Statement by the President to Cabinet Officers and Agency Heads on the 1962 and 1963 Budget Outlook.

I HAVE ASKED you to meet with me today to discuss the current outlook for the Federal budget.

The budget reflects national policy. This year our national policy has emphasized: strengthening the defenses against threats to world peace in Berlin, Southeast Asia, and elsewhere; bringing about recovery from economic recession; and laying firmer foundations for long-term growth in national welfare and security.

Our accomplishments have been substantial.

In the military field, the 6.4 billion dollar increase in appropriations over the previous administration's budget provides for a 50 percent higher production target for Polaris missile-carrying submarines; a doubling of our capacity to produce Minuteman intercontinental missiles; many more strategic bombers placed on ground alert; an increase by nearly one-half in the number of combat ready Army divisions; and increases in air and sea lift capacity, tactical air power, stocks of weapons and ammunition, and many other aspects of our military strength.

In the vital area of United States assistance to the economic and military strength of other countries to buttress their independence from communism, I regret that the Congress did not support my request for additional appropriations (and in fact appropriated 90 million dollars less than the previous administration's proposal of 4 billion dollars). Nevertheless the new AID legislation accomplishes major improvements in the organization and management of these programs. A new AID Administrator is giving unified leadership to the entire effort, and new and stronger criteria of self-help and long-range planning are being applied to aided countries.

With respect to the recession, strong action by the Government, coupled with the recuperative forces in the private economy, reversed the downward trend of jobs and incomes early in the year and brought steady and strong recovery. The annual rate of national output has risen from a low of 501 billion dollars in the first quarter of calendar 1961 to 526 billion dollars in the third quarter. There is every indication that this strong rise will continue into 1962. Direct budgetary costs for anti-recession purposes will be about 600 million dollars in fiscal 1962 above the previous administration's budget--providing for temporary extended unemployment compensation benefits, aid to dependent children of the unemployed, increases in surplus food distribution (including the pilot food stamp program), and the area redevelopment program. More than half of these funds will later be returned to the Treasury in special unemployment taxes authorized when the extended benefits were enacted.

In the field of housing and community development, new and more effective legislation has been enacted, carrying forward tested programs such as urban renewal to attack blighted and slum areas, and adding new programs such as aid for the acquisition of open space in urban areas and assistance to urban mass transit. Expenditures are up 350 million dollars in fiscal 1962 over the proposals of the previous administration; were it not for the necessity to devote so much of our resources to defense, a strong case could be made for more rapid increases in Federal participation in the joint Federal-State-local effort to meet the enormous and growing problems of community development in cities and towns.

In agriculture, we can take pride in the resurgence this year of farm income. Beginning steps have been taken--although thus far with inadequate legislative tools-in the intricate and necessarily time-consuming process of adjusting our impressive agricultural productive capacity to the needs of domestic and foreign requirements. Our new programs for feed grains and wheat are preventing substantial unneeded production and although costs are high this year, these programs are expected to avoid the heavy future costs that would have accompanied the continuation of previous programs. We have stepped up the Food for Peace program. However, the effects of exceptionally good weather and rising farm productivity have brought higher than anticipated crops and added to the cost of price support programs in the present fiscal year. We still have much to do to achieve effective adjustments in agricultural output.

While I regret very much the failure of the Congress to enact legislation for general aid to education, expenditures for scientific research (including medical research) and education will rise by 170 million dollars over the proposals of the previous administration, even excluding the large increases in funds for military and space research. The scientific and technological gains that will be achieved as a result of the national research effort (including military and space research) will be of the utmost importance to the future growth and strength of our Nation.

Looking at these and other fields of national effort, it is clear that the increases in the budget this year are yielding important returns; that our military security has increased sharply; that the vigor of the recovery from the recent recession has been strengthened; that wages, farm income, corporate profits and the gross national product have all risen sharply; and that in areas of health, natural resources, science and other activities strong gains are being made.

From the beginning this administration 'has followed a prudent budget policy in meeting national needs. With your cooperation it was possible to send to the Congress appropriation requests more than one billion dollars below the amounts originally asked by your departments and agencies. Furthermore, we have taken steps during the present year to save tens of millions of dollars by actions to improve efficiency. Modern cost-saving machines have been installed; field offices have been merged or closed; interdepartmental and advisory committees have been abolished; publications and exhibits have been curtailed; procurement practices have been tightened; greater use has been made of scrap and surplus material; wasteful duplications and variations have been eliminated; administrative structures have been streamlined; and other operations have been reorganized, pooled, consolidated or abolished.

Special efforts have been made to achieve substantial savings by making our defense establishment lean, fit, and efficient. The Defense budget submitted in March reflected savings in this fiscal year alone of over 700 million dollars in projects, programs and installations which were either unproven or unnecessary in the light of our new missile buildup and general defense posture. A new central supply agency for the Department of Defense has been established and is already saving significant sums.

In both the defense and non-defense fields, this administration resisted attempts to increase expenditures beyond the level justified in budget requests. Our proposals in the area of social insurance were all self-financed. We sought to make the highway program self-supporting, without a drain on general revenues.

Now that the Congress has adjourned, the budget has been reviewed in the light of congressional actions and other events since the budget proposals and estimates were made. The current outlook re-emphasizes the necessity to conduct the necessary work of the Government at the lowest possible cost, to eliminate or defer low priority activities, and to limit the number of Government employees to the absolute minimum.

The position on the revenue side is essentially unchanged from the estimates of some months ago. Revenues being collected in fiscal 1962 reflect incomes earned during calendar 1961 and therefore are depressed by the effects of the recent recession. Indeed, had there been no recession in 1960-61 the budget would today be in surplus even with all the additional expenditures for defense and other purposes.

On the expenditure side, there are a number of increases compared with the position some months ago. The Congress failed to increase postal rates to meet a postal deficit of some three-quarters of a billion dollars. The necessity of calling up two additional divisions and thousands of other servicemen, as well as the general speedup in procurement and construction which accompanies an increase in military readiness, have brought about a sharper rise in defense expenditures than was previously foreseen. Excellent weather conditions, and increased productivity from machines and fertilizer, have boosted this year's crops and the accompanying price support costs to large proportions which will be difficult to reduce until the Congress enacts adequate farm legislation.

With these increases in expenditures the estimated deficit for the current year has risen. There is general agreement that under the present conditions of high unemployment and recession-reduced tax receipts, a deficit is normally to be expected. It is important to make sure that the deficit is kept within reasonable limits and reflects only essential expenditures.

The present deficit--reflecting the 1960-61 recession--is expected to be much smaller than the 12.4 billion dollar deficit incurred in fiscal year 1959--reflecting the 1958-59 recession--despite the far greater increases in defense and space expenditures in the current year. The increase in domestic civilian expenditures is less than three-fifths the increase that took place during the 1958-59 recession.

More than 80 percent of the additions this administration proposed to the previous administration's budget were for strengthening the national security or for combating the recession, or included other sums to be repaid to the Treasury.

There is no evidence that the currently estimated deficit presents serious risk to the domestic price level or the U.S. balance of payments. Moreover, considering the economic effect of the budget on a month-by-month basis, as contrasted to the annual totals, the current impact of Government operations is expected to change early in calendar 30 from a net stimulate to a net restraining influence on the economy.

While the recent rises in the estimates of expenditures and the deficit, therefore, are compatible with the sound fiscal and budget policies we have been following, they are further grounds for insistence on economy in executing Government programs. This is the reason I have asked each of you to follow a most careful and frugal policy with respect to commitments and expenditures under the 30 budget as enacted by the Congress. The Congress has on many occasions made it clear that appropriations are only a ceiling, not a mandate to spend, and that department and agency heads are not required to spend every dollar appropriated. Accordingly, I have asked each of you to exercise the maximum care in scrutinizing all expenditures, tightening requirements, postponing the initiation of deferrable projects, and phasing out any acceleration of spending which was instituted as an antirecession measure.

I am especially desirous that new programs or expansions of existing programs be undertaken with caution and deliberation, to make sure that sound criteria are used, careful plans are laid, and minimum funds are spent. I much prefer that obligational authority remain uncommitted where there is any doubt that expenditures would yield substantial returns to the national interest.

I am also especially desirous that the number of Government employees be limited to the minimum consistent with getting the job done. There is no question that employment can be held substantially below the levels which would be possible under the funds authorized by the Congress, if strong efforts are made to achieve increases in productivity and efficiency, to use better techniques of management and production, and to staff each activity with only the minimum number of employees needed to carry out our objectives. I expect each of you to make such efforts.

The Director of the Bureau of the Budget informs me that the estimated expenditures for fiscal 1962 which will appear in the autumn budget review, reflect the judgment of each of you as to what will actually be spent during this fiscal year under the policies I have outlined, and that total outlays will be substantially less than they might have been under the authority enacted by the Congress. I appreciate your continued efforts to keep uncommitted any funds, the expenditure of which is not absolutely necessary to the national interest at this time. While I know . that these actions represent a cutback or postponement in many functions to which each of you attaches great importance, I congratulate you on this recognition of the overriding requirements of a budget policy reflecting the total national interest.

Let me add a word about the 1963 budget. In view of the prospective gains in the economy, it is my intention to propose a balanced budget for that year, barring extraordinary and unforeseen defense requirements. As you know, we can expect a substantial increase in revenues under existing tax laws in fiscal 1963, reflecting the economic recovery now taking place. However, it is already clear that expenditures for the military and other elements of our national security programs will necessarily rise next year. In these circumstances it will plainly be necessary to defer or limit increases in many programs which in more normal times would be thoroughly desirable, and to shift present staffs and resources to the maximum extent from work of lower to work of higher priority. I will appreciate your cooperation in putting these policies into effect in planning the 1963 budget.