because of race, sex, or color does not prevent workers from getting jobs which use their highest skills. Further progress toward this objective will require action by the Congress. I therefore renew my recommendation for legislation to establish a fair Employment Practice Commission.

Some of the most serious labor standards problems arise from movement of workers from place to place to meet the manpower needs of agriculture. The Commission on Migratory Labor which I appointed some time ago has recently recommended a series of actions by Federal, State, and local governments to overcome economic exploitation, poor housing and education, and other injustices encountered by migrants and their families.

I intend to take administrative action to carry out many of the recommendations which concern the Federal Government. For example, the Department of Labor will increase its efforts to enforce the anti-childlabor provisions of the fair Labor Standards Act. From time to time necessary legislation will be requested to carry out other recommendations. One of the first laws needed is to regulate private employment agencies operating across State lines. The Commission on Migratory Labor found that unscrupulous agencies and labor contractors disrupt the labor supply and exploit workers by charging excessive fees, referring workers to nonexistent jobs, and misrepresenting the nature of the work.

Labor information and statistics.--The Consumers Price Index, which is an important factor in collective bargaining contracts for several million workers and in wage stabilization for all workers, has been largely based on data concerning spending habits of 1934-36. Tremendous changes in the structure of the economy have taken place since then. Therefore, the Bureau of Labor Statistics is preparing an up-to-date index, based on a study of the spending habits in 1950 of people in large and small cities. The improved index will be compiled on a trial basis for a number of months and will be first published for January 1953.

Unemployment trust fun&--Benefits for unemployment compensation are financed by special payroll taxes on employers which are deposited in the unemployment trust fund. Neither the receipts nor the expenditures are included in the Budget totals. In the fiscal years 1952 and 1953, the tax receipts are expected to be lower than in 1951, because firms which have had low unemployment will pay lower taxes. Despite increases in unemployment in some areas, total unemployment, and expenditures for benefits, are expected to be somewhat lower in 1952 and 1953 than last year.

The local unemployment we are now experiencing illustrates the continuing need for a strong system of unemployment insurance. I hope the Congress will give consideration to a number of basic improvements in the Federal--State system along the lines recommended in my message to the Congress of April 6, 1950.

UNEMPLOYMENT TRUST FUND

[fiscal years. In millions]

Item 1951 1952 1953

Receipts: actual estimated estimated
Deposits by States and railroad unemployment taxes $1, 378 $1,319 $1,351
Interest 164 182 208
Payments:
State and railroad withdrawals for benefits --898 --856 --707
Net accumulation 644 645 852
Balance in fund at close of year 8,068 8,713 9,565

HOUSING AND COMMUNITY DEVELOPMENT

In the years immediately following World War II, we were beginning to make good progress on a comprehensive housing and community development program. Federal insurance and guarantees of private mortgage loans, together with Federal mortgage purchases, were making it possible for millions of families to purchase better homes on reasonable terms. With these and other aids, the construction of homes reached an all-time peak of 1.4 million new units in 1950. To assist low-income families to obtain adequate housing, the Congress had authorized the construction of 135,000 low rent public housing units a year for a six-year period. A broad program had been started to assist communities in eliminating slums with the aid of Federal loans and grants. Other activities were also well under way to improve the quality or reduce the cost of housing and to assist groups with special housing problems.

Since the attack on Korea, we have moved rapidly to adapt these programs to meet the immediate needs of expanded military and defense installations and to establish an adequate civil defense program. Total housing construction is being reduced to free materials and manpower for more essential uses and to help stabilize prices and wages in the construction industry. Under legislation enacted during the past year, the federal Government is helping State and local governments to provide housing and community facilities in defense areas and is assisting them in civil defense preparations.

Almost a third of the new homes built in the fiscal year 1953 will be in areas serving military and defense installations. They will be rented or sold at prices which military personnel and defense workers can afford to pay. Necessary community facilities also will be built in these areas. Federal aid must be given where needed, but it will be held to a minimum. These steps are vital in helping to assure an adequate, stable supply of manpower for new or expanding defense plants as well as adequate civilian personnel for military installations.

HOUSING AND COMMUNITY DEVELOPMENT

[Fiscal years. In millions]

Recommended
Net expenditures or net receipts (--) new obligational
1951 1952 1953 authority

Program or agency actual estimated estimated for 1953

Defense housing and community facilities:
Housing and Home finance Agency:
Present programs (1) $21 $61
Proposed legislation 213 $325
Aids to private housing:
Housing and Home finance Agency:
Federal National Mortgage Association $496 543 65
Federal Housing Administration --15 16 --7
Home Owners' Loan Corporation --80 (1)
Other --3 --5 --23
Direct housing loans (Veterans Administration) 58 88 --5
Farm housing (Department of Agriculture). 26 24 21 21
Reconstruction finance Corporation --19 --16 --13
Public housing programs (Housing and Home
Finance Agency and other) 124 63 --94 48
Provision of community facilities 6 30 41 21
General housing aids:
Housing and Home finance Agency:
Loans to educational institutions 6 32
Alaska housing and other 7 11 6 6
Urban development and redevelopment (Housing
and Home Finance Agency) 2 9 25 350
Civil defense. ( 1 ) 44 339 600
Disaster insurance, loans, and relief:
Reconstruction finance Corporation (1) 30 3
Funds appropriated to President:
Disaster relief 17 13
Flood insurance program (proposed legislation) 1 50

Total 602 881 678 1, 421
1 Less than one-half million dollars.

Despite the importance of providing better housing for many of our people, housing starts in the fiscal year 1953 should be held to 850,000 or even less--depending upon the availability of materials--because of the requirements of the defense program. This amount of construction, which must first supply housing in defense areas will provide for no more than the maintenance of present housing standards in other areas. All major Federal programs for housing and community development outside critical defense housing areas will be held substantially below the levels authorized by basic legislation.

In the fiscal year 1953, net expenditures for housing and community development are estimated at 678 million dollars, compared to the 881 million dollars estimated for 1952. Expenditures for civil defense and for defense housing and community facilities will rise sharply, but net purchases of mortgages are expected to be almost half a billion dollars lower than in the current year, and substantial net receipts, instead of net expenditures, are expected in public housing programs.

Defense housing and community facilities.--Since enactment of new legislative authority last September, the Director of Defense Mobilization has certified about 140 areas as meeting the conditions prescribed in the statute for critical defense housing areas. Additional communities will be designated as the need is demonstrated. In the certified areas, the Federal Government will make special efforts to assure that adequate housing and community facilities are constructed to meet defense requirements. According to present estimates, roughly 400,000 new housing units should be built or placed under construction to meet needs in critical defense areas during the next 18 months.

We are continuing to rely primarily on the initiative of private builders and local communities to provide the needed housing and facilities in these areas. A new and more liberal program of mortgage insurance, as well as special support from the Federal mortgage purchase program, is available to help builders obtain the necessary financing. In those areas where private builders are unable to provide enough housing of the type needed for defense workers and military personnel and at prices and rents they can afford to pay, the Federal Government will construct such housing directly.

Federal loans and grants are also available to assist local communities in critical defense housing areas in providing facilities and services essential to the construction of housing. Federal assistance will be available only to the extent that the financial resources of such communities are inadequate to finance the facilities required.

The funds which the Congress has thus far made available for these programs provide only a small beginning on the work which must be done. Available funds for the direct construction of housing are so limited in the face of the pressing need that nearly the entire amount must be used for temporary housing near military installations. Less than 6,000 units can be supplied with present appropriations. These funds will take care of only a small part of the need at military installations and will permit very little direct construction of housing for workers at defense plants. Additional funds also will be needed for providing community facilities and services.

Accordingly, I am recommending supplemental appropriations for the current fiscal year to make available the additional funds now authorized for defense housing and community facilities. The growing need for defense housing also makes it essential that the present statutory authorization be increased so that the Congress can provide additional funds as quickly as defense requirements are demonstrated. On the basis of specific needs thus far identified, additional appropriations in 1953 estimated at 325 million dollars will be required. Of this amount, 25 million dollars is needed for community facilities.

Aids to private housing.--Soon after the attack on Korea, the down payment requirements on Federally insured or guaranteed mortgages and on other mortgages were in-. creased and the repayment periods shortened as a method of limiting construction without resort to direct controls. These changes helped to slow down the rate of new construction and credit expansion, but the action of the Congress last fall in removing most of the authority for such controls has reversed the trend.

During the coming months, it will be necessary to reduce the level of housing construction further to make it consistent with the needs of economic stabilization and the limited availability of scarce materials. As one of the most essential methods of achieving this objective, I urge the Congress to restore previous authority over down payments and other credit terms.

In recent months the Federal National Mortgage Association has purchased a large volume of mortgages guaranteed by the Veterans Administration in order to provide the support authorized by law for veterans' housing. The activities of the Association, however, are now increasingly directed toward providing adequate financing for construction in critical defense housing areas. By the fiscal year 1953, over one-half of the mortgages purchased will be those financing either military or other defense housing. The 1953 estimates assume that, with the continued large volume of savings, the supply of private mortgage funds will be sufficient to reduce the need for Federal support of both defense and nondefense housing.

The mortgage insurance programs of the Federal Housing Administration also have been redirected to support the defense fort. Liberal mortgage insurance terms have been made available to builders constructing homes in defense housing areas. On the other hand, a sharp reduction is in process in the number of mortgages insured in other areas consistent with the reduced construction planned for 1953.

In total, an estimated 360,000 new housing units will be constructed with the aid of financing insured by the Federal Housing Administration. In addition, nearly 150,000 existing homes will be purchased with mortgages insured by the agency. Since the premium receipts for such insurance usually equal or exceed the expenses and losses, this program normally involves little or no Budget expenditures. For the next fiscal year, it will be necessary to authorize an increase of r billion dollars in the total authority to insure mortgages under these various programs, principally for insurance of defense housing mortgages.

In addition to guarantees of private housing loans to veterans, the Administrator of Veterans' Affairs has limited authority to make direct housing loans to veterans in areas where adequate private financing is not available. This program was extended by the Congress until June 30, 1953, on a revolving-fund basis. Almost all of the 150 million dollars in basic authority has now been spent or committed. The estimates for 1953 assume that the sale of loans already made will provide adequate funds to meet the future need for new loans.

Public housing programs.--By the end of this fiscal year an estimated 140,000 low rent public housing units will have been started under the Housing Act of 1949. Despite this progress, the need for the low rent public housing program to help provide decent homes for low-income families continues to be great. As part of the restrictive policy followed on nondefense housing, I again recommend this year--as I recommended last year--that 75,000 new units be started in the next fiscal year, compared to the average of 135,000 units a year authorized in the basic statute.

While local authorities construct and operate public housing projects, the Federal Government assists them by extending direct loans and by contracting to make payments, over a period of years, high enough to assure adequate security for long-term private financing. This year local housing authorities will repay a substantial amount of Federal loans with funds raised by the sale of their own obligations to private investors. On the basis of the two offerings to date, net receipts are estimated from this program in the fiscal year 1953. Annual payments of contributions to help cover the difference between cost of operation and rental income of the projects will, however, increase substantially next year as many of the new units now under way are completed and occupied.

General housing aids.--Loans to help educational institutions ease their housing shortages have been confined exclusively to institutions having shortages resulting directly from defense activities such as Reserve officers' training programs. Loan commitments in the current fiscal year have been limited to 40 million dollars, and an additional 20 million dollars of the 300 million dollars authorized in the basic statute will be made available in 1953.

The Alaska Housing Act of 1949 gives special assistance for housing in the Territory. The increased military preparations since 1950 have emphasized the need for housing for the supporting civilian population. At my request, the Federal agencies responsible for housing and related public works in Alaska are taking steps to expedite construction of both the needed housing and the supporting community facilities. I am recommending a supplemental appropriation to the revolving fund for Alaskan housing, as well as appropriations for necessary public works. Further changes in basic authority will be requested if studies now being made reveal the need for further assistance to this strategic area.

Urban development and redevelopment.--The long-range slum clearance and urban redevelopment program, designed to assist cities in the elimination and redevelopment of their blighted areas, is now well under way. Over 200 cities have indicated their intention to proceed with redevelopment programs and have received assurance that Federal assistance will be available for their programs. Of these cities, more than 150 have submitted plans which have been approved for Federal assistance.

To prevent conflict with defense requirements, present policies provide that communities may acquire sites for redevelopment, but may not demolish existing structures Or Construct new structures unless these steps are specifically determined to be consistent with defense needs. These limitations will hold the net expansion in the coming year to the minimum rate necessary to make the program effective. For the fiscal year 1953, for example, new loan commitments are not expected to exceed 100 million dollars--even though the basic statute authorizes 250 million dollars in borrowing authority for 1953--with expenditures estimated at 25 million dollars. The basic statute also authorizes contracts for capital grants of 100 million dollars a year, but no payments on such grants are now expected in the fiscal year 1953.

Civil defense.--A strong civil defense program is an indispensable part of our security effort. Neither our geographic position nor our military defenses can assure absolute protection against attack. An enemy can strike our industrial centers and inflict heavy damage in lives and property. This threat to our civilian population and to our productive facilities can be reduced, however, by strengthening the civil defense program now under way. Failure to do so could leave a fatal gap in our security structure. I am therefore recommending a substantially creased appropriation. These funds will finance minimum Federal stockpiles of essential supplies and will match State and local expenditures to prepare protective shelters in densely populated areas and to assemble necessary local equipment.

Although civil defense is primarily a State and local responsibility, the Federal Civil Defense Administration plays a key role in providing information, leadership, coordination, and financial assistance to State and local governments. Federal expenditures for civil defense in the fiscal year 1953 are estimated at 339 million dollars, compared to 44 million dollars in 1952 and less than half a million dollars in 1951. This sharp increase is necessary to overcome dangerous gaps which now exist in the program, caused by the inadequate financial support given it by the Congress last year.

Disaster insurance, loans, and relief.--The great floods last summer in Kansas and Missouri made necessary Federal assistance to relieve suffering, repair the damage, and return the stricken area to full economic activity as quickly as possible. The emergency assistance included loans by the Reconstruction finance Corporation and the Department of Agriculture, and grants administered through the Housing and Home finance Agency. Through the cooperative efforts of the Federal, State, and local governments and the American Red Cross, the homeless were given shelter and the threat of epidemics was avoided.

While disasters of this magnitude happen rarely, we should be better prepared for them than we are at present. Individuals and business firms should have an opportunity to purchase financial protection against this hazard. The insurance facilities now available from private companies are extremely limited. Accordingly, I repeat my recommendation of last summer for the enactment of legislation to supplement these private facilities by establishing a Federal flood insurance system. An appropriation of 50 million dollars is recommended to create a flood insurance fund.

As part of our preparation against the greater hazards of modern war, I urge the Congress to consider legislation authorizing Federal programs necessary to restore orderly community life, maintain minimum incomes, and compensate individuals and business firms for property damage arising from enemy attack. In an atomic age, the probability of such an attack is so unpredictable and the expenditures necessary to provide a minimum level of protection are potentially so large that neither private nor public insurance is feasible. Nevertheless, orderly advance planning is essential. At the request of the Senate Banking and Currency Committee, the Director of the Bureau of the Budget has submitted a draft of legislation providing minimum authority required in advance of such attack, including authority to set up a skeleton organization and to draft specific plans for partial indemnities and other necessary programs. The appropriate agencies of the Government are continuing to review and improve these proposals.

EDUCATION AND GENERAL RESEARCH

Federal expenditures for education and general research are estimated at 624 million dollars in the fiscal year 1953, compared to an estimated 238 million dollars in 1952 and 115 million dollars in 1951. These sums do not include special-purpose education and research activities included in other Budget categories.

The substantial increase in the fiscal year 1953 will strengthen basic education programs and fundamental research. The added funds are needed primarily for new legislation which I am recommending to help all the States improve elementary and secondary education, to help provide schools in those communities which are overburdened because of Federal activities, and to give financial assistance to capable young people who otherwise could not attend a college or university.

New obligational authority recommended for 1953 is 688 million dollars, but largely because of the length of time required to complete and pay for buildings under the school construction program the expenditures will be 64 million dollars less than this amount.

Promotion of education--elementary and secondary.--At present, too many of our people are unable to make full use of their capabilities, whether in civilian employment or military service, because their opportunities for education and training have been limited. Schools are overcrowded, substandard instruction is common, and teachers' salaries continue low in many areas.

The most serious aspect of this situation is that it can so easily become very much worse. Our school-age population is now rising rapidly, as a result of the great increase in births which began in the war years. The number of children entering the first grade is now nearly 10 percent higher than it was only four years ago. Four years from now it will have risen another 24 percent. Meanwhile, of course, these children will be moving up through the grades, year by year, putting new strains successively on our elementary and secondary school systems.

EDUCATION AND GENERAL RESEARCH

[fiscal years. In millions]

Recommended
Expenditures new obligational
1951 1952 1953 authority

Program or agency actual estimated estimated for 1953

Promotion of education:
Office of Education:
General aid for operating expenses, elementary
and secondary schools (proposed legislation) $290 $300
Education of children on Federal property
and in emergency and critical defense
housing areas:
Present programs $17 $151 185 190
Proposed legislation 35 80
General assistance to college students
(proposed legislation) 30 30
Vocational education 27 26 26 26
Other programs 7 9 8 8
Educational aid to special groups 6 8 8 5
Library and museum services 10 11 12 12
General purpose research:
National Science Foundation ( 1 ) 1 5 15
National Bureau of Standards 10 11 12 9
Seventeenth Decennial Census (Department of
Commerce) 30 13 3 2
Other 8 8 10 11

Total 115 238 624 68
1 Less than one-half million dollars.

I have urged the Congress for several years to enact legislation providing grants to the States for operation and maintenance of their local schools. These grants would assist the States in improving their systems of elementary and secondary education by raising teachers' salaries, providing more and better textbooks, and in many other ways. The security program has reemphasized this need. In some States more than one-third of the young men called by the Selective Service System failed the educational tests for entrance into military service during the fiscal year 1951. The States with the highest rejection rates are precisely those low-income States which, despite heavier taxes in relation to income, are unable to provide a satisfactory education for their young people. Many of the men rejected for military service because of educational deficiencies are also unable to meet our needs for skilled workers in industry. At a time like this we cannot afford to waste any resources, yet this pool of inadequately used human resources is being continually enlarged because many young people are denied the opportunity for a proper education.

This is a need that we must begin to meet at once. This Budget includes a recommendation of 300 million dollars as the preliminary estimate for general aid to education in the fiscal year 1953. Because of higher costs and the greater number of school children, this amount of aid will not fully accomplish the purposes which my earlier proposal was designed to achieve. I hope that the Congress will enact legislation containing provisions to raise equalization aid to a more adequate level over the next decade.

In addition to this new program of general aid, the Budget includes 45 million dollars in estimated appropriations for operation and maintenance aid to certain local school districts where the Federal Government has a special responsibility to furnish assistance because Federal activities have imposed special burdens.

This Budget also includes estimated appropriations of 225 million dollars for the construction of school facilities in critical defense housing areas and other places specially affected by Federal activities. Of this amount, 150 million dollars is needed to continue the program already authorized, and the remainder is a preliminary estimate of needs under proposed legislation.

We are also moving forward on a detailed three-year Nation-wide survey of our school construction needs generally, as authorized by the Congress in 1950. In cooperation with the Office of Education, the States are making good progress in surveying their shortages of school facilities and their resources available to meet these shortages. The information coming in from this survey will help us to determine what the future role of the Federal Government should be in relation to school construction needs.

Meanwhile, the States and localities are doing a great deal to meet the situation. During the calendar year 1951 they broke all previous construction records by building more than 40,000 new classrooms costing
1.3 billion dollars. It is gratifying that, despite the shortage of structural steel, we have been able to make enough available for the first half of 1952 to continue and even increase this rate of construction on the basis of modified designs which require less steel.

The present programs of Federal aid to critical areas for construction and operation of schools are based on two laws enacted in 1950. Under these laws we provide aid to local school districts for construction and for operation of schools to meet burdens resulting from peacetime and World War II federal activities. Expenditures under both laws are estimated at 185 million dollars in 1953. Many localities receiving such aid have suffered additional financial strain because of current mobilization activities. Because of the rigid formulas in these laws, we have been unable to provide adequate aid to these localities and to others, such as the Savannah River and Paducah areas, where new atomic energy installations have resulted in a vastly increased need for schools.

Late in the last session the Congress passed legislation which would have amended these laws so as to provide more adequate and flexible authority for assisting critical defense housing areas, but the bill included certain objectionable provisions which compelled me to withhold my approval. I hope that the Congress will reenact, at this session, the much-needed amendments in an acceptable form and at the same time make other improvements in the laws. Expenditures under this proposed legislation are estimated at 35 million dollars in the fiscal year 1953 for both the construction and the operation programs.

Children of migratory workers constitute a special group whose present educational opportunities are inadequate. As has been pointed out by the Commission on Migratory Labor, because these children move with their families, they start school later, attend fewer days, make less progress, and drop out earlier than others. As a first step toward meeting this problem, we need to work out special teaching materials and methods suited to their education. I have therefore included in this Budget money to enable the Office of Education to make the necessary studies in cooperation with the States and with institutions of higher learning.

Promotion of education--colleges and universities.--In the present emergency, our military forces and our defense industries need an increasing number of people who have advanced education and training. Full strength on all fronts is essential for the long pull, and trained manpower is critically important to such strength. This need for a substantial and rapid increase in the number of people who go to colleges and universities is a national problem requiring national action.

By temporarily postponing the induction of students into the armed forces, we took one step toward assuring that each man receives the training which will enable him to serve national needs most effectively. At present, however, family financial ability tends to be the factor that decides who, among the able, can continue his education and who will be inducted immediately. The results are not only unfair--they are detrimental to our national interest.

Elsewhere in this Budget there are Federal programs for aid to college students, such as the programs of veterans' education and the Reserve Officers' Training Corps. These programs are necessary for special purposes. They do not meet the broader needs of the Nation. A general program of scholarship aid and loans for undergraduate students is the logical and practical answer, and this Budget therefore includes 30 million dollars for initiating such a program in the fiscal year 1953. The program I am recommending is designed to provide modest payments to a limited number of students, and to give this aid only in those instances where the students otherwise could not go to college.

National Science foundation .--During the last decade we have seen how basic scientific research can alter the foundations of world power. We have seen that this research yields a stream of new knowledge which fortifies our economic welfare as well as our national strength. We have learned that a strong, steady, and wide-ranging effort in science is as essential to our sustained national security as the production of weapons and the training of military personnel.

The National Science foundation has been established as. the Government agency responsible for a continuing analysis of the whole national endeavor in basic research, including the evaluation of the research programs of other Federal agencies. On the basis of studies now under way, the foundation will formulate a broad national policy designed to assure that the scope and the quality of basic research in this country are adequate for national security and technological progress.

The foundation also will stimulate or sponsor basic research in subjects which otherwise might receive inadequate attention. While the research program of the foundation is not intended to supersede the basic research programs of other agencies, the foundation should ultimately become the principal agency through which the Federal Government gives support to basic research that is not directly related to the statutory functions of other Federal agencies. The proposed increase for research support by the foundation has been taken into account in arriving at the recommendations for the basic research programs for the Department of Defense and other agencies.

In the present fiscal year the National Science foundation is initiating a modest program of fellowships in the sciences. The 1953 Budget recommendation for the Foundation provides for an expansion of this program to help meet the increasing need for specialized and professional personnel in the present emergency.

To make its greatest contribution speedily and effectively, the foundation needs in the fiscal year 1953 an appropriation of the full 15 million dollars authorized by law. Expenditures in 1953 are estimated at 10 million dollars below the appropriation because many research grants extend over two or three years and because the fellowship program is only beginning.

SOCIAL SECURITY, WELFARE, AND HEALTH

Expenditures for social security, welfare, and health are estimated at 2.7 billion dollars for the fiscal year 1953, slightly less than in the current year and 282 million dollars higher than in 1951. Most of the increase over 1951 occurs in proposed legislation for public assistance and in transfers to the railroad retirement trust account of payroll taxes collected from railroad employers and employees.

In the past year, our programs for protecting people against want and privation have progressed further toward a contributory social insurance basis. Old-age and survivors insurance, financed through a trust fund, has forged ahead of public assistance as a source of income for nonworking people over 65 years of age.

This marks the realization for the first time of a basic principle of the Social Security Act--that the major role of protecting people against want in old age should be assigned to social insurance, financed mutually by employers and employees through payroll taxes, and providing benefits as a matter of right without a means test.

Only 16 months ago there were 2,800,000 aged people on the public assistance rolls, while only 2,000,000 were receiving old-age and survivors insurance, and average public assistance benefits were substantially greater than old-age insurance payments. Today, more than 3,200,000 persons receive old-age insurance, while the number of aged receiving public assistance has dropped by about 100,000 from the peak reached in September 1950 and is still declining. Moreover, insurance benefit rates have been increased to a level almost equal to average public assistance payments. The 1950 amendments to the Social Security Act-which broadened the coverage and increased the benefits--played a major role in reversing the previous trend.

Unquestionably, the healthiest form of economic security for all people is opportunity for steady employment. The overwhelming majority of people in the American labor force--white collar and blue collar, skilled and unskilled--are able to work and want to work. To that end, additional efforts should be made by private employers and Government to utilize the skills of the older workers and, where necessary, to retrain them for work commensurate with their capacities. But for those who are unable to work--older or disabled people or widows with growing children--insurance protection should be available on an adequate basis.

SOCIAL SECURITY, WELFARE, AND HEALTH

[Fiscal years. In millions]

Recommended

Expenditures new obligational
1951 1952 1953 authority

Program or agency actual estimated estimated for 1953

Retirement and dependents insurance:
Railroad Retirement Board $608 $773 $723 $723,
Other 7 7 3 3.
Public assistance:
Federal Security Agency: 1,187 1,182 1, 142 1,142
Proposed legislation 100 100
Aid to special groups:
Vocational rehabilitation (Federal Security
Agency) 17 22 24 24
School lunch (Department of Agriculture) 83 84 83 83
Indian welfare and other 37 45 61 63
Accident compensation (Department of Labor) 27 37 37 37
Promotion of public health (Federal Security
Agency and other) 305 382 341 268
Crime control and correction (Department of
Justice and other) 109 133 133 135
Defense community facilities and services
(Federal Security Agency) 15 15

Total 2, 380 2, 680 2, 662 2, 578.

Benefits should be increased without delay. Because of the rising wage level, the revenues of the old-age and survivors insurance system are higher than will be needed to pay the present scale of benefits to people who will retire. Under these circumstances, it is possible to increase average primary benefit rates by about 5 dollars a month. This increase can be made without in any way increasing the contribution rates in present laws. This would raise the average benefit of a retired worker to 47 dollars a month.

In addition, I hope the Congress will not neglect other desirable improvements in our social insurance laws which will move us closer to our objective of making old-age and survivors insurance a basic protection for all employed groups, with special pension plans supplementing this basic protection. We should extend coverage to members of the armed forces, public employees, farmers, farm and household workers not regularly employed by a single employer, and other employed groups who are not covered by a publicly sponsored insurance system. Also, as soon as practicable, the present limitation of 3,600 dollars a year on earnings taxed under the insurance system should be brought up to date, and provision should be made for permanent and total disability protection.

Railroad retirement.--Expenditures of the Railroad Retirement Board consist principally of transfers to the railroad retirement trust account of taxes collected from railroad employers and employees.

The amendments enacted last October raised benefits for the 400,000 persons who were then receiving retirement payments under the Railroad Retirement Act. They also provided benefits for the first time for the wife or husband of a retired railroad employee. Expenditures for these benefits are made directly from the trust fund and do not, therefore, affect the Budget total.

These amendments were enacted by the Congress as a first step toward improving the railroad retirement system. Much more remains to be done if we are to give railroad workers and their dependents adequate protection on a sound financial basis. I am glad that the Congress adopted a resolution providing for a comprehensive study of the railroad retirement system, its benefits and financing, and its relationship to the old-age and survivors insurance program.

Public assistance.--Federal grants to the States for the existing public-assistance programs are declining. Expenditures in the fiscal year 1953 under present law are estimated at 1.1 billion dollars, 40 million dollars below the amount now estimated for the current year. The number of recipients of old-age assistance and aid to dependent children began to decline during the past year, largely because of increased employment and improved old-age and survivors insurance. This decline is expected to continue in the fiscal year 1953.

For those who are in genuine need, and who have no recourse other than public assistance, upward adjustments in monthly payments are warranted in view of advances in the cost of living. The Federal Government in assisting the States to bear the costs of public assistance has a responsibility for sharing the expense of the necessary adjustments. Many States have had difficulty in raising their benefits to adequate levels. I recommend the enactment of legislation to provide additional help on a matching basis to assist the States to attain higher benefit levels. This Budget includes 100 million dollars as a tentative estimate of the amount needed for this purpose.

Aid to special groups.--The Federal Government traditionally assumes part of the financial responsibility for two programs operated by the States for special groups. One of them provides low-cost lunches to school children, thus offering some assurance against undernourishment of our children. My Budget recommendation for this activity is based upon continuing Federal participation at the present level. The other program rehabilitates disabled people and returns them to productive employment, thus increasing our labor force and our national production of goods and services. I am recommending a moderate increase for this purpose.

The Federal Government also provides health, welfare, and educational services for our 400,000 native Indians. Because the present level of these services is clearly inadequate, this Budget provides for a 15 million-dollar increase in expenditures in the next fiscal year. In addition to permitting some improvement and expansion of basic health and educational services, this increase will enable the Bureau of Indian Affairs to conduct a constructive program to provide the Indians with training and off-reservation relocation opportunities and to help them to make satisfactory adjustments in new locations.

Promotion of public health.--The health of the American people is essential for our security and development. Like any other resource, health should be safeguarded and improved. The Federal Government has contributed to this objective in a number of ways, particularly through its extensive research programs and its financial aid to the States. But we still have a long way to go.

On the basis of available studies indicating the pressing need for such measures, I recommend that legislation be enacted to provide aid for medical education and local public health units. Furthermore, in order to help outline a course of action which will aid in meeting the long-term health requirements of the Nation, I have established a commission to study various health problems. The Commission will consider, among other things, the availability of medical services and the adequacy of present methods of paying for them.

Public health services are provided primarily by local health agencies with extensive cooperation and assistance from the States and the Federal Government. More than half of the Federal expenditures for promotion of public health are for grants-in, aid to the States and localities by the Public Health Service and the Children's Bureau. These grants are for such activities as hospital construction, control of venereal disease and tuberculosis, mental health, maternal and child health, general health services, and detection of cancer and heart disease. Most of the remainder goes toward technical assistance to the States in the form of demonstrations, educational programs, and consultative services, and for the research programs of the Public Health Service and Children's Bureau. The estimate of expenditures for health programs in the fiscal year 1953 is lower than for the current year primarily because of smaller outlays to liquidate contract authorizations, particularly under the Federal-State hospital construction program. This reduction reflects our continuing policy of holding new construction to a minimum.

Defense community facilities and services.--This item is for Federal assistance to critical defense housing areas in providing facilities and services essential to health and welfare, including sewage disposal and water supply. Unless these basic needs are met, it will not be possible to attract all the workers needed for defense production. These health and welfare activities support the defense housing and community facilities program which is discussed in the Housing and Community Development section of this Message.

Trust funds.--In addition to the railroad retirement trust account, mentioned above, the Federal Government maintains two other large trust funds for publicly sponsored retirement and insurance systems-old-age and survivors insurance and civil service retirement. The money in the trust funds is invested in Government securities, and the interest earnings are added to the principal in each fund. The balances in these three funds will aggregate approximately 25 billion dollars at the end of the current fiscal year.

SOCIAL SECURITY, WELFARE, AND HEALTH

(Trust funds)

[Fiscal years. In millions]

1951 1952 1953
Fund and item actual estimated estimated

Federal old-age and survivors insurance trust fund:
Receipts:
Appropriation from general receipts $3,119 $3,850 $4,030
Interest and other 291 342 407
Payments of benefits and administrative expenses:
Present program --1,568 --2,059 --2,337
Proposed legislation -- 225
Net accumulation 1, 842 2,133 1,875

Balance in fund at close of year 14, 725 16, 858 18, 733

Railroad retirement account:
Receipts:
Transfers from Budget accounts 608 773 723
Interest 70 79 90
Payments of benefits, salaries, and expenses --321 --397 --447
Net accumulation 357 455 366

Balance in fund at close of year 2, 445 2, 900 3, 266
Federal employees' retirement funds:
Receipts:
Employee contribution 378 415 413
Transfer from Budget accounts and other 305 310 465
Interest 165 189 216
Payments of annuities and refunds, and expenses --270 --300 --322
Net accumulation 578 614 772

Balance in fund at close of year 4, 418 5, 032 5, 804

VETERANS' SERVICES AND BENEFITS

Expenditures for veterans' services and benefits, which have declined 43 percent from the World War II peak of 7.4 billion dollars in 1947, are estimated at 4.2 billion dollars in the fiscal year 1953. The decline results from sharp reductions in expenditures for readjustment benefits and insurance outlays.

In view of the large increase in the size of our armed forces since Korea, and the continued increase in expenditures for compensation and pensions, further large declines in veterans' outlays are unlikely. Our veteran population is increasing rapidly under the policy which requires nearly all able-bodied young men coming of military age to serve their turn in the armed services. As our commitments to our growing number of veterans increase, we should constantly inquire into how we can best meet their needs and the needs of their dependents. In considering legislation affecting veterans, we must take into account the prevailing economic and military situation, the relation of veterans' programs to the whole range of Government programs, the availability of other Government services, and the lessons learned from experience.

The chief responsibility of the Government is to give medical care to veterans who have been injured in the service, to assist them to assume their place in society as productive and self-reliant citizens, and to give necessary aid to the families of veterans deceased or injured from service causes. We should also provide other demobilized servicemen with timely readjustment assistance on a sound basis.

VETERANS' SERVICES AND BENEFITS

[Fiscal years. In millions]

Recommended
Expenditures new obligational
1951 1952 1953 authority
Program or agency actual estimated estimated for 1953

Readjustment benefits:
Education and training:
Present programs $1,943 $1, 486 $626 $625
Proposed legislation 75 75
Loan guarantees 91 77 72 72
Unemployment and self-employment
allowances 8 5 2 2
Other 64 44 37 27
Compensation and pensions:
Compensation and pension payments:
Present programs 100 100
Subsistence to disabled veterans 135 79 56 56
Insurance and servicemen's indemnities 50 246 68 70
Hospitals and medical care:
Current expenses 600 670 695 698
Hospital construction 145 211 107 95
Other services and administration
(Veterans Administration and other) 266 262 210 212

Total 5, 339 5, 166 4, 197 4, 181

The needs of veterans and their families not resulting directly from military service can be best met through the welfare programs serving the whole population. These programs have been expanded and improved in recent years. Only the special and unique needs of servicemen and their dependents arising directly from military service should be provided for in special veterans' programs.

Readjustment benefits.--Expenditures for education and training of World War II veterans are estimated at 626 million dollars in the fiscal year 1953, a decline of 860 million dollars from the revised estimates for the current fiscal year. The 1953 expenditures will provide for an average enrollment of 491,000 in school, job, and farm training courses. The reduction from an average enrollment of over one million in the current fiscal year reflects the fact that July 25, 1951, was the deadline for initiation of training under the program. By the end of the fiscal year 1953, approximately 7,800,000 veterans--about half of all the veterans of World War II--will have received education and training at a cost to the Government of 14.3 billion dollars. This investment is already proving to be of great benefit to the veterans and the Nation.

Other expenditures under the Servicemen's Readjustment Act are for unemployment and self-employment allowances and loan guarantees. In the fiscal year 1953, only the outlays for loan guarantee activities will continue to be large. Government expenditures for interest gratuities on guaranteed loans and on account of defaulted loans are estimated to decline slightly to 72 million dollars. An estimated 391,000 new loans amounting to 3.3 billion dollars are expected to be guaranteed. This will raise to 21.5 billion dollars the aggregate of veterans' loans for homes, farms, and businesses guaranteed by the Government since 1945

This Budget includes 71 million dollars to cover the first year's cost of a new program of readjustment benefits for discharged servicemen who have served since the beginning of the Korean conflict. I recommend prompt enactment of such a program. However, I do not believe that extension of the Servicemen's Readjustment Act in its present form would be the proper way to meet the new need. The main assistance to be provided at this time should be a sound and constructive program of education and training. The new legislation should take account of the significant imperfections which have become apparent in our experience with the "GI bill." All possible effort should be made to incorporate into any new program the lessons learned from that experience. Studies now being made by the Congress should be of value in the consideration of pending bills to establish a new readjustment program for these veterans.

Compensation and pensions.--It is estimated that under existing laws an average of 3,179,000 individuals and families will receive veterans' compensation and pension payments totaling more than 2.1 billion dollars in the fiscal year 1953. This is a net increase of 84,000 in the average number of cases and 63 million dollars in payments over the estimates for the current fiscal year. The expenditure estimates reflect an anticipated supplemental appropriation of 42 million dollars in the fiscal year 1952 to cover expenditures for compensation and pensions, in part because of new legislation enacted by the first session of this Congress.

The total of 2.1 billion dollars under present laws for the fiscal year 1953 includes 1.5 billion dollars in compensation payments to service-disabled veterans and families of those veterans who have died from service connected causes, as well as 618 million dollars in pension payments for non-service connected disabilities. Under existing laws expenditures for compensation and pensions will more than double in future years, with the increase entirely in non-service-connected pensions. Legislation to increase further the number of non-service-connected pension beneficiaries should be reviewed in light of the fact that most veterans who need financial help will be covered by the old-age and survivors insurance program. In those cases where veterans are not covered by this program, the sensible remedy is to extend old age and survivors insurance to include them.

With respect to death and disability compensation payments arising from service causes, I recommend that the Congress carefully review the rates and revise them where recent increases in the cost of living warrant. This Budget includes 100 million dollars to defray the cost of such increases. The legislation making the specific changes should take into account the new dependents' allowances for disabled veterans with families, and the increases in death compensation rates which have been enacted in recent years, as well as payments to beneficiaries under other Government programs. In particular, the Congress should carefully investigate the disparities which exist because of the fact that survivors of many servicemen receive both veterans' benefits and old-age and survivors insurance benefits on the basis of military service, while families of other veterans receive only the veterans' benefits.

Insurance and servicemen's indemnities.-After intensive investigation, the Congress early last year established a new system of $10,000 indemnities to families of servicemen who die while on active duty or within 120 days after discharge. These indemnities are provided for every serviceman without charge in lieu of the National Service Life Insurance which was previously available on an optional basis. They provide universal protection for servicemen's dependents. At the same time they cost the Government less than National Service Life Insurance. Indemnity payments to families of servicemen will be about 9 million dollars in the fiscal year 1953.

In the Insurance Act of 1951, the Congress also provided an improved system of insurance to cover disabled and other servicemen after their discharge from the armed forces. This new insurance, financed through revolving funds, is based upon more realistic mortality tables and interest and premium rates than are used in the National Service Life Insurance program. Receipts in these funds will be 2 million dollars more than expenditures in 1953.

In addition, the Government continues to reimburse the National Service Life Insurance and United States Government Life Insurance trust funds for the cost of deaths of policyholders traceable to war hazards, and also pays claims for certain veterans who failed to meet regular standards of insurability. It is estimated that Budget expenditures for these payments will rise to 242 million dollars in the current fiscal year because of casualties in Korea, but they are expected to decline to 61 million dollars in 1953. Further reductions are expected in subsequent years, since new members of the armed forces are covered by the indemnity system.

Hospital and medical care.--With the opening of 20 new veterans' hospitals in the fiscal year 1953, the average number of patients is expected to increase by 4,400 above the current year's level. Correspondingly, current expenses for hospital anti medical care of veterans are expected to increase 25 million dollars.

The number of patients in hospitals and homes in the fiscal year 1953 is estimated to average about 134,000, of which about twothirds are non-service-connected cases. It is estimated that the out-patient case load during the year will decline seven percent, to 3,486,000 visits and treatments. Total current expenses for hospital and medical care in the fiscal year 1953 are estimated at 695 million dollars.

Hospital construction.--Expenditures for construction of hospital and domiciliary facilities for veterans are expected to decline in the fiscal year 1953 as the program to provide 36,500 new beds nears completion. My Budget recommendations include 95 million dollars in new obligational authority to complete hospitals now under construction, to permit the construction of three new hospitals under the 36,500-bed program, and to begin conversion and modernization of existing facilities.

Other services and administration.--It is estimated that expenditures for administration and miscellaneous services will be 52 million dollars less in the fiscal year 1953 than in the current year. About 21 million dollars of the reduction is due to the fact that the 1952 total included a nonrecurring outlay for automobiles for blind and amputee veterans. The remainder is a reduction in the expenses of administering the nonmedical benefit programs. This in part reflects declining workloads and in part more efficient methods of operation as the result of consolidation of district offices and the substitution of the servicemen's indemnity program for National Service Life Insurance.

Trust funds.--The Servicemen's Indemnity Act of 1951 virtually terminated the issuance of new National Service Life Insurance policies, but did not affect 7.6 million policies now outstanding under National Service Life Insurance and United States Government Life Insurance trust funds.

In the current fiscal year, expenditures from these two trust funds are substantially greater than receipts because the second special National Service Life Insurance dividend is still being paid. By the start of the fiscal year 1953 it is expected that dividend payments out of the National Service Life Insurance fund will be on a current basis. In that year expenditures and receipts from the two trust funds will approach a balance.

GENERAL GOVERNMENT

Expenditures for general Government services and activities in the fiscal year 1953 are estimated at 1.5 billion dollars. This is a net increase of 131 million dollars over the current fiscal year. The net increase includes a rise of 148 million dollars in the Government's contribution, as employer, to the civil-service retirement system, higher expenditures to handle the increased volume of tax collections, and decreases in several items.

VETERANS' LIFE INSURANCE FUNDS

(Trust funds)
[Fiscal years. In millions]

1951 1952 1953
Item actual estimated estimated
Receipts:
Transfers from general and special accounts $45 $186 $56
Interest on investments 205 211 206
premiums and other 520 407 425
Total 770 804 687

Expenditures:
Dividends to policyholders 236 654 186
Benefits and other 455 506 537

Total 691 1, 160 723
Net withdrawal (--) or net accumulation 79 --356 --36
Balance in funds at close of year 6, 772 6, 416 6, 380

GENERAL GOVERNMENT

[Fiscal years. In millions]

Recommended
Expenditures new obligational
1951 1952 1953 authority

Program or agency actual estimated estimated for 1953

Legislative functions $40 $43 $49 $44
Judicial functions 28 30 26 25
Executive direction and management 9 10 8 7
Federal Financial management:
Bureau of Internal Revenue 244 279 303 305
Customs collection, debt management, and

other 137 138 151 153
General Accounting Office 32 33 32 32
Other central services:
Central property and records management 146 230 199 198
Civil Service Commission 16 20 22 22
Legal services (Department of Justice) 8 10 11 11
Government Printing Office 12 13 12 28
Government payment toward civilian employees'
retirement system 305 310 458 458
Other general government:
Immigration control (Department of Justice) 33 41 44 44
Public building construction (General Services
Administration) 24 23 12 (1)
Dispersal of Government activities (proposed

legislation) 5 15
Other 175 173 152 101

Total 1, 209 1, 353 1, 484 l, 443
1Less than one-half million dollars.

A sharp decline in expenditures for public building construction reflects my Budget policy of limiting new construction to projects directly supporting our security effort.

Federal financial management. -- The Revenue Act of 1951 increased the amount and variety of taxes to be collected. The increased funds provided in this Budget will enable the Bureau of Internal Revenue to expand its auditing and enforcement operations to assure better compliance with the tax laws. The maintenance of public confidence in the tax collection process is essential to our tax system. To this end, steps have been taken or are in process to insure the integrity of the tax-collecting system by tightening up the supervision of all Bureau operations throughout the country, establishing an inspection service independent of the rest of the Bureau, and speeding up the prosecution of delinquent taxpayers. Furthermore, I have transmitted to the Congress, under the Reorganization Act of 1949, a plan for reorganization of the Bureau for the purpose of bringing about an improved organization with clearer lines of authority and responsibility, and providing that all positions in the Bureau not now filled through civil service, except that of the Commissioner of Internal Revenue, shall be so filled hereafter.

Most of the increase in expenditures for tax enforcement will be used to intensify investigations of the tax returns and activities of racketeers and to enforce the new wagering taxes levied by the Revenue Act of 1951. To perform this work effectively, some 7,000 employees will have to be added to the Bureau staff before the end of the current fiscal year. Early approval of a supplemental appropriation will be needed to make this possible.

The Renegotiation Board, established under a statute enacted last spring, is now organizing to review profits earned under defense-related contracts and to prevent or recover excessive payments by the Government. This Budget includes an estimate of 7.3 million dollars for expenses of the Board during the fiscal year 1953.

Central property and records management.--Under the Federal Property and Administrative Services Act of 1949, the General Services Administration has brought about more efficient and effective use of the Government's real and personal property and is endeavoring to eliminate nonessential requirements, to set inventory levels at a minimum, and to apply stricter standards of use and replacement. This program has been reoriented to meet the needs of the defense agencies and other Government agencies for space, equipment, and supplies.

The volume of records preserved by operating agencies and in recently established regional records centers is continually being reduced, and the storage of the remaining records is being further centralized to release scarce office and warehouse space. By the end of the fiscal year 1953, the regional records center program will release for other uses nearly 2 million square feet of space and approximately 200,000 filing cabinets.

Civilian personnel management.--An increase in Government personnel has been required to meet the needs of our security programs. The Civil Service Commission has had to expand its examining, recruiting, and placement activities to safeguard the merit system. The use of expert boards of examiners will be extended and improved and a program of centralized recruiting in major employment centers will be inaugurated to eliminate duplication of recruiting efforts.

At present, a few Federal agencies have authority to assign a limited number of personnel for advanced training in fields directly related to the work of their agencies. In order to increase the productivity of employees in various lines of scientific, technical, and administrative work, I recommend that the Congress extend standard but limited authority to Government agencies generally, so that they may provide such training at institutions of learning, scientific laboratories, or private establishments for a small number of their personnel.
Experience under the several existing statutes authorizing positions in grades GS16,-17, and -18 under the Classification Act shows that the total number of allowable positions in these top-level grades should be increased if the Government is to attract and retain the most competent and responsible employees.

The recent pay increases voted for Federal employees under the Classification Act of 1949 created a problem in some Federal agencies which are authorized to fix pay rates by administrative action. In cases where these rates customarily approximate those of the Classification Act and no generally comparable increases have been given, provision is made in this Budget for the necessary increases.

Federal civilian employees' retirement. The cost of civilian employees' retirement benefits is financed by contributions from the employees and the Government. By law, Federal employees covered under the system are required to contribute to a trust fund 6 percent of their salaries, and the Government is required to contribute an amount sufficient to cover the remaining cost of benefits. The Government contribution for the fiscal year 1953 consists of a normal contribution of 2.78 percent of payroll to pay currently accruing costs, and a deficiency contribution to pay interest on and provide for amortization of the Government's accrued liability to the fund. This liability results from employees' services rendered prior to the effective date of the system, credits for military service, and insufficient appropriations for the Government contribution in some years. This Budget includes 458 million dollars for the annual contribution of the Government for the fiscal year 1953 to the Civil Service retirement and disability trust fund, 148 million dollars more than in the current fiscal year. This estimate takes into account the higher benefits for future annuitants which will result from a recent advance in the pay rates for Government employees. It also provides for the first of 30 annual payments to amortize the Government's accrued liability to the fund so that the retirement system eventually will be financed on a full reserve basis, as is contemplated by the retirement act.

Federal employees' unemployment compensation.--Legislation is needed to provide unemployment compensation benefits for Federal employees, as part of the present Federal-State system of unemployment insurance. In the past, Federal employees relied on accumulated annual leave to provide income during temporary periods of unemployment. This is a distortion of the purpose of annual leave. Moreover, the amount of protection afforded through leave accumulation varies greatly among individuals and without any particular relationship to the likelihood of unemployment. Because of recent laws which temporarily stopped the accumulation of leave, and the new leave law of 1951 reducing the amount of leave permitted to most Federal employees, many of them are now without even this uncertain protection. This applies especially to the temporary workers hired during the present emergency.

Dispersal of Government activities.--Last year I recommended a program for the dispersal of essential units of Government in the vicinity of the District of Columbia in the interests of security and reduction of congestion in the metropolitan area.

The Public Works Committee of the Senate, after extensive hearings and deliberations, reported a bill providing for the construction of a limited number of Federal buildings outside of but in the vicinity of and accessible to the District of Columbia, the construction of a circumferential highway outside of the boundaries of the District of Columbia, and the permanent decentralization of units of Government which could operate at distant locations without significant loss of efficiency. I am in full accord with the objectives set forth in the bill and the accompanying committee report. I am convinced that any program which fails to place primary emphasis on dispersal to nearby areas would not be in the interest of security, efficient administration, or good area planning.

Subsequent review of that part of the program involving dispersal has led to the conclusion that presently owned Government land should be used as sites for necessary buildings and facilities, with resulting economy. This Budget includes 15 million dollars as a preliminary estimate of the amount needed in the fiscal year 1953. I strongly urge approval of this modified program.

Payments on Federal real estate.--The Congress now has before it a proposal, drafted in the Bureau of the Budget, to establish a general system of limited payments to State and local governments in cases in which their finances have been adversely affected by Federal Government acquisitions of real estate. The problem is one of long standing. It is becoming more acute as we acquire more property for military bases and other defense-related facilities which impose new burdens upon some local governments. The enactment of a reasonable solution will help to spread governmental costs more equitably and at the same time will strengthen our Federal-State system of government.

INTEREST

Most of the interest payments now being made by the Federal Government result from the large increase in the public debt which arose out of World War II. In the fiscal year 1953, interest will cost the Government about six times as much as it did in the prewar fiscal year 1940 and will account for over seven percent of total Budget expenditures.

Interest on the public debt.--Expenditures for interest on the public debt in the fiscal year 1953 are estimated at 6,150 million dollars, an increase of 300 million dollars over the 1952 estimate and 535 million dollars over 1951. The rise in expenditures is due both to an increase in the amount of interest bearing debt and to higher interest rates.

On the basis of present estimates of receipts and expenditures, the debt will increase by 20 billion dollars during the fiscal years 1952 and 1953. However, because of the lag between the borrowing of new funds and the initial interest payments, the full impact of the debt increase will not be reflected in increased interest payments until the fiscal year 1954.

During the past calendar year, the average interest rate on the total interest-bearing debt has increased by about one-tenth of one percent. With a debt of the present size, this means an increase of over 250 million dollars in the computed annual interest charger This increase in the interest charge cannot, however, be directly associated with the increase in interest payments during the fiscal year 1953. The estimate of expenditures for the fiscal year 1953 is based upon the present levels of interest rates since it is not possible to predict changes in rates in the future.

The continued expansion of special issues to Government trust funds and other Government agencies will further increase interest: payments in the fiscal year 1953. The average interest rate on most of these issues is higher than the average rate paid on the rest of the public debt.

INTEREST
[Fiscal years. In millions]

Obligational
authority
Expenditures for 1953
1951 1952 1953 (permanent
Item actual estimated estimated indefinite)

Interest on the public debt $5, 615 $5, 850 $6, 150 $6, 150
Interest on refunds of receipts 93 100 101 101
Interest on trust deposits 6 5 4 4

Total 5, 714 5, 955 6, 255 6, 255,

For the first time in several years, interest accruals on savings bonds are not expected to rise in the fiscal year 1953. In fact, they may fall slightly. Interest accruals on series E savings bonds sold during World War II have now reached maximum levels. Increased accruals on bonds sold since World War II will be more than offset by reduced accruals on maturing obligations which will, at the option of the owner, either be redeemed or extended for another 10 years under the authority of legislation enacted last spring.

Interest on refunds.--Interest is paid on refunded receipts because the Federal Government has had the temporary use of the funds. Most refunds result from the overpayment of taxes by individuals and corporations. The rate paid on such refunds is six percent, the same rate that taxpayers are charged on delinquent payments.

Refunds of tax overpayments are expected to be higher in the fiscal years 1952 and 1953 than in 1951. This will result in an increase in interest expenditures.

IMPROVING THE MANAGEMENT Of GOVERNMENT PROGRAMS

In presenting to the Congress a Budget that reflects expanding Federal programs in support of the Nation's security effort, I am keenly aware of the challenging job of management placed upon the Federal Government. I have already outlined in previous sections of this Message a number of improvements in the management and operation of various parts of the Government. There are, in addition, other developments to which I wish to draw attention here.

Since the start of the defense mobilization program, we have done a great deal to adapt the machinery of Government for the efficient performance of new tasks. Practically all agencies of the Government today have reoriented their activities, and many have modified their internal structures to carry out their new responsibilities. In addition, several new agencies have been created primarily to assist in the coordination of our security programs. In the field of production and stabilization, the Office of Defense Mobilization, the Defense Production Administration, and the Economic Stabilization Agency were organized during the months immediately following the attack on Korea. More recently, the Defense Materials Procurement Agency and the Small Defense Plants Administration have been established. In the field of foreign assistance, the creation of the coordinating position of the Director for Mutual Security, the termination of the Economic Cooperation Administration and the creation of the Mutual Security Agency, and the integration of the Institute of Inter-American Affairs into the Technical Cooperation Administration in the Department of State represent important developments.

The basic organizational shifts to meet the demands of our security programs have been substantially completed. We are now faced with the continuing problem of increasing the efficiency and effectiveness of our governmental machinery.

In order to assure continuing progress in this field, the Executive agencies are required to submit programs for management improvement along with their annual budget requests. These programs were examined as this Budget was prepared in order to identify the most urgent operating problems and to find opportunities for reducing operating costs. I have also had the benefit of advice from members of my Advisory Committee on Management, upon which I have placed the special duty of reviewing the status and progress of the management of our defense mobilization programs.

Because the largest share of Federal funds is spent by the Department of Defense, particular consideration is being given to its management problems. Substantial progress has been made in placing the accounting and financial administration of manufacturing and other business-type operations of the military departments on a sound and business-like basis. This will enable better management and cost control of operations such as ordnance arsenals, sea transports, and printing plants.

While principal emphasis has necessarily been placed on the organization and management of civilian and military mobilization programs, the general improvement of management in other parts of the Executive branch has gone forward. A notable action was the reorganization plan for providing single direction of the Reconstruction finance Corporation. The Veterans Administration is consolidating into a smaller number of offices insurance activities formerly performed by 11 district offices--an action that will result in an annual saving of several million dollars. The Administrator of Veterans' Affairs has also engaged management consultants to undertake a comprehensive examination of the organization and management of the Veterans Administration. The Post Office Department has recently inaugurated a new money-order system which will save several million dollars annually, and is taking other steps to improve the efficiency of the postal service. These are illustrative of the vigorous actions I shall continue to expect from the management improvement programs that all agencies have established at my request.

In addition to actions taken by individual departments and agencies to improve their organizations and to obtain greater operating economies, improvements of a Government wide nature are also being made. Of major significance are those in the Government's fiscal operations, made under the joint accounting program being conducted by the Comptroller General of the United States, the Secretary of the Treasury, and the Director of the Bureau of the Budget in collaboration with all other agencies of the Government. That program, greatly advanced by the enactment of the Budget and Accounting Procedures Act of 1950, is directed mainly at providing full, accurate and timely financial information concerning the operations of the Government. This will enable Government officials to carry out their functions more effectively and economically, and will provide the taxpayer with better information as to where and how the tax dollar is spent.

Programs throughout the Government chiefly concerned with the collection of statistical data and economic analysis have also been reviewed as recommended by the Task force on Statistical Agencies to the Commission on Organization of the Executive Branch of the Government. The objective of this appraisal was to avoid overlapping and duplication in statistical programs and to eliminate unnecessary expenditures. The Budget recommendations for these activities are designed particularly to develop an orderly Government-wide program which will meet at minimum costs the new requirements for economic information imposed by the security effort.

It is my intention to maintain a vigorous program for the improvement of Government management on all fronts. During the coming year I shall continue to make improvements in the mobilization agencies under the authority of the Defense Production Act. Under the Reorganization Act of 1949, I have already submitted to the Congress a plan to strengthen the Bureau of Internal Revenue. I expect to propose to the Congress additional reorganization plans, as well as to recommend legislation for administrative changes. A number of the recommendations of the Commission on Organization of the Executive Branch of the Government which require legislation have not yet been acted upon by the Congress. I urge the Congress to review those recommendations and act on the ones which are still applicable and which will contribute to the more effective administration of the Government.

This Budget represents the program I am recommending for promoting peace and safeguarding security.
In the current world crisis, the price of peace is preparedness. In terms of the sacrifices which this involves, it is a heavy price, but when freedom is at stake, it is a price which all of us will gladly pay.

It is my hope--and I know this hope is shared by all the peoples of the world-that we can some day cast off the heavy burden of armaments and devote our full energies to fighting the only war in which all mankind can be victorious--the war against poverty, disease, and human misery.

This Nation will continue to do everything in its power to transform that hope into reality.

HARRY S. TRUMAN.


Note: The message was transmitted to the Senate and to the House of Representatives on January 21.

The message and the budget document (1222 pp.) are published in House Document 285 (82 Cong., 2d sess.).


Citation: Harry S. Truman: "Annual Budget Message to the Congress: Fiscal Year 1953," January 21, 1952. Online by Gerhard Peters and John T. Woolley, The American Presidency Project. http://www.presidency.ucsb.edu/ws/?pid=14172.
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