Annual Budget Message to the Congress: Fiscal Year 1956

PART A

To the Congress of the United States:

I am transmitting to you today the Budget of the United States Government for the fiscal year 1956, which begins July 1, 1955.

The first part of this budget message summarizes the budget totals and highlights our policies and plans for next year, particularly as related to the fiscal situation. The second part presents summary tables and also contains my budget recommendations for each major Government activity.

The fiscal and budget story during this past year centers around the fact that we successfully made the adjustment from a wartime to a peacetime type of economy, a truly significant achievement. Aided by a proper fiscal policy, the inevitable dislocations of this adjustment, while difficult for some, have not been serious on the whole. Our present growing prosperity has solid foundations, free from the artificial stimulations of war or inflation. However, the peace in which we live is an insecure peace. We must be constantly on the alert. Along with the other free nations of the world we must continue to strengthen our defenses. At the same time to remain strong for what will apparently be a long period of uncertainty ahead, we must also progressively increase our prosperity and enhance our welfare.

The 1956 budget is based on this outlook. Total expenditures will be reduced. However, I am recommending somewhat increased expenditures in particular areas important to human well-being. Budget expenditures for the fiscal year 1956 are now estimated at 62.4 billion dollars, 1.1 billion dollars less than for the current year. All parts of the administration will continue to work toward further reductions during the year by eliminating nonessentials and by doing necessary things more efficiently.

We must maintain expenditures at the high level needed to guard our national security. Our economy is strong and prosperous but we should not dissipate our economic strength through inflationary deficits. I have therefore recommended to the Congress extension for 1 year of present excise and corporate income tax rates which are scheduled for reduction on April 1, 1955, under present law. If this is done, and employment and production increase as currently anticipated, we can expect budget receipts to rise 1 billion dollars over 1955, to a total of 60 billion dollars in the fiscal year 1956.

On the basis of these estimates of expenditures and receipts, the deficit will be reduced from the presently estimated 4.5 billion dollars in the fiscal year 1955 to an estimated 2.4 billion dollars in 1956. Thus we continue to progress toward a balanced budget.

BUDGET POLICIES

Three broad considerations of national policy have guided me in framing the budget for the fiscal year 1956.

First, we must defend our priceless heritage of political liberty and personal freedom against attack from without and undermining from within. Our efforts to date have helped bring about encouraging results... cessation of fighting, new and stronger alliances, and some lessening of tensions. The growing strength of the United States and its friends is a key factor in the improved outlook for peace. We must continue to build this strength. We must at the same time preserve our liberty at home by fostering the traditional initiative of the American people. We will increase the scope of private activity by continuing to take Government out of those things which the people can do better for themselves, and by undertaking on a partnership basis, wherever possible, those things for which Government action is necessary. Thus, people will be able to keep more of their earnings to use as they wish.

Second, the Government must do its part to advance human welfare and encourage economic growth with constructive actions, but only where our people cannot take the necessary actions for themselves. As far as possible, these steps should be taken in partnership with State and local government and private enterprise. We must do our part to provide the environment for our free enterprise system to keep employment high, to create new jobs, and to raise the standard of living. We must broaden the opportunity for individuals to contribute to the growth of our economy and enjoy the fruits of its productivity.

Third, we must maintain financial strength. Preserving the value of the dollar is a matter of vital concern to each of us. Surely no one would advocate a special tax on the widows and orphans, pensioners, and working people with fixed incomes. Yet inflation acts like a tax which hits these groups hardest. This administration has made a stable dollar and economy in Government operations positive policies from the top down. Expenditure reductions, together with a judicious tax program, effective monetary policy, and careful management of the public debt, will help to assure a stable cost-of-living--continuing our achievement of the past 2 years.

A liberal attitude toward the welfare of people and a conservative approach to the use of their money have shaped this budget. Our determination to keep working toward a balanced budget provides the discipline essential for wise and efficient management of the public business.

NEW AUTHORITY TO INCUR OBLIGATIONS

My recommendation for appropriations and other new authority to incur obligations for the fiscal year 1956 is 1.3 billion dollars more than the amount for the fiscal year 1955, primarily because of new requirements for our military services. However, it represents a reduction of 32.8 billion dollars from 1952, 21.7 billion dollars from 1953, and 4.2 billion dollars from 1954.

New authority to incur obligations

Fiscal Year (in millions)

1952 $91.4
1953 80.3
1954: As estimated, January 9, 1953 72.2
Actual 62.8
1955 estimated 57.3
1956 recommended 58.6

The new authority to incur obligations which I am recommending for our major national security programs is 2.4 billion dollars greater than in the fiscal year 1955. I am proposing a reduction in the total new authority for all other Government programs, although within this total, I am recommending selective increases.

Part of the reduction in 1955 of new authority for our major national security programs below the amount enacted for 1954 was possible because the military services improved their supply procedures, which resulted in larger use of existing stocks and reduction of the large backlog of unexpended balances. The accumulated unexpended balances of funds appropriated to all Government agencies in prior years are now on their way down to more reasonable levels and the continued downtrend in total unexpended balances will be less rapid in the future than in the fiscal year 1955.

Recommended new authority for 1956 is less than both the anticipated revenues and the estimated expenditures for that year. By holding the level of new authority lower than anticipated revenues, we can continue making progress toward balancing the budget. Likewise, as long as the amount of new authority is less than expenditures, we are continuing on the way toward lower levels of Government spending.

BUDGET EXPENDITURES

In the fiscal year 1956, net budget expenditures are estimated to be 11.9 billion dollars below actual spending in the fiscal year 1953. The record shows that this administration cut Government spending in 1954 by 6.5 billion dollars below 1953, and 10.1 billion dollars below the level estimated for 1954 on January 9, 1953. For 1955, an additional reduction of 4.3 billion dollars is now estimated and still another reduction in spending of 1.1 billion dollars is the present estimate for 1956. The fiscal year 1955 is only half completed and the beginning of 1956 is still 5 1/2 months away. We shall continue working to improve efficiency and to reduce still further the totals now estimated for these years.

Expenditures
Fiscal year: (in billions)

1952 $65.4
1953 74.3
1954: As estimated, January 9, 1953 77.9
Actual 67.8
1955 estimated 63.5
1956 estimated 62.4

The stern requirements of our national defense dictate the largest part of our budget, and it is chiefly these requirements which prevent us from decreasing budget expenditures faster at this time. Further progress in reducing expenditures must result in large part from increasing efficiency and from finding better ways of doing the things that must be done. Future savings will be more difficult than those already accomplished. However, we expect to continue reducing the cost of Government.

Major national security.--Expenditures for major national security programs in the fiscal year 1956 are estimated at 40.5 billion dollars, 65 percent of total budget expenditures. This amount includes the cost of new legislation. I am proposing to establish an effective military reserve system and strengthen the career service. This budget provides for more expenditures by the Department of Defense for air power than ever before in peacetime history. New weapons for defensive and retaliatory action are being developed and produced in increasing quantities. High priority is being given to strengthening our continental defense system. Since military supplies are not being consumed in combat, the bulk of the military materiel being produced by our factories is adding to our capacity to defend ourselves. Our defense expenditures are now bringing about a steadily growing strength. Never in our peacetime history have we been as well prepared to defend ourselves as we are now.

We will deliver about the same amount of military equipment to friendly nations as in 1954 and 1955. New atomic energy plants will be placed in operation and more than in any previous year will be spent for peaceful applications of atomic energy. The dollar value of our stockpile of strategic materials is expected to reach 78 percent of the minimum objective, compared with 58 percent in 1954.

International affairs and finance.--Our international programs are closely related to national security. The conduct of our foreign affairs is crucial in preserving peace. We have materially contributed to the strengthening of friendly nations through the economic aspects of the mutual security program. Continuation of such assistance is urgently needed for some countries. Net expenditures for international affairs and finance are estimated to be 1.3 billion dollars, 88 million dollars lower than in the fiscal year 1955.

Keeping our own defenses strong and cooperating with our allies to increase their defenses will deter outside attacks on our freedom. We must at the same time look to the abiding sources of our internal strength--our faith in the power of free men, our individual initiative, and our competitive enterprise.

Commerce and manpower.--We are moving ahead in taking the Government out of business wherever this can properly be done. In addition to selling the Inland Waterways Corporation and liquidating the Reconstruction Finance Corporation, we have already sold or shut down a number of Department of Defense plants for processing scrap and manufacturing paint, clothing, and chlorine. Private industry is performing an increasing share, which has reached almost half, of major equipment overhauls for the Air Force. Most of the synthetic rubber plants have been sold to private purchasers, subject only to congressional approval. These actions not only serve to strengthen our system of private enterprise, but also in many cases reduce Government expenditures and increase tax receipts for cities, counties, and States as well as the Federal Government.

During the past year, legislation was enacted permitting private lenders to make mortgage money available on more liberal terms so that more people can buy their own homes. Local public agencies, aided by private investors, are being encouraged to start comprehensive urban renewal programs. Provision has been made for extension of unemployment insurance to 4 million more workers.

For the coming year, I am recommending that we start a 10-year program to modernize the interstate highway system in cooperation with State and local governments. I am also proposing that we step up aeronautical research, expand air navigation facilities, and help industry build more ships. These activities are important for our national security as well as for our growing economy. I firmly believe that as large a proportion as possible of the expenditures of the Government should be borne by those directly benefiting therefrom. The user charge principle should be further extended. I have recommended to the Congress that postal rates be increased to make the postal system self-supporting in the near future. With the enactment of this legislation, total net expenditures for commerce and manpower in the fiscal year 1956 are expected to be 2.2 billion dollars, 364 million dollars below 1955.

Natural resources.--An important policy of this Government is to encourage an increased sharing by State and local governments of our long-range development projects. For example, the State of New York and the Province of Ontario are now jointly developing the power resources of the St. Lawrence River without cost to the Federal Government. Under legislation passed last year the Markham Ferry project in Oklahoma and the Priest Rapids project in the State of Washington, both with large power developments, will be built by State or local units, with modest Federal contributions only for those purposes such as flood control which involve national responsibilities. This budget proposes the start of several new construction projects under such partnership arrangements. Thus, we are continuing to develop our natural resources at less cost to the Federal Government. Net budget expenditures of 953 million dollars in 1956 are estimated for natural resources, 180 million dollars less than in 1955.

Agriculture.--Greater freedom from Government direction and control of farming operations will be made possible in future years as a result of the new farm legislation enacted last summer. The flexible supports provided for therein will stimulate the consumption of farm products at home and abroad and will reduce Government expenditures for buying and storing surplus commodities. Greater private participation in the financing of loans to farmers has also been brought about by legislation enacted last year. By increased use of fully insured private loans, the need for direct Federal loans for farm ownership and for soil and water conservation has been reduced. A sound basis has also been provided through the new watershed protection legislation for greater cooperation between the Federal Government and States and local groups in the upstream flood prevention program. In addition, through strengthened agricultural research and educational work, farmers can better work out solutions for their own problems. These steps reduce the dependence of farmers on the Government, encourage farmers to take the initiative in adjusting production to demand, and provide the conditions under which farmers can maintain their incomes with less interference by the Government. The flexible support legislation will not greatly affect expenditures for the fiscal year 1956. Estimated net expenditures for agricultural programs in 1956 will be 2.3 billion dollars, 871 million dollars less than in 1955. This reduction is principally due to the anticipated smaller outlays for farm price supports resulting from acreage restrictions and increased sales.

Welfare, health, and education.--Our policy of partnership with State and local governments and with private enterprise is also enabling us to make significant contributions to human welfare. Our broadened programs of assistance for vocational rehabilitation and for construction of nonprofit hospitals and health centers will encourage greater State, local, and private activity in these fields. The extension of old-age and survivors insurance to 10 million more persons and the increased contribution and benefit rates enacted last year are in keeping with our tradition of self-reliance and will diminish dependence on charity. This budget includes appropriations for the health improvement program which I shall outline in a special message. Increases in some programs, principally for public health and vocational rehabilitation, will be offset by some reductions in other programs. Total expenditures for welfare, health, and education are estimated at 2.3 billion dollars in the fiscal year 1956, about the same as in 1955.

Veterans' services and benefits.--Expenditures for veterans' benefits continue to increase as a result of the growing number of veterans, now estimated at 21 million in civil life, becoming eligible for benefits. Legislation enacted last year raised compensation and pension benefits to our ex-servicemen and women. I have recently issued a proclamation ending the time period for acquiring further rights to readjustment benefits intended for veterans of the Korean conflict. Estimated net expenditures for veterans' programs will be 4.6 billion dollars, about 200 million dollars more than in 1955.

Interest and general government.--Expenditures for interest are estimated to amount to 6.4 billion dollars, 180 million dollars less than in 1955. In the field of general government, I recommend that we increase our expenditures for tax collection and management of Government property as further steps toward efficiency. I also recommend strengthening our law-enforcement agencies, particularly the Federal Bureau of Investigation. Finally, the Government should resume its payments as employer to the civil service retirement fund. As a result of these recommendations and anticipated increases in payments of certified claims, expenditures for general government purposes are expected to rise 344 million dollars to 1.6 billion dollars in the fiscal year 1956.

Special classification of expenditures.--The budget expenditures discussed above may be divided into four large groupings to show the ends for which we pay taxes and also the items which make our budgets big. These groupings are (1) the cost of civil operations and administration, (2) interest, (3) civil benefits to various parts of our society, and (4) the major cost of protection against war.

The expenditures for civil operations and administration of the Government have been obscured for many years by the large expenditures for defense and by the variety and complexity of the domestic and international programs. The cost of keeping the civil functions of the Government running for the fiscal year 1956 is estimated to be 2.3 billion dollars or about 4 percent of the net budget expenditures. This includes most of the expenditures classified as general government plus the expenditures for repair, maintenance, and operation of Government civilian facilities, and for regulatory activities.

SPECIAL CLASSIFICATION OF NET BUDGET EXPENDITURES

[Fiscal years. In billions]

1951 1952 1953 1954 1955 1956 estimated
actual actual actual actual estimated Amount Percent

Current expenses for civil operations and administration $1.9 $2.2 $2.3 $1.9 $1.9 $2.3 4

Interest 5.7 5.9 6.6 6.5 6.6 6.4 10

Civil benefits 11.5 12.2 13.4 11.6 13.3 12.0 19

Protection 25.6 46.0 52.0 47.9 41.7 41.5 67

Undistributed (reserves and adjustments) --.7 --.9 ...... ...... .1 .3 ......

Total 44.1 65.4 74.3 67.8 63.5 62.4 100

The fluctuation shown in the cost of civil operations arises primarily from the contribution made by the Federal Government, as employer, to the civil service retirement fund. This contribution was 321 million dollars in the fiscal year 1953 and million dollars is proposed for 1956. No contributions were made during 1954 or 1955 pending a detailed review of all Federal retirement systems by a special commission. Increased funds are also provided for several departmental operations where there has been a long-standing backlog of work.

Decreasing interest rates during the past 12 months, together with a change in the timing of interest payments, have made possible a forecast for lower expenditures for interest in the fiscal year 1956.

The various civil benefit programs of the Government are estimated to amount to 12 billion dollars in the fiscal year 1956. Expenditures for veterans' benefits represent 38 percent of all civil benefits in that year. The variations in expenditures for farm price supports and mortgage purchases account for part of the changes in total benefit expenditures between the fiscal years 1953 and 1956.

The expenditures for protection, which account for two-thirds of total expenditures, include continental defense at home and mutual defense abroad. The total amount in the fiscal year 1956 consists of the 40.5 billion dollars for major national security programs and 1 billion dollars for economic and technical assistance under the mutual security program. In addition, many items of smaller size scattered through other parts of the budget, not included in this category, are related in varying degrees to protection. Examples are the Coast Guard and the Selective Service System.

TAX POLICY

Last year we made great progress in reducing tax burdens and improving the tax structure. Total tax reductions of 7.4 billion dollars became effective. This was the largest tax reduction in any single year in the country's history. It was made possible only by large cuts in Government expenditures. The basic tax law was revised to relieve hardships for millions of individuals and to reduce tax barriers to economic growth.

The budget would have been balanced for the current fiscal year if there had been no tax cuts. However, it was desirable to share the benefits from the large expenditure reductions. This enabled the people to have the extra money to spend for themselves which they retained because of the reduction in their taxes.

In view of the prospective deficit, we cannot afford to have any further loss of revenue this year through reductions in taxes. The corporate tax rate would be automatically reduced under existing legislation from 52 to 47 percent on April 1 with a revenue loss of about 2 billion dollars for a full year unless extended. Under existing law, the excise taxes on liquor, tobacco, gasoline, and automobiles would also be automatically reduced on April 1, with a revenue loss of 1 billion dollars unless appropriate legislation is enacted by the Congress extending them.

In the fiscal year 1956, there will be an automatic revenue reduction (as compared with 1955) of almost 2 billion dollars under existing law, wholly apart from any changes in tax rates. The principal reason is the completion of the plan adopted 5 years ago under which payments of corporate taxes have been moved forward into earlier fiscal years. Fortunately, this reduction in 1956 will be more than offset by increases in revenue due to the economic growth of the country.

Because we must keep our existing revenues intact, I have already recommended to the Congress in my State of the Union Message that existing rates on both excises and corporate incomes be extended for 1 year. Any other course of action would result in either (1) inadequate expenditures for national security, or ( 2 ) inflationary borrowing.

During the past year the Treasury Department has continued to examine possible changes in the tax laws concerning which no recommendations were made in the revision of the tax laws last year. As final conclusions are reached by the Department they will be sent to the Congress.

I have also directed the Secretary of the Treasury promptly to make recommendations for any other changes in the laws which may be found necessary to prevent anyone from avoiding his fair share of the tax burden.

The present tax take of nearly one-fourth of our national income is a serious obstacle to the long-term dynamic growth of the economy which is so necessary for the future. There must be the means for providing more and better jobs not only for those who are working today but also for the millions of young people who will come of working age in future years. The stimulus of further tax reductions is necessary just as soon as they can properly be made.

We must always make adequate provision for our security and other essential services, and further tax reductions can only be made as savings in governmental expenditures or increased revenues resulting from growth in our economy are in sight.

However, further tax reduction remains a firm goal of this administration, and our policy is directed to achieving both the savings in expenditures and the economic growth that will make such reductions possible.

I hope that tax reductions will be so justified next year. If so, I shall recommend a reduction in taxes to spread the relief fairly among all taxpayers in a way which will be the most effective to relieve individual tax burdens and to increase incentive for effort and investment.

DEBT MANAGEMENT

Debt management policy during the past year was keyed to Federal Reserve monetary policy to help assure the ready availability of money and credit needed to sustain a high level of business activity. The Treasury refrained under the special circumstances of 1954 from issuing long-term securities which would compete for long-term money available for the construction of new homes, for business expansion, or for new schools, highways, and hospitals at the State and local government level. At the same time, progress was made in improving the structure of the public debt by some extension of maturities through issuing more intermediate-term bonds. In each major Treasury financing during 1954, except for borrowing through tax anticipation securities, investors had the opportunity to buy securities longer than 1-year certificates. The result was a substantial reduction in the short-term debt.

On December 31, 1954, the public debt subject to the statutory limit was 278.3 billion dollars. We expect to be able to operate this fiscal year within the temporary debt limit of 281 billion dollars voted by the Congress last August. The increase beyond 275 billion dollars provided by this legislation is, however, temporary. The statutory limit will go back to 275 billion dollars on June 30, 1955. We anticipate that the heavy tax receipts during the remainder of this fiscal year will enable us to reduce the debt to within that figure by June 30, 1955.

At the start of the new fiscal year in July 1955 the debt will already be pressing against the legal limit. With the present seasonal pattern of tax collections, expenditures will exceed receipts in the first 6 months of the fiscal year 1956 by about 8 billion dollars. Thus, it will not be possible to pay the Government's bills in that period without exceeding the 275 billion dollar limit.

We recognize that the statutory debt limit is valuable as an expression of firm intent to maintain fiscal soundness. With present requirements for national security we have not yet been able to achieve a balanced budget, even though we have made substantial progress toward it. Therefore, I have no alternative but to ask the Congress to again increase the debt limit.

During the past 2 years, we have proved that a free, democratic system can make the adjustment from war to peace without serious economic disturbances. A major factor in this achievement has been the confidence of the people in the ability of the Government to bring its financial affairs under control and to conduct them in a responsible manner.

Our objective of being provident in financial matters has paid and is still paying dividends in general well-being. We have reduced expenditures and eased the crushing load of taxation. We have improved the structure of the public debt and provided a favorable environment for sound monetary policy. We have encouraged private initiative by starting to take the Government out of competition with private enterprise. We have made progress in housing and in protection against personal catastrophe. We are developing our natural resources in partnership with the State and local governments and with private initiative. These steps are designed to assure high and rising employment, a growing prosperity, and a stable dollar.

This administration will continue to exercise the utmost care in the manner in which it uses the taxpayers' money. It will continue to purchase what we must have for our security, well-being, and prosperity with the fewest possible number of dollars. And it will continue to administer the huge Government organization more efficiently. It will put first things first and restrain spending to items of high priority. Our success thus far in reducing taxes, expenditures, and the deficit is the best evidence of the earnestness of our efforts.

With an indestructible faith in the destiny of this country, a faith equal to that of the founders who held that all men are Divinely endowed with inalienable rights; with full confidence that in the intelligent cooperation of free men is to be found the most effective way of solving group and national problems; with unshaken dedication to the pursuit of peace and justice at home and in the world, we shall continue to sustain our liberties and we shall meet and far surpass the objectives we now set for ourselves in promoting human welfare, happiness, and prosperity.

DWIGHT D. EISENHOWER

PART B

[This second part of the budget message starts with three summary tables which are omitted. ]

To the Congress of the United States:

This second part of my message contains further details regarding budget expenditures and new appropriations and my legislative recommendations. Major trust fund transactions are summarized. Expenditures are analyzed from two different points of view.

Purposes of expenditures.--From one point of view, budget expenditures serve four broad purposes. These were summarized on page 96. Four percent goes for keeping the civil functions of Government running. Another 10 percent is necessary to pay the interest charges on the Government debt. A somewhat larger proportion, 19 percent, is devoted to the costs of various programs combined under the heading of civil benefits. Some of these benefit particular groups or localities. Others are in the nature of more general benefits. Another 67 percent is for the major programs for protection against possible war.

That part of the expenditures of various agencies which is for current expenses of civil operations and administration is shown by agency in the following table:

CURRENT EXPENSES FOR CIVIL OPERATIONS AND ADMINISTRATION

[Fiscal years. In millions]

1951 1952 1953 1954 1955 1956
- actual actual actual actual estimated estimated

Legislative branch $57 $58 $53 $55 $64 $65
The Judiciary 25 27 27 28 30 33
Executive branch:
Department of Agriculture 101 89 96 139 138 139
Department of Commerce 105 145 112 50 84 82
Department of Defense--Civil functions 56 58 81 52 59 60
Department of Health, Education, and Welfare 7 8 8 8 9 10
Department of the Interior 111 119 127 125 150 150
Department of Justice 150 194 169 181 184 200
Department of Labor 38 48 53 51 86 96
Post Office Department 74 70 35 ¹ 6 ..... .....
Department of State 193 211 221 144 131 141
Treasury Department:
Claims and judgments 98 76 137 213 163 250
Other 434 471 478 488 480 495
Civil Service Commission 324 332 346 50 48 235
Economic Stabilization Agency ..... 91 64 2 ..... .....
General Services Administration 96 163 162 147 148 153
Other 43 13 130 135 143 144

Total 1,911 2,174 2,299 1,872 1,916 2,251

¹ Since August 15, 1953, the cost of Government mail has been paid by the various agencies.

Expenditures for civil benefits are shown in the following table. These expenditures are partly for the acquisition of assets, which have varying degrees of recoverable value or permanency. Other expenditures are for long-range development, and for current aids and services to various groups.

The largest amount of benefits goes to veterans for compensation and pension payments, hospital and medical care, and readjustment benefits, including vocational training. The next largest current expense for benefits is for public assistance grants to States. Current expenses for agriculture consist of losses realized in disposition of commodities acquired under price support programs, payment for the removal of surplus commodities, administrative expenses of loan programs and other aids to farmers.

EXPENDITURES FOR CIVIL BENEFITS

[Fiscal years. In millions]

1951 1952 1953 1954 1955 1956
- actual actual actual actual estimated estimated

Federal assets (loans, construction, major equipment, and additions to commodity inventories) $1,771 $2,905 $4,672 $2,840 $3,323 $2,013
Long-range development:
State, local, and private assets
(roads, airports, schools, and soil conservation) 961 1,023 1,124 1,022 1,131 1,302
Expenditures for education, training, health, and research and development 1,178 566 602 586 667 754
Current expenses for aids and services:
Agriculture 905 463 305 540 995 750
Business:

Post Office 521 670 624 307 267 ¹15
Other 288 371 310 341 483 522
Labor 203 209 215 216 272 348
Home owners and tenants --160 --129 --123 --116 --92 --48
Veterans 4,515 4,710 4,178 4,185 4,347 4,536
Public assistance 1,186 1,178 1,330 1,438 1,445 1,420
Other aids 141 186 176 209 420 371

Total 11,509 12,153 13,413 11,570 13,259 11,984

¹Based on proposed increases in postal rates and postal pay.

Most of the postal deficit for 1954 and 1955 has been included among benefits to private business since the Post Office Department's analysis shows that it arises principally from inadequate second- and third-class mail rates. The proposed rate increase will practically absorb the postal deficit in 1956.

Expenditures for protection, as shown in the next table, likewise include the acquisition of Federal assets, of varying degrees of permanent value, from air bases to aircraft, tanks, trucks, and bombs. Such expenditures also include long-range development, and current expenses. The last mentioned is primarily the cost of military pay and operations. Protection also includes a substantial amount of military equipment and economic and technical assistance furnished under the mutual security program, of which a significant amount goes to Korea and other Far Eastern countries.

EXPENDITURES FOR PROTECTION

[Fiscal years. In millions]

1951 1952 1953 1954 1955 1956
- actual actual actual actual estimated estimated

Federal assets (construction, plant and major equipment, and stockpiling) $6,099 $15,059 $21,438 $19,914 $16,762 $16,934
Long-range development (research and development) 915 1,285 1,617 1,616 1,546 1,649
Current expenses (military pay, operations, maintenance, administration, and military aid abroad) 15,293 27,505 27,219 24,994 22,336 23,625
Current expenses of economic assistance abroad 3,320 2,154 1,705 1,339 1,029 1,017
Unallocated reduction in estimates (Department of Defense ..... ..... ..... ..... ..... --1,750

Total 25,626 46,002 51,979 47,86 41,673 41,475

Controllability of expenditures.--The preceding analysis has indicated the broad purposes of expenditures. It is important that we also consider our budget from another point of view. About one-fourth of the total expenditures can be classified as permitting little or no administrative discretion through the budget process. The level of these expenditures depends upon the provisions of the legislation which authorized the programs and on other factors independent of Executive control.

SUMMARY OF NET BUDGET EXPENDITURES INDICATING CONTROLLABILITY

[Fiscal years. In millions]

1953 1954 1955 1956 - actual actual estimated estimated

Major national security programs $50,274 $46,522 $40,644 $40,458

Major programs not readily subject to administrative discretion through the budget process:
Veterans' compensation, pensions, and selected benefit programs 3, 383 3, 297 3, 512 3, 680
Veterans' unemployment compensation 26 82 131 150
Grants to States for public assistance 1, 330 1, 438 1,445 1, 420
Payment to railroad retirement fund for military service credits 33 35 ........ ........
Agricultural price support (Commodity Credit Corporation) 1, 943 1, 526 2,159 ¹ 1, 142
Removal of surplus agricultural commodities 82 178 113 180
Conservation of agricultural land resources 273 171 190 212
Federal-aid highway grants 509 531 600 680
Grants to States for unemployment compensation and employment service administration 202 203 195 245
Payment to the unemployment trust fund ........ ........ 64 87
Claims and relief acts 129 213 163 250
Payments to Federal employees' retirement funds 321 31 30 217
Unemployment compensation for Federal employees ........ ........ 33 40
Legislative and the Judiciary 88 87 102 116
Interest 6, 583 6, 470 6, 558 6, 378

Total 14, 902 14, 262 15, 295 14, 797

All other 9, 098 6, 988 7, 565 7, 153

Total budget expenditures 74, 274 67, 772 63, 504 62, 408

¹For comparability with prior years, includes expenditures 127 million dollars) from appropriations to reimburse Commodity Credit Corporation.

For example, interest depends upon the size of the public debt and the interest rates. Expenditures for veterans' benefits depend upon the benefit rates and the number of eligible veterans. Expenditures for agricultural price supports are affected by such factors as the weather, the level of world prices, and the ability of foreign purchasers to pay dollars. Grants to States are made under formulas fixed in legislation and vary with State participation and general economic conditions. Expenditures for relatively uncontrollable programs will be 14.8 billion dollars in the fiscal year 1956. This will be 498 million dollars less than in 1955. Increases for grants under the Federal-Aid Highway Act of 1954, veterans' benefits, payment of claims, and resumption of the Government's contribution to the civil service retirement and disability fund are more than offset by the decreases expected for agricultural price supports and interest on the public debt.

Expenditures for major national security programs will decline 186 million dollars in the fiscal year 1956. All other Government expenditures are estimated to decline 412 million dollars. Although these latter expenditures are only 11 percent of the total, they include the great majority of the individual appropriation items in the budget. Between the fiscal years 1953 and 1956, these expenditures are estimated to be reduced by 1.9 billion dollars. Included in this total are expenditures for international affairs and finance, and for most of the regular operations of the Government such as enforcing laws, collecting taxes, promoting health, postal service, and civil public works.

Major trust funds.--The budget receipts and expenditures which I have so far discussed reflect only transactions of funds which belong to the Federal Government. In addition, the Federal Government engages in extensive transactions with funds which it does not own but holds in trust for others. The following table summarizes the receipts, expenditures, and balances for the major trust funds. These include the trust funds for veterans' life insurance, old-age and survivors' insurance, railroad retirement, Federal employees retirement, and unemployment compensation. The total receipts and expenditures of the many smaller trust funds which are not included in the table have amounted to about one-half billion dollars annually in recent years.

SUMMARY OF RECEIPTS, EXPENDITURES, AND BALANCES OF MAJOR TRUST FUNDS

[Fiscal years. In millions]

1954 1955 1956
actual estimated estimated

Balance in funds at start of year $43, 057 $44, 924 $46, 449
Receipts 8, 698 9, 343 10, 882
Expenditures 6, 832 7, 819 8, 245
Balance in funds at close of year 44, 924 46, 449 49, 087

The accumulated balances of these funds will increase substantially from 43.1 billion dollars at the beginning of the fiscal year 1954 to an estimated 49.1 billion dollars at the close of 1956. Most of these balances are invested in special issues of United States Government securities. Receipts of these trust funds include interest on such investments, payroll taxes paid by employers and employees, and premiums paid by veterans for life insurance. Expenditures are primarily for the payment of benefits. Additional information on these funds can be found in part III of the budget document.

Receipts from and payments to the public.--Transactions of trust funds and Federal funds are consolidated to show the total of the Federal Government's receipts from and payments to the public. This statement shows the total flow of funds for the year and is one measure of the inflationary or deflationary impact of Federal fiscal transactions on the national economy; it is not a substitute for the regular budget statements.

RECEIPTS FROM AND PAYMENTS TO THE PUBLIC, EXCLUDING BORROWING

[Fiscal years. In millions]

1954 1955 1956 - actual estimated estimated

Cash receipts from the public $71, 636 $66,649 $68,793
Cash payments to the public 71,868 69, 026 68,235

Excess of cash receipts ........ ........ 558
Excess of cash payments 232 2,377 ........

MAJOR NATIONAL SECURITY

The major national security category of the budget includes not only the military functions of the Department of Defense, but also the development of atomic energy, the stockpiling of strategic and critical materials, and the portions of the mutual security program which consist of military assistance and direct forces support to other free nations. These four major programs are the basic elements of our national security. Other programs with smaller totals and relating to activities which are not so exclusively defense are included under other classifications of the budget. For example, the commerce and manpower section includes the Coast Guard, merchant marine, the Selective Service System, civil defense, aeronautical research, and promotion of defense production.

Expenditures for major national security programs in the fiscal year 1956 are estimated at 40.5 billion dollars. This total is 186 million dollars below that for 1955, and 6.1 billion dollars below the actual 1954 amount. Recommended new authority to incur obligations is greater than for 1955 but less than for 1954. After the cessation of combat operations in Korea, we were able to reduce our 1955 military appropriations because the unobligated balances available were greater than required and the large stocks of supplies on hand permitted the military services to "live off the shelf" to a large degree without replacing the items consumed.

Recommendations in this budget for our major national security programs are based on the same philosophy which I recommended and the Congress adopted for the fiscal years 1954 and 1955. I then proposed that we should plan and finance our national security program on a long-term basis that would maintain essential military strength over an indefinite period of time without impairing the basic soundness of the United States economy. This budget continues the concept of no assumed fixed date of maximum danger. Any other concept would lead to an inevitable let-down in strength and produce peaks and valleys in our defense spending and production.

It is essential that we, together with other nations of the free world, maintain a level of military strength which will effectively discourage any would-be aggressor from attacking. We cannot accept less. The effectiveness of our power to deter rests principally upon our capability to retaliate swiftly and decisively and upon our ability to defend ourselves against attack. The advent of nuclear weapons has profoundly affected our concepts of military strategy and tactics as well as our national security policies. Such weapons multiply many fold the striking power of any military force. This budget, therefore, continues the emphasis on the development and maintenance of effective nuclear-air retaliatory power of the Air Force and Naval aviation as the principal deterrent to military aggression. Such power is being supplemented by other military forces of great strength, flexibility, and mobility and by the forces of our allies.

In order to safeguard our striking power and resources, we are giving continued high priority to the accelerated development of continental defense programs.

Priority is also being given to the development and introduction into operating units of new weapons and techniques adapted to the radically changed conditions imposed by the potential of nuclear warfare. This budget also provides for continued improvement in mobilization reserve stocks and for the cost of expanding and strengthening our military manpower reserves as outlined in my special message on this subject.

The complexity of modern military equipment and the revolution in military concepts in this atomic age put an extra premium upon military leadership, skill, and training. Unfortunately, much of our investment in developing trained manpower is being lost, as too many servicemen are rejecting a military career for the attractions they expect from civilian life. My legislative proposals to meet these problems were set forth in my special message on military pay and incentives, and funds for them are provided in this budget.

MAJOR NATIONAL SECURITY
[Fiscal years. In millions]

Budget expenditures (net)

__________________________________________
1950 1953 1954 1955 1956
- Item - actual actual actual estimated estimated

Direction and coordination of defense $10 $15 $12 $12 $12
Other central defense activities 199 394 452 488 588
Army defense activities 3, 983 16,24 12, 910 8, 900 8, 850
Navy defense activities 4, 100 11, 874 11, 293 9, 775 9, 700
Air Force defense activities 3, 600 15, 085 15, 668 15, 200 15, 600
Proposed legislation ........ ........ ........ ........ 1, 000
Unallocated reduction in estimates ........ ........ ........ ........ -- 1, 750

Subtotal, Department of Defense 11, 892 43, 610 40, 336 34, 375 34, 000

Development and control of atomic energy, present program 550 1, 791 1, 895 2, 050 1, 910
Proposed legislation ........ ........ ........ ........ 90

Strategic and critical materials 438 919 651 994 783

Mutual Security (Military) Military assistance, present program 130 3, 954 3, 629 2, 675 2, 875
Proposed legislation ........ ......... ........ ........ 200
Direct forces support, present program ........ ........ 12 550 500
Proposed legislation ........ ........ ........ ........ 100

Subtotal, military assistance and support 130 3, 954 3, 641 3, 225 3, 675

Total budget expenditures 13, 010 50, 274 46, 522 40, 644 40, 458

- New obligational authority
_____________________________________________

1950 1953 1954 1955 1956
- Item - actual actual actual estimated recommended

Direction and coordination of defense $11 $15 $13 $13 $13
Other central defense activities 180 540 778 645 627
Army defense activities 4, 392 15, 221 12, 777 7, 788 7, 303
Navy defense activities 4, 359 12, 689 9, 612 10, 272 8, 937
Air Force defense activities 5, 428 20, 45 11, 41 12, 065 14, 536
Proposed legislation ........ ........ ........ ........ 2, 983
Reduction through transfers of prior year appropriations ........ ........ ........ ........ -- 1, 500

Subtotal, Department of Defense 14, 370 48, 916 34, 590 30, 783 32, 899

Development and control of atomic energy 839 4, 152 1, 118 1, 284 1, 292

Strategic and critical materials 425 134 ........ 380 522

Mutual security (military):
Military assistance, present program 1, 359 4, 096 3, 192 1,144 .........
Proposed legislation ........ ........ ........ ........ 1, 400
Direct forces support, present program ........ ........ 570 795 ........
Proposed legislation ........ ........ ........ ........ 630

Subtotal, military assistance and support 1, 359 4, 096 3, 763 1, 939 2, 030

Total new obligational authority 16, 993 57, 298 39, 471 34, 386 36, 742

Department of Defense.--To maintain a strong military posture and assure that our national security policy will adequately support our foreign policy, our military planning must be kept flexible and dynamic. The structure of our military forces must be subjected to continuing review and adjusted to reflect the rapid technological advances of this nuclear and electronic age. A year ago, I approved a long-range plan for our military forces upon which the fiscal year 1955 budget was based. Recent reviews of our plans and policies have resulted in reaffirmation of most of the elements of this long-range plan, but with some changes in timing. Our current military plans, in turn, will be subjected to continuing review so that they--as well as our military equipment--will be kept up-to-date. It is important that we do not attempt to fix our minds or plans upon any particular set of numbers, for today's technological changes may make yesterday's numbers and concepts obsolete.

In my judgment, the military forces and programs upon which this budget is based are accurately adjusted to the national needs.

Under our current plans, the number of military personnel is scheduled to be reduced from the present level of approximately 3.2 million to about 3 million by June 30, 1955, and to something over 2.8 million by June 30, 1956, for an average of approximately 2.9 million personnel during the fiscal year 1956, compared with an average of 3.2 million during the fiscal year 1955. Within this figure, however, the Air Force personnel strength will be somewhat increased.

The cessation of hostilities and the buildup of the Republic of Korea forces have permitted us to withdraw five United States ground divisions from the Far East. We have thus increased the number of divisions in a central reserve of forces which can be deployed where and when needed. In addition, 1 1/3 Marine divisions will be withdrawn from the Far East in the near future, so that their capability as a highly trained, combat-ready, amphibious force may be available as part of the central reserve. United States military forces will be maintained at appropriate levels in the Far East, with emphasis on highly mobile naval and air units of unparalleled striking power.

The Army has devoted considerable effort to assessing the changes in Army organization and doctrine required to meet the conditions of the atomic battlefield. These studies are continuing, and it appears that the Army of the future will be organized into smaller, but more mobile and self-contained, units with greater fire power. The Navy will operate approximately 1,000 active ships--including 400 warships. The number of carrier air groups is to be increased from the present 16 to 17, and an additional attack carrier equipped with modern aircraft will be added to the fleet. The Navy will continue to maintain 15 antisubmarine warfare squadrons. The Marine Corps will maintain 3 combat-ready divisions and 3 air wings. The current level of approximately 10,000 Naval and Marine operating aircraft will be maintained. The Air Force is continuing its buildup toward a goal of 137 wings, and expects to have 130 wings in being by June 30, 1956--119 of which will be combat wings. The major units of all services will be supplemented by appropriate combat support units. All the services will continue their efforts to increase the proportion of military personnel assigned to combat units.

About two-thirds of the projected Department of Defense expenditures in the fiscal year 1956 will be devoted to air power and related programs--both offensive and defensive. Expenditures for these programs will be the largest in our peacetime history. The active aircraft inventory in combat and supporting units of the Air Force, Navy, and Marine air forces will increase from over 34,000 on June 30, 1954, to 36,000 on June 30, 1956, and will continue to increase in succeeding years toward the present objective of close to 40,000 aircraft. In addition, the Army will maintain 3,600 active aircraft, with more than a 20 percent increase during the next 2 years in the number of helicopters. The growth in our effective air power is far greater than these numbers indicate, for our aircraft continue to increase in size, speed, range, and striking power.

By the end of the fiscal year 1956, the total number of aircraft in combat units of the Air Force, Navy, and Marine Corps will be approximately one-fourth greater than at the beginning of the current fiscal year. The number of jet aircraft in such units will increase by more than one-third during the same period. The increasing modernization of our air power is shown by the fact that by June 30, 1956, the Air Force combat units will be almost 100 percent jet equipped. The proportion of jets in the combat units of the Marines and Navy will increase by approximately 15 percent over the beginning of the current fiscal year.

During the past year, continuing improvements have been made in the management and operations of the Department of Defense. The stock-fund principle, which has been applied in the Navy over a period of years, is now being broadly adopted by the Army and is being initiated in the Air Force. Stock funds have been extended to include 9.3 billion dollars in inventories. Major savings--particularly in the Army--are resulting from the extension of such property accounting and other businesslike management techniques. The Army is now beginning to account for its supplies in terms of dollar value, and is relating its needs and purchases to its inventories. Largely as a result of the Army's more efficient administration of the supplies and financial assets in its stock fund account, operating stocks are being reduced to lower but better-balanced levels. In addition, military installations with 1.6 billion dollars of annual transactions have been put on a businesslike basis through the use of industrial funds.

Military functions of the Department of Defense will require 32.9 billion dollars of new authority to incur obligations in the fiscal year 1956, including proposed legislation. The gross requirements to finance proposed legislation total 3 billion dollars, but I am recommending that 1.5 billion dollars of this be met with currently available funds which can be transferred as a result of actual and prospective savings and adjustments by the Department of Defense.

Total expenditures for military functions of the Department of Defense will be greater than the new obligational authority required. Expenditures have been estimated at 34 billion dollars despite the fact that the present estimates for the many individual Department of Defense programs add to a total of 35.75 billion dollars. The success of the Secretary of Defense to date in introducing improvements in planning and increased efficiency in operations leads him to believe that he will find more opportunities for savings and economies. It is not feasible for the Secretary to predict at this time what the possible savings, slippages, and program adjustments will be in each category of military expenditures but he expects that total expenditures will not exceed 34 billion dollars. Consequently, the anticipated savings and adjustments are shown as an unallocated reduction of 1.75 billion dollars, about 5 percent of the total estimated expenditures of the Department of Defense.

The estimated 34 billion dollars of expenditures for the fiscal year 1956 includes 1 billion dollars for proposed legislation. The total estimate is 375 million dollars lower than the current estimate of expenditures for the fiscal year 1955 and 6.3 billion dollars below expenditures in the fiscal year 1954.

DEPARTMENT OF DEFENSE COSTS BY MAJOR CATEGORIES

[Fiscal years. In millions]

Budget expenditures Recommended
new obligational authority
1953 1954 1955 1956
Cost category actual actual estimated estimated for 1956

Military personnel $11, 556 $10, 961 $10, 245 $10, 295 $10, 612
Operation and maintenance 10, 37 9, 356 7, 86 8, 576 9, 184
Major procurement and production (17, 123) (15, 958) (12, 627) (12, 718) (9, 524)
Aircraft 7, 416 8, 334 7, 557 7, 550 6, 064
Ships 1, 191 1, 090 888 999 1, 317
Other 8, 516 6, 534 4, 182 4, 169 2, 143
Military public works 1, 913 1, 706 1, 418 1, 749 1, 914
Reserve components 522 584 705 927 1, 037
Research and development 1, 412 1, 385 1, 307 1, 369 1, 370
Establishment-wide activities 759 771 719 793 758
Working capital (revolving)
funds --54 --384 --515 --677 .........
Unallocated reduction in estimates .......... .......... .......... -- 1, 750 ..........
Reduction through transfers of prior year appropriations .......... .......... .......... .......... --1, 500

Total 43, 610 40, 336 34, 375 34, 000 32, 899

Military personnel costs, which include the compensation of military personnel, family allowances, subsistence, clothing, and permanent-change-of-station transportation, will be approximately the same in 1956 as during the current fiscal year but about 6 percent below the fiscal year 1954. Although the number of military personnel is scheduled to decrease during the fiscal year 1956, the resulting decrease in expenditures will be more than offset by the added costs of the pay increase and other benefits proposed in my special message. I am again recommending legislation to provide medical care for dependents of members of our Armed Forces in both military and civilian medical facilities. Funds are included in this budget for this proposal. I will also recommend an extension of the Dependents Assistance Act and funds are included in this budget to cover these costs.

Continuing improvements in organization and management of the Department of Defense have resulted in significant savings in the costs of operating and maintaining posts, stations, air bases, aircraft, ships, and other military equipment during the past 2 years. The planned reduction in numbers of military personnel will permit further savings through appropriate reductions in the number of supporting establishments. Nevertheless, total expenditures for operation and maintenance will be greater in the coming fiscal year than during the fiscal year 1955, since the cost reductions will be more than offset by the increasing costs of operating and maintaining the modern equipment being provided for our forces, and for operating our expanding system of continental defense in which all services participate.

Major strides have been made during the past year in expanding the system for defense of continental United States against possible enemy attack. NIKE guided-missile battalions are rapidly being installed for the defense of key potential targets. A separate Continental Air Defense Command, reporting directly to the Joint Chiefs of Staff, has been established. It has operational control over continental defense forces, including (1) Air Force fighter interceptors and aircraft control and warning networks, (2) Army anti-aircraft and guided missile battalions, (3) Navy radar picket ships and air units in the contiguous radar system, and (4) additional forces from other Air Force, Navy, Marine Corps, and Air National Guard fighter and radar units when made available for air defense. Our radar screen is being expanded and existing gaps in coverage are being filled. Our Air Defense forces, as well as the Strategic Air Command and Naval air power, are being kept on an alert basis. A surprise enemy attack would find us with increasing readiness to resist attack and retaliate with devastating effect. These measures inevitably lead to increased operating costs for continental defense, which are now higher than ever before in our history and are still rising.

Expenditures for procurement and production of major items of equipment will continue at approximately the same level as during the current fiscal year and will constitute more than one-third of the total projected expenditures of the Department of Defense. Procurement of aircraft and guided missiles will continue at the same level as during the current year and will account for two-thirds of total major procurement expenditures. Shipbuilding expenditures will increase over the current fiscal year. This budget provides for an increased number of new shipbuilding starts. This continues the program I recommended in the 1955 budget to cope with the problem of "block obsolescence" of the fleet, which was largely built during World War II. Included in the proposed shipbuilding program for the fiscal year 1956 is a fifth carrier of the - Forrestal class.

Appropriations enacted in prior years have permitted us to build our mobilization stocks of key military items to greater levels than ever before accumulated except in time of war. My recommendations in this budget will permit us to continue the accumulation of reserves of selected types of materiel. They also provide for our operating needs for newer weapons and equipment. As has been the policy of this administration in the past, maximum feasible reliance will also be placed upon keeping military production facilities in operation rather than on accumulating even larger reserve stocks of end-items.

Military construction expenditures during the fiscal year 1956 are expected to increase substantially over the 1955 level, reflecting progress in all Services on construction of bases. A substantial portion of the military public works projects proposed to be undertaken during the fiscal year 1956 are related to the continental defense program. In addition, this budget provides for essential increments to overseas construction programs now nearing completion and for rounding out the facilities needed for the approved military force levels. The program includes a portion of the family housing greatly needed at military installations. Limited provision is also made for replacing a small portion of substandard World War II construction which has passed the point of economical maintenance and operation.

In my special message I recommended urgently needed legislation to create a more effective military reserve. Expenditures for the reserve components are expected to increase markedly during the fiscal year 1956 as a result of this legislation. Reservists in drill pay status are estimated to increase from 697,000 as of June 30, 1954, to about 857,000 at the end of the current fiscal year and a little over 1,000,000 at the end of the fiscal year 1956. In addition, under the terms of the proposed new program, there will be approximately 50,000 reservists in drill pay status who will have completed 6 months' active duty training by the end of the fiscal year 1956.

This budget also provides for continuation of the present high level of research and development in the Department of Defense. Major emphasis is being placed on developments which will more effectively utilize nuclear energy in military operations. New equipment and techniques are being developed to provide the mobility needed to meet the changed requirements of nuclear warfare. We shall continue to concentrate on those programs which show the greatest promise of providing reliable new weapons and significant improvements in both our offensive and defensive capabilities under the conditions of modern warfare. It is my belief that increased returns in military research and development can best come from maintaining a stable high level program. Although this level of program utilizes, either through direct employment or on a contractual basis, about one-half the research scientists and engineers in the United States, it also permits a high level of nonmilitary research and development essential to an expanding economy.

Civil defense.--Civil defense is also an integral part of the overall program for defense of the continental United States against enemy attack. Although the major part of continental defense is in the military budget, expenditures by the Federal Civil Defense Administration are classified in the commerce and manpower section together with those for dealing with peacetime disasters.

The concept of civil defense adopted last year takes account of the destructive threat of modern weapons and places emphasis on improved warning of impending attack, to allow time for evacuation of potential target cities. Since this policy was announced, the Federal Civil Defense Administration has developed its plans more fully and individual cities have tested mass evacuation. I cannot stress too much that civil defense will succeed or fail in proportion to the willingness of American communities to meet the peril. The Federal Government is developing cooperative methods with State governors, mayors, and voluntary citizen groups, as well as among Federal agencies, in building the civil defense organization. In accordance with the Federal Civil Defense Act of 1950, the primary responsibility for civil defense rests with the States and their political subdivisions.

Development and control of atomic energy.--It is our purpose, working in concert with other nations, to banish the threat of atomic warfare which now confronts the world. Progress is being made toward establishing an international agency for cooperation in developing the peaceful uses of atomic energy, as I proposed to the United Nations on December 8, 1953. The budget of the Atomic Energy Commission for the fiscal year 1956 provides for greater expenditures than ever before on projects to develop peaceful applications of atomic energy. We shall continue unabated our efforts to assure that this great force will be used, not for war, but for the well-being of all mankind. Until such assurance can be achieved, however, we have no alternative but to strengthen further our most effective deterrent to armed aggression--the power of our nuclear weapons stockpile.

Despite a growing program, I am recommending for 1956 only a slight increase over 1955 in new authority to incur obligations because of the availability of large unobligated balances, due partly to savings in construction costs. Total expenditures in the fiscal year 1956 are estimated at 2 billion dollars, 50 million dollars less than in 1955.

Operating expenditures will rise in the fiscal year 1956 to the highest rate yet attained. They will increase from 1.2 billion dollars in 1955 to 1.5 billion dollars in 1956 principally because of an expected higher level of procurement of raw uranium ores and concentrates and because of greater production at the Commission's plants as new facilities are completed and placed in operation. The estimates assume continuing reductions in unit production costs.

Capital expenditures in the fiscal year 1956 will drop considerably as the large new production plants authorized in prior years approach completion. Recommended new construction will include: (1) plant improvements and other facilities to increase the efficiency and capacity of the production complex, (2) certain weapons research facilities, (3) a medical research center, (4) an international training school in reactor technology, and (5) developmental atomic reactor projects.

The national effort to develop industrial atomic power for peacetime uses will go forward with increased vigor. The Atomic Energy Act of 1954 makes possible substantial private activity and investment in the constructive applications of atomic energy. Construction of one large atomic power plant jointly financed by the Government and industry is already underway. As I stated in my message of February 17, 1954, to the Congress, "It is essential that this program so proceed that this new industry will develop self-reliance and self-sufficiency." Accordingly, it is expected that industry will finance an increasingly larger share of the total national effort in developing power reactor technology. However, to speed progress in getting the new technology established, the Atomic Energy Commission in 1956 will expand substantially its program to develop industrial power reactors. Construction of several experimental reactors will be started in 1955 and 1956. Of these, one of the most significant is a power breeder, designed to produce more fissionable material than it consumes. Nearly 15 million dollars is included in the budget for this project.

Effective progress in military propulsion reactors will continue. The launching in 1954 of the first atomic submarine, the U.S.S. Nautilus, will be followed by the launching in 1955 of the U.S.S. Sea Wolf, an atomic submarine of different design. In addition, two atomic-powered attack type submarines have been financed by Department of Defense appropriations in the fiscal year 1955. My recommendations for the Department for 1956 include additional submarines of this type. In 1956, development work will proceed on improved types of submarine reactors, and on a reactor to power larger naval vessels. The Atomic Energy Commission and the Department of Defense will expand and accelerate research on atomic powered aircraft, and will continue development work on small transportable power reactors for military use.

The basic--as distinct from applied--research which is fundamental to progress in all aspects of nuclear energy will be pursued energetically and will entail somewhat higher expenditures in 1956, both in the Commission's own laboratories and through support of research in universities and other institutions.

I again recommend that the Congress approve legislation to allow the residents of Oak Ridge, Tennessee, and Richland, Washington, to purchase their homes and establish self-government, thus taking the Federal Government out of the business of owning and governing these communities.

Stockpiling of strategic and critical materials.--A new long-term stockpile level has been established to provide an additional measure of security over and above the minimum goals. Procurement of the additional minerals will generally be limited to instances where purchases at favorable prices will serve both to meet the long-term stockpile objectives and to maintain essential domestic production, as in the case of lead and zinc in the past 6 months.

Preliminary reviews of 50 minerals indicate that the new policy may eventually increase the inventories of materials by 3.3 billion dollars above the 6.5 billion dollars of minimum objectives. By the end of the fiscal year 1956, about 5.1 billion dollars of materials within the minimum objectives, and an additional 1.2 billion dollars toward the long-term objectives will be in inventory, compared with June 1954 levels of 3.8 billion dollars and 700 million dollars, respectively. In considerable measure, this progress is made possible under the Defense Production Act, discussed in the commerce and manpower section of this message.

Mutual security program.--Military assistance and direct forces support help other free nations to train and equip the modern armed forces which are necessary for our security as well as their own. Such assistance is an integral part of our own national security program for it helps to create, in crucial areas of the free world, essential military strength which bolsters our own forces. Because our allies generally provide the major portion of the costs of maintaining the forces, this strength is being created at a relatively low cost to the United States taxpayer.

The military assistance and direct forces support programs are two parts of an integrated mutual security program which in its entirety is designed to provide other nations with the margin of outside assistance which they need to develop and maintain their political, military, and economic strength, which is in our interest. Other parts of this program are discussed in the international affairs and finance section of this message. I shall submit to the Congress proposals for necessary changes in the Mutual Security Act. These will include my specific requests for authorization of appropriations for the fiscal year 1956. Total expenditures for mutual security are estimated at 4.7 billion dollars in the fiscal year 1956, including the provisions for a program in Asia. Recommended new authority to incur obligations is 3.5 billion dollars.

Organization [or mutual security operations.--The organizational arrangements to carry on the mutual security program beyond the present fiscal year are now under careful study and I shall in the near future present to the Congress my recommendations regarding them.

MUTUAL SECURITY PROGRAM, MILITARY AND ECONOMIC
[Fiscal years. In millions]

Expenditures Recommended
new obligational authority
1954 1955 1956
actual estimated estimated for 1956

Military:
Military assistance:
Present programs $3,62 $2,675 $2,875 .............
Proposed legislation ............ ............. 200 $1,400
Direct forces support:
Present programs 12 550 500 .............
Proposed legislation ............ ............. 100 630
Nonmilitary:
Present programs 1,241 1,075 725 .............
Proposed legislation ............ .............. 300 1,500

Total:
Present programs 4,882 4,300 4,100 .............
Proposed legislation ............ ............. 600 ¹3,530

¹Compares with new obligational authority of 4,725 million dollars in 1954 and 2,781 million dollars in 1955.

Military assistance.--The mutual military assistance proposed for the fiscal year 1956 will further help our allies to complete equipping and training the equivalent of more than 180 divisions, 551 combat vessels, 278 air squadrons, and related supporting units. Our assistance goes only for forces determined to be essential by our Joint Chiefs of Staff. It provides only the critical margin of training and equipment which the countries cannot provide for themselves. During the past 5 years we have delivered over 6,000 airplanes, almost 900 naval vessels of all types, 36,000 tanks and combat vehicles, nearly 200,000 transport vehicles, billions of rounds of ammunition, and many other items. Furthermore, specialized training courses have been conducted for officers and technicians from 32 countries.

Expenditures for military assistance in the fiscal year 1956 are estimated at 3.1 billion dollars as compared with 3.6 billion dollars in the fiscal year 1954, and an estimated 2.7 billion dollars in 1955. The decline in estimated expenditures from 1954 to 1955, and the subsequent increase projected for 1956, do not accurately reflect the probable rates of delivery of equipment to our allies during 1956. Actual deliveries are expected to continue in the fiscal years 1955 and 1956 at around the 3 billion dollar level which was attained in the fiscal year 1954. The fluctuations in expenditure estimates are due to a change in the method of financing wherein the Department of Defense finances the production of common type materiel, pending delivery to the mutual security program and subsequent reimbursement of Department of Defense appropriations.

Much of our mutual military assistance continues to strengthen our allies in the North Atlantic Treaty Organization, and I hope that we may soon begin furnishing certain items of military equipment which will be needed by the new German forces. To the extent that this materiel cannot be financed by the Federal Republic of Germany from its own resources, it will be financed from appropriations made for the mutual security program. The continuing growth of economic strength in Europe and completion of the financing of much of the capital equipment which was required for the initial rapid military buildup will make it possible to reduce military assistance for this area in the immediate future below the level of the last few years.

The military assistance program proposed for the fiscal year 1956 will include aid to Korea which, in previous years, was financed from regular Department of Defense appropriations. We are also proposing the continuation of assistance designed to strengthen further the defenses of Formosa, Japan, and certain other countries in Asia which are presently receiving military assistance.

Expenditures in the fiscal year 1956 will be largely from appropriations made in previous years. At the same time, however, new authority of 1.4 billion dollars, which I am recommending, is needed to incur obligations in the fiscal year 1956 to finance in advance certain new requirements such as the Korean program.

Direct forces support.--The present Mutual Security Act distinguishes between military equipment and those supporting items which are necessary to make the soldiers and weapons effective. These supporting items, commonly referred to as direct forces support, include gasoline, tires, uniforms, medicines, rations, and similar items which all military forces consume every day.

For the fiscal year 1956 I propose that direct forces support be provided to only a few selected countries. These countries, primarily in Asia, are ones where our mutual security requires the maintenance of active forces larger than those which these countries could support from their own resources. In the fiscal year 1956 direct forces support for the armed forces of the Republic of Korea, which was formerly provided for in the Department of Defense budget, will be covered for the first time by the mutual security program.

Direct forces support will continue to be a significant part of the mutual security program for so long as the security of the free world requires that large military forces be maintained in Asia and the Near East. I recommend 630 million dollars of new obligational authority under proposed legislation for this purpose. Expenditures for this program from existing appropriations and from the proposed legislation are estimated at 600 million dollars in the fiscal year 1956, as compared with 550 million dollars in the fiscal year 1955.

INTERNATIONAL AFFAIRS AND FINANCE

During the past year the free world, despite some setbacks, has made heartening progress in building the strength and unity which are so important to our security. In this hemisphere, in Europe, Asia, and Africa, the free nations acted together to strengthen their defenses against international communism, to widen economic cooperation, and to settle long standing disputes which have undermined free world unity. In these developments the United States has played a vital role.

My program for the coming year is designed to consolidate these gains and to make further progress. Particular emphasis will be laid on further strengthening the foreign service organization of the Department of State which carries the burden of foreign policy leadership and negotiations. We are likewise placing emphasis on revision of our several international programs to give appropriate attention to the important trouble spots around the world today.

My budget recommendations for international affairs and finance reflect a coordinated plan for the conduct of foreign affairs, for the expansion of trade and investment, for mutual security economic assistance, and for foreign information. Total net budget expenditures for the fiscal year 1956 are estimated at 1.3 billion dollars, as compared with 1.4 billion dollars for the current year.

Recommended new authority to incur obligations in the fiscal year 1956 amounts to 1.9 billion dollars, 291 million dollars more than for 1955. Major items of this increase in new obligational authority result from increased emphasis on defense support and development assistance in Asia and reimbursement of the Commodity Credit Corporation for emergency assistance in the form of commodities furnished in previous years.

INTERNATIONAL AFFAIRS AND FINANCE
[Fiscal years. In millions]

Expenditures Recommended new obligational authority
1954 1955 1956
actual estimated estimated for 1956

Gross expenditures:
International investment activities:
International Finance Corporation (proposed legislation) ......... ........... $35 $35
Export-Import Bank (including Reconstruction Finance Corporation liquidation) $534 $334 335 ...........
Investment guaranties 4 6 7 ...........
Mutual security program (non-military):
Defense support and development assistance, Technical cooperation, Refugee and other aid (contributions to international agencies) 1,241 1,075 725 ...........
Proposed legislation .......... .......... 300 1,500
Civil assistance programs, Department of Defense 87 30 6 3
Emergency commodity assistance, Department of Agriculture 74 124 177 ¹ 79
Other assistance 3 6 9 9
Other refugee activities (Department of State) 1 9 15 16
Foreign information and exchange activities:
United States Information Agency 71 77 86 88
Department of State 20 18 21 22
Emergency fund for international affairs .......... 4 1 ...........
Conduct of foreign affairs (Department of State and other) 130 116 124 123

Total 2,166 1,800 1,841 ² 1,876

Deduct applicable receipts:
Export-Import Bank.. 434 376 425 ...........
Reconstruction Finance Corporation 9 .......... .......... ...........
Investment Guaranties 2 4 4 ...........
Commodity Credit Corporation ......... .......... 79 ...........

Net budget expenditures 1,720 1,420 1,332 ...........

¹Appropriation to reimburse the Commodity Credit Corporation for commodity assistance provided in previous years.
²Compares with new obligational authority of $1,268 million in 1954 and $1,585 million in 1955

International investment activities.--In my recent special message on foreign economic policy, I made recommendations which will enable us to expand foreign trade and investment. As a further step in providing capital to underdeveloped areas through stimulating private investment, the United States is participating with other members of the International Bank for Reconstruction and Development in working out proposals for an International Finance Corporation. Such a corporation, although it could not purchase stock, could provide venture capital by making special types of loans without government guaranties to private enterprises in less developed countries. This budget includes 35 million dollars as the United States' share of the corporation's capital of 100 million dollars.

Moreover, in keeping with legislation approved last year, the Export-Import Bank estimates an increase in direct loans and guaranties of private loans from 460 million dollars in the fiscal year 1955 to 665 million dollars in 1956. It is expected that a significant part of this increase will consist of guaranties of private loans which are not included in gross budget expenditures. New direct loans are expected to be authorized in the amount of 403 million dollars. The collections on old loans, including lend-lease and postwar reconstruction credits in Europe, will exceed disbursements against new direct loans, so that a net receipt of 90 million dollars to the Treasury is estimated in 1956.

Defense support and development assistance.--We anticipate that the trade and investment policies outlined above, and the marked advance in economic strength of many foreign countries over the past 2 years, will increasingly enable us to confine direct Government assistance for defense support and economic development abroad generally to two types of situations, both of which are related intimately to our own future security.

In the first place, we will find it necessary for some time to provide defense support to certain countries which have undertaken a military effort beyond the capacity of their own economies to support. This defense support includes consumption goods and capital equipment to support the general economy, as contrasted with direct forces support which provides assistance to the military forces of the country. In the second place, our national interest will require direct assistance to certain less developed countries where a rate of economic progress which would be impossible without such assistance is essential to their becoming and remaining strong and healthy members of the community of free nations capable of resisting Communist penetration and subversion.

Employment, production, and foreign exchange reserves in free European countries are generally increasing. Most of these countries can now strengthen their military establishments and at the same time improve their living standards without further United States defense support. In the fiscal year 1955, defense support has been limited to very few countries, and a similar situation is expected to prevail in 1956.

Latin America, an area with which we have well-established trade and investment relations, has a great need for capital for economic development. Nevertheless, if Latin American countries follow a policy of encouraging private investment, domestic and foreign, they should be able to continue to raise the capital needed for further economic growth. In those cases in which private or International Bank resources are not available or not appropriate for financing sound projects, the Export-Import Bank will welcome applications for loans. The new International Finance Corporation, when organized, can also help provide capital. Grants in Latin America have been necessary only in special situations such as in Bolivia and Guatemala.

In Asia, active warfare has only recently ceased and the free countries of this continent continue to face the threat of Communist subversion and external aggression. We therefore have been furnishing and propose to continue to furnish defense support to several countries including Korea, Formosa, Vietnam, Laos, and Cambodia. Some assistance in economic development has been extended to India

Unless such support is provided, we may expect economic deterioration and dangerous reductions in the military defenses of the free world. Moreover, without such assistance, these countries, most of which border on Russia and Communist China, will not achieve the economic progress which is necessary to meet the threat of Communist subversion. The loss of northern Vietnam makes this support more imperative than ever.

In the Middle East and Africa, we have provided some grant and loan assistance to promote economic development and political stability, and will request funds to continue this type of assistance in the fiscal year 1956. This assistance has gone to Iran, Israel, Lebanon, Jordan, Egypt, and Libya.

My budget proposals for the mutual security program were developed on the assumption that all requirements for that program will be met from appropriations made for that purpose. Therefore if it becomes desirable to utilize foreign currencies accruing from sales of surplus agricultural commodities made under the Agricultural Trade Development and Assistance Act for mutual security purposes, mutual security appropriations will be used to reimburse the Commodity Credit Corporation for currencies so utilized.

Technical cooperation.--Over recent years, technical cooperation has become a continuing part of United States policy toward the rest of the world. American experts help the people in foreign countries, and foreign technicians come to the United States to observe our methods. As a result, millions of people are learning how to produce more food, to improve health and educational standards, and to operate modern industries more effectively. Agreements for technical cooperation are in effect in 68 countries and territories in Latin America, Asia, the Near East, and Africa.

In addition to these bilateral efforts, we have contributed to meeting the total cost of the United Nations technical assistance program, for which experts and financial contributions come from many nations. I am proposing new obligational authority to cover the total proposed contributions of the United States to this program for both calendar years 1955 and 1956.

Refugee and other foreign relief.--The 1953 Refugee Relief Act provides for the admission of 214,000 people beyond regular immigration quotas before December 31, 1956. Approximately 17,000 visas have been granted to date. Sufficient progress has been made on concluding agreements with other countries, organizing staff abroad, and completing arrangements with voluntary agencies in the United States to justify the expectation that the program can be completed in accordance with the provisions of the act. To accomplish this, I recommend an increase for the Department of State appropriation for the fiscal year 1956, and a supplemental appropriation for 1955.

I am also recommending continued United States support of those programs and international agencies through which funds have been made available for relief, rehabilitation, and resettlement of escapees, refugees, and other special groups. These agencies include the Intergovernmental Committee for European Migration, and the United Nations agencies for Palestine refugees, and for emergency aid to children. In addition, this budget makes provision for a small contribution to help the United Nations High Commissioner for Refugees take refugees out of camps and make them part of the local communities.

Foreign information and exchange activities.--The United States Information Agency has done a capable job of redirecting its work and is increasingly effective. It is carrying out its mission in 79 countries through local radio, press, films, and information centers. Its worldwide radio broadcasting is increasingly directed to the countries beyond the Iron Curtain. But the Soviet efforts to divide the United States from other nations of the free world by twisting our motives, as well as its efforts to sow fear and distrust, are mounting in tempo in many areas of the world. I believe it is of the highest importance that our program for telling the truth to peoples of other nations be stepped up to meet the needs of our foreign policy.

The Department of State's educational exchange program is primarily directed toward the exchange of educators, newsmen, labor and management officials, students and others who influence the formation of public opinion abroad. The sharing of ideas strengthens the community of interest so vital to our relations with other people. I recommend that these exchanges be increased, particularly with underdeveloped areas.

Conduct of foreign affairs.--A prerequisite to the achievement of all our international affairs and finance programs is dynamic, positive, and dedicated leadership by the Department of State.

This budget recognizes the essentiality of a stronger and better trained career corps of foreign service officers. We should also provide more adequate facilities for carrying out statutory consular functions. Finally, more comprehensive commercial, labor, and other economic data are necessary to assist American businessmen to increase their foreign investment and trade.

As a result of the recommendations of the Committee on Government Operations of the House of Representatives and a committee of distinguished citizens, we are starting a series of improvements in the foreign service. The foreign service will be expanded to cover departmental positions; officers will be rotated more regularly between United States and foreign posts; and training will be improved. Appropriations to initiate these reforms are recommended.

VETERANS' SERVICES AND BENEFITS

Expenditures for veterans' programs are now rising--reversing the decline from the peak in 1947 as World War II veterans completed their readjustment to civilian life. In the fiscal year 1956, the Federal Government will spend an estimated 4.6 billion dollars for a wide variety of aids to veterans, an increase of 9 percent over the actual outlays in 1954 and 5 percent over 1955. This increase will occur notwithstanding the savings made through improved management of the Veterans Administration, and the long-run outlook under present laws is for continued large increases in payments to veterans.

Three main factors account for this outlook. First, World War II, the Korean conflict, and large defense requirements have increased the present and potential veteran population tremendously. Twenty-one million veterans are now in civilian life, 5 times the number before World War II. An additional 3 million men and women now in the Armed Forces have acquired rights to wartime veterans' benefits by serving during the Korean emergency.

Second, the 3 million veterans of World War I are reaching age 65 and are qualifying for pensions in large numbers. A service-incurred disability is not required for these benefits.

Third, benefits for veterans who served during wartime or an emergency have been increased in scope and liberality. Last year, laws were enacted which will add more than 170 million dollars in estimated expenditures for veterans' benefits for the fiscal year 1956 , principally for increased pension and compensation payments.

These facts require sober consideration. Our Government has a responsibility to provide generous assistance to those who have special needs arising from service in the Armed Forces, particularly war service. We must make sure that benefits which are provided to veterans and their survivors are timely and reach those who need them most. At the same time, we must bear in mind that Government policies designed to assist in the maintenance of a prosperous economy and to support social security, health, and other humanitarian programs are all of value to veterans as well as to other people. Since more than two-fifths of all adult males are entitled to veterans' benefits, expenditures for veterans are a budgetary problem of major interest to the whole population.

Our veterans' pension and compensation laws, in particular, are in need of constructive reconsideration. The non-service-connected pension system dates back to the Revolutionary War, and its principles require reexamination in the light of recent developments, including the nearly universal coverage of the oldage and survivors insurance system. The overall system of statutes and regulations governing eligibility and payment rates for service-connected compensation has not had a fundamental review for many years. It also needs to be reappraised in the light of the great improvement in medical and rehabilitation techniques and the actual economic situation of the many beneficiaries.

I am therefore appointing a Commission on Veterans' Pensions to study the entire structure, scope, and philosophy of our veterans' pension and compensation laws in relation to each other and to other Government programs. This budget includes 300,000 dollars for the continuation of the work of this Commission in the fiscal year 1956.

An especially complex and difficult problem exists in the field of survivor benefits for military personnel and veterans, where 4 different agencies now provide 5 major benefits. This problem has received extensive attention within the executive branch and from the Select Committee on Survivor Benefits of the House of Representatives. I hope that our mutual efforts will result in enactment of adequate and improved programs which will include full coverage for military personnel under our basic old-age and survivors insurance program and will properly relate benefits provided military personnel to those for veterans.

I have recently issued a proclamation terminating accrual of eligibility after January 31, 1955, for various benefits authorized for veterans who served during the Korean conflict. Few of those discharged during the fiscal year 1956 will be materially affected by this action. Studies will be undertaken to determine the need for measures to ease the readjustment to civilian life of men required to enter the Armed Forces for 2 years of service.

VETERANS' SERVICES AND BENEFITS
[Fiscal years. In millions]

Expenditures Recommended new obligational authority
1954 1955 1956
Program or agency actual estimated estimated for 1956

Gross expenditures:
Readjustment benefits:
Education and training $546 $602 $587 $587
Loan guaranty and other benefits
(Veterans Administration) 76 38 40 40
Unemployment compensation (Department of Labor) 82 131 150 150
Compensation and pensions 2,482 2,679 2,800 9,800
Insurance and servicemen's indemnities 104 72 135 127
Hospital and medical care:
Current expenses 724 688 710 716
Hospital construction 59 48 60 20
Other services and administration (Veterans Administration and other) 217 211 202 173

Total 4,289 4,468 4,684 ¹ 4,615

Deduct applicable receipts:
Insurance programs (Veterans Administration) 4 9 16 ...........
Other services and administration (Veterans Administration, primarily canteen services) 29 98 29 ...........

Net budget expenditures 4,556 4,431 4,640 ...........

¹Compares with new obligational authority of 4,272 million dollars in 1954 and 4,285 million dollars in 1955.

Readjustment benefits.--The Veterans' Readjustment Assistance Act of 1952 authorizes education and training, loan guaranty, and unemployment compensation benefits for veterans who served during the Korean conflict. Many World War II veterans are still eligible for loan guaranty benefits and some are still completing their education and training under the original "GI bill." In addition, special vocational rehabilitation aid is provided under other laws for veterans of both conflicts who were disabled in service.

The total estimated expenditures of 777 million dollars for all readjustment benefits in the fiscal year 1956 will be at about the same level as in the current year, and 10 percent higher than in 1954. The proportion of total readjustment benefits going to veterans of the Korean conflict has been increasing, and is expected to exceed 90 percent in the fiscal year 1956.

An average of 516,000 trainees is expected in the school, job, and farm training courses during the fiscal year 1956. One out of each 4 of the 4.7 million veterans eligible for these Korean conflict benefits will have participated in education or training by the end of the fiscal year 1956. The reservoir of potential enrollees is still large, considering that 1 out of each 2 World War II veterans received such benefits.

Budget expenditures under the loan guaranty program have declined sharply since the fiscal year 1954 because payments for the first year of interest on mortgages have ceased. It is expected that 467,000 loans totaling 5 billion dollars will be insured or guaranteed during the fiscal year 1956. Almost all of these loans will be for housing. The estimated 40 million dollars of expenditures in this category for 1956 includes 25 million dollars for acquisition of properties and losses on defaulted guaranteed loans. The other 15 million dollars is for tuition and supplies in the vocational rehabilitation program and grants of up to 10,000 dollars each for special housing for certain severely disabled veterans. Expenditures for the Veterans Administration direct housing loan program under present law and its proposed extension are included among aids for private housing in the commerce and manpower section of this message.

Federal unemployment compensation benefits of 26 dollars a week for a maximum of 26 weeks are payable through State agencies to veterans of the Korean conflict. Where the veteran who is insured under a State unemployment compensation system receives lower benefits from that system, the United States Department of Labor supplements the State benefit. Expenditures for this purpose are increasing as the number of eligible veterans rises. In the fiscal year 1956 an estimated weekly average of 138,000 veterans will receive unemployment benefits, wholly or partly financed by the Federal Government.

These unemployment benefits were intended to assist veterans of the Korean conflict during their transitional period immediately following separation from military service. Possibly by inadvertence, the present provisions were so written that a veteran of the Korean conflict may apply for these benefits at any time up to January 31, 1960, no matter how many years have passed since his discharge. I recommend that the law be amended to limit the time for filing claims to 3 years after separation or enactment of the amendment, whichever is later.

Compensation and pensions.--The upward trend in total expenditures for veterans results mainly from the rise in compensation and pensions. Expenditures for this purpose are estimated to increase more than 300 million dollars from the fiscal year 1954 to 1956, to a total of 2.8 billion dollars. They will equal more than half of all payments from the old-age and survivors insurance system. On the basis of present laws and veteran population, the present annual rate of expenditures for veterans' pensions and compensation is expected to double in 3 or 4 decades.

The estimated expenditures of 2.8 billion dollars include 1.9 billion dollars in payments to nearly 2,486,000 families and veterans for death or disability resulting from service, and 859 million dollars for pension payments in 1,046,000 cases where death or disability was not connected with military service. During the fiscal year 1954, an average of 2,412,000 cases received about 1.7 billion dollars in death and disability compensation benefits, and 716 million dollars in pensions were paid in 902,000 cases. The expenditures for 1956 also include 17 million dollars for 110,000 burial awards and 26 million dollars in subsistence payments to disabled veterans during their vocational rehabilitation.

Insurance and servicemen's indemnities.--Payments for insurance and indemnity benefits go to families of personnel who die in military service. The increase in expenditures in the fiscal year 1956 reflects (1) a steady increase in indemnity benefits, and (9) an unusual increase in insurance expenditures resulting from recently declared deaths of servicemen who were previously reported missing during the hostilities in Korea.

Indemnity benefits of $92.90 a month are paid for 120 months to the family of each serviceman who dies while on active military service or within 120 days after separation. The benefits are reduced proportionately if the serviceman has any Veterans Administration insurance. Payments of 42 million dollars estimated for the fiscal year 1956 are 79 percent higher than in 1954.

While no new national service life insurance or United States Government life insurance has been issued since 1951, previously issued policies continue in force. Where deaths are caused by the hazards of war, or occur during military service while premiums have been waived, the Government reimburses the insurance trust funds for losses. The Government also pays benefits directly to certain policyholders. Budget expenditures for insurance losses are estimated at 93 million dollars in the fiscal year 1956, somewhat more than in 1954 and more than double the amount in 1955.

Hospital and medical care.--A rising patient load in the veterans' hospital and medical program will result in an increase in current expenses for the fiscal year 1956. The average number of patients in Veterans Administration and contract hospitals is expected to rise 4 percent above the 1955 level to 114,500. While the proportion of service-connected cases is slowly increasing as more veterans of the Korean conflict are treated, it is estimated that more than two-thirds of the expenditures in 1956 will still be for patients hospitalized or treated for ailments not connected with military service. The number of persons in Veterans Administration and State homes is estimated to be 25,700 in the fiscal year 1956. The workload for out-patient care to service-incurred dental and medical cases is expected to be about 14 percent below that in 1954, with a total of 9,340,000 examinations and treatments in 1956. About four-fifths of the estimated average employment of 171,000 in the Veterans Administration during the fiscal year 1956 will be in the hospital and medical programs.

The budget includes recommended new authority to incur obligations of 20 million dollars for construction and improvements at Veterans Administration facilities. Most of this is for modernization of existing structures. Expenditures for construction and improvements in the fiscal year 1956 are estimated at 60 million dollars, approximately the same amount as in 1954 and somewhat higher than in 1955. Expenditures will be greater than the recommended new appropriations because funds for three large new hospitals to be built in 1956 were appropriated in previous years.

Other services and administration.--The general operating expenses of the Veterans Administration are estimated to decline further in the fiscal year 1956, reflecting declining workloads in some parts of this agency, especially in the insurance programs, and better organization and management throughout the agency. Average employment in nonmedical activities in 1956 is estimated at 34,500, or 13 percent below the 1954 level.

Trust funds.--Nearly 6 million national service life insurance and United States Government life insurance policies, which provide more than 40 billion dollars of protection, continue in force. About 1 million of these policies are held by personnel still in the Armed Forces, largely on a waiver-of-premium basis. The remainder are held by veterans who pay premiums. As the special dividend payments to the policyholders declared in 1954 and earlier years are completed, the receipts of the insurance trust accounts begin to exceed their disbursements. The transactions in these, as well as other, trust funds are not included in the budget totals.

VETERANS' LIFE INSURANCE FUNDS (Trust funds)
[Fiscal years. In millions]

1954 1955 1956
Item actual estimated estimated

Balance in funds at start of year $6,613 $6,541 $6,574

Receipts:
Transfers from general and special accounts 72 31 81
Interest on investments 200 208 209
Premiums and other 426 414 406

Total 697 652 696

Expenditures:
Dividends to policyholders 267 174 160
Benefits and other 503 446 444

Total 769 620 604

Net accumulation (+) or withdrawal (--) -72 +33 +92

Balance in funds at close of year 6,541 6,574 6,665

WELFARE, HEALTH, AND EDUCATION

Major advances have been made in the past year in the fields of social security, health, and education, pursuant to recommendations which I made to the Congress. We have demonstrated that the well-being of our people can be strengthened without yielding to the dangers of centralized power in the Federal Government, and we shall continue firmly to resist any project which would seem to us to involve such dangers. We have found ways to provide greater human security and social opportunity, while restricting the Federal Government's role to that of assisting private action and State and local responsibility with research and technical assistance, social insurance, and grants-in-aid. We believe that these gains can be continued through cooperative action among all levels of American government together with private participation.

In the last Congress, old-age and survivors insurance was extended to 10 million more persons and benefits were improved. Vocational rehabilitation grants to the States have been stepped up toward the objective for 1959 of helping 200,000 people a year to rehabilitate themselves. We have undertaken to aid the construction of medical diagnostic and treatment centers, rehabilitation facilities, nursing homes, and chronic disease hospitals, as well as general hospitals.

To assist in the search for solution of the Nation's serious school problems, the White House Conference on Education was authorized. The Office of Education has been strengthened. Assistance to schools especially affected by Federal activities was extended.

In this budget, I recommend increased appropriations for certain activities, including health research and the training of health personnel, and basic scientific research. I am also proposing new legislation to help fill gaps in present programs for health care, public assistance, and old-age and survivors insurance, and to obtain better coordination among them. Estimates for new legislation include 3 million dollars for grants-in-aid to enable State, local, and private agencies to deal more effectively with juvenile delinquency. I am recommending the enactment of legislation to establish an Advisory Commission on Fine Arts within the Department of Health, Education, and Welfare, to provide recognition of the importance of the further development of our cultural heritage.

Budget expenditures for welfare, health, and education, including proposed legislation, are estimated at 2.3 billion dollars in the fiscal year 1956, a decrease of 4 million dollars from 1955. These figures do not include expenditures for health, education, and research which are classified among veterans' benefits or in the military, atomic energy, and other programs in other sections of the budget.

WELFARE, HEALTH, AND EDUCATION
[Fiscal years. In millions]

Budget expenditures (Net) _________________________________ Recommended new obligational authority
1954 1955 1956
Program or agency actual estimated estimated for 1956

Promotion of public health:
Present programs $288 $292 $32 $335
Proposed legislation ........ ........ 17 52
Public assistance:
Present program 1,439 1,447 1,402 1,402
Proposed legislation ........ ........ 20 20
Other welfare aids and services:
School lunch program 84 84 68 68
Vocational rehabilitation 24 29 43 43
Indian health, education, and welfare 49 59 76 80
Other 106 77 8 83
Promotion of education:
Assistance for schools in federally affected areas 184 224 173 89
Vocational education 25 31 3 31
Other educational aids 25 30 33 30
General-purpose research:
National Science Foundation 6 10 21 31
Department of Commerce 17 35 27 27

Total 2,248 2,316 2,312 ¹ 2,289

 

¹Compares with new obligational authority of 9,190 million dollars in 1954 and 2,310 million dollars in 1955.

Promotion of public health.--This budget includes funds necessary to assist an expansion of existing services and initiate appropriate new measures which will carry out the objectives of a coordinated health program which I shall outline shortly in a special message to the Congress.

Under existing legislation, budget expenditures for public health are estimated at 321 million dollars in the fiscal year 1956. The principal expenditures are for grants to States for construction of hospitals and other health facilities, public health services, maternal and child health, and the control of various diseases; for research programs, including grants to universities and medical schools; and for operation of Public Health Service hospitals.

Significant items in the 29-million-dollar increase of expenditures over 1955 are for expansion of the research and training activities of the National Institutes of Health, including special emphasis on mental health; construction of more health facilities; an intensified attack on problems of air and water pollution; and strengthened enforcement of the food and drug laws.

I am recommending elsewhere in this message that the Atomic Energy Commission be authorized to build a new medical research center containing a nuclear reactor designed specifically for medical research and therapy. This will be a significant addition to the Nation's facilities for basic research in the field of health.

The new health legislation which I shall recommend will require budget expenditures of approximately 37 million dollars in the fiscal year 1956.

This legislation includes health reinsurance--the best method yet proposed for encouraging adequate health insurance coverage for our people. It includes also the part-year cost of a program of grants-in-aid for medical care for public assistance recipients, shown in the table under proposed legislation for public assistance. Other measures in the health program are designed to foster construction of more adequate medical facilities, training of nurses and other necessary medical personnel, and general improvement of key services in the States and local communities.

Public assistance.--The recent expansion of old-age and survivors insurance should gradually reduce the need for public assistance, with a consequent saving to all levels of Government in budget outlays for this purpose.

Further savings will result over the long run from amendments to public assistance legislation which I am recommending. The present grant-in-aid formula requires the Federal Government to pay each State 20 dollars of the first 25 dollars of average monthly old-age assistance benefits, and half of the next 30 dollars for any recipient. One of the proposed amendments would modify the public assistance law so that Federal grants can be adjusted downward to reflect gradually, by application to new cases, the number of old-age and survivor insurance beneficiaries who also need supplementary old-age assistance. By limiting to 50 percent the Federal share of old-age assistance for these future recipients of both types of benefits, this amendment would result in a more equitable sharing of costs between the State and Federal governments. The other amendment would encourage States to help needy individuals to become self-supporting or to care for themselves at home.

Other welfare aids and services.--Expenditures of 84 million dollars from the school lunch appropriation in the fiscal years 1954 and 1955 include about 67 million dollars for cash payments to States and nearly all of the rest is for commodities. The appropriation recommended for 1956 covers only the cash payments to the States and the costs of administration. In addition, contributions of surplus commodities, financed mainly from a permanent appropriation to the Department of Agriculture for this purpose, are expected to continue at a high level, so that the combined total of Federal cash payments and food donations will remain approximately the same in 1956 as in 1955. Moreover, the new school milk program authorized by the Agricultural Act of 1954 provides 50 million dollars a year in the fiscal years 1955 and 1956 to encourage increased consumption of milk by schoolchildren. Taken together, these various aids will make Federal support of the overall school lunch program the largest in our history. The expenditures for surplus commodities and school milk are classified under agriculture and agricultural resources.

This budget fully supports the enlarged vocational rehabilitation program enacted last year and will make possible the rehabilitation of 95,000 people in the fiscal year 1956.

The Congress last year provided for the transfer of Indian health services from the Department of the Interior to the Department of Health, Education, and Welfare, where they can be administered with other health programs. The appropriations recommended for the fiscal year 1956 will provide improved medical care for our Indian population.

Social insurance and retirement trust funds.--The Federal Government acts as trustee of three large, publicly sponsored retirement and insurance programs--old-age and survivors insurance, railroad retirement, and Federal employees' retirement. Contributions under these programs, including Federal payments, are collected in the respective trust funds and maintained separately from the budget accounts of the Government.

In connection with old-age and survivors insurance, I am recommending two legislative measures. One is the coordination of income and old-age insurance tax collection procedures to make reporting easier for wage earners and employers and at the same time to reduce Government costs for collecting taxes and paying benefits. The second is extension of this insurance to military personnel and to those Federal civilian personnel not now covered, as the basic part of improved systems of survivorship, disability, and retirement protection, with existing staff retirement systems retained as independent and separate entities. The military retirement pay system should remain unchanged. Certain adjustments in the present civilian personnel retirement systems will be needed.

Promotion of education.--We are all aware that our schools are passing through a period of extraordinary stress. School-age population is increasing faster than classroom space has been enlarged and qualified teachers recruited. In some communities, the available fiscal resources have been strained severely by efforts to meet these needs; in too many States and school districts, the financial support given to schools has not kept pace with recent increases in taxable resources.

The national problem is to find means of overcoming these difficulties within the present framework of responsibilities. In our system of government, the States and their subdivisions have (Continued on Pg. 147)

SOCIAL INSURANCE AND RETIREMENT FUNDS
(Trust funds)
[Fiscal years. In millions]

1954 1955 1956
Fund and Item actual estimated estimated

Federal old-age and survivors insurance trust fund:
Balance in fund at start of year $18,363 $20,040 $21,356

Receipts:
Appropriation from general receipts 4,537 5,190 6,175
Deposits by States 92 120 130
Interest and other 45 464 494
Payments of benefits, construction and administrative expenses, and tax refunds -3,405 -4,459 -4,968

Net accumulation 1,675 1,315 1,831

Balance in fund at close of year 20,040 21,356 23,187

Railroad retirement fund:
Balance in fund at start of year 3,183 3,418 3,538
Receipts:
Appropriation from general receipts 638 600 625
Interest on investments 99 102 106
Payments of benefits, salaries, and expenses -502 -581 -590

Net accumulation 235 121 141

Balance in fund at close of year 3,418 3,538 3,679

Federal employees' retirement funds (Civil Service and Foreign Service):
Balance in funds at start of year 5,652 5,932 6,196

Receipts:
Employee contributions 430 444 502
Interest 226 234 222
Transfer from budget accounts and other:
Present law 35 34 5
Proposed legislation ................. .................... 216
Payments of annuities and refunds, and expenses -411 -447 -489

Net accumulation 280 265 456

Balance in funds at close of year 5,932 6,196 6,652

(Continued from Pg. 145) the privilege and the responsibility of providing free public education. The role of the Federal Government has wisely been confined to encouragement and special assistance. I am confident that the overwhelming majority of our people agree that there should be no dilution of that State and local responsibility.

I have called a White House conference this fall of representatives from all the States. Some local and State conferences of citizens and professional educators have already been held in preparation for this national assembly. Others will meet this spring and summer. These meetings will highlight possible long-range solutions to the problems and will place in better perspective the obligations and opportunities of the respective levels of government.

Concurrently, without impairment in any way of State, local, community, and family responsibility, the Federal Government should serve as an effective catalyst in dealing with the problem of classroom shortages. I shall send to the Congress, in February, a special message presenting an affirmative program.

The major Federal expenditure for promotion of education consists of grants to aid school construction and operation in districts where enrollment has grown significantly because of Federal operations. Last year, the Congress extended the temporary program of aid for construction for 2 years. To finance this extension, I am recommending an appropriation of an additional 70 million dollars for the current fiscal year and 24 million dollars for 1956.

The Congress also delayed a requirement that these school districts absorb a greater proportion of the operating costs resulting from increased enrollments. Primarily for this reason, a supplemental appropriation of 19 million dollars will be needed this year. In the fiscal year 1956, greater absorption of the increased enrollments by the local districts will reduce the assistance payments for operations 6 million dollars below 1955, to a total now estimated at 70 million dollars.

The budget recommendations provide for continuing the increase in vocational education grants which was enacted for 1955, and will permit the Office of Education to initiate a program of cooperative research as authorized by the last Congress.

General-purpose research.--Despite our tremendous technological strides in recent years, our national interest requires that we support a strong program of basic research and that we train a greater number of highly qualified scientists and engineers. Accordingly, this budget recommends increased National Science Foundation grants for basic research and for training more graduate students, college instructors, and high school science teachers. It includes also the remaining necessary financial support for United States participation in the International Geophysical Year, a worldwide scientific undertaking which will yield great long-range benefits to this country.

The budget estimates for the Department of Commerce include substantial expansion in the general scientific and technological work of the National Bureau of Standards as recommended by a committee of outstanding scientists.

Another aspect of general-purpose research is the statistical work of the Census Bureau. We do not have all the statistical information required in our dynamic economy. I am therefore recommending a government-wide effort to improve statistics in those areas where our work has been most handicapped by incomplete information. Increases in appropriations are recommended for the Census Bureau for statistics on the labor force and for an intercensal survey on housing. At the same time, in other parts of the budget, increases are recommended for statistics on agriculture, production, construction, employment, and finance.

AGRICULTURE AND AGRICULTURAL RESOURCES

The basic agricultural legislation which I recommended and which the Congress enacted last year will help to promote a stable, prosperous, and free agriculture. By helping farmers solve many of their own problems we shall make possible reduced reliance on Government intervention such as production controls, and on Government spending for support of farm income. The Agricultural Act of 1954 and the Agricultural Trade Development and Assistance Act will facilitate readjustment of farm production, expansion of agricultural exports, and stimulation of domestic consumption of farm products. The Watershed Protection and Flood Prevention Act of 1954 provides a sound basis for Federal partnership with States and local groups in upstream flood prevention and soil and water conservation. The Farmers' Home Administration was given expanded authority to make loans for soil and water conservation, and a basis was provided for greater participation of private lenders in the financing of this and other loan programs.

My recommendations for agricultural programs in this budget will carry forward the broad objectives reflected in this new legislation. They will also continue the steps taken last year to place greater emphasis on research and educational activities. I have confidence in the ability and willingness of farmers to deal with many of their economic problems if given help through expanded agricultural research and advice in making use of the research results.

Gross expenditures for agriculture and agricultural resources in the fiscal year 1956 are estimated at 7.6 billion dollars. Receipts, estimated at about 5.4 billion dollars, consist mainly of collections on loans and sales of commodities. Net budget expenditures are estimated at 2.3 billion dollars in the fiscal year 1956, which is 871 million dollars less than estimated for 1955 and 298 million dollars less than in 1954. The reduction in net budget expenditures for 1956 is primarily due to anticipated smaller outlays for farm price supports.

New authority to incur obligations recommended for the fiscal year 1956 is 1.3 billion dollars, as compared with 2.6 billion dollars in 1955 and 4 billion dollars in 1954. The reduction in 1956 is accounted for almost entirely by the Commodity Credit Corporation. The Corporation's present borrowing authority, which was increased from 6.75 billion dollars to 10 billion dollars during the fiscal years 1954 and 1955, is now expected to be adequate to finance price support activities in the fiscal year 1956.

Stabilization of [arm prices and farm income.--Establishment of the principle of flexible supports and provision for a gradual shift to modernized parity for the basic agricultural commodities in the legislation enacted last year will encourage farmers to adjust their production to realistic market prices in keeping with the current needs of the economy. Since the transition to the new basis for price supports will be gradual, the benefits for the agricultural economy and for the Nation will not be fully realized for several years.

Based on the best information now available, gross price support expenditures in the fiscal year 1956 are estimated at 4.2 billion dollars, 1.5 billion dollars less than the amount estimated for 1955. These gross expenditures do not represent losses; rather they are outlays for loans and commodities to be acquired during the year, and for redemption of certificates of interest in commodity loans previously sold to private lenders. A substantial part of these outlays will be recovered from collections on loans and sales of commodities in later periods. Receipts from commodity sales and collections on loans in 1956 are estimated at 3.2 billion dollars, resulting in net budget expenditures of 968 million dollars.

The decline in net price support expenditures anticipated in the budget will be brought about by two major factors. First, continuation of acreage restrictions, particularly on 1955 crop year cotton and wheat, and lower support levels on some commodities are expected to result in a lower volume of price support loans. Second, receipts from sales of such commodities as cotton, corn, and wool are expected to increase as our efforts to find new and expanded markets for agricultural products begin to show results. These factors will be offset in part by increased Commodity Credit (Continued on Pg. 152)

AGRICULTURE AND AGRICULTURAL RESOURCES
Fiscal Years. [In millions]

Gross Expenditures Net Expenditures
Recommended new obligational authority
1954 1955 1956 1954 1955 1956
Program or Agency actual esti- esti- actual esti- esti- for 1956
mated mated mated mated

Stabilization of farm prices and farm income:
Price support, supply, and purchase programs
(CCC) $4,220 $5,705 $4,176 $1,333 $1,934 $968 $2
International Wheat Agreement 59 106 142 59 106 84 57
Removal of surplus agricultural commodities 178 113 180 178 113 180 165
Sugar Act 66 61 61 66 61 61 62
Federal Crop Insurance 39 36 34 11 12 3 6
Agricultural adjustment programs 41 41 39 41 41 39 39
Financing farm ownership and operation
Farm Credit Administration 1,817 1,885 1,988 --74 22 37 28
Farmers' Home Administration ¹ 191 178 172 191 178 172 172
Disaster loans and emergency feed 255 101 88 139 16 --39 42
Financing rural electrification and rural telephones ¹ 217 217 233 217 217 223 238
Agricultural land and water resources:
Agricultural conservation program 201 233 255 183 173 246 216
Soil conservation service, flood prevention and other 61 76 74 61 76 74 75
Research and other agricultural services 150 180 206 150 180 200 186

Total 7,497 8,934 7,647 2,557 3,130 2,259 ² 1,288

 

¹Net expenditures for the Farmers' Home Administration and for rural electrification and telephone loans do not reflect loan collections, since these collections go directly into miscellaneous receipts of the Treasury. In 1956, these collections are estimated at 152 million dollars and 112 million dollars, respectively.
²Compares with new obligational authority of 4,010 million dollars in 1954 and 2,630 million dollars in 1955.

(Continued from Pg. 150) Corporation expenditures to retire certificates of interest in prior year crop loans sold to banks and private lenders, because a substantially smaller volume of new commodity loans will be available in 1956 than in 1955 to serve as a basis for certificates of interest. Also, funds of the Corporation will be used to provide for increased milk consumption by schoolchildren and members of the Armed Forces during 1955 and 1956 when supplies of dairy products are expected to be plentiful.

Expenditures in 1956 under the International Wheat Agreement are estimated to be lower than in 1955, but higher than in 1954. In the fiscal year 1954 a total of 119 million bushels of wheat was exported under this program. The average amount paid by the Government to cover the difference between the domestic price and the Wheat Agreement price was 48 cents per bushel. Larger exports under this program are expected in both 1955 and 1956.

In addition to exports under the Wheat Agreement, the Commodity Credit Corporation has offered to sell wheat in limited quantities for export at competitive world prices. Net costs to the Corporation of these additional exports in 1954 were 26 million dollars and are estimated at 59 million dollars in each of the fiscal years 1955 and 1956.

The Corporation may also sell surplus agricultural commodities for foreign currencies under the Agricultural Trade Development and Assistance Act. The law provides for a 3-year program with total cost to the Corporation to be reimbursed by appropriations limited to 700 million dollars. With due regard to the impact on world markets, we are moving ahead in an orderly manner in the negotiation of agreements, and it is expected that transactions completed during the fiscal year 1955 will account for a substantial part of the costs under this Act. Except for expenditures under the International Wheat Agreement, these expenditures for export programs are included in the total shown for the Commodity Credit Corporation

The trade development act is helpful in marketing commodity surpluses and tends to reduce current outlays under the regular price support program. However, it is unwise to rely upon this means as a final solution to our surplus problem. We must continue our efforts to restore a sound position for agriculture in world markets.

Financing farm ownership and operation.--The agricultural credit institutions supervised by the Farm Credit Administration make standard risk loans to farmers and their cooperatives on both a short- and long-term basis. Some of these loans are made with funds obtained through the federally owned intermediate credit banks. New loans of the Federal intermediate credit banks are estimated to be nearly 2 billion dollars in the fiscal year 1956, and will exceed loan collections by 40 million dollars. Receipts from other operations will reduce total net budget expenditures of the Farm Credit Administration to 37 million dollars.

The Farmers' Home Administration makes direct loans to farmers to supplement the credit services provided by private and cooperative credit agencies, and also insures loans by private lenders. By greater reliance on insured loans, the services of the Farmers' Home Administration can be increased without increasing budget expenditures. Under legislation enacted last year the interest rate on insured loans for farm ownership, farm housing, and other improvements has been set at a level that will attract a larger volume of funds from private lenders. Insured loans will also be used to finance an increase in soil and water conservation loans, which the new legislation has made available in all States. In addition, the Farmers' Home Administration can now take second mortgages as security for direct loans. This will permit private lenders to continue as first mortgage holders in the financing of farm ownership and development, thereby increasing the number of borrowers that can be served under that program.

Financing rural electrification and rural telephones.--The programs of the Rural Electrification Administration have brought about great advances for rural America, and this administration will continue to make loans available to meet all legitimate needs for rural electrification and telephones.

The need for electrification loans to provide initial connections of farm homes with central station service is much less than in earlier years. But this is more than offset by larger requirements for improvements of existing systems and for power generation. My budget recommendations, therefore, provide for a higher level of new electrification loans in 1956 than in the current fiscal year.

The rural telephone program is still in an early stage of development. Progress is being made in resolving the various problems involved in achieving adequate telephone service in rural areas. This budget makes provision for new loan authority sufficient to raise the level of telephone loans in 1956 to 80 million dollars, which is 5 million dollars higher than in 1955.

Agricultural land and water resources.--My recommendations for agricultural land and water resources for the fiscal year 1956 recognize the great importance to the Nation of soil and water conservation activities. The new watershed protection legislation enacted last year is a vital part of our conservation program. It provides a practical basis for partnership between the Federal Government and State and local groups in the planning and carrying out of a coordinated program for upstream flood prevention and soil and water conservation. This budget recommends an increase of 4 million dollars for 1956 to provide for the necessary Federal participation in watershed protection projects.

Under the forward authorization for the 1955 crop year agricultural conservation program, contained in the 1955 appropriation act, larger expenditures will be required for payments to farmers in the fiscal year 1956 than in 1955. This program assists farmers in applying sound soil conservation practices and in putting to proper use farm land diverted from its previous use through acreage allotments. Because the problems created by diverted acreage are expected to become progressively less pressing, I am recommending a forward authorization of 175 million dollars for the 1956 crop year as compared with the 250 million dollars provided for the current crop year.

Research and other agricultural services.--Additional research and educational work on problems of agricultural production, soil and water conservation, and marketing of farm products, can make important contributions to a more efficient and stable agriculture capable of meeting the needs of a growing population. These activities not only contribute directly to the solution of immediate problems of farmers, but also benefit consumers of farm products by more efficient production and marketing. The 1956 budget provides for an increase of 9 million dollars in expenditures for research and an increase of 6 million dollars for extension work. These additional amounts are needed to expand the Federal-State cooperative research and extension programs and to strengthen the basic agricultural research program carried on by the Federal Government.

As part of the coordinated plan to improve economic statistics of the Government, this budget includes added funds to strengthen the work of the Department of Agriculture in developing adequate farm income and production statistics. Expenditures for other agricultural services also include 10 million dollars in 1955 and 15 million dollars in 1956 for eradication of brucellosis in cattle. The necessary funds are to be made available by transfer from the Commodity Credit Corporation. This program is designed both to assist in stabilizing the dairy industry and to give added protection to the health of our citizens.

NATURAL RESOURCES

This administration believes that achievement of the resource development basic to the economic progress and security of the Nation requires encouragement of local public and private initiative and, where Federal participation is necessary, emphasis on the partnership aspects of essential cooperative arrangements with State and local governments or with private enterprise. To the greatest extent possible, the responsibility for resource development, and its cost, should be borne by those who receive the benefits. In many instances private interests or State and local governments can best carry on the needed programs. In other instances Federal participation or initiative may be necessary to safeguard the public interest or to accomplish broad national objectives, where projects because of size or complexity are beyond the means or the needs of local public or private enterprise. The Federal Government must be willing and ready to bear the cost of improvements made for national purposes; but in all cases where the partnership principle logically applies there is automatically acquired a concern for economy and efficiency that is often lacking when no local contribution is required.

As a result of this partnership policy and the willingness of State, local, and private interests to undertake or cooperate in the development of our natural resources, it has been possible to reduce Federal expenditures for these programs since the fiscal year 1954. At the same time, we have strengthened our resource development programs.

The conservation and development of our natural resources will require estimated net Federal expenditures of 953 million dollars in the fiscal year 1956, as compared with 1.1 billion dollars in 1955 and 1.2 billion dollars in 1954. About two-thirds of the net expenditures in 1956 will be for flood control, irrigation, power and multiple-purpose river basin development. The other onethird will be largely for the management and development of the national forests, parks, and public lands, and for our fish and wildlife and mineral resources programs. Federal expenditures for natural resources, if wisely made in proper relation to local public and private efforts, are investments for the benefit of the Nation; in many cases they also result in receipts to the Treasury, thus often providing reimbursement in later years for part of the costs incurred.

NATURAL RESOURCES
[Fiscal years. In millions]

Gross Expenditures Net Expenditures
Recommended new obligational authority for 1956
1954 1955 1956 1954 1955 1956 -
actual esti- esti- actual esti- esti-
Program or agency mated mated mated mated

Land and water resources:
Corps of Engineers: Flood control and multiple purpose projects:
Present programs $416 $366 $363 $416 $366 $363 $371
Proposed legislation:
Passamaquoddy Bay survey ...... ...... 1 ...... ...... 1 1
Partnership projects ...... ...... 10 ...... ...... 10 10

Department of the Interior:
Bureau of Reclamation:
Irrigation and multiple-purpose projects:
Present programs 199 168 177 196 165 174 180
Proposed legislation:
Federal projects ...... ...... 5 ...... ...... 5 7
Partnership projects ...... ...... 10 ...... ...... 10 10
Power transmission agencies 53 48 41 53 48 41 25
Indian lands resources 33 37 41 32 36 40 24
Bureau of Land Management and other 15 17 18 15 17 18 17
Tennessee Valley Authority 409 431 250 238 214 2 28
Department of State 7 5 4 7 5 4 2
Federal Power Commission 4 4 5 4 4 5 5

Forest resources 117 121 115 117 121 115 116

Mineral resources:
Present programs 41 47 46 37 43 42 40
Proposed legislation:
Aid for anthracite mine drainage ...... 2 3 ...... 2 3 ......

Fish and wildlife resource 38 46 43 38 46 43 41

Recreational use of resources 33 39 50 33 39 50 25

General resource surveys and other 27 26 26 27 26 26 26

Total 1,391 1,358 1,209 1,213 1,133 953 ¹ 929

¹Compares with new obligational authority of 1,196 million dollars in 1954 and 967 million dollars in 1955.

Land and water resources.--Under the recommendations for the fiscal year 1956, the Federal Government will spend 673 million dollars for the development of land and water resources. A large share of this total--430 million dollars--is for continuation of work on 152 river-basin development projects and units under construction by the Bureau of Reclamation and the Corps of Engineers. Much of this work is multiple-purpose development for irrigation, flood control, navigation, and hydroelectric power. Construction on 37 of these projects will be virtually completed in 1956. Funds recommended for work underway in 1956 will maintain power generation schedules and continue nonpower projects at economical rates. Maintenance and operation activities will be at a level which will provide reasonable protection of the Federal investment.

My recommendations are intended to encourage States and local public and private groups to take the initiative in developing our valuable water resources with Federal cooperation where national interests are involved. This budget includes 20 million dollars under proposed legislation to enable the Bureau of Reclamation and the Corps of Engineers to participate, in 1956, in partnership water developments. Five million dollars of this amount is proposed for three multiple-purpose projects with power facilities in the Pacific Northwest. It is expected that local interests will install and operate the power facilities of the Cougar and Green Peter-White Bridge projects in Oregon and that the Corps of Engineers will build the flood control and other facilities in which there is a national interest. Non-Federal interests are also expected to build the Rocky Reach project in Washington, and the Corps of Engineers will assist in financing the nonpower facilities having national benefits. Assistance will be given to other partnership projects as specific proposals are developed. In addition, provision will be made for cooperation in authorized partnership projects, such as Priest Rapids in Washington and Markham Ferry in Oklahoma, when satisfactory arrangements have been completed.

I also recommend enactment of legislation authorizing the Bureau of Reclamation to undertake construction of two comprehensive river-basin improvements which are beyond the capacity of local initiative, public or private, but which are needed for irrigation, power, flood control and municipal and industrial water supply. These are the Upper Colorado River Basin development in the States of Colorado, Utah, Wyoming, Arizona, and New Mexico, and the Fryingpan-Arkansas development in Colorado. The Colorado River development will enable the Upper Basin States to conserve flood waters and to assure the availability of water and power necessary for the economic growth of the region. The total cost of these major developments is estimated at 1.1 billion dollars, with first-year expenditures of 5 million dollars. Sale of power generated at these developments will repay the power investment within 50 years and will make a contribution toward repayment of other investments.

In furtherance of the policy to move forward with needed water use and control projects, the 1956 budget provides for the starting of a number of new authorized Federal projects. For each authorized project recommended, planning has advanced to the stage where the project could be placed under construction early in 1956. Most of the projects are small or intermediate-sized developments, having a high degree of financial participation by local interests or a reasonable excess of benefits over costs. Some of them are essential to permit full functioning of Federal works already completed or under construction.

This budget makes provision for the Bureau of Reclamation to start construction on 5 new irrigation and water supply projects, and for the Corps of Engineers to begin work on 10 local flood protection projects, 2 flood control projects of broader scope, 8 projects for beach erosion control, and 14 navigation projects. It also provides for resumption of work which was suspended a few years ago on 1 local flood protection project and 1 navigation project. These add up to 39 new projects and 2 resumptions. In addition, 2 million dollars is recommended for the construction of a number of small projects to be selected by the Secretary of the Army, none of which may cost more than 150,000 dollars. The total cost of all this new work is estimated at 347 million dollars, of which expenditures of 23 million dollars are contemplated for the fiscal year 1956. The navigation projects included in the above construction starts, at an estimated cost of 198 million dollars, are discussed in the commerce and manpower section of this message.

In the selection of reclamation projects, consideration has been given to (1) more efficient use of present water supply and correction of adverse water supply conditions, and (2) the proportion of the irrigation investment which will be repaid by the water users. The new local flood protection works will provide benefits primarily in highly urban and industrialized areas. The new flood control projects are the Eagle Gorge Reservoir in Washington, on which there will be substantial local contributions in related work and cash, and the Old River Control project in Louisiana. The latter project is essential to prevent the diversion of the Mississippi River to the Atchafalaya River channel, with resultant disruption to the economy of the lower Mississippi River area.

Adequate collection and evaluation of basic data on topography, minerals, soils, and water and weather conditions are essential to provide a sound basis for water resources projects. Current progress in collection of basic data will be continued. It is also essential to prepare adequate project designs prior to construction to assure efficient construction and to safeguard the public investment. I am recommending increased funds for general investigations by the Bureau of Reclamation to assure a proper basis for project authorization. Advance planning of authorized projects by the Corps of Engineers and the Bureau of Reclamation will proceed at a rate which will permit early initiation of construction on projects in accordance with needs and budget policy. This budget also provides 1 million dollars under proposed legislation for a survey to determine whether hydroelectric power can be economically developed from the tremendous tides at Passamaquoddy Bay.

Expenditures of the Bonneville, Southeastern and Southwestern Power Administrations in the fiscal year 1956 are in line with the partnership policy whereby State, local, and private interests participate in power development and transmission. The expenditure estimates also reflect the approaching completion of transmission systems for marketing power from Federal projects now under construction.

In order to establish equity between the Federal Government and other interests, I recommended in my 1955 budget message enactment of legislation to provide that the Federal Government make payments to non-Federal owners of water resources projects when Federal hydroelectric power developments benefit from these projects. Payments are now required from other licensees deriving such benefits and I see no reason why the Federal Government should be exempted. I hope the Congress will amend the Federal Power Act during this session to require such Federal payments.

The Tennessee Valley Authority, in the fiscal years 1955 and 1956, will continue installation of steam electric and hydroelectric generation units started in prior years. With construction on some of the facilities nearing completion, gross expenditures of the Authority are estimated to show a very substantial decrease from 431 million dollars in 1955 to 250 million dollars in 1956. Receipts from operations, largely from the sale of power, are expected to increase from 217 million dollars to 248 million dollars. Thus, an approximate balance between expenditures and receipts is estimated for 1956, with net budget expenditures of 2 million dollars.

No appropriations have been recommended for new power generation units in the fiscal years 1955 or 1956 for the Tennessee Valley Authority. After 600,000 kilowatts contracted for by the Atomic Energy Commission with the Mississippi Valley Generating Company become available for replacing power furnished the AEC by TVA, the scheduled capacity of the TVA system will provide for a substantial increase in loads through the calendar year 1958. The Tennessee Valley Authority is giving immediate attention to the possibilities of financing further expansion of its power system by means other than Federal appropriations. The Authority has been requested to complete its studies in time to permit consideration by the Congress at this session of any legislation that may be necessary. It is expected that the power needs for the system will be reexamined after the Congress has had an opportunity to consider legislation to provide for future financing.

Legislation will also be presented to the Congress to provide that an adequate rate of interest be paid to the Treasury on appropriated funds invested in power facilities of the Tennessee Valley Authority.

National forest and other public lands.--Forest and range lands managed by the Forest Service and the Bureau of Land Management provide valuable timber, range, and mineral resources. Receipts from these lands are estimated at 165 million dollars in 1956. Part of these receipts are appropriated for payments to the States and counties in which the lands are located. Increased expenditures are recommended in 1956 for construction of forest roads and trails, supervision of timber sales, and soil and moisture conservation work. As a result of Federal cooperative assistance in the past, States are now assuming greater responsibility for forest fire control on non-Federal lands and some reduction in Federal payments is proposed for 1956. Expenditures on Indian lands and resources will provide for management of forest and range lands at the current level, but some increases are recommended for soil and moisture conservation, maintenance of buildings and utilities, and construction of roads.

In the fiscal year 1955, the submerged lands of the Outer Continental Shelf were first offered for drilling for oil and gas under Federal leases. Receipts from these leases, deposited in the Treasury, are estimated at 147 million dollars in 1955 and 100 million dollars in 1956. Leasing of these lands will continue to provide substantial receipts in later years.

Urgent needs for maintenance and for improved services to the increasing number of visitors will require some increase in expenditures for our national parks, monuments, and historic sites. Employment of additional personnel to collect admission fees, together with the increase in fees put into effect during the current year, will result in increased receipts to the Treasury. Parkways, roads, and trails will be extended in 1956, pursuant to authority provided in the Federal Aid Highway Act of 1954.

Mineral resources.--During the past year, the Cabinet Committee on Minerals Policy has recommended, and I have approved, general guidelines for developing mineral resources in accordance with our national security needs. Case by case studies of individual mineral industries will be made to determine within the framework of our overall domestic and foreign economic policies the proper level of efficient domestic production necessary for our mobilization base. Where necessary, the various means available to the Government will be used to support essential parts of the mobilization base. The fact-finding and research activities of the Geological Survey and the Bureau of Mines will contribute to this end.

I recommend legislation and a supplemental appropriation in the fiscal year 1955 to enable the Federal Government to cooperate with the State of Pennsylvania in providing facilities for surface water drainage in the anthracite coal region. This will afford protection against the flooding of valuable resources and the decrease in employment which would result if additional mines were closed.

COMMERCE AND MANPOWER

The basic principle underlying budget recommendations for programs in the field of transportation, housing, and business is that the national interest is best served by privately owned and operated industry, which is assisted by a minimum of Federal funds and Federal basic facilities operated at the lowest feasible cost and financed, where possible, by charges levied on the users of the services. Budget recommendations for manpower programs are designed to help the Nation's productive system function smoothly and efficiently, by providing economic safeguards for workers, by helping bring together jobseekers and jobs, and by fostering orderly labor relations and the amicable settlement of disputes.

In the past 2 years, in furtherance of these principles, we have strengthened our major commerce and manpower programs by placing increased reliance on expansion of private investment, by encouraging greater participation of State and local governments, and by providing for the extension of coverage of unemployment insurance. Wherever possible, Federal programs are being placed on a serf-supporting basis. As a result, a large share of the Government's operations in these areas is being financed from program receipts, rather than from tax revenues.

After 30 years of discussion, the United States is joining with Canada in constructing the Saint Lawrence Seaway. A joint program is underway with industry to modernize our merchant fleet. Federal aids to States for highway construction have been increased. Positive steps have been taken to promote an economically sound system of air transportation with reduced reliance on Federal subsidies. The Post Office Department has made major improvements in service and substantially reduced its operating deficit. Limited attacks on urban blight through slum clearance have been expanded into a comprehensive urban renewal program. More private investment in housing is being encouraged by more liberal mortgage insurance, by the voluntary home mortgage credit program, and by permitting private investors to retire gradually the Government's investment in the secondary mortgage market. Meanwhile, other housing loans and Government-owned housing are being liquidated as rapidly as feasible. Our production capacity has been expanded to make possible speedier mobilization in case of future emergencies. Provision has been made for extension of coverage of the Federal-State unemployment compensation system to 4 million more workers.

COMMERCE AND MANPOWER
[Fiscal years. In millions]

Gross Expenditures Net Expenditures
Recommended new obligational authority for 1956
1954 1955 1956 1954 1955 1956
actual esti- esti- actual esti- esti-
Program or agency mated mated mated mated

Provision of highways $586 $659 $725 $586 $659 $725 $919
Merchant marine 236 228 198 15 209 192 235
Navigation aids and facilities 403 409 441 313 325 353 330
Promotion of aviation 275 274 283 275 274 283 284
Postal service:
Present program 2,686 2,741 2,811 312 268 294 295
Proposed pay and rate increases ...... ...... -270 ...... ...... -270 -270
Other transportation and communication programs 62 58 60 -28 36 42 37
Urban development and redevelopment:
Present programs 37 86 145 22 56 94 4
Proposed legislation ...... ...... ...... ...... ...... ...... 200
Aids to private housing:
Federal Housing Administration 125 143 130 -28 -42 -67 ......
Federal National Mortgage Association 563 813 338 -221 24 -193 .......
Veterans Administration:
Present programs 118 170 92 85 118 39 .......
Proposed legislation ...... ...... 90 ...... ...... 90 100
Other 31 5 5 -16 -29 -29 .......
Public housing programs 658 570 604 -401 -855 34 96
Other housing and community facilities 93 83 52 53 54 44 19
Civil defense and disaster relief 103 80 76 61 72 70 71
Promotion of defense production:
Present programs 936 1,061 626 216 76 104 6
Proposed legislation ...... ...... 12 ...... ...... 12 ......
Business loans and guaranties:
Present programs 131 50 11 -100 -38 -106 ......
Proposed legislation ...... ....... 28 ...... ...... 28 6

COMMERCE AND MANPOWER --Continued
[Fiscal years. In millions]

Gross Expenditures Net Expenditures
Recommended new obligational authority for 1956
1954 1955 1956 1954 1955 1956
actual esti- esti- actual esti- esti-
Program or agency mated mated mated mated

Other promotion or regulation of business $33 $3 $37 $17 $21 $36 $36
Unemployment compensation and placement:
Administration 211 204 254 209 203 253 257
Payment to Unemployment Trust Fund ...... 64 87 ..... 64 87 87
Other labor and manpower programs:
Present programs 67 65 66 67 65 66 66
Proposed legislation ...... ...... 4 ...... ...... 4 5

Total 7,355 7,800 6,908 1,577 2,550 2,186 ¹ 2,846

¹Compares with new obligational authority of 2,846 million dollars in 1954 and 3,381 million dollars in 1955.

The appropriations recommended in this budget will permit even greater progress in the fiscal year 1956 and later. In addition I am recommending legislation (1) to bring the interstate highway system up to modern standards in the next decade; (2) to make the postal system self-supporting; (3) to increase authority for mortgage insurance and urban renewal grants and to authorize contracts for additional public housing units; (4) to extend the Defense Production Act, the Small Business Act, and the veterans' housing loan program beyond their present expiration dates of June 30, 1955; and (5) to raise the minimum wage now provided under the Fair Labor Standards Act and modernize Federal workmen's compensation and other labor laws.

Gross expenditures for commerce and manpower, including proposed legislation, will be reduced from an estimated 7.8 billion dollars in the fiscal year 1955 to 6.9 billion dollars in 1956, primarily because of reduced purchases of mortgages by the Federal National Mortgage Association and lower spending for defense production activities. Assuming enactment of the recommended increase in postal rates, net budget expenditures for 1956 are estimated at less than 2.2 billion dollars, 364 million dollars below 1955.

Highways.--In the past decade and a half we have not kept pace with the rapidly growing needs for highways adequate for economic development and national security. I plan to send a special message to the Congress in the near future recommending a program of coordinated action by Federal, State, and local governments, to overcome major highway deficiencies. The additional budget expenditures, if any, required in the fiscal year 1956 would be relatively minor.

Budget expenditures for highways under present programs will continue to increase as a result of the enlarged program already provided in the Federal Aid Highway Act of 1954. Grants to States (including Federal administrative expenses) will amount to 680 million dollars, with an additional 45 million dollars of expenditures for highways in Federal forests, on public lands, and in Alaska.

Merchant marine.--To continue our program of helping to bring the merchant fleet up to date, I am recommending for the fiscal year 1956 new obligational authority for ship construction of 103 million dollars. These funds will: (1) continue the trade-in-and-build tanker program begun this year; (2) start orderly replacement of cargo ships built during or before World War II; (3) finance construction of two cargo ships and one tanker as prototypes for mass production in an emergency; (4) provide for the construction or conversion of four passenger-cargo ships; and (5) continue essential research and development work on ship design. The appropriation of 103 million dollars will be more than matched by private funds, resulting in total investment of about 225 million dollars in new ship construction. Together with the joint 400-million-dollar program now underway and with expanded naval construction in private yards, it should maintain a substantial nucleus of peacetime shipyard employment.

Payment of subsidies to American ship operators to offset lower operating costs of foreign ships will require appropriations estimated at 115 million dollars in 1956. The rapid rise recently in expenditures for this purpose and the possibility of continued increases make it important to provide more effective budgetary control over the level of subsidized operations. I am, therefore, proposing in this budget to establish a limitation on new long-term contracts to pay operating-differential subsidies. Such a limitation will permit annual review by the President and the Congress of the extent of our future subsidy commitments.

Navigation aids and facilities.--In accordance with legislation enacted last May, the Saint Lawrence Seaway Development Corporation has been established to construct, operate, and maintain that part of the new Seaway located in United States territory. Construction is being pushed at maximum speed because of the Seaway's importance to economic development and national security. Almost one-quarter of the work is scheduled for completion by the end of the fiscal year 1956.

The Corps of Engineers program for rivers and harbors gives primary emphasis to inland waterways and to those navigation projects needed to provide reliable access to important ports or to relieve serious congestion for important established deep draft traffic. The increase in expenditures from 108 million dollars in 1955 to 135 million dollars in 1956 reflects mainly the normal rate of progress on construction of projects started in 1955 and the resumption of urgently needed maintenance of shallow draft channels.

In addition, 14 new navigation projects and the resumption of one project previously suspended are recommended in the fiscal year 1956. These are projects which promise to yield benefits relatively high in comparison to the construction costs involved or which have substantial local participation. With 2 exceptions, these are relatively small or intermediate-sized projects. Dredging of the Delaware River channel between Philadelphia and Trenton is proposed, but specific recommendations will be sent to the Congress only on the basis that provision be made for adequate cost-sharing in some form. Appropriations are recommended to widen the Calumet-Sag Waterway in Illinois to make this vital channel adequate to handle present and steadily increasing traffic needs.

Although expenditures of the Coast Guard will continue to decline from 205 million dollars in 1955 to 193 million dollars in 1956, the basic aids provided for air and water commerce will be maintained at their current strength. In addition, the Coast Guard will again operate the ocean weather-station network for the Department of Defense.

Promotion of aviation.--We have made shifts in Federal aviation programs during the past 2 years in order to reduce assistance no longer required and to concentrate on those Federal aids which are indispensable to the continued rapid progress of aviation.

Since October 1953, when responsibility for subsidy payments to commercial air carriers was placed in the Civil Aeronautics Board, substantial progress has been made in decreasing the level of subsidies. Expenditures by the Civil Aeronautics Board for this purpose in 1955 are now estimated at 70 million dollars compared to 80 million dollars estimated a year ago; a further decline to 63 million dollars is anticipated for 1956. This trend is consistent with the recommendations made by the Air Coordinating Committee after a comprehensive study made at my request of our basic civil aviation policies. In addition, wherever possible, military mail is being carried by commercial airlines, thus not only eliminating Government competition with private business, but also helping to reduce subsidies to the private carriers.

The continuing growth of civil and military air traffic has increased congestion on the airways system--at times restricting aircraft operations in areas of heavy traffic. As a step to maintain high standards of safety and increase the regularity of flights, I am recommending increased appropriations for the Civil Aeronautics Administration for expansion and improvement of air navigation facilities and for more radar traffic control equipment.

With the increasing maturity of civil aviation, the Federal Government soon should be able to reduce substantially its safety promotion and enforcement activities without affecting the present high level of safety. I have requested the early preparation of a plan, in cooperation with industry, to achieve this objective.

I again recommend incorporation of Washington National Airport to provide the administrative flexibility needed for efficient operation of this business-type enterprise.

The work of the National Advisory Committee for Aeronautics is of key significance in strengthening our military aircraft and guided missiles programs and in supporting our continued progress in the air. During recent years we have achieved spectacular success in flying at speeds well beyond the speed of sound. However, we have not yet overcome all problems of structural failure, engine malfunctioning, and lack of stability and control at high speeds. A more intensive effort in these fields is needed in order that the great improvements in performance now known to be possible can be realized in the actual production of military aircraft, engines, and missiles, which represent such an important and costly part of our defense program. For these reasons, I am recommending additional appropriations for both 1955 and 1956 to increase the Committee's research effort in fields of critical military importance.

Postal service.--Considerable progress is being made in providing better postal service to the American people at lower cost to the taxpayer. Movement of first-class mail has been expedited. Substantial investments have been made in capital improvements and in skilled personnel which are just beginning to pay dividends. Long-term leases are being negotiated which will permit acquisition of needed modern postal facilities. Promising experiments in new equipment are underway which, if successful, will revolutionize mail-handling techniques.

Largely because of these savings, the net expenditures of the Post Office under existing laws have been reduced to the lowest level in the last 8 years. The increased postal rates which I recommended in my special message to the Congress would add 400 million dollars to postal revenues. This would be enough to cover the recommended pay adjustments of 130 million dollars and reduce net expenditures to 24 million dollars in the fiscal year 1956. These steps, together with further major economies now in process, should cause the postal system to become self-supporting in the near future. As a long-run solution, an independent commission should be created to review future rate changes proposed by the Postmaster General in accordance with a basic formula laid down by the Congress.

Urban development and redevelopment.--Under the new urban renewal program authorized by the Housing Act of 1954, local public agencies, jointly with forward-looking private investors, are developing and executing plans to rebuild our major cities and prevent the decay which is making large urban areas unfit for sound economic investment or family life. The act strengthens the previous slum clearance program by (a) requiring localities as a condition of Federal aid to have a workable plan to eliminate substandard housing and neighborhood decay; ( b ) providing Federal grants and loans for neighborhood rehabilitation, as well as redevelopment projects; and (c) authorizing the Federal Housing Administration to insure mortgages on homes in blighted areas and to help finance new homes for families displaced by slum clearance.

By the end of the fiscal year 1956, an estimated 22 slum clearance projects will be completed, and 364 other slum clearance and urban renewal projects will be underway. Net expenditures will increase from 56 million dollars in 1955 to 94 million dollars in 1956, largely for capital grants to pay the Federal share of project costs. On the basis of experience thus far, private investment and local government expenditures for slum clearance and urban renewal projects will be about four to five times as great as the Federal capital grants.

Before the end of the current fiscal year, the present 500 million dollars in contract authority for capital grants will be committed. Accordingly, to permit the program to go forward without delay, I am recommending legislation to provide an additional 100 million dollars in capital grant authority in the fiscal year 1955, and 200 million dollars in each of the two subsequent fiscal years.

Federal Housing Administration.--The Federal Housing Administration is now authorized to insure larger loans with longer maturities, as well as loans to support the urban renewal program and to help servicemen buy homes. Thus, more of our people can buy their own homes. Because of the more liberal terms provided and the increased availability of mortgage credit, applications for mortgage insurance have risen substantially in recent months. On the basis of the present outlook, construction or purchase of almost 800,000 homes and improvement or repair of 1,500,000 other homes will be financed during the fiscal year 1956 by private lenders backed by Government insurance commitments.

The total private investment in both new and existing homes by homeowners and builders, underwritten by the Federal Housing Administration, in the fiscal year 1956 will amount to an estimated 8.3 billion dollars. To meet the expanding needs for mortgage insurance for the remainder of the fiscal year 1955 and through 1956, approximately 5 billion dollars in additional insurance authority will be required.

In recent months both legislative and administrative measures have been taken to eliminate abuses in insurance programs. The budget also includes additional funds to assure more adequate supervision. The increase in premium collections and other income will, however, more than offset the increased supervisory expenditures, and receipts are estimated to exceed expenditures by 67 million dollars in the fiscal year 1956, compared with 42 million dollars in 1955.

Federal National Mortgage Association.--Under the Housing Act of 1954, the Federal National Mortgage Association was reconstituted to comprise financially separate activities for the secondary market, special assistance, and management and liquidating functions. Except for the initial transfer of the Government capital investment of 92 million dollars from the earlier association, the secondary market activity will be financed entirely from private funds and its operations are, therefore, not reflected in this budget. The purpose of this activity is to make sure that mortgage funds are available to meet normal needs in all parts of the Nation at market rates of interest. Private capital will be gradually substituted for the Government investment until the Government funds are fully repaid and the private owners take over responsibility for the program.

Expenditures and receipts for the other two activities are included in the budget totals. Under the special assistance program, the President can authorize limited purchases of mortgages (a) to meet acute housing needs of groups or areas unable to obtain private financing, or (b) to prevent a decline in housing activity. In the fiscal years 1955 and 1956, the Association expects to support the financing of about 90,000 housing units, primarily for the urban renewal program. This support will be mainly through commitments to purchase participations in private mortgages. Under the management and liquidating function, the Association will administer the 3.1 billion dollars of mortgages and undisbursed commitments outstanding at the beginning of the fiscal year 1955.

Primarily because of large purchases under previous commitments, expenditures by the Association will exceed receipts by 243 million dollars in the fiscal year 1955. In 1956, however, net receipts of 193 million dollars are anticipated.

Veterans' housing loans. The Veterans Administration program of direct housing loans expires on June 30, 1955. These loans are made only where guaranteed private mortgages are not available or cannot be secured through the voluntary home mortgage credit program. I recommend legislation continuing this program until expiration of the veterans' loan guaranty program for World War II veterans on July 25, 1957. If permission is granted to use receipts from repayments, as well as from sales, new obligational authority of 100 million dollars should be adequate for the fiscal year 1956.

Public housing.--The aids contained in the Housing Act of 1954, and especially the aids to low-cost housing, will provide the opportunity for the private housing industry to satisfy, eventually, the housing requirements of families of all income groups. In the meantime, it is essential to continue a minimum amount of low-rent public housing construction to meet the critical needs of the lowest income families and to help provide a new place to live for families displaced by urban renewal and slum clearance operations. I recommend a 2-year authorization for contracts with local housing authorities to pay contributions for an additional 35,000 low-rent units each year. Funds necessary for this purpose have been included in this budget.

Liquidation of the emergency World War II public housing program is accelerating. By June 30, 1956, two-thirds of the 195,000 units owned by the Government at the end of 1954 will have been sold, transferred, or demolished. Meanwhile expenditures for the defense housing program started during the Korean emergency will be almost completed.

Gross expenditures for public housing programs, chiefly temporary construction loans to local authorities and annual contributions for completed projects, are estimated at 604 million dollars in 1956. Receipts, mostly from private refinancing of these Federal loans and rental and sale of emergency housing, will total an estimated 570 million dollars, leaving net expenditures of 34 million dollars.

Other housing and community facilities.--By the end of 1956, the Housing and Home Finance Agency will have approved 297 loans to finance construction of dormitory rooms for about 63,800 students and homes for 1,500 faculty and student families at colleges and universities throughout the Nation. In the past 2 years the Agency has helped to develop a private market for long-term dormitory revenue bonds, formerly rarely bought by private investors. The increasing success in attracting private funds is a major reason for the decline in net expenditures from 41 million dollars to 28 million dollars.

Civil defense and disaster relief.--Expenditures for civil defense are classified with expenditures for dealing with peacetime disasters in the commerce and manpower section, but the program is discussed in the major national security section of this message in view of its close relation to continental defense.

Promotion of defense production.--Gross expenditures for promotion of defense production are expected to decline from 1,061 million dollars in 1955 to 638 million dollars in 1956. Most of this reduction is in the synthetic rubber and tin programs. In accordance with the terms of the Rubber Producing Facilities Disposal Act, the estimates assume that these plants will be sold or leased before June 30, 1955. Most of these facilities have already been sold, subject to congressional approval. Moreover, since purchases of tin for the national stockpile have now been completed and world supplies are ample to meet current needs, no provision is made for continued operation of the Government tin smelter.

Gross expenditures under the Defense Production Act will continue at relatively high levels, primarily to meet previous commitments made to provide guaranteed markets, loans, or grants to producers of critical defense materials. Net expenditures will amount to only a fraction of gross disbursements, since most of the materials purchased are being sold to the stockpile of strategic and critical materials to meet its objectives, and to industry. The stockpile program is discussed in the major national security section of this message.

Under present law, the Defense Production Act expires on June 30, 1955. Since important gaps in our mobilization preparedness require continued Government encouragement, I recommend extension of the act with modifications for 2 years. No increase in the present borrowing authority of 2.1 billion dollars is anticipated at this time.

Business loans and guaranties.--Liquidation of business loans made by the Reconstruction Finance Corporation is well advanced. During the 3-year period from June 30, 1953, to June 30, 1956, business loans and commitments will have been reduced from 458 million dollars to about 53 million dollars through repayments, refinancing, and sales to private financial institutions.

Loans to small businesses by the Small Business Administration have been expanding substantially during the last year. Loans are made only if private credit on reasonable terms is not available, and more than two-thirds of the loans so far extended have been made jointly with private banks. The present authority expires on June 30, 1955, and I recommend its extension. Assuming continuance of the 1955 level of operations, about 1,200 new loans would be authorized in the fiscal year 1956, and additional appropriations of 67 million dollars would be required.

Labor placement and unemployment compensation administration.--Budget expenditures under existing law for administering the joint Federal-State program of employment services and unemployment insurance are estimated at 253 million dollars for the fiscal year 1956, 50 million dollars higher than in the current year. About 29 million dollars of this increase is nonrecurring and results from a change in the timing of funds advanced to the States; this does not affect the level of operations. The rest is largely for State-approved increases in salaries paid to the State employees who administer the program, and for improvements in the placement service.

Legislation enacted last year provides for transferring annually to the unemployment trust fund the excess of receipts from the Federal unemployment tax over operating costs of the program. The excess received during 1955, to be transferred in the fiscal year 1956, is estimated at 87 million dollars, an increase of 23 million dollars over the amount transferred this year. These funds are to be used to set up a reserve of 200 million dollars from which loans can be made to those States which deplete their own reserves for benefit payments.

The present law authorizing the recruiting of qualified workers from Mexico for seasonal farm employment in the United States expires December 31, 1955. However, the need for this service will continue and I shall recommend its extension. Accordingly, my budget recommendations, including proposed legislation, provide funds for the entire fiscal year 1956.

Other labor and manpower programs.--Industrial injuries have been significantly reduced through the efforts of both labor and management, but these injuries still cost us 40 million man-days every year. This is a heavy tax on our economic progress, as well as on the individual employees and employers. Workmen's compensation programs--an important facet of the industrial safety problem--have lagged behind other social insurance programs in recent years. Although workmen's compensation is predominantly a State program, the Federal Government can and should stimulate improvement--especially through studies and clearing house activities. The budget for the fiscal year 1956 provides for studies which will enable the Department of Labor to promote more effective safety programs and assist States in improving their workmen's compensation standards. In addition, I shall recommend legislation which, over the next few years, should aid the States in further developing industrial safety programs. Two million dollars are included for this purpose in 1956.

At present all workmen's compensation payments to Federal employees are provided from a single appropriation. To encourage better safety practices, I shall recommend legislation to shift the financing of some of these benefit payments to the employing Federal agency. Legislation will also be recommended to liberalize workmen's compensation benefits paid to longshoremen and harbor workers under laws administered by the Federal Government.

The apprentice training program of the Department of Labor has contributed to improvement of the skill and versatility of thousands of workers. As our economy continues to expand, many more skilled workers are needed. Accordingly, the budget proposals provide for redirecting and improving Federal participation in these training activities.

As part of a government-wide program to improve our economic statistics, this budget includes 1.5 million dollars for additional work during the fiscal year 1956 in the labor and manpower field, covering primarily statistics on employment and unemployment, and for basic data for mobilization and civil defense.

Unemployment trust fund.--The following table shows receipts and expenditures of the unemployment trust fund.

UNEMPLOYMENT TRUST FUND
[Fiscal years. In millions]

1954 1955 1956
Item actual estimated estimated

Balance in fund at start of year $9,246 $8,993 $8,785

Receipts:
Deposits by States and railroad unemployment taxes 1,268 1,219 1,421
Interest 224 220 204
Transfer from general fund ........ 64 87
Payments: State and railroad withdrawals for benefits -1,745 -1,712 -1,594

Net accumulation (+) or withdrawal (--) -253 -209 +118

Balance in fund at close of the year 8,993 8,785 8,903

 

GENERAL GOVERNMENT

Net expenditures for general government activities are estimated at 1.6 billion dollars for the fiscal year 1956, an increase of 344 million dollars from the fiscal year 1955. The higher level of expenditures in 1956 reflects primarily (a) the proposed resumption of payments to the Civil Service Retirement Fund for the Government's share of the cost of current benefits for retired Federal civilian personnel and (b) substantially higher payments arising from claims against the Government. Other expenditures for general government cover in the main the costs of such basic Government services as making and enforcing laws, collecting taxes and customs, managing the public debt, and safeguarding and maintaining public buildings and records.

Special allowances are made in the reserves for proposed legislation of this budget for adjustments in the pay and benefits of civilian employees of the Government which I recommended recently in a special message to the Congress. The proposed benefits include a new system of contributory hospitalization and health insurance.

Legislative [unctions.--Expenditures for legislative activities are estimated to increase from 51 million dollars in 1955 to 63 million dollars in 1956, primarily because of construction of the new Senate Office Building.

Federal financial management.--To enable the Internal Revenue Service to make still more progress in equitable and effective enforcement of the revenue laws, I am recommending increased appropriations of 12 million dollars to extend the audit of tax returns. The improved enforcement should result in increased tax receipts from those who have not been paying their fair share. In addition, I am recommending legislation to reduce the frequency of information returns submitted by employers withholding income and social security taxes and to strengthen enforcement of these taxes. These amendments will not only cut down the reporting burden on private business, but will also increase budget receipts, especially in later years. Total expenditures for collection of taxes and customs, for administration of the public debt and for other Federal financial management are estimated at 450 million dollars for the fiscal year 1956.

Central property and records management.--The General Services Administration is making substantial and continuing economies in the government-wide management of property and records. Central motor pools are planned for 15 cities, with important savings anticipated. Substantial reductions in office and warehouse space are continuing. As a result of examination of Government real property holdings, the sales program of surplus real property will be accelerated, with the desirable result of returning this property to local tax rolls and increasing budget receipts

GENERAL GOVERNMENT
[Fiscal years. In millions]

Expenditures _________________________________ Recommended new obligational authority for 1956
1954 1955 1956
Program or agency actual estimated estimated

Legislative functions $45 $51 $63 $50
Judicial functions 29 33 34 33
Executive direction 11 13 11 11
Federal financial management:
Tax collection 277 273 285 286
Customs collection, debt management and other 171 164 165 164
Other central services:
Central property and records management 152 156 162 164
Civil Service Commission 16 15 17 17
Other 16 21 21 24
Retirement for Federal civilian employees:
Present programs 34 32 2 2
Proposed legislation ........ ........ 216 216
Unemployment compensation for Federal civilian employees ........ 33 40 40
Protective services and alien control:
Federal Bureau of Investigation 75 79 91 88
Immigration and Naturalization Service 40 44 45 45
Other 31 23 25 24
Territories, possessions, and District of Columbia:
District of Columbia 13 25 34 32
Territories, possessions, and other 43 49 48 45
Other general government:
Payment of claims and relief acts 213 163 250 .......
Weather Bureau 26 25 29 33
Other 20 23 32 30

Total 1,212 1,225 1,569 ¹ 1,305
Deduct applicable receipts 4 3 3 ........

Net budget expenditures 1,209 1,222 1,566 ........

¹Compares with new obligational authority of 1,041 million dollars in 1954 and 1,056 million dollars in 1955.

In this budget, I recommend added funds for more adequate repair and improvement of public buildings to protect the Government's investment. Estimated expenditures for central property and records management will therefore rise from 156 million dollars in 1955 to 162 million dollars in 1956.

To help meet the most critical needs for office space, construction of several general-purpose buildings has already been approved under the long-term lease-purchase contract authority provided by the Eighty-third Congress, and additional buildings will be considered as quickly as determinations of need and cost can be made. These buildings will be purchased through annual appropriations for rental payments.

Civil Service Commission.--Under the recent revisions of the Federal civil service rules, a substantially higher proportion of civilian employees will be on a competitive basis. The transition to this system will require additional funds for the Civil Service Commission for administering the necessary examining program, both in the continental United States and overseas.

Retirement for Federal civilian employees.--The civil service retirement and disability system should be financed on a more satisfactory basis. Employees now contribute 6 percent of pay, covering about one-half the currently accruing cost, and the Government is responsible for the rest of the cost. In the past the Government's share of payments to this fund has not been provided on a consistent basis and in the last 2 years appropriations have been deferred pending the report of the Committee on Retirement Policy for Federal Personnel. The Committee's report to the Eighty-third Congress establishes the necessity for a sound and lasting financial basis for the civil service retirement system.

Financing of the civil service system is a problem requiring careful consideration because of its importance to the Federal career service. For 1956 I am recommending a Government contribution of 216 million dollars which is estimated to be the difference in that year between the Government's share of current benefit disbursements and the interest earned on its part of the fund. This will serve to maintain at its present level the equity the Government already has built up in the fund through its past contributions.

Other budget expenditures for retired Federal civilian employees are estimated to decline from 32 million dollars in the fiscal year 1955 to 2 million dollars in 1956 because payments for cost-of-living increases under the act of July 16, 1952, will be made from the trust fund.

Unemployment compensation [or Federal civilian employees.--Legislation enacted by the last Congress provides for the payment of unemployment compensation benefits to Federal civilian workers. These payments are similar to those available to most workers in private industry and are being paid through existing State unemployment compensation agencies. Payments reimbursing the States for the cost of this program for the fiscal year 1955 are estimated at 33 million dollars, requiring a supplemental appropriation of 20 million dollars. Expenditures are estimated to rise in 1956 to 40 million dollars because for the first time the plan will be in operation for a full fiscal year.

Protective services and alien control.--Increased expenditures for protective services and alien control are recommended to strengthen the border patrol operations of the Immigration and Naturalization Service and to maintain the Federal Bureau of Investigation at its present effectiveness in the fiscal year 1956. The Bureau's work has been increased by added responsibilities for internal security. At the same time, its costs have risen because of recently enacted legislation providing premium pay for FBI agents for overtime and holiday work.

District of Columbia.--Under the new public works program authorized by the Congress last spring, Federal expenditures for the District of Columbia will increase to 34 million dollars in the fiscal year 1956. Of this amount, 22 million dollars represents the Federal Government's share in the costs of District government and public services; loans of 12 million dollars will be made to the District for construction of highways, sewers, and waterworks.

Weather Bureau.--To increase the effectiveness of the weather service, I am recommending replacement of certain obsolete facilities with modern observational equipment. This budget provides for the Weather Bureau to take over operation of 25 upper-air stations and perform certain other activities basic to civilian weather service which are now carried on by the Department of Defense. These proposals will carry out recommendations made by an advisory committee of eminent meteorologists. With the improved program, the expenditures of the Weather Bureau for the fiscal year 1956 are estimated at 29 million dollars, an increase of 4 million dollars over 1955.

Claims and relief acts.--Payments for claims and relief acts are estimated at 250 million dollars for the fiscal year 1956, an increase of 87 million dollars over the 1955 estimate. The increase consists entirely of higher payments for certified claims, which represent, in the main, bills presented for payment after the appropriation involved has lapsed. In the fiscal year 1955 certified claims are expected to be lower than in 1956 because claims which would otherwise have been paid from this account are being paid from certain Department of Defense appropriations which were extended by the Congress for 1 year.

INTEREST

The large interest payments by the Federal Government arise primarily from the tremendous increase in the public debt during World War II. In the fiscal year 1956 they account for about 10 percent of total budget expenditures. The size of the public debt and interest rates on the debt determine the general level of interest expenditures; variations may also occur from year to year from changes in interest payment provisions of specific securities.

Interest on the public debt.--Interest payments on the public debt in the fiscal year 1956 are estimated at 6.3 billion dollars.

INTEREST
[Fiscal years. In millions]

Budget expenditures (net) _________________________________ Recommended new obligational authority for 1956
1954 1955 1956
Program or agency actual estimated estimated

Interest on public debt $6,382 $6,475 $6,300 $6,300
Interest on refunds of receipts 83 78 73 73
Interest on uninvested trust deposits 5 5 5 5

Total 6,470 6,558 6,378 ¹ 6,378

¹Compares with new obligational authority of 6,470 million dollars in 1954 and 6,558 million dollars in 1955.

Although the debt has increased, interest payments are estimated to be 175 million dollars less than in the current year. This decrease reflects primarily the reduction in the calendar year 1954 in interest rates on the outstanding debt. Another reason for the decrease is the unusual concentration in 1955 of interest payments on part of the public debt refunded this year. As an example of both reasons, in the fall of 1954, 7.5 billion dollars of 2 5/8 percent certificates were refunded into a 1 1/8 percent certificate and a 2 1/8 percent bond. A full year's interest was paid in the fiscal year 1955 on the maturing 2 5/8 percent certificates; in addition, the first interest payment on the new 2 1/8 percent bond will be due in 1955. For these reasons interest payments in 1955 on this 7.5 billion dollar segment of the debt will be about 130 million dollars more than in 1956.

We have made progress in improving the structure of the public debt by lengthening the average maturity. Nevertheless, the average interest rate on the debt has declined from 2.41 percent to 2.29 percent during the last 12 months.

In this message, we have stated our objectives and our proposals for the coming year.

In preparing this budget we have weighed the requirements of each element of our strength in order that we may allocate our resources according to the requirements of the whole. To each is apportioned the full measure required by relative need and permitted by available means. At the same time our awareness of the necessity for efficient, economical, and moral Government and the development of partnerships with State and local governments and with private enterprise permit reductions in total expenditures. A growing prosperity will result in increasing revenues and should make possible both a balanced budget and lower tax rates in the near future.

DWIGHT D. EISENHOWER