Annual Budget Message to the Congress: Fiscal Year 1961.

To the Congress of the United States:

With this message, transmitting the Budget of the United States for the fiscal year 1961, I invite the Congress to join with me in a determined effort to achieve a substantial surplus. This will make possible a reduction in the national debt. The proposals in this budget demonstrate that this objective can be attained while at the same time maintaining required military strength and enhancing the national welfare.

This budget attests to the strength of America's economy. At the same time, the budget is a test of our resolve, as a nation, to allocate our resources prudently, to maintain the Nation's security, and to extend economic growth into the future without inflation.

In highlight, this budget proposes:

1. Revenues of $84 billion and expenditures of $79.8 billion, leaving a surplus of $4.2 billion. This surplus should be applied to debt reduction, which I believe to be a prime element in sound fiscal policy for the Nation at this time.

2. New appropriations for the military functions of the Department of Defense amounting to $40.6 billion, and expenditures of $41 billion. These expenditures, which will be slightly higher than the 1960 level, will provide the strong and versatile defense which we require under prevailing world conditions.

3. Increased appropriations (including substantial restoration of congressional reductions in the 1960 budget), and a virtual doubling of expenditures, for nonmilitary space projects under the National Aeronautics and Space Administration. This furthers our plans to keep moving ahead vigorously and systematically with our intensive program of scientific exploration and with the development of the large boosters essential to the conquest of outer space.

4. Nearly $4.2 billion in new appropriations for mutual security programs, an increase of about $950 million above appropriations for the current year, with an increase of $100 million in expenditures. This increase in program is needed to accelerate economic and technical assistance, chiefly through the Development Loan Fund, and to strengthen free world forces, in particular the forces of the North Atlantic Treaty Organization, with advanced weapons and equipment.

5. A record total of expenditures, $1.2 billion, for water resources projects under the Corps of Engineers and the Bureau of Reclamation. In addition to funds for going work, this amount provides for the initiation of 42 new high-priority projects, which will require $38 million in new appropriations for 1961, and will cost a total of $496 million over a period of years.

6. Substantially higher expenditures in a number of categories which under present laws are relatively uncontrollable, particularly $9.6 billion for interest; $3.9 billion to help support farm prices and income; $3.8 billion for veterans compensation and pensions; and $2.4 billion in aid to State and local governments for public assistance and employment security activities. The aggregate increase in these relatively uncontrollable expenditures is more than $ 1 billion over 1960.

7. Research and development expenditures of $8.4 billion--well over one-half of the entire Nation's expenditures, public and private, for these purposes--in order to assure a continuing strong and modern defense and to stimulate basic research and technological progress.

8. Recommendations for prompt legislative action to increase taxes on highway and aviation fuels, and to raise postal rates. These measures are needed to place on the users a proper share of the rising costs of the Federal airways and postal service, and to support the highway program at an increased level.

9. Recommendations to extend for another year present corporation income and excise tax rates.

10. A constructive legislative program to achieve improvements in existing laws relating to governmental activities and to initiate needed actions to improve and safeguard the interests of our people.

In short, this budget and the proposals it makes for legislative action provide for significant advances in many aspects of national security and welfare. The budget presents a balanced program which recognizes the priorities appropriate within an aggregate of Federal expenditures that we can soundly support.

I believe that the American people have made their wishes clear: The Federal Government should conduct its financial affairs with a high sense of responsibility, vigorously meeting the Nation's needs and opportunities within its proper sphere while at the same time exercising a prudent discipline in matters of borrowing and spending, and in incurring liabilities for the future.

BUDGET TOTALS

During the present fiscal year we have made encouraging progress in achieving sound fiscal policy objectives. The deficit of $12.4 billion in fiscal 1959, which was largely caused by the recession, is expected to be followed by a surplus of $217 million in the current year. To safeguard this small surplus, I am directing all Government departments and agencies to exercise strict controls over the expenditure of Federal funds. Even so, the slender margin of surplus can be attained only if economic growth is not interrupted.

For the fiscal year 1961, I am proposing a budget surplus of $4.2 billion to be applied to debt retirement. In my judgment this is the only sound course. Unless some amounts are applied to the reduction of debt in prosperous periods, we can expect an ever larger public debt if future emergencies or recessions again produce deficits.

In times of prosperity, such as we anticipate in the coming year, sound fiscal and economic policy requires a .budget surplus to help counteract inflationary pressures, to ease conditions in capital and credit markets, and to increase the supply of savings available for the productive investment so essential to continued economic growth.

The budget recommendations for 1961 lay the groundwork for a sound and flexible fiscal policy in the years ahead. A continuance of economic prosperity in 1962 and later years can be expected to bring with it further increases in Federal revenues. If expenditures are held to the levels I am proposing for 1961 and reasonable restraint is exercised in the future, higher revenues in later years will give the next administration and the next Congress the choice they should rightly have in deciding between reductions in the public debt and lightening of the tax burden, or both. Soundly conceived tax revision can then be approached on a comprehensive and orderly basis, rather than by haphazard piecemeal changes, and can be accomplished within a setting of economic and fiscal stability.

Budget expenditures in 1961 are estimated at $79.8 billion, which is $1.4 billion more than the 1960 level. The total increase is attributable to (1) an increase of more than $ 1 billion in relatively uncontrollable expenditures for farm price supports fixed by law, interest on the public debt, veterans compensation and pensions, and public assistance grants, and (2) an increase of about $500 million in expenditures because of commitments made in prior years for Federal housing programs, for civil public works projects and other construction, for loans under the mutual security program, and for other programs.

New activities and expansion of certain other programs have been included on a selective basis of need. These increases are offset by reductions in other existing programs, including the proposed elimination of the postal deficit.

New obligational authority recommended for the fiscal year 1961 totals $79.4 billion. This is $306 million less than the amounts already enacted and recommended for 1960, and $401 million less than estimated expenditures in 1961.

Budget receipts under existing and proposed legislation are expected to rise substantially to $84 billion in 1961. This compares with the revised estimate of $78.6 billion for 1960 and actual receipts of $68.3 billion in 1959.

MANAGEMENT OF THE PUBLIC DEBT

Achievement of the proposed budget surplus will provide an opportunity to offset part of the deficits incurred in the fiscal years 1958 and 1959 largely because of the recession. The corresponding reduction of the public debt will reduce Government competition with private industry, individuals, and State and local governments for investment funds and will help case the pressure on interest rates. Along with the recommended removal of the interest rate ceiling on long-term Federal debt, this will help hold down budget expenditures for interest, which now amount to almost one-eighth of the whole budget.

Statutory debt limit.--It is estimated that the public debt, which stood at $284.7 billion on June 30, 1959, will be $284.5 billion on June 30, 1960, and will decline to $280 billion at the end of fiscal 1961. Thus, the budget surplus estimated for fiscal 1961 will permit the Government to end the year with desirable operating leeway within the permanent debt limit of $285 billion. However, the fluctuating seasonal pattern in receipts will again require a temporary increase in the debt limit during the fiscal year 1961, since the present temporary limit of $295 billion expires on June 30, 1960. It is expected that the request for a new temporary limit will be for less than the present $295 billion if the Congress accepts my budgetary proposals.

Interest ceiling.--Effective management of a debt of this size requires a reasonable distribution among securities maturing at different times. Three-fourths of all marketable Treasury securities outstanding today come due in less than five years, of which $80 billion will mature in less than a year. As long as the rate that would have to be paid on newly issued bonds exceeds the present statutory ceiling of 4 1/4 %, it is impossible to issue and sell any marketable securities of over five years' maturity.

Exclusive reliance on borrowing in a limited sector of the market is an expensive and inefficient way to manage the debt. Inflationary pressures increase as the volume of short-term and hence highly liquid securities mounts, especially if these securities are acquired by commercial banks. Further, effective monetary policy becomes more difficult when the Treasury has to refinance often. To make possible prudent and flexible management of the public debt, to permit sale of a modest amount of intermediate and longer term bonds when market conditions warrant such action, and to keep the average maturity of the debt from constantly shortening, it is imperative that the Congress immediately act to remove the 42-year-old 4 1/4 % limitation on interest rates on Government securities maturing after five years.

BUDGET RECEIPTS

Estimated budget receipts of $84 billion in the fiscal year 1961 assume a high and rising level of economic activity in calendar year 1960. Specifically, this revenue estimate is consistent with an increase in the gross national product from about $480 billion for calendar 1959 to about $510 billion for calendar 1960. Personal incomes and corporate profits are expected to rise considerably beyond last year's levels, which were depressed somewhat by the long duration of the steel strike. The accompanying table shows the sources of Government receipts for the fiscal years 1959, 1960, and 1961.

BUDGET RECEIPTS

[Fiscal years. In billions]

1959 1960 1961

actual estimate estimate

Source

Individual income taxes $36.7 $40.3 $43.7

Corporation income taxes 17.3 22.2 23.5

Excise taxes 8.5 9.1 9.5

All other receipts 5.8 7.0 7. 3

Total 68.3 78.6 84.0

The estimates for 1961 assume (1) extension of present tax rates and (2) the adoption of modifications recommended last year for certain tax laws. These are summarized in the following paragraphs.

Extension of present tax rates.--In order to maintain Federal revenues, it is necessary that the present tax rates on corporation profits and certain excises be extended for another year beyond their scheduled expiration date of June 30, 1960. The scheduled reductions in the excise tax rates on transportation of persons and the scheduled repeal of the tax on local telephone service, which were enacted in the last session of the Congress, should be similarly postponed.

Improvement of the tax system.--The recent tax revision hearings of the Ways and Means Committee have provided valuable information bearing on changes in the tax laws. The Treasury will continue to work in cooperation with the committees of the Congress in developing sound and attainable proposals for long-range improvement of the tax laws.

As the development of a comprehensive tax revision program will take time, the Congress should consider this year certain changes in the tax laws to correct inequities. These include amendments of the laws on taxation of cooperatives, now before the Congress, and a number of technical changes on which the Treasury Department has been working with committees of Congress. There is also before the Congress an amendment to prevent unintended and excessive depletion deductions resulting from the computation of percentage depletion allowances on the selling price of finished clay, cement products, and mineral products generally; unless the problem is satisfactorily resolved in a case now pending before the Supreme Court, the need for corrective legislation in this area will continue.

Under existing law, administration of the depreciation provisions is being hampered by the attempts of some taxpayers to claim excessive depreciation before disposing of their property. If gain from the sale of depreciable personal property were treated as ordinary income, the advantage gained in claiming excessive depreciation deductions would be materially reduced and the taxpayer's judgment as to the useful life of his property could more readily be accepted. Accordingly, I recommend that consideration be given to a change in the law which would treat such gain as ordinary income to the extent of the depreciation deduction previously taken on the property.

Aviation fuel taxes.--To help defray the cost of the Federal airways system, the effective excise tax rate on aviation gasoline should be promptly increased from 2 to 4½ cents per gallon and an equivalent excise tax should be imposed on jet fuels, which now are untaxed. The conversion from piston engines to jets is resulting in serious revenue losses to the Government. These losses will increase unless the tax on jet fuels is promptly enacted. The revenues from all taxes on aviation fuels should be credited to general budget receipts, as a partial offset to the budgetary costs of the airways system, and clearly should not be deposited in the highway trust fund.

Changes in lees and charges.--The cost of other Federal programs which provide measurable special benefits to identifiable groups or individuals should be recovered through charges paid by beneficiaries rather than by taxes on the general public. Whenever feasible, fees or charges should be established so that the beneficiaries will pay the full cost of the special services they receive. To help accomplish this purpose, I have directed that further work be done by the departments and agencies on a carefully defined inventory of Federal services which convey such special benefits. In the meantime, the Congress is requested to act favorably on the postal rate proposals described in this message and on a number of other specific proposals now pending before it or planned to be submitted this year for increased fees or charges for special services.

ESTIMATED SAVINGS TO THE GENERAL TAXPAYERS FROM MORE ADEQUATE FEES AND CHARGES

[In millions]

Fiscal Full

year annual

Proposal 1961 effect

Increase postal rates $554.0 $554.0

Support highway expenditures by highway-user taxes:

Replace future diversion of general excise taxes to trust fund

with increased motor fuel tax or other user charges 850.0

Transfer financing of forest and public land highways to

trust fund 39.0 36.0

Charge users for share of cost of Federal airways:

Increase taxes on aviation fuels 72.0 88.0

Transfer aviation fuel taxes from highway trust fund to general

fund 17.0 20.0

Revise fees for noncompetitive oil and gas leases 14.0

Recover administrative costs of Federal crop insurance 6.4

Increase patent fees 3.7 3.7

Increase miscellaneous fees now below costs 8.0 8.9

Total savings 693.7 1,581.0

RECEIPTS FROM AND PAYMENTS TO THE PUBLIC

The program of responsible fiscal policy represented by a balanced budget with a substantial surplus is reinforced by an even greater surplus of total cash receipts from the public over cash payments to the public. In this more comprehensive measure of Federal financial activity, obtained by consolidating budget, trust fund, and certain other Federal transactions, receipts from the public are estimated at $102.2 billion in 1961 and payments to the public at $96.3 billion, resulting in an excess of $5.9 billion of receipts.

This excess of receipts will be used to repay cash the Government has previously borrowed from the public. Repayment of such debt owed to the public will be greater than the amount of public debt retired, because the Government trust funds are expected to add to their holdings of public debt securities to the extent that trust fund receipts exceed trust fund expenditures. This will reduce the debt held by the public in like amount by shifting ownership to the trust funds.

For the fiscal year 1960, on the other hand, an excess of payments to the public of $542 million is estimated, despite the anticipated budget surplus of $217 million. This situation reflects the fact that total disbursements of trust funds will exceed their receipts in 1960, notably in the old-age and survivors insurance, unemployment, and highway trust funds.

FEDERAL GOVERNMENT RECEIPTS FROM AND PAYMENTS TO THE PUBLIC

[Fiscal years. In billions]

1959 1960 1961

actual estimate estimate

Receipts from the public $81.7 $94.8 $102.2

Payments to the public 94.8 95.3 96.3

Excess of payments over receipts --13.1 --.5

Excess of receipts over payments + 5.9

REVIEW OF MAJOR FUNCTIONS

The following sections of this message discuss the legislative and budget recommendations for 1961 in terms of the major purposes which they fulfill. The following table compares the estimated expenditures for each of the nine major functional categories with the actual figures for 1959 and the latest estimate for 1960.

The expenditure totals for 1960 and 1961 include expenditures under both existing and proposed legislation. The allowance for contingencies is intended to provide for unforeseen increases in existing programs, and for proposed new programs not separately itemized.

BUDGET EXPENDITURES

[Fiscal years. In millions]

1961

1959 1960 Percent

Function actual estimate Estimate of total

Major national security $46,426 $45,650 $45,568 57.1

International affairs and finance 3,780 2,066 2,242 2.8

Commerce and housing 3,421 3,002 2,709 3.4

Agriculture and agricultural resources 6,529 5,113 5,623 7.0

Natural resources 1,669 1,785 1,938 2.4

Labor and welfare 4,421 4,441 4,569 5.7

Veterans services and benefits 5,174 5,157 5,471 6.9

Interest 7,671 9,385 9,585 12.0

General government 1,606 1,711 1,911 2.4

Allowance for contingencies 75 200 .3

Total 80,697 78,383 79,816 100.0

The figures for 1961 allocate to the separate programs for the first time the dollar equivalent of expenditures for U.S. Government programs of foreign currencies received from the sale abroad of surplus U.S. agricultural commodities under Public Law 480.

MAJOR NATIONAL SECURITY

Our national objective remains as before--peace with justice for all peoples. Our hope is that the heavy burden of armaments on the world may be lightened.

But we should not delude ourselves. In this era of nuclear weapons and intercontinental missiles, disarmament must be safeguarded and verifiable. The problems involved in achieving reductions of armaments with safety and justice to all nations are tremendous. Yet we must face up to these problems, for the only alternative is a world living on the edge of disaster.

While seeking the true road to peace and disarmament we must remain strong. Our aim at this time is a level of military strength which, together with that of our allies, is sufficient to deter wars, large or small, while we strive to find a way to reduce the threat of war. This budget, in my judgment, does that.

Expenditures of the Department of Defense in 1961 will continue to emphasize the modernization of our Armed Forces. Military assistance for our allies under the mutual security program will also reflect the growing importance of modern weapons and missiles in the continued strengthening of the free world defense forces. The Atomic Energy Commission is continuing its weapons programs on a high level and will move forward with research and development on the peaceful applications of atomic energy. Expenditures for stockpiling and for expansion of defense production will decline further, since most of the stockpile objectives have been met.

DEPARTMENT OF DEFENSE--MILITARY.--New appropriations of $40,577 million are recommended for the military functions of the Department of Defense for 1961. Expenditures in 1961 are estimated at $40,995 million. These amounts exclude funds for the development of the Saturn space project which I have proposed be transferred to the National Aeronautics and Space Administration.

MAJOR NATIONAL SECURITY

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Department of Defense--Military:

Military functions:

Military personnel:

Present programs $11,801 $11,959 $12,124 ¹ $11,813

Proposed legislation,

retirement pay 22 24

Operation and maintenance 10,384 10,137 10,321 10,527

Procurement 14,410 13,943 13,602 13,085

Research, development,

test, and, evaluation 2,859 3,680 3,917 3,910

Construction 1,948 1,670 1,359 1,188

Revolving funds --169 --444 --350 30

Subtotal 41,233 40,945 40,995 40,577

Military assistance 2,340 1,800 1,750 2,000

Atomic energy 2,541 2,675 2,689 2,666

Stockpiling and expansion

of defense production 312 230 134 39

Total 46,426 45,650 45,568 ² 45,282

¹Additional obligational authority available by transfer: $350 million.

2 Compares with new obligational authority of $45,517 million enacted for 1959 and $41,749 million (including $25 million in anticipated supplemental appropriations) estimated for 1960.

Strategy and tactics of the U.S. military forces are now undergoing one of the greatest transitions in history. The change of emphasis from conventional-type to missile-type warfare must be made with care, mindful that the one type of warfare cannot be safely neglected in favor of the other. Our military forces must be capable of contending successfully with any contingency which may be forced upon us, from limited emergencies to all-out nuclear general war.

Forces and military personnel strength.--This budget will provide in the fiscal year 1961 for the continued support of our forces at approximately the present level--a year-end strength of 2,489,000 men and women in the active forces. The forces to be supported include an Army of 14 divisions and 870,000 men; a Navy of 817 active ships and 619,000 men; a Marine Corps of 3 divisions and 3 air wings with 175,000 men; and an Air Force of 91 combat wings and 825,000 men.

If the reserve components are to serve effectively in time of war, their basic organization and objectives must conform to the changing character and missions of the active forces. Quality and combat readiness must take precedence over mere numbers. Under modern conditions, this is especially true of the ready reserve. I have requested the Secretary of Defense to reexamine the roles and missions of the reserve components in relation to those of the active forces and in the light of the changing requirements of modern warfare.

Last year the Congress discontinued its previously imposed minimum personnel strength limitations on the Army Reserve. Similar restrictions on the strength of the Army National Guard contained in the 1960 Department of Defense Appropriation Act should likewise be dropped. I strongly recommend to the Congress the avoidance of mandatory floors on the size of the reserve components so that we may have the flexibility to make adjustments in keeping with military necessity.

I again proposed a reduction in the Army National Guard and Army Reserve--from their present strengths of 400,000 and 300,000, respectively, to 360,000 and 270,000 by the end of the fiscal year 1961. These strengths are considered adequate to meet the essential roles and missions of the reserves in support of our national security objectives.

Military personnel costs.--About 30% of the expenditures for the Department of Defense in 1961 are for military personnel costs, including pay for active, reserve, and retired military personnel. These expenditures are estimated to be $12.1 billion, an increase of $187 million over 1960, reflecting additional longevity pay of career personnel, more dependents, an increased number of men drawing proficiency pay, and social security tax increases (effective for the full year in 1961 compared with only 6 months in 1960). Retired pay costs are increased by $94 million in 1961 over 1960, partly because of a substantial increase in the number of retired personnel. These increased costs are partially offset by a decrease of $56 million in expenditures for the reserve forces, largely because of the planned reduction in strength of the Army Reserve components during 1961.

Traditionally, rates of pay for retired military personnel have been proportionate to current rates of pay for active personnel. The 1958 military pay act departed from this established formula by providing for a 6% increase rather than a proportionate increase for everyone retired prior to its effective date of June 1, 1958. I endorse pending legislation that will restore the traditional relationship between retired and active duty pay rates.

Operation and maintenance.--Expenditures for operating and maintaining the stations and equipment of the Armed Forces are estimated to be $10.3 billion in 1961, which is $184 million more than in 1960. The increase stems largely from the growing complexity of and higher degree of maintenance required for newer weapons and equipment.

A substantial increase is estimated in the cost of operating additional communications systems in the air defense program, as well as in all programs where speed and security of communications are essential. Also, the program for fleet modernization will be stepped up in 1961 causing an increase in expenditures. Further increases arise from the civilian employee health program enacted by the Congress last year.

Other factors increasing operating costs include the higher unit cost of each flying hour, up 11 % in two years, and of each steaming hour, up 15%. In total, these increases in operating costs outweigh the savings that result from declining programs and from economy measures, such as reduced numbers of units and installations, smaller inventories of major equipment, and improvements in the supply and distribution systems of the Armed Forces.

In the budget message for 1959, and again for 1960, I recommended immediate repeal of section 601 of the Act of September 28, 1951 (65 Stat. 365 ). This section prevents the military departments and the Office of Civil and Defense Mobilization from carrying out certain transactions involving real property unless they come into agreement with the Committees on Armed Services of the Senate and the House of Representatives. As I have stated previously, the Attorney General has advised me that this section violates fundamental constitutional principles. Accordingly, if it is not repealed by the Congress at its present session, I shall have no alternative thereafter but to direct the Secretary of Defense to disregard the section unless a court of competent jurisdiction determines otherwise.

Basic long-line communications in Alaska are now provided through Federal facilities operated by the Army, Air Force, and Federal Aviation Agency. The growing communications needs of this new State can best be met, as they have in other States, through the operation and development of such facilities by private enterprise. Legislation has already been proposed to authorize the sale of these Government-owned systems in Alaska, and its early enactment is desirable.

Procurement, research, and construction.--Approximately 45% of the expenditures for the Department of Defense are for procurement, research, development, and construction programs. In 1961, these expenditures are estimated at $18.9 billion, compared to $19.3 billion in 1960. The decreases, which are largely in construction and in aircraft procurement, are offset in part by increases for research and development and for procurement of other military equipment such as tanks, vehicles, guns, and electronic devices. Expenditures for shipbuilding are estimated at about the same level as in 1960.

New obligational authority for 1961 recommended in this budget for aircraft procurement (excluding amounts for related research and construction) totals $4,753 million, which is $1,390 million below that enacted for 1960. On the other hand, the new authority of $3,825 million proposed for missile procurement (excluding research and construction) ' in 1961 is $581 million higher than for 1960. These contrasting trends in procurement reflect the anticipated changes in the composition and missions of our Armed Forces in the years ahead.

The Department of Defense appropriation acts for the past several years have contained a rider which limits competitive bidding by firms in other countries on certain military supply items. As I have repeatedly stated, this provision is much more restrictive than the general law, popularly known as the Buy American Act. I urge once again that the Congress not reenact this rider.

The task of providing a reasonable level of military strength, without endangering other vital aspects of our security, is greatly complicated by the swift pace of scientific progress. The last few years have witnessed what have been perhaps the most rapid advances in military technology in history. Some weapons systems have become obsolescent while still in production, and some while still under development.

Furthermore, unexpectedly rapid progress or a technological breakthrough on any one weapon system, in itself, often diminishes the relative importance of other competitive systems. This has necessitated a continuous review and reevaluation of the defense program in order to redirect resources to the newer and more important weapons systems and to eliminate or reduce effort on weapons systems which have been overtaken by events. Thus, in the last few years, a number of programs which looked very promising at the time their development was commenced have since been completely eliminated. For example, the importance of the Regulus II, a very promising aerodynamic ship-to-surface missile designed to be launched by surfaced submarines, was greatly diminished by the successful acceleration of the much more advanced Polaris ballistic missile launched by submerged submarines.

Another example is the recent cancellation of the F-108, a long-range interceptor with a speed three times as great as the speed of sound, which was designed for use against manned bombers in the period of the mid 1960's. The substantial progress being made in ballistic missile technology is rapidly shifting the main threat from manned bombers to missiles. Considering the high cost of the F-108 system--over $4 billion for the force that had been planned--and the time period in which it would become operational, it was decided to stop further work on the project. Meanwhile, other air defense forces are being made effective, as described later in this message.

The size and scope of other important programs have been reduced from earlier plans. Notable in this category are the Jupiter and Thor intermediate range ballistic missiles, which have been successfully developed, produced, and deployed, but the relative importance of which has diminished with the increasing availability of the Atlas intercontinental ballistic missile.

The impact of technological factors is also illustrated by the history of the high-energy fuel program. This project was started at a time when there was a critical need for a high-energy fuel to provide an extra margin of range for high performance aircraft, particularly our heavy bombers. Continuing technical problems involved in the use of this fuel, coupled with significant improvements in aircraft range through other means, have now raised serious questions about the value of the high-energy fuel program. As a result, the scope of this project has been sharply curtailed.

These examples underscore the importance of even more searching evaluations of new major development programs and even more penetrating and far-ranging analyses of the potentialities of future technology. The cost of developing a major weapon system is now so enormous that the greatest care must be exercised in selecting new systems for development, in determining the most satisfactory rate of development, and in deciding the proper time at which either to place a system into production or to abandon it.

Strategic forces.--The deterrent power of our Armed Forces comes from both their nuclear retaliatory capability and their capability to conduct other essential operations in any form of war. The first capability is represented by a combination of manned bombers, carrier-based aircraft, and intercontinental and intermediate range missiles. The second capability is represented by our deployed ground, naval, and air forces in essential forward areas, together with ready reserves capable of effecting early emergency reinforcement.

The Strategic Air Command is the principal element of our long-range nuclear capability. One of the important and difficult decisions which had to be made in this budget concerned the role of the B-70, a long-range supersonic bomber. This aircraft, which was planned for initial operational use about 1965, would be complementary to but likewise competitive with the four strategic ballistic missile systems, all of which are scheduled to become available earlier. The first Atlas ICBM's are now operational, the first two Polaris submarines are expected to be operational this calendar year, and the first Titan ICBM's next year. The Minuteman solid-fueled ICBM is planned to be operational about mid 1963. By 1965, several or all of these systems will have been fully tested and their reliability established.

Thus, the need for the B-70 as a strategic weapon system is doubtful. However, I am recommending that development work on the B-70 airframe and engines be continued. It is expected that in 1963 two prototype aircraft will be available for flight testing. By that time we should be in a much better position to determine the value of that aircraft as a weapon system.

I am recommending additional acquisitions of the improved version of the B-52 (the B-52H with the new turbofan engine) and procurement of the B-58 supersonic medium bomber, together with the supporting refueling tankers in each case. These additional modern bombers will replace some of the older B-47 medium bombers; one B-52 can do the work of several B-47's which it will replace. Funds are also included in this budget to continue the equipping of the B-52 wings with the Hound Dog air-to-surface missile.

In the coming fiscal year additional quantities of Atlas, Titan, and Polaris missiles also will be procured. I am recommending funds for 3 additional Polaris submarines to be started in the coming fiscal year and for the advance procurement of long lead time components on 3 more--making a total of 15 Polaris submarines and the appropriate number of missiles. Funds to continue the development and to initiate production of the first operational quantities of the Minuteman are also included in this budget.

Thus, four strategic ballistic missile systems will be in development and production during the coming fiscal year. These, together with the manned bomber force, the carrier-based aircraft, the intermediate range ballistic missiles, and the tactical aircraft deployed abroad, ensure our continued capability to retaliate effectively in the event of an attack upon ourselves or our allies.

In order to ensure, insofar as practicable, the safety and readiness of these forces, we have substantially completed the dispersal of Strategic Air Command aircraft and the construction of alert facilities. These measures will permit a large portion of all our manned bombers and supporting tankers to get off the ground within 15 minutes after receiving warning of an attack.

I have also authorized the Department of Defense to begin to acquire a standby airborne alert capability for the heavy bombers. This will entail the procurement of extra engines and spare parts, and the training of the heavy bomber wings with the ability to conduct an airborne alert. It is neither necessary nor practical to fly a continuous airborne alert at this time. Such a procedure would, over a relatively short period of time, seriously degrade our overall capability to respond to attack. What I am recommending is a capability to fly such an alert if the need should arise and to maintain that alert for a reasonable period of time until the situation which necessitated it becomes clarified.

Attention is also being given to the safety and readiness of our land-based strategic missile forces. Except for the first several squadrons, strategic missiles will be dispersed in hardened underground sites. Measures are also being taken to shorten the reaction time of liquid-fueled missiles. The Minuteman, because it will be solid fueled, will have a quick reaction time and will lend itself to mobile use. The solid-fueled Polaris to be carried in submarines at sea is by its very, nature highly invulnerable.

Air defense forces.--Much progress has been made in increasing the effectiveness of the North American Air Defense Command organized in 1957 as an integrated command of the United States and Canadian forces. The U.S. military elements--consisting of parts of all of our armed services--are integrated with Canada's Air Defence Command for maintaining an air defense capability for the entire North American Continent.

While we pay increasing attention to the growing threat of a potential enemy's ballistic missiles we should not lose sight of the fact that for the time being the manned bomber is the major threat. Although some $17 billion has already been invested in defense systems against manned bombers, excluding the cost of personnel and operation and maintenance, certain segments have yet to be completed. These were described in the Department of Defense air defense plan presented to the Congress last year. The funds recommended in this budget will substantially complete the programs outlined in that plan. Specifically, the last major elements of the Nike-Hercules surface-to-air missile program will be financed in 1961 and the Bomarc interceptor missile program will approach completion. The related radar warning, electronic control, and communication systems will also be further equipped and modernized.

In response to the increasing missile threat, we are pressing to completion a new system for the detection of ballistic missile attack--the ballistic missile early warning system. Construction has been under way for the last two years and the first segment is expected to be in operation in about a year.

To provide for an active defense against ballistic missile attack, I am recommending the continued development of the Nike-Zeus system, but it will not be placed in production during the coming fiscal year during which further testing will be carried out.

The Nike-Zeus system is one of the most difficult undertakings ever attempted by this country. The technical problems involved in detecting, tracking, and computing the course of the incoming ballistic missile and in guiding the intercepting Zeus missile to its target--all within a few minutes--are indeed enormous.

Much thought and study have been given to all of these factors and it is the consensus of my technical and military advisers that the system should be carefully tested before production is begun and facilities are constructed for its deployment. Accordingly, I am recommending sufficient funds in this budget to provide for the essential phases of such testing. Pending the results of such testing, the $137 million appropriated last year by the Congress for initial production steps for the Nike-Zeus system will not be used.

Sea control forces.--Control of sea and ocean areas and sea lanes of communication is an integral element in the maintenance of our national security. The naval forces which carry the primary responsibility for this mission will consist of 817 combatant and support ships, 16 attack carrier air groups, 11 antisubmarine air groups, and 41 patrol and warning air squadrons.

From new construction and conversion programs started in prior years, the Navy will receive during fiscal year 1961 an unusually large number of modern ships. These will include the fifth and sixth Forrestal-class attack carriers, the first nuclear-powered cruiser, nine guided missile destroyers, seven guided missile frigates, and six nuclear-powered submarines. Three more Polaris ballistic missile submarines and a converted guided missile cruiser will also be commissioned.

For the coming fiscal year I am recommending the construction of 20 new ships and conversions or modernizations of 15 others. Included among the new ships is an attack carrier. It is planned to construct this carrier with a conventional rather than a nuclear power plant.

While it is generally agreed that a nuclear-powered attack carrier has certain military advantages, such as extended range and endurance at high sustained speeds, these advantages are not overriding as in the case of a submarine. In a submarine, nuclear power provides the critical advantage of almost unlimited operation, submerged at high speeds. This enables nuclear-powered submarines to carry out missions which no conventionally powered submarine, no matter how modern, could accomplish.

The advantages of nuclear power with respect to the carrier, however, are not comparable. The primary requirement in a carrier is up-to-date facilities to operate, safely and effectively, the most modern naval aircraft. Use of a conventional power plant will in no way prevent a carrier from functioning as a completely modern and mobile base for fleet aircraft for its foreseeable life. The additional $130 million which a nuclear-powered carrier would cost can be used to much greater advantage for other purposes. I therefore strongly urge the Congress to support this request for a conventionally powered aircraft carrier.

Tactical forces.--Elements of the ground, naval, and air forces comprise the tactical forces which are available to deal with cold war emergencies and limited war situations, in addition to performing essential tasks in the event of general war. Recommendations made in this budget provide funds for modernization and improvement in the effectiveness of our tactical forces.

Increased emphasis has been given in this budget to improving the mobility and firepower of the 14 Army divisions and other active combat elements of the Army and the 3 Marine Corps divisions. Additional quantities of new rifles and machine-guns employing the standard NATO ammunition will be procured, as will combat and tactical vehicles of all kinds, including the new M60 tank, the M 113 armored personnel carrier, self-propelled howitzers, trucks and jeeps. In recognition of the value of artillery in both nuclear and nonnuclear warfare, an entire new family of self-propelled artillery is introduced with this budget. This new artillery is lighter, more mobile, and, utilizing new ammunition, will have. greater range than that of types currently available.

The Army and Marine Corps will also buy a wide variety of guided missiles and rockets such as: Sergeant, Honest John, Little John, and Lacrosse for medium and close range ground fire support; Davy Crockett for an integral infantry-unit close-range atomic support weapon; and. Hawk and Redeye for defense of field forces against air attack. Army aircraft procurement proposed for 1961 is more than 35% higher than for the current year, and includes funds for surveillance aircraft and for utility and medium cargo helicopters.

The tactical forces of the Army are supported by the tactical air wings of the Air Force which will also be provided with an increased capability under these budget recommendations. Funds are provided for increased procurement of F-105 supersonic all-weather fighter bombers. These aircraft, with their low-altitude handling characteristics and large carrying capacities for both nuclear and nonnuclear weapons, will strengthen significantly the air support available to the Army ground units.

The three Marine divisions are tactically supported by three Marine aircraft wings, which will also receive quantities of new aircraft.

Military assistance.--The ability of the free world to deter aggression depends on the combined strength and determination of many countries. The total forces of the countries receiving aid under the military assistance program include about 5 million Army troops, 2,200 combatant ships, and over 25,000 aircraft, about half of which are jet. These forces make a vital contribution to the security of the free world, including the United States.

A committee of distinguished private citizens, the President's Committee to Study the United States Military Assistance Program, conducted an extensive and comprehensive analysis of the mutual security program during the last year. I have previously transmitted the reports of the Committee to the Congress. Many of the significant findings and recommendations of this group have been put into effect by the executive agencies; others are in the process of implementation. The military assistance program has been budgeted in 1961 with other activities and programs of the Department of Defense, and major changes are being made in the management, organization, and programing of military assistance.

Last spring I mentioned the possibility of requesting a supplemental appropriation as suggested by the Committee largely to expedite modernization of NATO forces. However, in view of the time factor involved in securing a separate authorization and appropriation for 1960, a supplemental request this year is not practical.

The new obligational authority of $2 billion recommended for fiscal year 1961 for the military assistance program will provide the training and quantities of materiel required to support the forces in the countries receiving aid. Because of the long leadtime required for many items, procurement must be started in 1961 in order to provide the necessary deliveries in future years. During recent years, deliveries have been maintained only by drawing down the backlog of undelivered items by an amount ranging from $500 to $800 million per year. The backlog has now been reduced to the point where adequate deliveries in the future must depend on new appropriations.

The defense of Western Europe in this era of modern weapons is costly and must be accomplished through the combined efforts of all NATO countries. Many of these countries have now assumed the financial responsibility for producing or purchasing conventional arms and equipment which the United States previously supplied. At the same time, the 1961 military assistance program squarely faces the pressing need for new and costly weapons for which the free world still looks for help from the United States. In addition, it provides for an intensified training effort to assure effective use and maintenance of the new equipment by allied forces.

This budget also provides for military assistance to countries which are building defenses against aggression and subversion in other parts of the world. These countries border on aggressive regimes, or are confronted with strong internal subversive elements. Many of them have joined in mutual defense organizations such as the Southeast Asia Treaty Organization (SEATO) and the Central Treaty Organization (CENTO), or with the United States in bilateral defense agreements. Assistance to these countries, most of which are in the Near East and the Far East, emphasizes primarily the strengthening of conventional forces in keeping with the nature of the threat in each area.

ATOMIC ENERGY ACTIVITIES.--In 1961 the expenditures for the Atomic Energy Commission are expected to remain at the 1960 level of about $2.7 billion. Substantial increases for research and development activities will be offset by reductions in procurement of uranium ore concentrates from United States and Canadian producers. These reductions will bring ore supplies into better balance with production requirements.

Development and production of nuclear weapons in 1961 will remain at the high levels of previous years. The vigorous development of military reactors for a variety of propulsion and power uses will continue. When the land-based prototype reactor for a destroyer is placed into operation in 1961 along with four other naval prototype reactors now operating, nuclear power plants will be available for major types of naval combatant ships. Emphasis in naval reactor development in 1961 will be placed primarily on development of improved and longer lived reactor fuel. The development of nuclear ram jet engines for missiles, of nuclear aircraft engines, and of nuclear electric powerplants for use at remote military bases will be carried forward.

Peaceful uses of atomic energy.--Expenditures in 1961 for development of civilian electric power from atomic energy are estimated at $250 million. Of this amount, $185 million is for research and development and $65 million is for construction of civilian power reactors and related development facilities. The estimated expenditures include amounts from proposed new appropriations of $40 million for assistance to private and public power groups in developing and building demonstration nuclear powerplants, and alternatively for such direct Government construction as may be considered necessary. The number, type, and size of reactors built and the nature of the assistance provided will be determined by the Commission after considering the state of technology and the cooperation proposed by industry.

Expenditures by the Commission for research in the physical and life sciences in 1961 will again increase substantially to over $210 million. This level of research will help the United States to continue its leadership in the study of the behavior of the basic matter of the universe and the effects of radiation on man and his environment. The largest part of the increase will be used to place in operation in the next 18 months three new particle accelerators in the multibillion electron-volt energy range, including the alternating gradient synchrotron at Brookhaven National Laboratory.

In support of the civilian space program, the Atomic Energy Commission will continue development of nuclear-powered rockets and small, long-lived nuclear power sources for space vehicles. Development work on thermonuclear power and on applications of nuclear explosives to a variety of civilian uses will continue in 1961.

STOCKPILING AND DEFENSE PRODUCTION EXPANSION.--Most Of the objectives for the stockpile of strategic and critical materials have been met. Receipts of materials under contracts to promote expansion of defense production are continuing at a reduced rate, as the number of such contracts still in effect declines. Hence, expenditures for stockpiling and expansion of defense production are estimated to decline from $230 million in 1960 to $134 million in 1961.

Amendments to outstanding contracts are now being negotiated where practicable, so as to minimize the delivery of materials no longer required for stockpiling. Arrangements are also under way to dispose of materials excess to stockpile objectives whenever disposal will not seriously disrupt markets or adversely affect our international relations.

INTERNATIONAL AFFAIRS AND FINANCE

The United States is continuing to support programs to maintain world peace and to improve economic conditions throughout the free world. In helping to improve economic conditions, we are being joined in larger measure by our friends in the free world who have now reached a high level of prosperity after recovering from the ravages of war. Accordingly, multilateral programs are being expanded. At the same time, the pressing need for economic development requires the continuation of substantial economic assistance under the mutual security program.

Expenditures for international affairs and finance are estimated to be $2.2 billion in the fiscal year 1961. This amount is $177 million higher than estimated expenditures for 1960, mainly because of larger disbursements by the Development Loan Fund under prior commitments.

MUTUAL SECURITY PROGRAM.--Through the mutual security program as a whole the United States helps promote stability and economic growth in less-developed countries and helps strengthen the defenses of the free world. For these purposes new obligational authority of $4,175 million is recommended in fiscal year 1961, an increase of $949 million over the amount enacted for 1960 (of which $700 million is for military assistance). Expenditures are estimated to be $3,450 million, an increase of $100 million over 1960.

The military assistance portion of this program is carried in the Department of Defense chapter and has been discussed in the major national security section of this message. Economic assistance is discussed in the following paragraphs in this section.

Development Loan Fund.--The Development Loan Fund was established in 1957 in order to provide capital to less-developed countries, when capital is not available from other sources. The capital is provided on favorable terms, often including the option to repay in the borrower's own currency. By the end of the fiscal year 1960, the Fund will have made commitments for an estimated 148 loans totaling some $1,400 million. More than three-fourths of the projects it is financing are for roads, railroads, electric power generation, and industry, including industrial development banks. Because many of these projects require several years for construction, expenditures have thus far been relatively small. How-. ever, in the fiscal year 1961 they are estimated to be $300 million, an increase of $125 million over 1960. New obligational authority of $700 million is requested for 1961, an increase of $150 million over the amount enacted for 1960. This will provide the loan funds essential to our foreign policy objective of assisting in the economic growth of the less-developed countries of the free world.

Technical cooperation.--Technical and administrative skills are no less important for the newly developing countries than capital. Through the technical cooperation program, American experts are sent abroad to transmit the skills required in a modern economy and foreign technicians are brought to the United States for training.

INTERNATIONAL AFFAIRS AND FINANCE

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Economic and technical development:

Mutual security--economic:

Development Loan Fund $66 $175 $300 $700

Technical cooperation 169 170 175 206

Defense support 881 740 730 724

Special assistance 257 250 255 268

Other 120 105 110 101

Contingencies 30 110 130 175

Subtotal, mutual security--economic 1,524 1,550 1,700 2,175

International Monetary Fund

subscription 1,375

Inter-American Development Bank 80

Export-Import Bank 390 --56 --7

Emergency relief abroad and other 113 140 131 116

Conduct of foreign affairs:

Administration of foreign affairs 211 205 197 205

Philippine claims:

Present program 24

Proposed legislation 49 49

Other 2 5 3 2

Foreign information and

exchange activities:

United States Information Agency 109 110 124 124

Department of State, exchange

of persons 22 24 36 36

President's special international

program 8 7 8 9

Total 3,780 2,066 2,242 ¹2,715

1Compares with new obligational authority of $6,982 million enacted for 1959 and $2,697 million (including $49 million of anticipated supplemental appropriations) estimated for 1960. The 1959 authorization included $3,175 million for the International Bank for Reconstruction and Development and $1,375 million for the International Monetary Fund.

MUTUAL SECURITY PROGRAM

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Military assistance $2,340 $1,800 $1,750 $2,000

Economic (including technical)

assistance 1,524 1,550 1,700 2,175

Total, mutual security 3,864 3,350 3,450 ¹4,175

1 Compares with new obligational authority of $3,448 million enacted for 1959 ($1,515 million military, $1,933 million economic) and $3,226 million enacted for 1960 ($1,300 million military, $1,926 million economic).

For the fiscal year 1961, new obligational authority of $206 million is requested, which is $25 million over the amount enacted for 1960, in order to permit an increase in the bilateral programs. It will also permit a higher contribution to the United Nations technical assistance program and the related special fund; as other governments increase their contributions for the United Nations programs, the United States contribution, which is two-fifths of the total, also increases.

Defense support.--Many of the less-developed countries participating in the common defense maintain large military forces whose cost imposes a severe strain upon their limited economic resources. In order to help maintain political and economic stability and to prevent the cost of necessary defensive forces from unduly hindering economic development, the United States provides economic aid principally by supplying commodities for consumption and raw materials and machinery for industrial production. For the fiscal year 1961, new obligational authority of $724 million is requested, an increase of $29 million over the amount enacted for 1960.

Special assistance.--New obligational authority of $268 million is requested for economic assistance to promote economic and political stability in various countries of the free world where the United States is not supporting military forces, and for certain other special programs. In several instances, this assistance indirectly relates to military bases maintained by the United States.

The appropriation recommended for special assistance in million above the amount enacted for 1960. Additional programs are proposed to help improve conditions in Africa, largely for education, public health, and administration.

Increased funds will also be devoted to certain worldwide health programs in conjunction with the World Health Organization of the United Nations. The largest of these is the malaria eradication program, now in its fourth year. In addition numerous public health projects are supported through technical cooperation.

Other mutual security programs.--Other programs include assistance to refugees and escapees; grants of atomic research equipment, including reactors, to the less-developed countries for training and research in nuclear physics; support of the NATO science program; and the United States contribution to the United Nations Children's Fund. For the fiscal year 1961, new obligational authority of $101 million is requested, an increase of $I million above the amounts enacted for 1960.

Contingencies.--Experience has shown that economic and military assistance is also required in some international situations which cannot be foreseen or for which it is not possible to estimate in advance the specific amount needed. To cover situations of this type, new obligational authority of $175 million is requested.

OTHER ECONOMIC AND TECHNICAL DEVELOPMENT.--More resources

from countries of the free world are being channeled into economic development by increasing the capital funds of international organizations. In the past year the capital of the International Bank for Reconstruction and Development was doubled and that of the International Monetary Fund increased by half.

The Inter-American Development Bank, with planned total resources of $1 billion, including $450 million from the United States, is expected to begin operations before the close of this fiscal year. Expenditures of $80 million are estimated in the fiscal year 1960 as the first installment of the U.S. cash investment in the Bank. In addition, guarantee authority of $900

million will be made available, on the basis of which the Bank can sell its bonds to private investors.

Last October the Governors of the International Bank for Reconstruction and Development unanimously approved in principle a U.S. proposal for an International Development Association, which will be closely affiliated with the Bank. Under this proposal, the Association will make loans on more flexible terms than the Bank is able to offer under its charter, such as loans repayable in the currency of the borrowing country. In addition, it is expected that the charter of the Association will contain provisions under which a member could provide to the Association, for use in lending operations, other member country currencies which it holds. The draft charter of the Association is being prepared and will probably be submitted to the member governments early this year. Legislation authorizing U.S. participation and making financial provision for membership will be transmitted to the Congress at the appropriate time.

Private investment.--The United States is trying to encourage more reliance on private enterprise in foreign economic development. During the past year, the Department of State and the Business Advisory Council of the Department of Commerce have both completed special studies on ways to increase the role of private investment and management abroad. Tax treaties, with investment incentive clauses, are now being negotiated with many countries. More trade missions are being sent abroad. Several of the less-developed countries are opening business information offices in this country. As a result of these various activities, more private investment in the less-developed areas should be forthcoming. To provide an additional incentive, U.S. taxation of income earned in the less-developed areas only should be deferred until repatriated.

Export-Import Bank.--The oldest Federal agency specializing in foreign lending and the largest in terms of foreign loan volume is the Export-Import Bank. In the fiscal year 1961 the Bank plans to devote an increasing share of its program to transactions which support economic development abroad. At the same time the Bank plans to finance its operations without requiring net budgetary expenditures by encouraging more participation by private lenders in its loan program and by using funds obtained from repayments on its large outstanding portfolio.

Eligibility [or assistance.--Amendments to the Battle Act to revise the eligibility requirements for assistance to certain countries are pending before the Congress. It is highly desirable that they be enacted.

CONDUCT OF FOREIGN AFFAIRS.--The Department of State is making plans to strengthen further the administration of foreign affairs in the fiscal year 1961. The disarmament staff is being expanded in preparation for discussions on disarmament soon to begin in Geneva and for the continuation of the negotiations on the suspension of nuclear tests. Language training programs will also be expanded. New diplomatic and consular posts will be opened in Africa, Latin America, South Asia, and Eastern Europe. For these and other activities, new obligational authority of $205 million is requested for the fiscal year 1961.

Legislation is recommended to remove certain reservations on acceptance by the United States of jurisdiction of the International Court of Justice (the World Court).

Legislation will be requested for payment in the fiscal year 1961 of certain war damage claims of the Philippine Government against the United States in the amount of $73 million. These claims will be partially offset by an amount, now estimated at approximately $24 million, owed to the United States by the Philippine Government. Pending legislation should be enacted in fiscal year 1960 to authorize compensation of $6 million to displaced residents of the Bonin Islands.

FOREIGN INFORMATION AND EXCHANGE New.--New obligational authority totaling $168 million is requested for foreign information and exchange activities in the fiscal year 1961. The United States Information Agency plans to expand its programs in Africa and Latin America, including construction of a new Voice of America transmitter in Africa. The Agency will make greater use of the growing number of television facilities overseas. The expansion of domestic radio transmitting facilities, begun last year in order to improve oversea reception, will continue. Exchanges of key persons with about 80 other countries will be increased, with special emphasis on leaders and teachers.

COMMERCE AND HOUSING

The improvements made in recent years in Federal programs for outer space exploration, aviation, highways, the postal service, housing, urban renewal, and small business will be further extended by this budget.

Expenditures for all commerce and housing programs in the fiscal year 1961 are estimated at $2.7 billion, which is $293 million less than the estimated expenditures for 1960. Proposed legislation to provide adequate postal rates will reduce sharply the net budget expenditures of the Post Office Department. Expenditures for other programs, however, especially space exploration and the promotion of aviation, will increase substantially.

SPACE EXPLORATION AND FLIGHT TECHNOLOGY.--The National Aeronautics and Space Administration is carrying forward the nonmilitary space projects started by the Department of Defense and has initiated additional programs that will lay the foundations for future exploration and use of outer space. Estimated expenditures of $600 million during the fiscal year 1961, nearly double the expenditures in 1960, will carry forward the programs now under way and those becoming the agency's responsibility in 1961. Appropriations of $802 million for 1961, together with anticipated supplemental appropriations for 1960 of $23 million to restore substantially the Congressional reduction in the space program last year, are recommended to finance these programs. Legislation is being submitted to authorize the appropriations required for 1961 and to provide permanent authorization for later years.

I am assigning to this new agency sole responsibility for the development of space booster vehicles of very high thrust, including Project Saturn. This assignment includes the transfer of certain facilities and personnel of the Army Ballistic Missiles Agency. With the imminent completion of the Jupiter missile project this outstanding group can concentrate on developing the large space vehicle systems essential to the exploration of space. Certain amendments to the National Aeronautics and Space Act of 1958 will be proposed to clarify the organization and streamline the management of the space programs.

At the present time Soviet scientists have the advantage in the weight of the payloads that they can hurl into space. This weight advantage stems from the earlier start of the Soviet development of very large rocket boosters that they considered necessary for their intercontinental ballistic missile program. Because of the relatively advanced state of our nuclear warheads, however, we were able, after a much later start, to develop an effective ICBM using a smaller rocket booster.

Our space programs are based on a systematic and technically sound approach to the complicated scientific and engineering problems involved. This approach will assure continued demonstrable achievements. Project Mercury has a high priority and we should be ready to attempt actual manned space flights within the next two years. Progress on the development of very high thrust engines and the vehicles to use them will make it possible, in the not too distant future, to launch much larger space vehicles and thus extend the conquest of space.

For the near future satellites and space probes will continue to depend primarily on Thor and Atlas missiles as boosters, with the Delta and Agena upper stages providing improved performance and reliability. These vehicles will make possible a wide variety of highly useful scientific experiments which will provide essential information for future exploration of outer space by manned and unmanned vehicles. Somewhat later the Centaur project will provide an Atlas-boosted space vehicle with further improved capabilities and establish the technology of very high energy propulsion for space vehicles. In all of these projects, the success of the space vehicle launchings depends on a strong continuing program of supporting research and ground testing.

COMMERCE AND HOUSING

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Space exploration and flight

technology $145 $395 $600 $802

Promotion of aviation:

Federal Aviation Agency 441 567 681 717

Civil Aeronautics Board 53 60 69 72

promotion of water transportation:

Department of Commerce 200 257 263 299

Coast Guard 229 276 281 285

Panama Canal Company 7 4 14

Provision of highways 30 45 13 (¹)

Postal service:

Public service costs 37 49 49

Postal deficit 774 567 554 554

Proposed rate revisions --554 --554

Community development and facilities:

Urban Renewal Administration 77 197 172 305

Other 31 39 31 27

Public housing programs 97 130 148 159

Other aids to housing:

Federal Savings and Loan Insurance

Corporation:

Under present legislation --41 --50 --57

Proposed premium increase --28

Federal Housing Administration --51 --76 --120

Federal National Mortgage

Association 842 56 111 150

College housing loans 180 186 148

Veterans housing loans 113 230 --12

Farm housing loans and other 43 --122 36 11

Other aids to business:

Small Business Administration 107 102 120 66

Proposed area assistance legislation. 10 57

Other 32 48 48 64

Regulation of commerce and finance 58 58 64 66

Civil and defense mobilization 46 56 68 76

Disaster loans and relief 8 8 8

Total 3,421 3,002 2,709 ²3,204

1Reflects proposed financing of Federal-aid highways in national forests and public lands from highway trust fund.

²Compares with new obligational authority of $2,929 million enacted for 1959 and $3,789 million (including $71 million of anticipated supplemental appropriations) estimated for 1960.

TRANSPORTATION AND COMMUNICATION. The detailed review of transportation problems and policies which I requested last year is now nearing completion in the Department of Commerce. This study should provide a sound basis for administrative actions and for legislation that may be needed to assure adequate and balanced growth of all branches of the Nation's transportation system.

Aviation.--Primarily because of the airways modernization program now under way, expenditures of the Federal Aviation Agency will increase by $114 million to an estimated $681 million in fiscal year 1961. New obligational authority of $717 million is requested mainly for procurement and operation of radar equipment, airport landing aids, communications, and other facilities needed to handle the rapidly growing volume of air traffic safely and efficiently and for establishment and enforcement of air safety standards. Research and development activities are being accelerated to insure the further improvements in equipment and techniques required to meet future aviation needs.

The Federal Aviation Agency is already making increasing use of military facilities, and steps are under way to achieve a closer integration of air defense and civil air traffic control networks. Over the next few years the Agency will also assume traffic control functions now performed by military personnel at airbases throughout the world, with significant savings in cost.

Expenditures for subsidy payments to the airlines by the Civil Aeronautics Board are estimated at $69 million in 1961, an increase of $31 million, or 80%, over the $38 million actually spent in 1958. Almost all of the subsidy will go to local service airlines, including helicopter operations in three major metropolitan areas and intra-Alaska service. This rise and the prospect of even higher subsidies in the future make necessary the consideration of proposals to reduce the dependence of these airlines on the Government.

Airway user charges.--Consistent with the principle that special beneficiaries of Government programs should pay the cost of those benefits, the users of the Federal airways should ultimately be expected to pay their full share of rising capital and operating costs. Accordingly, the effective tax on aviation gasoline should be raised from 2 to 4½ cents per gallon and the same tax should also be levied on jet fuels, which are now taxfree. Receipts from all aviation fuel taxes should be retained in the general fund rather than transferred to the highway trust fund as at present. These actions will increase revenues to the general fund by an estimated $89 million in fiscal year 1961.

Promotion of water transportation.--Expenditures of the Department of Commerce to aid water transportation will be sharply higher in both 1960 and 1961 than in 1959, primarily because of higher levels of payments required under past commitments for ship operating and construction subsidies. A supplemental appropriation of $32 million will be requested for the current year to meet increased operating subsidy obligations caused by lower earnings of the shipping industry and to permit prompt payment of subsidies accrued.

Efforts to maintain a U.S. merchant fleet adequate, along with the ships of our allies, to meet national defense requirements are seriously hampered by high operating costs. To preserve the capability of our merchant fleet without placing an undue burden on the taxpayer will require willingness by ship operators, maritime labor, and the Government to explore and adopt new solutions.

This budget provides for expanded work on advanced ship designs that could bring sharply reduced operating costs. By extending the operation of war-built vessels, which comprise more than 70% of the subsidized fleet, over a somewhat longer period, the results of this research can be more fully exploited in replacement plans. The Secretary of Commerce is also undertaking a special study of sailing requirements and competitive conditions of maritime trade routes and services, in the hope of discovering opportunities to increase the benefits flowing from the public investment in this area.

I repeat the request made last year that the 3 ½ % interest rate ceiling on ship mortgage loans made by the Maritime Administration be replaced by authority to charge the Government's full cost for such loans.

Work will continue on widening sections of the Panama Canal from 300 to 500 feet to facilitate the movement of increased ship traffic. Largely as a result of this program and the increased disbursements for the $20 million Balboa Bridge, which is being built to fulfill a treaty commitment with the Republic of Panama, expenditures of the Panama Canal Company in 1961 will be $10 million higher than in 1960.

Highways.--Federal payments of $2,798 million from the highway trust fund in 1961 will enable the States to proceed with construction of the Interstate System at a level consistent with the pay-as-you-build principle established by the Highway Revenue Act of 1956 and reaffirmed by the Congress in 1959. Last year I recommended that highway fuel taxes be increased by I ½ cents per gallon for a period of five years to meet estimated expenditure requirements. The Congress after months of delay enacted an increase of only 1 cent for less than two years.

As a result of both the delay and the failure to provide the full amount of revenue requested, the roadbuilding program has been slowed below a desirable rate of progress. The apportionments to the States for future construction had to be reduced and a plan had to be established to time reimbursements to the States so that the trust fund could be kept in balance. By timely action and planning, however, potential failures to reimburse States promptly for want of funds in the trust fund have been avoided, and equitable and proportionate programs in every State have been established.

I urge the Congress again to increase the highway fuel tax by another one-half cent per gallon and to continue the tax at 4½ cents until June 30, 1964. This will permit the construction program for the Interstate System to proceed at a higher and more desirable level. I request repeal of the diversion of excise taxes enacted last year for the period July 1, 1961, to June 30, 1964. New reports giving estimates of the cost of completing the Interstate System and recommendations on the allocation of costs among future highway beneficiaries will become available in 1961. At the appropriate time, further recommendations will be made to the Congress for the ensuing conduct and financing of the program.

A temporary advance of $359 million from the Treasury to the trust fund was necessary in fiscal 1960 to balance out the monthly flow of revenues and expenditures within the fiscal year, but this will be repaid by June 30, 1960. A similar temporary advance of $200 million will be required in the fiscal year 1961, repayable before the end of that year.

During this session of the Congress, funds should be authorized for 1962 and 1963 for regular Federal-aid highway programs and for forest and public lands highways. In view of the limited resources available to the trust fund and the priority requirements of the Interstate System, it is recommended that authorizations for the regular programs for each of these years be reduced to $900 million from $925 million provided for 1961. Annual authorizations of $33 million for forest highways and $3 million for public lands highways are also recommended.

Finally, I again request that the financing of forest and public lands highways be transferred from the general fund to the highway trust fund. Most of these highways are integral parts of the Federal-aid systems, and they should be financed in the same way.

Postal service.--The Post Office Department is intensifying its efforts to improve service and to hold down the persistent postal deficit while handling a growing volume of mail. Initial steps have been taken to mechanize mail processing and to reduce serious congestion at major distribution centers. Ultimately, modern mail processing plants will be established in all principal urban areas to assure prompt and efficient deliveries.

The Postal Policy Act of 1958 established the policy that postal rates should be adjusted whenever necessary to recover postal expenses, excluding the costs of certain public services as fixed by appropriation acts. Over the past 13 fiscal years, 1947-59, the Federal budget has had to finance postal deficits totaling $6.8 billion, which is almost half of the increase in the national debt during that time. At the average rate of interest on the outstanding debt the taxpayers are paying well over $200 million annually in interest for the unwillingness of the Congress to take timely action to increase postal rates.

For fiscal 1961, a postal service deficit of $554 million is estimated with postage rates now in effect or scheduled, after designating $49 million as attributable to public services. Rate increases enacted in 1958 were substantially less than needed to meet the deficit at that time and made no allowance for the pay increase for postal employees then enacted. Since then, increased railroad rates (up $55 million), costs of modernization (up $80 million), and the new employee health insurance program ($39 million) have widened the gap between revenues and expenditures.

Accordingly, legislation is again proposed to increase first-class and airmail rates by I cent and to raise other rates and fees by enough to cover the postal deficit. I urge the Congress to act promptly on these proposals, which will be submitted in the near future.

HOUSING AND COMMUNITY DEVELOPMENT.--I have presented to each of the past two sessions of the Congress a comprehensive program of legislation for the Government's housing and community development programs. Some of these recommendations were enacted in the Housing Act of 1959. This year, legislation will be requested only for the authority necessary to continue important existing programs and provide necessary flexibility in interest rates. The authorization of additional funds for these programs should be subject to appropriation action.

Urban renewal.--In the decade since Federal grants were first authorized, urban redevelopment has become recognized as essential to the future vitality of our cities, and planning has been initiated on 647 projects in 385 communities. However, only 26 projects have been completed. An additional 355 projects for which Federal funds have been obligated are now under way, but progress on many of these has been slow.

The budget, accordingly, places major emphasis on accelerating program progress. Sixty-five projects are scheduled for completion in 1960 and 1961. At the same time, the number of projects under way is expected to increase from 355 at the end of 1959 to 510 at the end of 1961. The acquisition of land for these projects in 1961 is estimated at more than double, and the sale of land to redevelopers at nearly triple, the 1959 amounts. As a result of the increased rate of activity, a supplemental appropriation of $50 million will be necessary in the current year to pay capital grants for projects nearing completion under prior contracts. Since the Housing Act of 1959 provided new contract authority for capital grants of $350 million for 1960 and $300 million for 1961, no additional obligational authority will be necessary for this program for 1961.

Public facility loans.--The authority of the Housing and Home Finance Agency to borrow $100 million from the Treasury for loans to small communities for needed public facilities will be exhausted early in 1961. An additional $20 million will be required to meet loan applications through the end of the fiscal year 1961. Legislation is recommended to authorize the provision in annual appropriation acts of this amount and such future increases as may be necessary.

Public housing programs.--By the end of fiscal year 1961, about 500,000 federally-aided public housing units will be occupied and an additional 125,000 units will be under contract for Federal contributions. In the allocation of new contracts authorized in the Housing Act of 1959 emphasis is being given to projects which will be constructed in the near future. The 1959 act authorized 37,000 added units of public housing, to be available until allocated. Accordingly, no additional authorization is requested. Increases of $18 million in 1961 expenditures result primarily from rising Federal contributions to local authorities under past contracts.

Federal Savings and Loan Insurance Corporation.--The share accounts of savings and loan associations insured by the Federal Savings and Loan Insurance Corporation have increased fivefold over the past 10 years. With a continuation of this rate of growth, the insurance reserve of the Corporation cannot reach levels commensurate with the mounting insurance liability without an increase in the present premium rate. I am, accordingly, recommending legislation to restore the higher premium rate in effect prior to 1949, to remain in force until the reserve exceeds 1 % of the share accounts and borrowings of insured institutions. At the same time, the statutory goal of a reserve equal to 5 % of such accounts and borrowings exceeds potential needs and should be reduced to 2%. In addition, the Corporation should be given authority to borrow from private sources, both to increase the available sources of funds to levels adequate to meet any temporary borrowing needs and to reduce its potential dependence upon the Federal Government.

Insurance of private mortgages.--The mortgage insurance programs of the Federal Housing Administration will continue in 1961 to underwrite a substantial share of the mortgages on residential housing. While it is difficult to forecast mortgage insurance requirements, the general mortgage insurance authorization of the Federal Housing Administration now appears to be adequate to meet demands for mortgage insurance until the next Congress is in session.

Sharp fluctuations in the demand for mortgage insurance during recent years have caused the funds available for personnel under appropriation act limitations to be inadequate in periods of heavy demand to provide the staff required by the Federal Housing Administration for prompt service on applications. Supplemental funds are usually not made available in time to meet this problem. To correct this situation, appropriation language is being requested to permit use of additional income for such expenses when actual demand exceeds the budget estimate.

Legislation should also be enacted to extend the authority for insurance of loans on home improvements. This program, which makes a major contribution to modernization of existing homes, would otherwise expire on October 1, 1960.

Last year legislation was recommended to provide some flexibility in maximum interest rates on mortgages originated under the housing loan and guarantee programs of the Veterans Administration and under certain mortgage insurance programs of the Federal Housing Administration. The action taken by the Congress was inadequate, and some of these programs are now seriously hampered by their inability at present maximum interest rates to attract adequate private capital. The Veterans Administration should be given the same flexibility to adjust its interest rates to market conditions which is now possessed by the Federal Housing Administration in its basic mortgage insurance programs. In addition, the maximum interest rate of 4½ % on insured mortgages on armed services family housing should be removed.

Veterans housing loans.--The direct housing loan program of the Veterans Administration, which has been extended several times, terminates July 25, 1960, and I am asking for no further authorization. At that time, over $ 1 billion of loans will be outstanding, and the program will have provided over 150,000 loans to veterans. There is no longer justification for continuing this readjustment program.

Mortgage purchases.--The authority of the Federal National Mortgage Association to borrow from the Treasury to purchase mortgages under its special assistance program will be exhausted during 1961. I am recommending legislation which would permit future increases in authorizations to be subject to appropriation review. An additional $150 million is requested for 1961 for this program. The additional funds will be used chiefly to buy mortgages on housing in urban renewal areas, on housing for the relocation of displaced families, and on housing for the elderly.

Special assistance for these mortgages is intended to be transitional, and an increasing proportion of total financing should in the future be obtained from private sources. With annual financing requirements in excess of $ 1 billion already in sight for these programs, the need can be met only with the full and active support of local communities and private financial institutions.

At the same time, mortgage purchases by the Association's secondary market operations trust fund will continue at high levels. Expenditures for such purchases are estimated at $1,047 million in 1960 and $975 million in 1961. These purchases will be almost wholly financed through the sale of debentures to the public and the purchase of common stock by mortgage sellers. Budget expenditures of $50 million, however, will be necessary for the additional Treasury purchases of the preferred stock of the Association required to support the mortgage purchase program.

College housing.--No additional authorizations are proposed for the existing college housing direct loan program. The housing needs of our colleges and universities represent only a part of the need for new university facilities of all types. These needs should be considered as a whole and within the framework of the general problems of education. I have, accordingly, recommended the termination of the college housing program and the enactment of legislation authorizing a new program of grants and loan guarantees for college facilities, to be administered by the Department of Health, Education, and Welfare (discussed under labor and welfare programs).

SMALL BUSINESS.--The increase in financial assistance to small businesses under the Small Business Investment Act of 1958 will continue in 1961. I recommend the enactment of legislation previously proposed to the Congress to encourage the formation of additional investment companies by liberalizing the authority of these companies, thus expanding the supply of private capital available to small businesses. Other loans by the Small Business Administration will continue at a high level, but less new obligational authority is recommended because repayments on outstanding loans will increase. Efforts to assist small businesses in obtaining a fair share of Federal Government procurement and surplus property will also continue. In order to facilitate small business financing, the Securities Act of 1933 should be amended to extend the privilege of simplified filings to a wider range of security issues.

AREA ASSISTANCE.--Despite the rapid economic recovery in the Nation as a whole, unemployment remains high in a relatively small number of local areas. The chronic problems in these communities reflect primarily basic changes in consumer buying habits, production methods, and industry location patterns. Some localities and States have properly taken the initiative in measures designed to meet these problems. In addition, the Department of Commerce, with the cooperation of 13 other Federal agencies, is intensifying existing Federal programs to encourage and support this local initiative. More help is required. Therefore, for the past four years, I have requested expanded legislative authority, primarily for loans and grants, to supplement existing Federal, State, and local programs. Prompt enactment of this legislation is important. The budget includes an estimated $57 million in appropriations as the initial amount necessary to provide the proposed additional Federal aid.

REGULATION OF COMMERCE AND FINANCE.--The general growth of the economy, newly legislated responsibilities, and the increased complexity of the problems which confront the regulatory agencies require increases in funds for most of them. The largest single increase in this category will permit the Federal Communications Commission to make a thorough study of ultrahigh frequency television to determine whether channels in this range can be used to meet the needs of the expanding television industry.

I again recommend legislation to strengthen the antitrust laws, including extending Federal regulation to bank mergers accomplished through the acquisition of assets, requiring businesses of significant size to notify the antitrust agencies of proposed mergers, empowering the Attorney General to issue civil investigative demands in antitrust cases when civil procedures are contemplated, and authorizing the Federal Trade Commission to seek preliminary injunctions in merger cases where a violation of law is likely.

CIVIL AND DEFENSE MOBILIZATION.--Preparations for nonmilitary defense have been seriously hindered by the unwillingness of Congress to provide appropriations to carry out programs authorized by the 1958 amendments to the Federal Civil Defense Act. Funds are again being requested for 1961, as well as in a supplemental appropriation for 1960, to help States and localities strengthen their full-time civil defense organizations. Increased funds are also required to finance greater purchases of radiological instruments for donation to the States; for expansion of the emergency preparedness activities of other Federal agencies; and to carry on the national fallout shelter policy.

In accordance with the national fallout shelter policy, the Federal departments and agencies have been directed to include fallout shelters when appropriate in the design of new buildings for civilian use, and funds for such shelters are included in the budget requests of the various agencies. In addition, the budget of the General Services Administration includes $6 million for a new fallout shelter program at certain Federal relocation sites and in some existing Federal buildings.

AGRICULTURE AND AGRICULTURAL RESOURCES

In the fiscal year 1961, Federal programs for agriculture will again have a heavy impact on the budget, primarily because of continued high agricultural production and the past unwillingness of the Congress to make appropriate modifications in the long-established price support laws. The longer unrealistic price supports are retained, the more difficult it will be to make the adjustments in production needed to permit relaxation of Government controls over farm operations.

Last year I proposed to the Congress urgently needed legislation relating to price supports. Very little of that program was enacted. I recommend that the Congress give this important matter early consideration.

Particularly urgent now is legislation to put wheat price supports on a more realistic basis. Stocks of wheat are continuing to rise in spite of our efforts to move wheat abroad through the International Wheat Agreement, sales for foreign currencies, and grants to disaster victims and needy people. The carryover of wheat stocks is expected to rise to almost 1.4 billion bushels by July 1, 1960, an amount that would provide for more than two years of domestic consumption without any additional production.

The wheat surplus problem has been a long time in the making and cannot be solved overnight. In fact, wheat legislation enacted in this session cannot be made applicable before the 1961 crop. The fact that any significant effect on the budget would be delayed until the fiscal year 1962 underlines the need for prompt action at this session of the Congress.

Authority to bring additional land into the conservation reserve expires after the 1960 crop year. Legislation is proposed to extend this authority through the 1963 crop year and to expand the program by increasing the basic limitation on the amount of payments that may be made in any calendar year from $450 million to $600 million. Specific authority will be requested for the Secretary of Agriculture to give special consideration, in allocating conservation reserve funds, to those States and regions where curtailment of production of wheat or other surplus commodities is consistent with long-range conservation and production-adjustment goals. The rental rates needed to induce farmers to withdraw cropland from production under the conservation reserve depend on the income prospects from farming, which in turn are a reflection of the levels of price supports. Therefore, the future authorization for the conservation reserve program should not be increased above the 1960 level unless needed price support legislation is enacted for wheat.

AGRICULTURE AND AGRICULTURAL RESOURCES

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Stabilization of farm prices and

farm income:

Commodity Credit Corporation--

price support, supply, and

purchase programs $2,775 $1,828 $2,279 $1,250

Commodity Credit Corporation--

special activities (other than

acreage reserve of the soil bank):

Public Law 480 1,022 1,055 1,172 881

International Wheat Agreement 48 49 68 49

National Wool Act 20 94 70 51

Other 347 243 124 423

Soil bank--acreage reserve:

Program total 673 6

Under CCC special activities (64) (5)

Removal of surplus agricultural

commodities 141 110 110 271

Sugar Act 67 74 78 74

Other 34 41 48 47

Subtotal 5,126 3,499 3,950 3,046

Financing rural electrification and

rural telephones 315 334 355 200

Financing farm ownership

and operation:

Farm Credit Administration 5 6 8 2

Farmers Home Administration 246 236 221 216

Conservation of agricultural land

and water resources:

Conservation reserve:

Existing program total 175 365 362 362

Under CCC special activities (4) (30)

Proposed legislation 32 32

Agricultural Conservation

Program Service:

Program total 246 244 233 243

Under CCC special activities (7) (1) (--12)

Soil Conservation Service

(including watershed protection

and Great Plains program) 125 130 137 136

Research and other agricultural

services 291 298 325 333

Total, agriculture and

agricultural resources 6,529 5,113 5,623 ¹4,570

1Compares with new obligational authority of $5,421 million enacted for 1959 and $5,099 million (including $704 million in anticipated supplemental appropriations) estimated for 1960.

Estimated expenditures for agricultural programs in fiscal 1961 are $5.6 billion, which is $510 million more than the estimate for the current year but $907 million less than was spent in 1959. Total new authority to incur obligations requested for agriculture and agricultural resources in 1961 is $4.6 billion. This amount includes $1.3 billion to restore, to the extent necessary, the capital impairment of the Commodity Credit Corporation resulting from previous price support losses and $1.4 billion to reimburse the Corporation for estimated costs and losses through the fiscal year 1960 of other programs financed through that agency.

Stabilization of farm prices and farm income.--Most of the recent year-to-year variations in expenditures for agriculture and agricultural resources reflect changes in expenditures for price supports and other programs to stabilize farm prices and farm income. During the five fiscal years, 1955-59, Federal spending for these programs has accounted for 70% to 80% of the total for all agricultural programs. In the fiscal year 1961, these programs are estimated to cost $3.9 billion, an increase of $450 million over 1960, but a decrease of $1.2 billion from 1959.

Under present laws, price support expenditures for agricultural commodities cannot be controlled through regular budgetary processes. They are the result, mainly, of the loans and commodity purchases that the Commodity Credit Corporation is required to make, and the other price and income-supporting programs that the Corporation is required to finance, under existing laws. These expenditures reflect the volume of production, consumption, and exports of price-supported commodities, which, in turn, are influenced by such uncertain factors as the weather and domestic and foreign economic conditions.

The budget estimate for 1961 reflects the residual effect of the large 1958 and 1959 crops and assumes that yields on price-supported crops for the 1960 crop year will be in line with recent averages; also exports of farm commodities in the fiscal year 1961 may be down somewhat from the high level expected in 1960.

The Sugar Act expires on December 31, 1960. To give sugar producers maximum time for production planning, action should be taken early in the present session of the Congress to continue this program.

We are continuing to use our surplus agricultural production in many ways for constructive purposes overseas through the "food for peace" program. Under the Agricultural Trade Development and Assistance Act of 1954 (Public Law 480), surplus wheat, cotton, corn, rice, and other commodities are being sold abroad for foreign currencies. These currencies are used principally as loans or grants for the economic development and common defense in foreign countries, and to a lesser extent to finance various U.S. programs abroad. Surplus commodities are also being given to foreign governments for emergency relief needs and to private relief organizations in support of their programs abroad; over 60 million needy people benefited this past year from these donation programs. Last year the executive branch proposed certain amendments which, if enacted, would have made this surplus disposal program more effective. It is recommended that the Congress again consider these amendments.

Rural electrification and telephones.--About 96% of our farms now have central station electric service, as compared with 11% in 1935. The expanding use of power in the areas served by electric cooperatives financed by the Rural Electrification Administration continues to require substantial amounts of new capital every year to provide additional generating capacity and heavier transmission and distribution facilities. More than one-half of the total power sales by the REA system are made to rural industrial, recreational, and other nonfarm customers. These nonfarm users now comprise over 80% of the new customers being added.

The Rural Electrification Administration currently finances the capital needs of the cooperatives by borrowing from the Treasury at the statutory interest rate of 2 % and relending at the same rate. Legislation is proposed under which REA would (a) borrow from the Treasury at not to exceed the average rate of interest payable by the Treasury on recently issued long-term marketable obligations, and (b) make future electric and telephone loans at the same rate plus one-fifth of 1 % to cover administrative expenses and estimated losses. Legislation now before the Congress to place the operations of this agency on a revolving fund basis should also be enacted.

It is vital, looking ahead, that legislation be developed to enable telephone as well as electric borrowers to obtain funds from a mutually owned financing institution to meet the needs for the future growth of these borrowers. Under this longer range plan, loans would also be available from the Rural Electrification Administration to meet special circumstances. The Secretary of Agriculture will work with REA cooperatives and other interested parties in developing such a proposal.

Farm ownership and operation.--In 1961, new direct loans and administrative expenses of the Farmers Home Administration are proposed in an amount equal to estimated collections on outstanding loans. Loans are made to borrowers who are unable to obtain credit from other sources at interest rates currently prevailing in their communities in order to finance farm ownership and enlargement, farm operations, and soil and water conservation. Direct loans for farm ownership and soil and water conservation are supplemented with private loans insured by the Federal Government.

The present authority of the Secretary of Agriculture to make loans to farmers and ranchers is the cumulative result of the enactment of many separate laws over a long period of years. The legislation now before the Congress to simplify, consolidate, and improve the authority of the Secretary of Agriculture to make these types of loans should be enacted. Also, the pending legislation to require the States to share a greater part of the costs of farm disaster relief assistance should be enacted.

Conservation of agricultural resources.--Expenditures under the conservation reserve program are expected to be $394 million in the fiscal year 1961. Of this amount $362 million will be needed to fulfill commitments incurred in the crop years 1956 through 1960 under existing authority, and $32 million will be used for conservation practice payments and additional operating expenses under proposed legislation to extend this program for three years. Under the proposed legislation it is planned to add about 9 million additional acres to the program during the 1961 crop year, bringing the total at the end of that crop year to about

37 million acres. Increases in expenditures required for the 1961 crop year program will occur mainly in 1962 and later fiscal years.

In both the 1959 and 1960 appropriation acts, the Congress maintained the agricultural conservation program at levels which far exceeded my recommendations. As a result, expenditures of the Agricultural Conservation Program Service are estimated to be $244 million in 1960 and $233 million in 1961. The advance authorization for the 1961 agricultural conservation program, which will affect primarily fiscal year 1962 expenditures, should be limited to $100 million. The lower program recommended, together with other public aids for soil and water conservation, will meet the Nation's high-priority conservation needs.

Federal policy on cost-sharing assistance in the future should be concentrated on conservation measures which will foster needed shifts to less intensive uses of cropland, and assistance should be eliminated for practices which increase capacity to produce agricultural commodities already in surplus supply. Continuation of cost sharing for output-increasing practices would directly conflict with the recommended expansion of the conservation reserve program under which cropland is removed from production.

New obligational authority of $43 million is recommended for the upstream watershed programs, including $28 million for projects under the Watershed Protection and Flood Prevention Act. Of this amount, $5 million is provided to initiate construction on projects involving an estimated total Federal cost of $ 29 million.

New obligational authority of $10 million is requested for the Great Plains conservation program, the same as for 1960. Under this program conducted in designated counties of the 10 Great Plains States, the Federal Government provides cost-sharing and technical assistance to farmers who enter into long-term contracts to make needed adjustments of land use on their farms.

Research and other agricultural services.--Expenditures for research, education, and other agricultural services, exclusive of programs financed with foreign currencies, will be about $8 million higher in the fiscal year 1961 than in 1960. This amount will provide increased support for the research programs on pesticide residues and on industrial uses of farm commodities. It will also provide increased support for the rural development program which is making an important contribution to the solution of the economic problems of rural areas arising out of technological changes in agriculture and inadequate employment opportunities.

In addition, it is estimated that $19 million will be spent in 1961 for the purchase of foreign currencies, obtained from the sale of surplus farm commodities, to be used for research and market development work abroad. This compares with approximately $12 million in foreign currencies to be used for this purpose in 1960.

NATURAL RESOURCES

The recommendations in this budget for Federal natural resource programs take into account their great importance to the Nation's economic growth and security.

The estimated total of $1.9 billion to be spent in the fiscal year for natural resources is more than has been spent for this purpose in any previous year. The increase of $152 million over 1960 is predominantly for water resources programs.

Water resources.--The Corps of Engineers and the Bureau of Reclamation will spend an estimated $1.2 billion in the fiscal year 1961 to construct, maintain, and operate flood control, navigation, irrigation, power, and related projects. This record total includes, in addition to operating costs, $965 million to continue construction on projects started in 1960 or prior years, $12 million for advance planning, and $18 million for the first-year expenditures on 42 proposed new starts. These new projects, as well as three new construction starts by the Tennessee Valley Authority and one by the International Boundary and Water Commission, are recommended in this budget in the interest of balanced development of water resources.

For the Corps of Engineers, appropriations (as distinct from the expenditures previously discussed) of $21 million are required for starting 31 new projects and for an additional number of smaller projects costing less than $400,000 each. The estimated commitments for these new projects total $301 million. Appropriations of $6 million for 1961 are recommended for the Bureau of Reclamation to begin construction on six projects with total estimated commitments of $184 million, and $11 million for loans which will be used by local groups to start work on five small reclamation projects.

I again recommend that the Congress authorize the Fryingpan-Arkansas project in Colorado.

To carry forward the joint development of the waters of the Rio Grande, construction should be started on the Amistad (Diablo) Dam, in accordance with the treaty of February 3, 1944, between the United States and Mexico. I urge the Congress to enact promptly the legislation now needed to authorize negotiation of an agreement for this construction. Funds will be requested for the U.S. share of the first-year cost of this project following enactment of the legislation. Provision is made in this budget to begin modification of the lower Rio Grande levee system.

Under legislation enacted during the past session, the Tennessee Valley Authority plans to issue an estimated $115 million of revenue bonds in 1961. These funds will be used to help finance construction of a second unit in the Paradise steam powerplant and of other units under way, including new generating capacity in the eastern part of the TVA area. The Authority will start construction of the Melton Hill project for navigation and power. In accordance with this administration's policy, and as authorized under the Tennessee Valley Authority Act as amended by the recently enacted revenue bond legislation, the power facilities portion of this project will be financed from net power proceeds and revenue bonds, and the remaining portion will be financed from appropriations. With the completion of the Wilson lock, the present lock at Wheeler Dam will be a bottleneck for shipping on the Tennessee River. Appropriations are therefore recommended for 1961 to begin construction of a new lock at Wheeler Dam.

NATURAL RESOURCES

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Land and water resources:

Corps of Engineers $779 $860 $910 $936

Department of the Interior:

Bureau of Reclamation 246 234 300 314

Power marketing agencies 33 40 40 40

Indian lands resources 57 62 57 41

Public domain and other 33 36 40 38

Saint Lawrence Seaway Development

Corporation 15 7 4

Tennessee Valley Authority 7 35 73 21

Federal Power Commission 7 7 8 8

Department of State and other 5 6 9 9

Mineral resources 71 66 64 63

Forest resources 201 223 222 191

Recreational resources 86 87 87 54

Fish and wildlife resources 68 70 71 68

General resource surveys

and other 60 53 53 53

Total 1,669 1,785 1,938 ¹1,836

1Compares with new obligational authority of $1,742 million enacted for 1959 and $2,538 million (including $32 million of anticipated supplemental appropriations) estimated for 1960.

Research for converting sea water and brackish water into fresh water, carried on cooperatively by the Department of the Interior and nonfederal groups, has progressed to the point where some processes are in the development stage. Construction will begin in 1960 at Freeport, Tex., on a demonstration plant for conversion of sea water, and $1.5 million is recommended in the 1961 budget for the Federal cost of building the first brackish water plant as well as a second sea water plant. Advance planning will be completed in 1961 on two additional demonstration plants.

Cost-sharing on flood protection projects.--It is essential that legislation be promptly enacted to establish a consistent basis for cost-sharing on projects which provide flood protection benefits. At the present time, the various Federal agencies responsible for flood protection operate under different and confusing cost-sharing standards. The non-Federal contributions vary from zero to over 60%. This intolerable situation should be corrected. Legislation now before the Congress would require generally that identifiable non-Federal interests receiving flood protection benefits bear at least 30% of the costs of flood protection. The value of lands, easements, and rights-of-way contributed locally would be included as part of this non-Federal share. The cost of operation and maintenance would also be a State or local responsibility.

Mineral resources.--Amendments to the Helium Act were recommended last year to carry out a long-range plan for conserving helium. This lightweight nonflammable gas is important to the Nation's atomic energy and missile programs, and known deposits of it are extremely limited. Under the legislation proposed, private industry would be encouraged to finance, build, and operate plants which would make helium available for conservation by the Department of the Interior. Prompt enactment is needed to check the waste of this essential gas.

The Bureau of Mines will continue its research on improved methods of production and utilization of coal and other minerals. Legislation is again recommended to grant authority to the Secretary of the Interior to contract for coal research, thus allowing the Secretary to use outside scientific resources to assist the coal industry.

Other resource programs.--In the fiscal year 1961, programs for conserving and developing the resources of the public domain and Indian lands will be carried on at about the 1960 levels. Although total expenditures for forest resources are estimated at about the same level in 1961 as in 1960, some increases are provided in 1961 to carry forward the long-range program of the Forest Service for conservation and development, including added facilities and services to accommodate campers and picnickers. It is expected that these increased expenditures will be offset by a decrease in the unusually large 1960 outlays for fighting forest fires.

Receipts from the timber, grazing, and mineral resources on these public lands are estimated to increase to a total of over $400 million in 1961, including revenues from mineral leases on the Outer Continental Shelf. To obtain a more adequate return for use of federally-owned resources, legislation is again recommended to revise the fee schedule for noncompetitive oil and gas leases on public domain lands.

In the interest of improving efficiency and providing convenience for the non-Federal parties concerned, certain functions with respect to land and timber exchanges should be transferred from the Secretary of the Interior to the Secretary of Agriculture by legislation embodying the basic provisions of Reorganization Plan No. 1 of 1959, which was disapproved by the Congress. In these exchanges, the Government obtains non- Federal lands in exchange for national forest lands administered by the Secretary of Agriculture or for timber on such lands. This legislation is needed to simplify the work relating to these land exchanges.

Each year more of our citizens use and enjoy the national parks. Expenditures of $86 million estimated for the National Park Service in 1961 for recreational resources will provide for additional urgently needed facilities and services for visitors, for maintenance and operation of the present facilities, and for selective acquisition of lands to add to existing park areas.

Before it is too late we should take steps to preserve, for public benefit, part of the remaining undeveloped shore areas. I hope, therefore, that the Congress will enact during this session the legislation proposed in the last session to permit the Secretary of the Interior to select and acquire for the national park system three areas which would be of national significance because of their outstanding natural and scenic features, recreational advantages, and other public values.

Contract authority is available to finance planned construction of parkways, roads, and trails in the national parks and forests and on Indian lands during 1961. Beginning in 1962, this construction should be financed by direct appropriations, and the budget so contemplates.

Recent legislation increased the fee charged to hunters of migratory birds and earmarked these revenues for acquisition of lands for refuges and nesting areas. In 1961 land acquisitions from these revenues will be four times those of the current year. Other proposed increases in expenditures for fish and wildlife resources are mainly for fishery research.

LABOR AND WELFARE

Budget expenditures for labor and welfare programs in the fiscal year 1961 are estimated to reach an all-time high of $4.6 billion, of which three-fourths will take the form of grants to States and localities. The total expenditures are estimated to be $128 million more than for the current year. The largest increase is for promotion of public health, mainly for research and hospital construction, as a result of much larger appropriations by the Congress in previous years. Significant increases are also estimated for the support of basic research provided by the National Science Foundation and for the defense education and public assistance programs of the Department of Health, Education, and Welfare.

Budget expenditures for labor and welfare programs will be more than double the amount a decade ago. During the same period, trust fund expenditures for these programs, including social security and unemployment compensation, will have quintupled to an estimated $16.2 billion in 1961.

New obligational authority recommended for 1961 totals $4.5 billion, about the same as for 1960 but $356 million more than for 1959. Reductions from 1960 are recommended in the grant-in-aid programs for assistance to schools in federally-affected areas, for hospital construction, and for waste treatment works construction. Larger appropriations are proposed for other presently authorized activities in the fields of science, vocational rehabilitation, education, welfare, and health. In addition, a number of new programs are recommended to meet important national needs, particularly in the education and labor fields.

In the last several years great strides forward have been made in the social security, welfare, and health fields. The Secretary of Health, Education, and Welfare is continually reviewing the various programs in these fields for the purpose of determining where improvements should be made. As needs for improvement are found, appropriate recommendations will be made.

EDUCATION AND RESEARCH.--Our Nation seeks to foster a climate of freedom and creativity in which education, the arts, and fundamental science can flourish. The Federal Government helps in the attainment of these objectives through programs for support of basic research, aid to educational institutions, and training assistance to individuals in various fields important to the national interest. In this budget I recommend increased appropriations for high-priority education and research programs and enactment of new legislation to authorize additional aids to education.

LABOR AND WELFARE

[Fiscal years, In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Promotion of education:

National Science Foundation,

science education $51 $54 $59 $70

Department of Health,

Education, and Welfare:

Defense education program 78 134 171 171

Assistance to schools in

federally-affected areas 216 234 207 171

Vocational education and other 63 67 67 69

Other, primarily Bureau of

Indian Affairs 60 60 62 65

Promotion of science, research,

libraries and museums:

National Science Foundation,

basic research 55 71 101 122

Department of Commerce:

Bureau of the Census 23 91 36 29

National Bureau of

Standards and other 12 22 33 50

Other 27 37 50 45

Labor and manpower:

Temporary extended

unemployment compensation 447 --7

Grants for administration of

employment service and

unemployment compensation 306 323 311 326

Other 91 99 124 126

Promotion of public health:

National Institutes of Health,

research grants and activities 265 364 390 400

Grants for construction of

health research facilities 23 26 29 25

Hospital construction grants 136 144 161 126

Grants for construction of

waste treatment facilities 36 45 45 20

Other 243 271 279 276

Public assistance 1,969 2,056 2,087 2,087

Correctional and penal institutions 39 46 48 57

Other welfare services:

School lunch and special

milk programs 218 234 234 225

Other 6 1 71 76 79

Total 4,421 4,441 4,569 ¹4,538

1Compares with new obligational authority of $4,182 million enacted for 1959 and $4,543 million (including $22 million in anticipated supplemental appropriations) estimated for 1960.

I am recommending repeal of the provision of the National Defense Education Act that prohibits payments or loans from being made to any individual unless he executes an affidavit that he does not believe in or belong to any organization that teaches the illegal overthrow of the Government. This affidavit requirement is unwarranted and justifiably resented by a large part of our educational community which feels that it is being singled out for this requirement.

Education.--Expenditures for the education-aid programs authorized by the National Defense Education Act of 1958 will increase sharply in 1961. During the current school year more than 100,000 students from 1,368 colleges, about four times the number of students last year, are expected to borrow from college loan funds to which the Government makes repayable advances. A supplemental appropriation of nearly $10 million is proposed to enlarge this loan program for 1960. A small increase in appropriations is recommended for 1961 pending further experience on the fate at which loans will be made to students. Increases are also proposed for fellowships for prospective college teachers; for grants to States for science, mathematics, and foreign language teaching equipment; for research in the educational use of television and other media; for contracts with universities for training of counselors and for foreign language training; and for grants to States for vocational training in occupations requiring scientific skills.

Appropriations of $70 million are requested for aids to science education programs administered by the National Science Foundation, an increase of $3 million over the amount provided in 1960.

The budget includes the same aggregate amount for vocational education programs as was appropriated this year, but with shift in emphasis. The need for Federal assistance in the vocational education programs begun in 1917 for the purpose of stimulating training in agriculture, home economics, industrial trades, and distributive occupations is not as great as for promotion of training in new science-age skills. Thus as increased funds for training needs in new skills are provided under the National Defense Education Act, Federal assistance for the older programs is being reduced by a corresponding amount.

Appropriations recommended for 1961 to assist school districts whose enrollment comes partially from children whose parents work or reside on Federal property are $54 million below those enacted for 1960 and are in line with requirements under legislation proposed by the administration last year. The appropriation recommended for these programs is the maximum which I believe should be provided. The substantial increase in Federal employment during World War II, which led to the enactment of this legislation in 1950, has been superseded by a relatively stable Federal establishment. In many cases, the presence of Federal installations in the communities adds to rather than detracts from the revenue base for the support of schools. This is particularly true where parents employed by the Government live on private property which is subject to State and local taxation even though they earn their income on nontaxable Federal property. The proposed legislation would discharge more equitably the Federal responsibility in these districts, and its prompt enactment by the Congress is recommended.

The pressing need now is not for aid to federally-affected districts on the basis initiated in 1950 but for general aid to help localities with limited resources to build public schools. Despite encouraging progress in the rate of school construction, many school districts are still finding it difficult to avoid overcrowding and double sessions as enrollments continue to mount. Moreover, increasing secondary school enrollments require facilities which are much more costly than elementary school classrooms. Last year the administration recommended legislation authorizing annual Federal advances to local school districts to pay up to half the debt service (principal and interest) on $3 billion of bonds to be issued in the next five years for school construction. This legislation is designed to stimulate, not supplant, additional State and local effort. Affirmative action should be taken this year on that proposal.

Congressional approval of the administration's proposals for aid to higher educational institutions is also essential. The enrollment growth facing colleges and universities from 1960 to 1975 brings a need for additional academic, housing, and related educational facilities. To help colleges finance the construction required, the administration's proposal would authorize Federal guarantees of $1 billion in bonds with interest subject to Federal taxation, and would provide Federal grants, payable over 20 years, equal to 25% of the principal of $2 billion of bonds. This program would provide aid on a much broader basis, and result in the construction of much larger total amounts of college facilities per dollar of Federal expenditures, than the present more limited college housing loan program which should be allowed to expire.

Basic research.--To provide a strong foundation of fundamental scientific knowledge for the Nation's future advancement, this budget provides, in various functional categories including major national security, expenditures totaling more than $600 million for support of basic research in 1961.

Appropriations of $122 million are recommended for support of basic research by the National Science Foundation, an increase of $34 million over 1960. The total includes $79 million for basic research projects and $15 million for grants to universities for modernization of graduate level laboratories under a program initiated in 1960. Increased support is also provided for scientific work of the Bureau of Standards, including funds for two new laboratories, as a first step in the construction of completely new facilities for the agency.

Oceanography.--Federal support of oceanography and related marine sciences is being substantially augmented by several agencies under a long-range program developed by the Federal Council on Science and Technology to strengthen the Nation's effort in this field. This program stems from a study undertaken by the National Academy of Sciences at the request of several agencies. The expansion of oceanographic research will be undertaken by the Navy, the Departments of Commerce and the Interior, and the National Science Foundation. Funds are provided for the construction of new vessels and the replacement of obsolete vessels, and for increased support for research by private institutions.

Government statistical services.--Adequate and timely national statistical information is essential for recording and appraising the performance of the Nation's economy, and for formulating public and private policies. Activities planned in various agencies for the fiscal year 1961 will help close significant gaps in our statistical information and make improvements in current data. Obligations for these purposes in the various functional categories of the budget are estimated at $62 million, including $20 million for the decennial census and other periodic statistical programs.

This budget includes funds for tabulating and processing basic economic and demographic data collected through the Eighteenth Decennial Census, and for the final publication of the results of the 1958 censuses of business, manufactures, and mineral industries. Other recommendations include the initiation of a new series on the service trades and the improvement of data on retail trade, on consumer prices, on health, on crop and livestock production, and on State and local government finances.

LABOR AND MANPOWER.--Last year the administration recommended and the Congress enacted much-needed legislation designed to protect workers and the public from racketeering, corruption, and abuse of democratic processes which had been disclosed in the affairs of a few labor unions. To assure effective and efficient administration of this new law, the budget recommends supplemental appropriations in 1960 for the National Labor Relations Board and the newly established Bureau of Labor-Management Reports in the Department of Labor. Increased appropriations are proposed for both agencies for 1961. Additional funds needed by the Department of Justice will be requested later when requirements can be better determined.

Appropriations of $326 million are requested in the fiscal year 1961 for grants to the States to administer the Federal-State employment security system with its network of 1,800 offices throughout the country. These grants are now financed from an earmarked Federal tax and the transactions involved increase both budget receipts and expenditures, even though these funds cannot be used for general Government purposes. Legislation proposed by the administration last year for financing this program through the unemployment trust fund should be enacted. Amounts equal to the proceeds from this tax could then be placed directly in the trust fund from which the necessary grants could be appropriated and an adequate balance could be maintained as a reserve for employment security purposes. The administration of the program would then be financed in essentially the same way as other major social insurance programs.

The job placement services and unemployment compensation payments provided through the State employment security offices are important for a smoothly operating free labor market in a growing economy. These services and payments provide also for security against economic hardship for the work force covered by the system. I again urge the enactment of legislation to extend unemployment compensation to some 3 million workers, primarily those employed in small enterprises. Some States have recently made encouraging progress in increasing the duration and level of benefits, but more needs to be done and additional States should take these steps.

Action is needed to strengthen the financial position of the unemployment compensation system. Although the reserves of most States proved adequate in the past recession, a few were and still are in a precarious condition. Moreover, reserve funds in most States have fallen behind the growth in payrolls during the last decade, and in certain States could be inadequate in the event of future economic distress. I have asked the Secretary of Labor to make a study of this problem and to report to me his conclusions.

Previously proposed amendments to strengthen the basic authority in the Welfare and Pension Plan Disclosure Act should be enacted, and the protection of the Fair Labor Standards Act should be extended to several million additional workers in accordance with previous recommendations. Legislation is likewise again proposed to assure equal pay for equal work, and to strengthen and improve laws governing hours of work and overtime pay on direct Federal and certain federally-aided construction projects.

PUBLIC HEALTH.--Advances in medical technology and the spread of private health insurance have played important roles in raising the level of health services for our rapidly growing population. At the same time, the growing demand for better health care has contributed to shortages of facilities, medical and scientific manpower, and supporting health workers, as well as to the rising cost of medical and hospital services.

In order to deal effectively with these developments, the Federal Government has expanded its public health programs and is actively seeking solutions to the Nation's health problems. Expenditures in the fiscal year 1961 are estimated to total $904 million, which is $53 million more than in 1960 and nearly three times the level five years earlier. The largest part of the increase is for medical research and training of research workers through programs of the National Institutes of Health, for which the estimated expenditures of $390 million in 1961 will be four times as great as five years ago. Expenditures for hospital construction grants are estimated at $161 million in 1961, a threefold increase during the same period.

The Department of Health, Education, and Welfare will insist on maintaining high standards in determining the acceptability of medical research projects for Federal support. As I indicated last August in approving the 1960 appropriations for the Department, it is essential that Federal grants for these projects be so administered that medical manpower is not unduly diverted from other pressing needs and that Federal funds are not substituted for funds from private sources. The 1960 appropriation of $400 million for the National Institutes of Health will not be entirely committed this year even with advanced funding of certain training programs. I am recommending that 1961 appropriations to the National Institutes of Health continue at the high level of 1960.

The recommended appropriation for the Hill-Burton hospital construction program for 1961 is consistent with the levels achieved by this program before the 1958 recession. It will assure that sufficient new general hospitals can be financed to keep pace with population growth, cover current obsolescence rates, and provide for 6,000 new beds to reduce the' backlog of needs. The remainder of this program, covering diagnostic and other special facilities, would approximate the 1959 and 1960 levels.

The 1961 appropriation proposed for construction of waste treatment facilities is the same as that requested for 1960. It represents the maximum amount which I believe is warranted for a construction program which is and should remain primarily a State and local responsibility.

Larger appropriations are proposed for other health programs where present or impending needs create urgent priorities. Emerging health problems of increasing seriousness to our population arise from the complexities of the environment in which we live. To cope with the far-reaching problems of environmental health on a more systematic and intensive basis, this budget provides substantial increases to the Public Health Service for air pollution, water pollution, and radiological health control activities. These increases for radiological health, together with the stepped-up activity by the Atomic Energy Commission and other agencies, will permit a greatly intensified effort by the Federal Government in this field. In order to provide for more effective Federal air and water pollution control activities, the Secretary of Health, Education, and Welfare will make legislative recommendations to strengthen the enforcement provisions of the Water Pollution Control Act and to authorize greater Federal leadership in combating air pollution.

Rapid technological developments in the production, processing, and marketing of foods, drugs, and other products likewise underline the necessity for more research and action for the protection of the consumer, To meet this need, the budget continues to emphasize an orderly expansion of the Food and Drug Administration, expenditures for which will be more than double those five years ago.

SOCIAL INSURANCE AND OTHER WELFARE.--The social security insurance system now provides basic protection against loss of income from death, disability, and retirement to about 85% of our labor force. Another 8% are covered under the railroad retirement system and other public retirement systems.

Social security and public assistance.--At the present time 10 million of the 16 million people aged 65 and over are receiving monthly old-age or survivors insurance benefits. This vast insurance system, which will pay $11.7 billion in old-age, survivors, and disability benefits to 14.6 million people of all ages in 1961, is administered at a cost of about 2% of the social security taxes.

Our social insurance and public retirement systems provide basic protection to the worker and his family. For those who have no such protection and whose incomes are insufficient to meet basic needs, the Federal Government shares, through grants to the States, in providing four categories of public assistance payments. These are (1) old-age assistance, (2) aid to the blind, (3) aid to dependent children, and (4) aid to the permanently and totally disabled. In 1961, the Federal share for payments, made to an estimated monthly average of 5.9 million beneficiaries, will total an estimated $2.1 billion, or about 58% of the total Federal-State-local public assistance expenditures. This contrasts with Federal expenditures of $1.1 billion, representing a Federal share of 52 %, for payments to 4.9 million individuals in 1950.

Public assistance has long been recognized as primarily a responsibility of the State and local governments, because need for these payments in individual cases can best be determined at the local level. I am particularly concerned about the growing Federal share, especially because it tends to weaken this sense of State and local responsibility.

While we are spending hundreds of millions for aid to the needy, there are large gaps in our knowledge of the causes of dependency and of the best ways to alleviate or prevent it. I believe that appropriations to initiate a program of research and demonstration projects designed to identify and alleviate these causes are highly necessary and I have so recommended in this budget.

Military service credits.--It has long been recognized that military service should be counted towards the rights of employees under the various public retirement programs. Likewise, where employees are not required to make payroll contributions during military service, the trust funds from which benefits based on such service are paid should be reimbursed by the Government. However, the Federal Government should not, as required under the Railroad Retirement Act, pay more than the true cost of such benefits or pay to both the railroad retirement account and to the old-age, survivors, and disability insurance trust funds for the same military service benefits.

Accordingly, I repeat my earlier recommendation that the Federal Government should reimburse the railroad retirement account only for the actual added cost of benefits resulting from military service. Pending action on legislation dealing with substantial overpayments found by the Comptroller General, no provision is made in this budget for further Federal military service payments to either the railroad retirement account or the old-age, survivors, and disability insurance trust funds.

Other welfare services.--This budget includes recommended appropriations for vocational rehabilitation totaling $72 million for the fiscal year 1961, primarily for grants to help the State agencies rehabilitate an estimated 93,000 individuals, about 6% more than in 1960.

Grants to all school systems in the States through the school lunch and special milk programs of the Department of Agriculture are estimated at $234 million in 1961, approximately the same as in 1960. These programs will provide improved diets for 11.8 million children, on the average, in 1961. The 1961 amount is in addition to the commodities which are distributed to the schools through the disposal programs classified in this budget under agriculture and agricultural resources.

The health, employment, income, and other needs of the increasing number of elderly people in our population can be met only through the combined efforts and cooperation of private, local, State, and Federal organizations and agencies. The White House Conference on Aging, to be held in January 1961, and the State conferences which precede it should help point the way toward more productive and satisfying living for our aged citizens.

The realization of our aspirations for a better society in the years to come will in large measure depend upon the way in which our children and youth are prepared to realize their maximum potential. This will be the vital concern of the White House Conference on Children and Youth, which will be held in March 1960 and through which private and public organizations will endeavor to bring their wisest and most expert counsel together on this vitally important matter.

VETERANS SERVICES AND BENEFITS

Expenditures for veterans programs are estimated to rise by $314 million to $5.5 billion in 1961, chiefly because of additional pension cases and higher pension rates, both authorized by the Veterans' Pension Act of 1959. The increase for pensions, amounting to $438 million, will be partly offset by a decrease of $128 million in readjustment benefit expenditures.

Programs of the Veterans Administration, providing compensation and pension, medical, and readjustment benefits for the Nation's veterans, rank fourth in size among all Government functions in this budget. Total expenditures for these programs, as presently authorized, will continue to increase in future years as our veterans advance in age. The 23 million living veterans, together with the dependents and survivors of veterans, comprise a total of 81 million people, a considerable proportion of whom are potential recipients of one or more types of benefits.

This country has provided a wide range of benefits and services for war veterans and their families to meet needs resulting from military service. Disability and death compensation benefits have been provided for veterans who were injured in the service or for their survivors. The Servicemen's and Veterans' Survivor Benefits Act of 1956 improved the death benefit structure both for wartime and peacetime servicemen. In 1957, general disability compensation rates were increased by 10%, and a still larger increase was enacted in the basic rate for the totally disabled.

A first-rate hospital and medical care program is also being provided. During the past year a long-range policy for stabilizing the Veterans Administration's hospital program at 125,000 beds has been established, and beginning with the 1961 budget a 12-year hospital modernization program is being initiated that will ultimately cost $900 million.

The 21 million veterans who served during World War II or the Korean conflict were eligible for benefits from the highly successful readjustment programs. For the 16 million World War II veterans the GI bill provided unemployment and self-employment compensation payments to 9.7 million veterans; education and training benefits to 8.4 million veterans; and loan assistance to 5 million veterans for the acquisition or improvement of homes, farms, and businesses. Except for the loan guarantee and direct loan programs, which will terminate on July 25, 1960, the World War II readjustment benefits have essentially expired. Similar readjustment programs, which will continue into 1965 for veterans of the Korean conflict, have already provided 2.3 million veterans with education and training benefits and 700,000 with loans. The special unemployment compensation program for Korean conflict veterans which ends in 1961 has aided 1.3 million veterans. No further extension or liberalization of these benefits is needed.

The long-standing veterans pension program also provides special assistance to war veterans for needs not arising from military service. The Veterans' Pension Act of 1959 was an important step in the modernization of the program. It eliminated the disparity in eligibility for pensions between the widows of World War I veterans and those of later wars, and provided higher benefits for all persons who could demonstrate need under a new sliding scale income test. No further liberalization of the laws concerning pensions for non-service-connected disability is proposed.

In addition to the special veterans programs, a great majority of veterans participate in the general social security, health, and welfare programs which are financed wholly or in part by the Federal Government. In the future these general programs will provide with increasing adequacy for the economic security needs of our elderly population, of which veterans and their widows will constitute a large and increasing proportion for several decades.

VETERANS SERVICES AND BENEFITS

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Readjustment benefits:

Education and training $574 $445 $316 $286

Loan guarantee and other benefits 133 115 124 124

Unemployment compensation 44 8

Compensation and pensions:

Service-connected compensation 2,070 2,071 2,066 2,066

Non-service-connected pensions 1,153 1,278 1,716 1,716

Burial and other allowances 52 58 58 58

Hospitals and medical care 875 906 928 933

Hospital construction 45 60 63 75

Insurance and servicemen's

indemnities 35 36 31 49

Other services and

administration 193 180 169 168

Total 5,174 5,157 5,471 ¹5,476

1Compares with new obligational authority of $5,125 million enacted for 1959 and $5,176 million (including $114 million in anticipated supplemental appropriations) estimated for 1960.

Readjustment benefits.--Readjustment assistance is expected to decline significantly from 1960 to 1961, primarily because of the reduction in the number of veterans of the Korean conflict participating in educational or vocational training programs. An average of 225,000 veterans will receive training in 1961, compared to 325,000 in 1960 and 425,000 in 1959. Educational benefits for war orphans, which were enacted in 1956, are expected to total over $17 million in 1961.

Peacetime ex-servicemen are recognized as being in a different category from wartime veterans because of the different conditions under which they serve. Those who serve in peacetime undergo fewer rigors and hazards than their combat comrades. The disruption of their educational plans and careers is minimized under peacetime selective service procedures. While on active service they now receive substantial pay and benefits, and they return to civilian life under more favorable conditions after receiving valuable training while in service.

To discharge its responsibility to peacetime ex-servicemen, the Federal Government has provided unemployment compensation, employment service and reemployment rights, and service-connected disability or death compensation. One additional benefit should be added to these in accord with my earlier recommendations: a program of vocational rehabilitation for those with substantial service-connected disabilities. On the other hand, I oppose the establishment of special educational and loan guarantee programs for peacetime ex-servicemen. Such benefits are not justified because they are not supported by the conditions of military service. Moreover, they would be directly contrary to the incentives which have been provided to encourage capable individuals to make military service a career.

Compensation and pensions.--Expenditures for compensation for service-connected disabilities and deaths will show only a minor change in 1961. A reduction in the number of World War I and II veterans on the rolls will be offset somewhat by the addition of veterans of the Korean conflict and peacetime ex-servicemen. Compensation will be paid for an estimated 2.4 million cases during 1961.

The net impact of the 1959 law governing non-service-connected pensions is to add several hundred thousand new cases to the rolls at an estimated additional cost of $284 million in 1961 and an estimated cumulative cost of $9 billion during the next 40 years. Expenditures are also increasing because of the growing number of World War I veterans reaching age 65. Approximately 40% of all World War I veterans over 65 are now receiving pensions. An average of 1.9 million veterans and families of deceased veterans are expected to receive pensions in 1961; this is 26% more than in 1960 and 38% more than in 1959.

Hospital and medical services.--The budget includes $928 million of expenditures in 1961 for hospital and medical care for veterans. The increase of $22 million from 1960 is to continue improvements in the staffing and quality of service in the hospitals and to meet the higher costs of hospital and medical care generally. Hospital and domiciliary care will be provided during the year for an average of 141,250 beneficiaries per day, and a total of 2,300,000 veterans will receive medical or dental care for service-connected disabilities in outpatient clinics.

Hospital construction.--As a first step toward an orderly 12-year program for modernization of existing veterans' hospital facilities, an appropriation of $75 million is proposed for 1961. Of this total, $53 million is for construction of replacement hospitals at Cleveland, Ohio (800 beds); Washington, D.C. (700 beds); and Martinez, Calif. (500 beds). The remainder is for a large number of modernization projects.

Administration.--The general operating expenses of the Veterans Administration are expected to decline approximately 7% in 1961, reflecting decreased workloads in loan and educational programs, improved administrative procedures particularly in insurance operations, and the application of modern electronic equipment to recording and paying veterans benefits.

INTEREST

Interest payments are estimated to rise $200 million to $9.6 billion in the fiscal year 1961. These payments, almost entirely for interest on the public debt, represent 12% of budget expenditures.

For a year and a half now, market rates of interest have been increasing, reflecting inflationary pressures, the high level of investment demands in our economy and heavy Federal borrowing required by the 1958 and 1959 budget deficits. The rise in market rates requires the Treasury to pay higher interest on securities issued to refinance the heavy volume of maturing obligations, which were issued when interest rates were lower.

It is imperative that the Congress lift the present legal ceiling of 4 1/4% on interest rates on all Government obligations having maturities of more than five years. Otherwise, interest payments could rise even more sharply. The current interest rate on shorter term securities is now higher than on long-term bonds, and the continued need to limit financing to the short-term market tends to raise interest rates more than if the financing could be spread over both the short- and long-term markets.

INTEREST

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Item actual estimate estimate for 1961

Interest on public debt $7,593 $9,300 $9,500 $9,500

Interest on refunds of receipts 70 75 75 75

Interest on uninvested funds 9 9 10 10

Total 7,671 9,85 9,585 9,585

GENERAL GOVERNMENT

Expenditures for general government activities are estimated to rise by $200 million to $1.9 billion in the fiscal year 1961, primarily because of increased construction of Government buildings and a new appropriation to the civil service retirement fund required by law.

Federal financial management.--There is growing evidence that a considerable amount of revenue is lost annually to the Government because of the failure of some individuals and businesses to report fully the income which they have received. The existence of such a condition seriously weakens the integrity of our tax system, and places an unfair share of the total tax burden upon the vast majority of citizens who conscientiously report all of their taxable income. This budget includes an increase of $29 million for the Internal Revenue Service, primarily to strengthen its enforcement programs, including initiation of an electronic computer system. I urge its approval as the first step in a long-range plan to prevent this revenue loss. The additional costs should be recovered many times through increased tax collections in later years.

General property and records management.--The efficient and economical operation of many Federal agencies is hindered by inadequate office space, much of which is rented. Accordingly, new obligational authority of $185 million is recommended for fiscal year 1961 for the planning and construction of additional general office space. Although no funds for such construction were appropriated for 1960, expenditures will rise in 1961 as outlays for new construction are added to those for construction initiated in prior years. In addition, the estimate for the legislative functions includes increased expenditures for a new office building for the House of Representatives.

GENERAL GOVERNMENT

[Fiscal years. In millions]

Recommended

Budget expenditures new obli-

gational

1959 1960 1961 authority

Program or agency actual estimate estimate for 1961

Legislative functions $102 $121 $146 $95

Judicial functions 47 50 53 53

Executive direction and

management 12 13 14 14

Federal financial management 566 560 591 595

General property and records

management 291 384 432 469

Central personnel management

and employment costs 205 198 251 251

Civilian weather services 46 52 58 63

Protective services and

alien control 216 218 229 230

Territories and possessions,

and the District of Columbia 89 96 126 124

Other general government 30 20 12 15

Total 1,606 1,711 1,911 ¹1,910

1Compares with new obligational authority of $1,795 million enacted for 1959 and $1,645 million (including $7 million in anticipated supplemental appropriations) estimated for 1960.

The General Services Administration, in collaboration with other agencies, has developed a new program for improved use of excess personal property by Federal agencies, and faster, more efficient disposal of surplus property. This involves more effective screening of such property and simplifying the procedures under which agencies are advised of its availability for other uses.

Central personnel management.--The Civil Service Commission and the Bureau of the Budget have recently recommended a long-range policy on financing the civil service retirement system. I hope the Congress will speedily enact these recommendations, which would assure continued availability in the fund of the full amount of the net accumulations from employee contributions and establish a definite basis for meeting the Government's share of the costs consistent with the principle that its full faith and credit support the authorized benefits.

A new appropriation of $46 million for payments to the civil service retirement fund is requested for 1961 to finance the costs of new or increased benefits enacted in 1958 for certain widows or widowers of former Federal employees and for certain retired employees. The law provides that these particular benefits cannot be continued after July 1, 1960, unless such an appropriation is made. Recipients of these benefits should enjoy the same assurance of uninterrupted payment as do other annuitants of the civil service retirement system, and the Federal liability in their case is not different from that for other benefits under this program. Accordingly, I recommend that the Congress consider, in connection with the legislation referred to in the preceding paragraph, authorizing the civil service retirement and disability fund to bear the future cost of these particular benefits without a specific appropriation.

The budget provides approximately $190 million to pay the Government's share of the Federal Employees Health Benefits Act of 1959, which becomes effective in the fiscal year 1961, and which will provide opportunity for approximately 2 million employees and 2.4 million dependents to have reasonable protection against the cost of both basic and major health care. This program will add substantially to employee fringe benefits, which in the aggregate now compare very favorably with those provided to employees in private industry.

In 1958 immediately following enactment of a 10% general salary increase for Federal civilian employees, I proposed to the Congress a review of all compensation systems in the three branches of the Federal Government, directed toward adoption of an equitable employee compensation policy. This recommendation was renewed in my budget message for the 1960 fiscal year.

It has been more than 30 years since a thorough-going review has been made of the manner in which the Federal Government compensates its employees. There are now dozens of pay plans in the executive branch alone. Review and coordination of the excessive number of pay plans now in existence are the most effective means of removing inequities which adversely affect the Government's ability to recruit and retain qualified personnel in some fields. Continued patching of individual Federal salary systems in not satisfactory as a substitute for a comprehensive Federal pay policy, which should be developed either by authorizing a Joint Commission such as I proposed or by some other equally effective means. Pending development and adoption of such a comprehensive policy, a general pay raise would be unwarranted, unfair to the taxpayers of the United States, and inequitable as among employees compensated under different and unrelated pay systems.

The budget estimates for the Post Office Department assume legislative action to continue that part of the 1958 salary increase for postal field service employees which expires on January 20, 1961.

Civilian weather services.--Appropriations totaling $63 million are recommended for the fiscal year 1961 for the Weather Bureau. The million increase over the amounts enacted for 1960 will permit expanded research, weather observation, and forecasting services. These improvements are necessary primarily to keep pace with advances in air traffic controls. Research projects include intensive investigation of hurricanes and tornadoes, and the development of a semiautomatic system for the collection and analysis of weather data.

Hawaii.--Our Union was greatly strengthened in 1959 by the admission of the States of Alaska and Hawaii. As in the case of Alaska, comprehensive legislation will be necessary to enable Hawaii to take its place as the equal of the other 49 States. Recommendations will be transmitted to the Congress concerning those changes needed in Federal laws in order to bring Hawaii under the same general laws, rules, and policies as are applicable to the other States.

Territories, Possessions, and District of Columbia.--Completion of action on statehood for Alaska and Hawaii makes it all the more urgent that legislation to provide home rule for the District of Columbia be enacted without delay. Both equity and efficiency require that the people of the Nation's Capital be given a voice in their own local government and that the role of the Federal Government be limited to matters of Federal concern.

Legislation will shortly be proposed to the Congress to establish a Government corporation to develop an improved mass transportation system in the National Capital metropolitan area, pending creation of an interstate agency to assume this responsibility.

To foster further development of democratic institutions and in keeping with the growth of local self-government, action should be taken to authorize the Virgin Islands and Guam to be represented in the Congress through nonvoting resident commissioners.

Intergovernmental relations.--There are many problems requiring attention of the recently established Advisory Commission on Intergovernmental Relations. Foremost among these are the problems of allocation of tax sources among various levels of government and rapid growth of metropolitan areas.

An aspect of intergovernmental relations requiring attention in both the legislative and executive branches involves a series of court decisions permitting local taxation of federally-owned property in the hands of contractors and leaseholders. This matter should be resolved in the context of the broader subject of Federal payments in lieu of taxes.

Other recommendations.--Legislation enacted in the last session of Congress to amend the immigration and nationality laws failed to cover several significant proposals, including modification of the quota system. Prompt action is needed on these remaining items.

To strengthen the Government's hand in restraining inflationary forces, I urge that the Employment Act of 1946 be amended to make reasonable price stability an explicit goal of Federal economic policy, coordinate with the goals of maximum production, employment, and purchasing power now specified in that Act.

I urge the Congress to enact the remaining six points of the civil rights program that I recommended last year. The Civil Rights Commission, extended for an additional two years by the last session of Congress, continues its important work and has developed additional constructive recommendations, particularly for protecting the right of every citizen to vote. I hope these recommendations will also be earnestly considered by the Congress.

I also recommend that the Congress create additional Federal judgeships, as proposed by the Judicial Conference, and strengthen Federal laws against organized crime.

Legislation will be submitted to increase the authorization for appropriations for the Commission on International Rules of Judicial Procedure in order that it may complete its work successfully.

It is important that legislation now before the Congress be enacted to provide reimbursement to Americans for certain property damage in Europe and the Far East during World War II for which compensation has not previously been authorized.

I again recommend that a system be devised for suitable recognition in the United States for distinguished achievement in various fields of endeavor.

IMPROVEMENTS IN BUDGETING, ORGANIZATION, AND MANAGEMENT

The decisions made by Government are vital to so many aspects of our national life that improvement of the procedures through which these decisions are made should be a continuing major goal. A substantial number of important specific steps can and should be taken to improve these practices.

Revisions in authorization and appropriation procedure.--Contract authority and authorizations to spend from debt receipts in basic legislation outside the appropriation process are generally inconsistent with sound standards of budget practice. The recommendations being placed before the Congress in this budget are based upon the principle that authority to make budget obligations and expenditures, whether financed from receipts or borrowing, should be granted by the Congress only in appropriation acts.

The Congress has shown a growing tendency to require the annual enactment of authorizing legislation before appropriations may be made. Space programs, some mutual security programs, military and atomic energy construction in this budget, and much of defense procurement beginning in fiscal 1962, will require separate authorizations before appropriations can be considered. Under this procedure these programs receive a duplicating review each year. At the same time the value of legislative consideration and expression of long-range program objectives and amounts is largely lost, and agency personnel devote an inordinate amount of time to the congressional process at the expense of effective administration of the continuing program. I hope the Congress will find it possible generally to make authorizing legislation cover program requirements for longer periods of time.

In the interest of good government, methods to expedite the authorization and appropriation processes should be found. In order to facilitate early consideration, and also to show the Government program more fully, this budget includes specific proposed appropriations for a number of programs for which authorizing legislation must also be renewed. In most of these cases, proposals for such legislation will be submitted in a very short time. This procedure should be an improvement over the past practice of delaying submission of detailed estimates until the renewing legislation has been enacted.

Before the executive budget is presented to Congress annually, the most careful consideration is given to the relationships of spending to receipts and borrowing, and to relative priorities of various programs. When the budget reaches the Congress, however, its consideration is usually fragmented because of the distribution of responsibilities among the various committees and subcommittees. I believe that the Congress should find means by which it can more effectively examine the budget as a whole and base its actions on the overall fiscal situation.

Provision for item veto.--In passing the Alaska and Hawaii statehood acts, the Congress again recognized the value of an item veto by a chief executive by approving provision for its use in their State constitutions. Forty-one State Governors now have item veto authority. Many Presidents have recommended it, but the Congress has not yet granted the President of the United States that power. I again recommend it.

Control of foreign currencies.--The Government receives from its operations considerable quantities of foreign currencies each year. Much of this currency is earmarked for grants to and loans in the country concerned, and some is available for programs of the U.S. Government. In many countries the currencies available to us are needed for conducting normal U.S. operations, yet such use is prevented in some cases by statutes or by the international agreements under which the currencies are received.

As a result of a detailed study, this budget includes provisions to bring under budget and appropriation controls all foreign currencies available for U.S. agency operations which are received from the sale of surplus agricultural commodities. This change will not alter total appropriations or expenditures, but will increase those of the agencies using the currencies and decrease those of the Commodity Credit Corporation. Accordingly, I intend that no more allocations be made for uncontrolled use after the current fiscal year except for country grants and loans committed in international agreements, and I recommend that at an appropriate time the Congress remove from the laws the provisions which permit uncontrolled use for other purposes. I am also instructing that in future negotiations of international agreements we endeavor to avoid restrictions which would limit our ability to apply normal budget and appropriation controls to the use of those currencies which are earmarked for U.S. agency operations.

Improved funding for public enterprises.--Major business-type activities of the Government should, with few exceptions, operate on a self-sustaining basis. Their budgets and accounts should permit ready comparison of their expenses and revenues. They should have simplicity in their financing structure and the flexibility in expenditures necessary to meet unforeseen business conditions, but should be expected to keep their obligations and expenditures within the resources provided by Congress for that purpose, and should be subject to annual review and control by the Congress. Accordingly, I recommend that the Rural Electrification Administration, the Farmers Home Administration, the Bureau of Reclamation, the power-marketing agencies of the Department of the Interior, and the loan guarantee programs of the Veterans Administration be financed through revolving funds. Similar recommendations may be made in due time for other business-type activities.

Legislation is again being recommended to bring under budget review the activities of those few Government corporations which are now exempt from such review, but possess authority to draw money from the Treasury or to commit the Treasury for future expenditures. This can best be done by including them under the budget provisions of the Government Corporation Control Act.

Revision of budget presentation.--In this budget more than half of the 626 appropriation accounts of the executive branch have been presented on a cost basis. The remaining appropriations, including those for the Department of Defense, will be converted to this basis as soon as possible. This budget also provides for accrued expenditure limitations for 12 appropriations, in accordance with legislation enacted in 1958. Such limitations are recommended to permit closer congressional control over annual expenditures.

The customary totals of budget receipts and budget expenditures are distorted by the inclusion in both of interest and other payments by public enterprise funds to the general fund of the Treasury. Such interfund payments amounted to $355 million in the fiscal year 1959, and are estimated at $737 million for 1960 and $779 million for 1961. While this duplication does not affect the amount of the budget surplus or deficit, it does overstate the size of the budget receipts and expenditures. To correct this it is planned that such amounts, while still shown within the figures for the affected agencies, will be eliminated from budget totals in financial statements on Government operations beginning with the fiscal year 1961. I also plan to present the 1962 budget so as to remove this duplication. However, in order to preserve full comparability with previous budgets, no such adjustments are shown in the amounts in this document. If adjustments had been made, the net totals would appear as follows:

ADJUSTED BUDGET TOTALS, EXCLUDING INTERFUND PAYMENTS

[Fiscal years. In billions]

1959 1960 1961

actual estimate estimate

Budget receipts $67.9 $77.9 $83.2

Budget expenditures 80.3 77.7 79.0

Budget deficit 12.4

Budget surplus .2 4.2

Strengthening of organization and management.--From the beginning of this administration I have placed emphasis on obtaining the best possible executive ability in the administration of the widespread and diverse activities of the Federal Government and on providing the best organizational structure in which officials can carry out their responsibilities. This continued emphasis is essential not only to operate the complex machinery of government effectively, but also to meet the constant flow of new problems of organization and management.

In recent years several major organizational improvements have been made, including the establishment of the Department of Health, Education, and Welfare, the Federal Aviation Agency, and the National Aeronautics and Space Administration, as well as new organizational structures for defense programs and for civilian and defense mobilization activities. The many actions taken on recommendations of the two Hoover Commissions have also resulted in more efficient administration.

The Reorganization Act of 1949, as amended, under which numerous executive agencies and functions have been reorganized, contains a limitation of June 1, 1959, for the transmittal of reorganization plans by the President to the Congress. Accordingly, this authority is not now available. I urgently recommend that this cutoff date be removed in order to permit continued use of that act by me and by my successor in improving the management and organization of the executive branch.

The search for better management and operations is a never-ending process. Like all large organizations, the Federal Government continues to have management problems. For example, property management offers an enormous challenge, and in the past year greater attention has been focused on it. Application of new data-processing techniques to Government operations is under constant study. The Post Office Department is improving its operations by installing modern methods of mail handling and transportation. The Treasury Department is using up-to-date data-processing equipment to achieve more effective administration of disbursements and revenue collection. These are but a few of many examples, and this budget provides for further improvements.

At my request, the heads of all Government agencies will give renewed emphasis to the review of management procedures and operating activities to make sure that the most modern methods, techniques, and equipment are in use. All agency heads have been encouraged to continue to search for the best practices in other Government agencies, in business, or in industry, to apply them in their own agencies to the extent possible during the term of this administration, and to leave to their successors a legacy of plans for further improvement.

The plans presented in this budget meet the Nation's immediate needs and will support continuing sound economic growth in the future. The achievement of these plans, however, will in the last analysis depend on the people themselves.

I believe our people have the determination to hold expenditures in check, to pay their own way without borrowing from their children, to choose wisely among priorities, and to match sound public policy with private initiative. It is that determination which is the key to continued progress and sound growth with security. It is that determination which reinforces the recommendations I have made.

DWIGHT D. EISENHOWER