Annual Budget Message to the Congress: Fiscal Year 1962.

To the Congress of the United States:

For the fiscal year 1962 I send you budget and legislative proposals which will meet the essential domestic needs of the Nation, provide for the national defense, and at the same time preserve the integrity and strength of our Federal Government's finances.

With this budget, I leave to the new administration and the Congress a progressive and workable financial plan which recognizes national priorities and which reflects my confidence in the strength of our economy now and in the years to come.

A budget surplus was achieved in the fiscal year which ended on June 30, 1960. A narrowly balanced budget is anticipated for fiscal year 1961. The recommendations in this budget provide for still another balanced budget, with a surplus, in fiscal year 1962. The achievement of balanced budgets this year and in the coming fiscal year will help foster noninflationary prosperity at home and strengthen confidence in the dollar abroad.

Despite the persistence of hardship in some local areas, economic activity continues at a high level. It is imperative for the extension of economic growth at a high and sustainable rate that the budget be kept balanced and that we act responsibly in financial matters.

For 1962 the budget estimates reflect expected gains in the national economy and provide for carrying programs forward in an efficient and orderly manner. The estimates also reflect, as in previous years, the budgetary effects of proposed changes in legislation, including the cost of certain new programs. Most of the legislative proposals have been previously recommended. I again urge their enactment.

In total and in its parts, this budget embodies a sensible and forward-looking plan of action for the Government. In brief, it provides for:

1. Increasing our own military capabilities and promoting increased strength in other free world forces;

2. Advancing activities important to economic growth and domestic welfare;

3. Continuing assistance to the less-developed nations of the world whose peoples are striving to improve their standards of living;

4. Increasing support for scientific activities in outer space;

5. Achieving savings by making desirable modifications in existing programs and by charging users the costs of special benefits received by them; and

6. Continuing present tax rates to maintain the revenues needed for a sound fiscal plan.

The policies and proposals in this budget will enable us to meet fully our national and international responsibilities and to promote real and sustainable national progress.

GENERAL BUDGET POLICY

This budget, like each of the seven which I have previously sent to the Congress, reflects the conviction that military strength and domestic advancement must be based on a sound economy, and that fiscal integrity is essential to the responsible conduct of governmental affairs. A surplus in good times, as provided in this budget, helps make up the deficits which inevitably occur during periods of recession. To ignore these principles is to undermine our strength as a Nation through deficits, unmanageable debt, and the resulting inflation and cheapening of our currency.

An 8-year effort has been made by this administration to. stabilize the purchasing power of the dollar. This effort, which was a necessary undertaking in view of the heavy depreciation of the dollar's purchasing power following World War II, has had a large measure of success, but the problem of maintaining reasonable price stability will require close and continuing attention in the future.

Our national economy is strong and our national welfare continues to advance. Despite a leveling out in economic activity during the latter part of the calendar year just ended, the total market value of all goods and services produced in our country in the calendar year 1960 increased by approximately $20 billion over the preceding year and crossed the half-trillion-dollar mark for the first time in our history. Personal incomes increased more than 5% over 1959, the previous record high. The Economic Report will describe the trends which indicate that further substantial increases can be expected during the calendar year 1961, carrying the gross national product and personal incomes to new highs.

The budgetary outlook for the future reinforces the need for self-discipline in meeting current national demands. Over the next I o years and beyond, we will be faced with the consequences of many commitments under present laws for nondefense expenditures, in addition to the heavy military burden we must continue to bear.

We can confidently expect that a growing economy will help pay for these commitments. As the labor force grows and employment expands, as business discovers new techniques of production and invests in a larger and more efficient productive base, the national output and income will grow, and with them our ability to finance needed public services. But our resources will not be unlimited. New and expanded Federal programs being urged by special groups are frequently appealing, but, added to existing commitments, they threaten to swell expenditures beyond the available resources.

The Federal Government cannot reasonably satisfy all demands at the same time. We must proceed first to meet those which are most pressing, and find economies to help pay their costs by reappraising old programs in the light of emerging priorities. We must encourage States and localities to increase further their participation in programs for meeting the needs of their citizens. And we must preserve and strengthen the environment in which individual initiative and responsibility can make their maximum contribution.

Our unsatisfactory balance of international payments provides another compelling reason for pursuing sound financial policies. The relationship between our budgetary actions and the balance of payments needs to be carefully examined to assure a minimum adverse effect. Whether the dollar will continue to enjoy high prestige and confidence in the international financial community will depend on the containment of inflation at home and on the exercise of wise restraint and selectivity in our expenditures abroad.

The need for concern about our spending abroad is not strange or surprising. It results from the recovery, profoundly desired and deliberately encouraged by our country, of the major centers of production in Western Europe and Japan following the devastation and disruption caused by war. To reflect this developing state of affairs, changes are now required in some policies established in earlier years. Therefore, I have prescribed certain actions in international transactions under direct governmental control and others are under study. Such measures, combined with proper financial prudence in the handling of domestic affairs and strong export promotion, should significantly improve our balance of payments.

In summary, if we plan wisely and allocate our resources carefully, we can have both public and private advancement. Sound fiscal policies and balanced budgets will sustain sound economic growth and, eventually, will make possible a reduced tax burden. At the same time, we can have necessary improvements in Federal programs to meet the demands of an ever-changing world. If, however, we deliberately run the Government by credit cards, improvidently spending today at the expense of tomorrow, we will break faith with the American people and their children, and with those joined with us in freedom throughout the world.

BUDGET TOTALS--1961

Current estimates indicate a close balance in the 1961 budget. On the newly adopted basis of excluding interfund transactions, expenditures are estimated at $78.9 billion and receipts at $79.0 billion, resulting in a budget surplus of $0.1 billion. The revenue estimate reflects a justifiably optimistic view as to the course of our economy, based on circumstances described in my Economic Report.

Last January, I proposed a budget for 1961 that showed a surplus of $4.2 billion. The enactment by the Congress of unrecommended expenditures and the unwillingness of the Congress to increase postal rates reduced this prospect by approximately $2 billion. In the meantime, lower corporate profits have materially reduced our expectation of tax collections from this source.

The small surplus of $79 million currently estimated for 1961 takes into account an assumption that postal rates will be increased not later than April 1, 1961.

Despite the congressional increases in the budget last year, the present estimate of $78.9 billion for 1961 expenditures is about $900 million less than the figure of $79.8 billion which appeared in the budget a year ago. The apparent reduction results from (1) the elimination, as announced in last year's budget, of certain interfund transactions totaling $0.7 billion from the current estimate of expenditures and (2) the shift of employment security grants of $0.3 billion to trust fund financing as provided by law. As explained elsewhere in this budget, these changes affect receipts as well as expenditures and do not affect the surplus.

Apart from these accounting adjustments, the increases and decreases from last year's estimate of 1961 expenditures are approximately offsetting.

Major increases from the original budget include $766 million for Federal employee pay raises; $554 million in losses of the postal service because rates were not increased as proposed; $269 million for defense programs; $188 million for health, education, and welfare activities; and $164 million for civil space activities.

Major decreases from the original estimates include $600 million for interest on the public debt; $496 million for the activities of the Commodity Credit Corporation; $311 million for veterans compensation, pensions, and readjustment benefits; $93 million for the Export-Import Bank; and $50 million for military assistance. In addition, a reduction of $160 million is estimated under the proposal to reduce the postal deficit in 1961 by increasing postal rates effective April 1. Other reductions, including a normal downward revision in the allowance for contingencies, total $210 million.

BUDGET TOTALS--1962

For the fiscal year 1962, my recommendations provide for $82.3 billion in budget receipts and $80.9 billion in budget expenditures. The resulting budgetary surplus of $1.5 billion will permit another modest payment on the public debt.

The estimate of receipts in 1962 is $3.3 billion higher than the current estimate for 1961, and $4.6 billion more than the receipts actually collected in 1960. Expenditures are also increasing, from a total of $76.5 billion in 1960 to $78.9 billion currently estimated for 1961 and $80.9 billion proposed for 1962.

BUDGET EXPENDITURES.--The increase of $1.9 billion in estimated expenditures between 1961 and 1962 reflects several factors which are worthy of special note.

First, outlays for our Nation's defenses are estimated to rise by $1.4 billion in 1962 to a total of $42.9 billion. Much of this increase reflects continued emphasis on certain expanding defense programs, such as Polaris submarines, the Minuteman missile, the B-70 long-range bomber, a strengthened airborne alert capability, airlift modernization, and modernization of Army equipment. These improvements are for the purpose of keeping our military might the strongest in the world.

Second, the budget provides for substantial continuing efforts to support the cause of freedom through the mutual security program. Expenditures for this program in 1962 are estimated at $3.6 billion, an increase of $250 million over 1961.

Third, civil space vehicles and space exploration will require $965 million in 1962, up $195 million from 1961, and $564 million more than in 1960. In total, the recommendations in this budget provide for $9.4 billion in expenditures in 1962 for carrying forward research and development efforts, of which $7.4 billion is for major national security purposes. The total represents an increase of $770 million over 1961. As part of the overall research and development effort, increasing Federal support for basic research is being provided. This budget includes $1 billion for the conduct and support of basic research in universities, industrial establishments, Government laboratories, and other centers of research.

Fourth, increases in expenditures are proposed for certain activities important to domestic well-being and to the future development of our Nation. These include, among others, broadening medical care for the aged; making major improvements in transportation programs; continuing development of our natural resources at a new record level of expenditures; improving our health and welfare programs; providing assistance for construction of elementary and secondary schools and college facilities; assisting areas of substantial and persistent unemployment; and fostering rural development. Expenditures in 1962- for labor, education, health, welfare, community development, transportation aids and services, and conservation of natural resources are estimated to total $8.6 billion, an increase of $627 million over 1961.

To some extent these recommended budget increases are offset by proposed reductions which can be effected in existing programs through improved operations and through changes in present laws. These reductions result from a continuous search for ways to restrain unnecessary expenditures in going activities, to recognize real priorities of need, and to assure that Federal programs are carried out in an efficient manner.

Savings are proposed and can be achieved through modification of activities which, in their existing form, require a disproportionate or wasteful expenditure of Federal funds. For example, States, localities, and other non-Federal interests should assume a greater share of the costs of urban renewal, local flood protection, and the building and operating of schools in federally affected areas. The Congress should act on proposals to encourage nongovernmental financing, and reduce reliance on direct Federal financing, in such activities as home loans for veterans and for military personnel, and the expansion of rural electrification and telephone systems. Certain grants and benefits should also be reviewed and revised, including those for agricultural conservation, civil airport construction, airline subsidies, housing aids no longer needed for readjustment of World War II veterans, and agricultural price supports, particularly for wheat.

Benefits to the general taxpayer are also proposed in the coming fiscal year and later years through the enactment of measures to charge users for special services which they derive from particular Government activities. Among these are proposals to eliminate the postal deficit and to provide more adequate taxes on aviation and highway fuels.

BUDGET RECEIPTS.--Estimated budget receipts of $82.3 billion in 1962 are based on an outlook for higher production, employment, and income as the calendar year 1961 progresses. The accompanying table shows the sources of budget receipts for the fiscal years 1960, 1961, and 1962.

BUDGET RECEIPTS

[Fiscal years. In billions]

1960 1961 1962

Source actual estimate estimate

Individual income taxes $40.7 $43.3 $45.5

Corporation income taxes 2 1. 5 20.4 20. 9

Excise taxes 9.1 9.3 9.7

All other receipts 7.1 6.7 6.9

Total 78. 5 79.7 83. 0

Deduct interfund transactions (included

in both receipts and expenditures) .7 . 7 . 7

Budget receipts 77.8 79.0 82. 3

Extension of present tax rates.--It is necessary to extend for another year the present tax rates on corporation income and the excise taxes which are scheduled for reduction or termination on July 1, 1961. The excise tax rates scheduled for reduction include those on distilled spirits, beer, wines, cigarettes, passenger automobiles, automobile parts and accessories, and transportation of persons; the 10% tax on general telephone service is scheduled to expire. Unless these tax rates are extended, the Federal Government will lose an estimated $2.6 billion in revenues in 1962, and $3.7 billion on a full annual basis.

Changes in lees and charges.--In the conduct of certain of its activities, the Government provides special services, sells products, and leases federally owned resources, which convey to the recipients benefits above and beyond those which accrue to the public at large. In fairness to the general taxpayer, the cost of these services or the fair market value of the products and resources which are transferred to private use should be recovered, wherever feasible, through adequate fees and charges. To this end, the Congress was requested last year to provide increased fees and charges for a number of special benefits. With the one exception of fees for non-competitive oil and gas leases no final action was taken. The Congress is again requested to raise postal rates to eliminate the postal deficit and to act favorably on the proposals for increased highway and aviation fuel taxes and for a number of other fees or charges.

The present highway fuel tax rate should be increased by one-half cent per gallon and the resulting rate of 4½ cents should be continued through 1972. This step is necessary to permit timely completion of the Interstate System. It will also make possible the repeal of the unwise diversion from the general fund to the trust fund of excise tax receipts amounting to 5% of the manufacturers' price of passenger automobiles and automobile parts and accessories; this diversion is presently scheduled by law to begin July 1, 1961, and to continue for the fiscal years 1962 through 1964. The Congress should also raise the excise tax rate on aviation gasoline from 2 to 4½ cents per gallon; impose the same excise tax rate on jet fuels, now untaxed; and retain the receipts from these taxes in the general fund to help pay the cost of the Federal airways system. Other aspects of these recommendations are set forth in the discussion of transportation programs in this message.

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

[In millions]

Fiscal

year

Proposal 1962

Increase postal rates $843

Support highway expenditures by highway use taxes:

Repeal pending diversion of general fund excise taxes to trust fund (and

increase motor fuel tax) 810

Transfer financing of forest and public lands highways to trust fund 38

Charge users for share of cost of Federal airways:

Increase taxes on aviation gasoline and retain in general fund 38

Tax jet fuels 62

Increase patent fees 7

Increase miscellaneous fees now below costs 9

Total savings 1,807

PUBLIC DEBT.--Achievement of the proposed budget surplus for 1962, will enable the Federal Government to make another modest reduction in the public debt. It is estimated that the public debt, which stood at $286.3 billion on June 30, 1960, will decline to $284.9 billion by the end of fiscal year 1961 and to $283.4 billion on June 30, 1962.

If the Congress accepts the proposals in this budget, and the proposed budget surplus for fiscal year 1962 is achieved, at the end of that year the Government will have some operating leeway within the permanent debt limit of $285 billion. Due to the seasonal pattern of tax collections, however, it will again be necessary for the Congress to provide a temporary increase in the debt limit during 1962. The present temporary debt limit of $293 billion expires June 30, 1961.

The Congress is again urged to remove the 414% statutory limitation on new issues of Treasury bonds, which remains a serious obstacle to efficient long-run management of the public debt. The marketable debt is still too heavily concentrated in securities of relatively short maturity, with almost 80% of the total coming due within 5 years. Although interest rates have declined in recent months, the continued existence of the interest rate ceiling limits the flexibility of debt operations by the Treasury. It effectively prevents the Treasury under certain circumstances from lengthening the debt by offering longer term securities or exchanges at maturity and, more importantly, it reduces considerably the possible use of the advance refunding technique, which offers the greatest promise for lengthening the average maturity of the debt.

RECEIPTS FROM AND PAYMENTS TO THE PUBLIC

The budget totals exclude the transactions of funds held in trust by the Federal Government as well as certain other transactions affecting the flow of money between the public and the Federal Government as a whole. Trust fund operations are an important factor in this flow and are consolidated with budget transactions to measure the Federal Government's cash receipts from and payments to the public. In this consolidation, certain transactions involving no flow of cash between the Government and the public are eliminated.

Expenditures from trust funds are financed through taxes and other receipts which are specifically designated to serve the special purposes for which the funds were established. About one-half of total trust fund transactions are accounted for by the old-age and survivors insurance system. Other important programs carried on through trust funds include the railroad retirement system, the Federal employees' retirement systems, disability insurance, unemployment compensation, grants for highway construction, purchase of insured and guaranteed mortgages, and veterans life insurance. In certain areas of Government activity, notably labor and welfare, trust fund expenditures far exceed the amounts spent through budget funds and, with the taxes levied to finance them, exert a considerable influence on the economy of the Nation.

Total receipts and expenditures of trust funds more than tripled during the decade of the fifties, and passed the $20 billion mark in 1960. In 1962, they are both estimated to total $25.2 billion. Total receipts from the public in 1962 are estimated at $103.1 billion and payments to the public at $101.8 billion, with a resulting excess of receipts of $1.3 billion.

FEDERAL GOVERNMENT RECEIPTS FROM AND PAYMENTS TO THE PUBLIC

[Fiscal years. In billions]

1960 1961 1962

actual estimate estimate

Receipts from the public $95.1 $99.0 $103.1

Payments to the public 94.3 97.9 101.8

Excess of receipts over payments +.8 +1.1 +1.3

IMPROVEMENTS IN THE TAX SYSTEM

There is a continuing need for a reappraisal of the tax system to assure that it operates equitably and with a minimum of repressive effects on incentives to work, save, and invest. Continued close cooperation between the Treasury and the committees of the Congress is necessary to formulate sound and attainable proposals for the long-range improvement of the tax laws.

However, as the development of a comprehensive tax revision program will take time, the Congress should consider promptly this year certain changes in the tax laws to correct inequities. For example, it is again recommended that the Congress promptly consider amending the laws on taxation of cooperatives to provide for more equitable taxation by insuring that taxes are paid on the income of these businesses either by the cooperative or by its members.

It has been many years since certain of the tax laws which now apply to the Nation's various private lending institutions and to fire and casualty insurance companies became effective. The Congress should review these statutes and the tax burdens now carried by lending institutions and insurance companies to determine whether or not inequities exist and to remedy any inequitable situations which may be found. The Treasury Department has under way studies relating to the operation of the existing statutes in this area. These studies should be of assistance to the Congress in any such review.

There is a need for review of present depreciation allowances and procedures. More liberal and flexible depreciation can make a major contribution toward neutralizing the deterrent effects of high tax rates on investment. A better system of capital recovery allowances would provide benefits to those who invest in productive plant and equipment and would encourage business expenditures for modernization and greater efficiency, thus helping to foster long-range economic growth. By bringing the allowances for American business more nearly into line with those available to many foreign producers, improved depreciation procedures would not only strengthen the competitive position of American producers, but their benefits would also accrue to American workers through increased productivity and greater job opportunity.

The depreciation rules should not be substantially liberalized, however, without accompanying remedial legislation with respect to the taxation of gains from sale of depreciable property. The legislation recommended last year to treat income on disposition of depreciable property as ordinary income to the extent of the depreciation deductions previously taken on the property is an essential first step.

IMPROVEMENTS IN GOVERNMENT ORGANIZATION

During the past 8 years major improvements have been made in the organization of the executive branch of the Government. An executive Department of Health, Education, and Welfare was established to give Cabinet status to its important programs. The organization of the Department of Defense was strengthened to bring it more closely into line with the requirements of modern warfare. A National Aeronautics and Space Administration was created to provide effective civilian leadership over appropriate parts of our national space program. The Council of Economic Advisers was reconstituted and reorganized to strengthen its internal administration and clarify its relationships with the President. Functions of coordinating governmental planning for defense mobilization and civil defense were consolidated. The establishment of the Federal Aviation Agency brought about substantial improvements in aviation programs.

Many of the numerous organizational improvements were effected by Presidential reorganization plans authorized by the Reorganization Act of 1949, which has now expired. The Congress should renew that authority and make it permanently available for all future Presidents in the effective form as originally enacted. The task of conforming Government organization to current needs is a continuing one in our ever-changing times.

Executive Office of the President.--The duties placed on the President by the Constitution and the statutes demand the most careful attention to the staffing and organization of the President's Office. While the present organization of the Executive Office of the President reflects many constructive steps taken over a period of years, much remains to be done to improve the facilities available to the President. The first requirement for improvement is for the Congress to give the President greater flexibility in organizing his own Office to meet his great responsibilities.

Specifically, the Congress should enact legislation authorizing the President to reorganize the Executive Office of the President, including the authority to redistribute statutory functions among the units of the Office; to change the names of units and titles of officers within the Office; to make changes in the membership of statutory bodies in the Office; and, within the limits of existing laws and available appropriations, to establish new units in the Executive Office and fix the compensation of officers. Such action would insure that future Presidents will possess the latitude to design the working structure of the Presidential office as they deem necessary for the effective conduct of their duties under the Constitution and the laws. Enactment of such legislation would be a major step forward in strengthening the Office of the President for the critical tests that will surely continue to face our Nation in the years to come. These matters are obviously devoid of partisan considerations.

My experience leads me to suggest the establishment of an Office of Executive Management in the Executive Office of the President in which would be grouped the staff functions necessary to assist the President in the discharge of his managerial responsibilities. In an enterprise as large and diversified as the executive branch of the Government, there is an imperative need for effective and imaginative central management to strengthen program planning and evaluation, promote efficiency, identify and eliminate waste and duplication, and coordinate numerous interagency operations within approved policy and statutory objectives. The establishment of an Office of Executive Management is highly desirable to help the President achieve the high standards of effective management that the Congress and the people rightfully expect.

I have given much personal study to the assistance the President needs in meeting the multitude of demands placed upon him in conducting and correlating all aspects of foreign political, economic, social, and military affairs. I have reached the conclusion that serious attention should be given to providing in the President's Office an official ranking higher than Cabinet members, possibly with the title of First Secretary of the Government, to assist the President in consulting with the departments on the formulation of national security objectives, in coordinating international programs, and in representing the President at meetings with foreign officials above the rank of Foreign Minister and below the rank of Head of State.

Recognizing the personal nature of the relationship of each President to his Cabinet and staff, I am not submitting formal legislative proposals to implement these latter two suggestions, but I do commend them for earnest study.

Other improvements.--Several other organizational reforms should be considered by the Congress:

First, a Department of Transportation should be established so as to bring together at Cabinet level the presently fragmented Federal functions regarding transportation activities.

Second, legislation should be enacted to strengthen the position of the chairmen of the Interstate Commerce Commission, the Federal Communications Commission, and the National Labor Relations Board by vesting in them the executive and administrative duties of their agencies. The legislation should provide that the Chairman of the Interstate Commerce Commission be designated by the President. These steps would place these chairmen generally on a comparable basis with the chairmen of other regulatory bodies. In the case of the National Labor Relations Board, the legislation should vest all regulatory responsibilities under the National Labor Relations Act in the Board. Additionally, the responsibility of the President to control and supervise the exercise of executive functions by all Federal regulatory bodies should be clarified.

Third, action should be taken to consolidate the civil water resources functions of the Corps of Engineers of the Department of the Army, the Department of the Interior, and the responsibilities of the Federal Power Commission for river basin surveys, in order to bring about long needed improvements in the coordination of the increasingly important Federal civil water resources activities.

REVIEW OF AUTHORIZATIONS AND EXPENDITURES BY MAJOR FUNCTIONS

The remaining sections of this message discuss the budget and legislative proposals for 1962 in terms of the functions they serve. In the following table, estimated expenditures for 1962 are compared with the actual figures for 1960 and the current estimates for 1961 for each of 9 major functional categories.

The expenditure total for 1962 includes an allowance for contingencies, which is intended to provide for unforeseen developments in existing programs and for programs proposed in this budget but not itemized separately.

BUDGET EXPENDITURES

[Fiscal years. In billions]

1960 1961 1962

Function actual estimate estimate

Major national security $45.6 $45.9 $47.4

International affairs and finance 1.8 2.3 2.7

Commerce, housing, and space technology 2.8 3.8 3.4

Agriculture and agricultural resources 4. 8 4.9 5.1

Natural resources 1.7 2.0 2.1

Labor and welfare 4.4 4.5 4.8

Veterans services and benefits 5.1 5.2 5.3

Interest 9.3 9.0 8.6

General government 1.7 2.0 2.1

Allowance for contingencies (¹) .1

Total 77.2 79.6 81.5

Deduct interfund transactions (included

in both receipts and expenditures) .7 .7 .7

Budget expenditures 76.5 78.9 80.9

1 Less than $50 million.

MAJOR NATIONAL SECURITY

The deterrent power of our Armed Forces and the forces of our allies is based on a carefully planned combination of nuclear retaliatory weapons systems together with worldwide deployment of ground, naval, and air forces in essential forward areas, backed up by strong ready reserves. These forces make up a collective security system for the Free World more versatile and powerful than any military alliance in world history.

Our Nation's objective in pursuing a policy of collective security is peace with justice for all peoples. However, while we strive to eliminate the fear of war among nations, we must maintain our military strength. The recommendations made in this budget provide for an increasingly strong defense posture along with a strong national economy.

Expenditures for major national security programs in fiscal year 1962 are estimated to be $47,392 million, or $1,462 million more than for 1961. The bulk of the increase is for the military functions of the Department of Defense, reflecting mainly evolutionary growth in our country's defense programs. Military assistance in conjunction with the efforts of our allies will continue to provide the Free World with modern weapons and equipment, thus strengthening the collective defense. Programs of the Atomic Energy Commission continue to emphasize weapons development and production while also providing increases for research and development on peaceful applications of atomic energy. Expenditures for stockpiling and for expansion of defense production will again decline as nearly all stockpile objectives have been met.

MAJOR NATIONAL SECURITY

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obli-

gational

1960 1961 1962 authority

Program or agency actual estimate estimate for 1962

Department of Defense--Military:

Military functions:

Present programs $41, 215 $41, 500 $42, 879 $41, 809

Proposed retirement pay

legislalation 31 31

Military assistance 1,609 1,700 1,750 1,800

Atomic energy, 2,623 2, 660 2,680 2,598

Stockpiling and expansion

of defense production 180 70 52 40

Total 45, 627 45, 930 47, 392 ¹ 46, 278

1 Compares with new obligational authority of $44,761 million enacted for 1960 and $45,912 million (including $289 million in anticipated supplemental appropriations) estimated for 1961.

DEPARTMENT OF DEFENSE--MILITARY.--Recommended new obligational authority of $41,840 million for the military functions of the Department of Defense for fiscal year 1962 reflects the continued policy of adapting the Defense Establishment to expected long-run requirements. Expenditures in 1962 are estimated at $42,910 million, which is $1,410 million more than the estimate for the current fiscal year.

This increase reflects, in part, certain steps recently taken to increase the readiness of our military commands. These steps can be financed in 1961 mainly within available appropriations. However, some supplemental appropriations will be required for this year and are included in this budget.

The recommendations for 1962 continue a strong posture of readiness and add to the capability of our military forces.

To take full advantage of the results of scientific and technological developments, rapid and sometimes drastic changes must continually be made in military forces and programs. Just a few years ago the United States was programing twice as much money for manned bomber systems as for strategic missile systems. The budget for the coming fiscal year, by contrast, programs more than four times as much for strategic missile systems as for manned bomber systems. Similarly, defense against ballistic missile attack took only a small part of the total capital investment in continental air defense as recently as the fiscal year 1957, whereas in the coming fiscal year it will be a substantial percentage of the total. There has been a gradual shift from guns to missiles on surface ships, and from conventional to nuclear power for submarines. For surface ships, the relative utility of nuclear or conventional power is a question that requires case by case consideration in each year's shipbuilding program. In total, there has been an increased emphasis on versatile and modern multipurpose military units equipped and prepared for all forms of military action--from limited emergencies to a general war.

Forces and military personnel.--To carry out basic military missions, this budget provides for a total strength in our Active Forces of 2,492,900 men and women on June 30, 1962, the same as now estimated for the end of fiscal year 1961 and 4,000 over the year-end strength originally planned for this year. A supplemental appropriation is being requested to provide for this 1961 increase, which is primarily to bring our naval forces to a greater degree of preparedness.

The Active Forces to be supported include an Army of 14 divisions and 870,000 men; a Navy of 817 active ships and 625,000 men; a Marine Corps of 3 divisions and 3 aircraft wings with 175,000 men; and an Air Force of 84 combat wings and 822,900 men.

Worldwide deployment of these forces, and of civilian employees of the Department of Defense as well, requires a considerable amount of travel to and from duty stations. The dollar limitation on travel established by the Congress in the 1961 appropriation for the Department is not sufficient to cover all essential travel costs of military and civilian personnel. Accordingly, it is recommended that this limitation be increased by $54 million for the fiscal year 1961 and that no limitation be imposed for 1962.

If the reserve components of our Armed Forces 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. Under modern conditions the quality and combat readiness of the reserve forces are more important than numbers. The nature of warfare has changed so drastically during the last decade that the whole concept of the roles and missions of the reserve forces must be reevaluated.

Accordingly, the Secretary of Defense and the Joint Chiefs of Staff have been directed to make a new study of the reserve missions and requirements. This should be aimed at the objectives of efficiency, economy, and promoting administrative effectiveness. As a first step toward a more fundamental revision, this budget provides for a reduction in the number in the Army National Guard and Army Reserve paid for participation in reserve training from the present 400,000 and 300,000, respectively, to 360,000 and 270,000 by the end of fiscal year 1962. These recommended reserve personnel strengths are fully adequate to meet the needs of our national defense. The statutory minimum placed on the personnel strength of the Army National Guard in the 1961 Department of Defense Appropriation Act should not be continued. The excess strengths which have been provided by the Congress above my recommendations in the last several years are unnecessarily costing the American people over $80 million annually and have been too long based on other than strictly military needs. Even with the proposed lower reserve personnel strengths, the cost of pay, allowances, travel, and operation and maintenance for the military reserves will amount to well over $1 billion in 1962.

Strategic forces.--The strategic forces provided for in this budget consist of a combination of nuclear weapons systems of land-based and carrier-based aircraft, fixed and mobile missiles of intercontinental and intermediate range, and overseas missile systems under the military command of mutual defense treaty organizations. The composite capability of these forces represents an enormous destructive potential and should deter any potential aggressor.

Up to the present time our strategic striking forces have relied in large measure on manned bombers. Manned bombers--both land-based and carrier-based--will continue to be required. However, with the advent of operational missile systems, more and more of the strategic force in the years ahead will be composed of fixed-base and mobile ballistic missiles-both land- and sea-based. The recommendations in this budget reflect this change.

By the end of fiscal year 1962, the largest part of the planned squadrons of the Atlas ballistic missile system will be operational, and a significant number of the planned Titan missiles will be in place and ready. The solid propellant Minuteman missile system is now well along in development, and the first missiles are scheduled to become operational during the calendar year 1962. Funds are requested for 5 additional Polaris submarines, making a total of 19 submarines which will have been fully funded, and for the procurement of long leadtime components of 5 more; procurement of the appropriate number of Polaris missiles to arm these submarines is also planned, as is the continued development of a much longer range version of the Polaris missile.

Thor and Jupiter intermediate range ballistic missiles, provided to our allies overseas under the military assistance portion of the mutual security program, add still another important element of strength to the strategic forces.

All production of B-52 and B-58 manned bomber aircraft is scheduled to end in the calendar year 1962. However, as indicated in my special message to the Congress last August, additional effort is being devoted to the development of the B-70 long-range bomber. Funds are included in this budget to continue work in 1962 on the airframe and engine, and on the essential subsystems.

In addition to the forces equipped uniquely for nuclear attack, the tactical fighters and missiles of the Air Force also contribute importantly to our strategic capability. Deployed overseas, with an increasing all-weather strike capability, these tactical forces can deliver megaton-class nuclear weapons to potential enemy targets.

As a further step in strengthening the strategic forces, the Navy has been authorized to increase significantly the proportion of attack aircraft aboard carriers of the 6th and 7th Fleets. This action will substantially increase the capability of those fleets to strike enemy targets.

The very diversity of our weapons systems has created an increasing need for fully integrated operational planning. To meet this need, the Secretary of Defense has established a special staff group composed of members of the services and representatives of unified commands contributing forces to our nuclear strike capability. I have recently approved the integrated strategic operational plan prepared by that group and recommended by the Secretary of Defense and the Joint Chiefs of Staff.

The advent of nuclear-armed intercontinental ballistic missiles in the hands of a potential adversary has confronted this Nation with a problem entirely new to its experience. The speed with which these weapons could be delivered against us and their tremendous destructive power make them suited to use by an enemy for surprise attack. Accordingly, this budget will continue the major effort under way during the last few years to increase the protection of our forces from surprise attack. Except for the first few squadrons of Atlas, all Atlas and Titan missiles are being deployed in hardened underground sites. All fixed-base Minuteman missiles will be so deployed. There will also be mobile squadrons of the Minuteman. The submarine Polaris system, of course, lends itself ideally to mobility and concealment and should be able to survive under all conditions.

There has also been an intensive effort to make the manned bomber force increasingly less vulnerable. Some 4 years ago the Air Force began the dispersal of these aircraft and commenced construction of special alert facilities to assure that one-third of the force could be airborne within 15 minutes of warning of an attack. Both of these programs are substantially completed. Under emergency conditions, the long-range bomber force could also use a large number of additional bases throughout the country.

As a further measure, steps have been taken to provide the heavy bomber force with an airborne alert capability. Funds are provided in this budget to continue to train crews and to acquire spare parts and other materiel so that a substantial portion of the heavy bomber force could immediately mount a 24-hours-a-day, 365-days-a-year airborne alert, should that step ever become necessary in an emergency.

Air defense forces.--The emergence of the ballistic missile threat has, of course, required a revamping of our air defense forces. The speed and destructiveness of the nuclear armed ballistic missile have placed an extremely high premium on timely warning of an attack. Therefore, systems designed to provide such warning have been receiving urgent attention.

The ground-based Ballistic Missile Early Warning System (BMEWS), involving a cost of nearly a billion dollars, has already been largely financed. Work on this system has been greatly accelerated and is proceeding as fast as practicable. The first of the three sites is now in operation. The second site will be in operation this year, substantially increasing the coverage. The third site is planned to become operational somewhat later. When the entire system is in full operation, our air defense forces and civilian population, as well as the strategic retaliatory forces, should have 15 minutes of warning of intercontinental ballistic missile attack.

The matter of reliable warning of ballistic missile attack is of such crucial importance to the safety of the Nation, however, that a number of other approaches are also being explored. The most advanced of these is the satellite-borne missile early warning system, Midas, which is now under accelerated development. Midas is designed to detect an enemy missile attack at the time of launching; this could about double the amount of warning time available to our military forces and civilian population. Substantial funds are included in this budget to continue development of this system at a high rate.

With the increasing reliability, accuracy, payload, and sophistication of the ballistic missile, our problem of safeguarding against surprise attack will become ever more onerous. Development of an active defense against ballistic missiles is progressing. The Nike-Zeus antimissile system is proceeding under the highest national priority, and funds for its Pacific range test facilities are included in this budget. Funds should not be committed to production until development tests are satisfactorily completed.

The entire problem of detection, tracking, and destruction of the attacking missile must be dealt with as a whole. Every avenue of research which offers any reasonable chance of success must be explored beyond the present frontiers of knowledge. That is the purpose of the group of studies now under way, which has been designated by the Department of Defense as Project Defender. Additional funds to continue this project through the coming fiscal year are also included in this budget.

As long as a manned bomber threat to this Nation exists, we shall have to maintain a reasonable degree of defense against it. The Air Force now has under way a large-scale program for improving the capability of its existing fighter interceptor force, particularly against the low level manned bomber. The Bomarc B ground-to-air-missile program has already been funded. Production is going forward, and missiles will be delivered to the air defense units over the next few years. Additional funds are recommended to complete and modernize the Nike-Hercules ground-to-air-missile system.

The Bomarc B and Nike-Hercules, together with the early models of these missiles and the very substantial force of supersonic manned interceptors armed with air-to-air guided missiles, provide a formidable defense against manned bomber attack. To provide the detection, warning, and control for these forces, an extensive network of radars and communications lines is being maintained and modernized. Funds for additional construction and for the procurement of equipment are included in this budget.

Sea control forces.--Control of the seas is vital to the maintenance of our national security. The naval forces, which are being provided during this fiscal year with new combat ships and increased personnel, carry the primary responsibility for this important mission.

The 1962 budget provides for active naval forces consisting of 817 combatant and support ships, including 14 attack carriers, 16 attack carrier air groups, 11 carrier antisubmarine air groups, and 37 patrol and warning air squadrons.

New and modernized ships to be delivered in 1962 from prior year authorizations will enhance the combat capability of the naval forces and permit the replacement of older ships. Among the new and modernized ships to join the fleet in 1962 will be the first nuclear-powered attack aircraft, the Enterprise; the first nuclear-powered cruiser, the Long Beach, armed with Talos and Terrier surface-to-air missiles; three nuclearpowered attack submarines; four Polaris submarines; and several guided missile destroyers.

The 1962 shipbuilding program provided in this budget will further improve the fleet and help offset the increasing number of over-age ships. The program consists of construction of 30 new ships and conversion of 22 others. In addition to the 5 Polaris fleet ballistic missile submarines, new ships will include 7 guided missile frigates, 3 nuclear-powered attack submarines, 6 escort vessels, and 9 amphibious, supply, and research ships. The conversion program includes 14 destroyers, 1 communications relay ship, 1 missile range instrumentation ship, and 6 conventionally powered attack submarines.

A great deal of emphasis in the 1962 shipbuilding program is on antisubmarine warfare. Progress has been made in antisubmarine warfare organization and tactics. Improvements have been made in weapons and equipment, particularly antisubmarine rockets, torpedoes, and sound detection gear. However, the fast, deep running, nuclear-powered submarine of today is exceedingly difficult to detect and attack. An increase in the capability to detect and destroy enemy submarines is needed. Additional funds are requested in this budget for research and development in this area.

Tactical forces.--The tactical forces include ground, naval, and air elements which are organized and trained to deal with cold war emergencies and limited war situations, as well as to be prepared for combat roles in the event of a general war. Recommendations in this budget will continue the modernization and improve the effectiveness of the tactical forces.

This budget provides for a further increase in procurement for the ground forces. Procurement of additional quantities of rifles and machine-guns employing standard ammunition of the North Atlantic Treaty Organization will fill the high priority needs of the Army and Marine Corps forces; the M-113 armored personnel carrier will be made available for high priority active Army forces; the M-60 tank will be provided for the Army's highest priority deployed forces; and increasing quantities of new field communications equipment, vehicles, and self-propelled weapons will be produced.

The Army and Marine Corps will continue to buy a wide variety of tactical guided missiles and rockets, including initial quantities of the Pershing, a solid-propellant missile; a new lightweight shoulder-fired assault weapon; the Davy Crockett, which provides infantry units with a close range atomic support weapon; and missiles such as Hawk and Redeye for defense of field forces against air attack.

Army aircraft procurement proposed for 1962 provides for 261 new aircraft compared to 229 in the 1961 program, and includes funds for surveillance and utility planes, as well as for 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 continued procurement of F-105 supersonic all-weather fighter-bombers. These aircraft, with their low-altitude performance characteristics and large carrying capacities for both nuclear and non-nuclear weapons, will strengthen significantly the air support available to tactical ground units.

Continued modernization of our existing fleet of military airlift aircraft is needed. Although the cargo and troop transport airlift now available is generally adequate, much of the fleet is approaching obsolescence. Last year a program was started to acquire the best existing transports for the most immediate needs and also to develop a new aircraft specifically designed for cargo and transport needs. The budget includes funds to continue the orderly development of this program.

Proposed legislation.--Legislation is again recommended to make the necessary adjustments in military retirement pay so as to reestablish for all retired personnel the traditional relationship of their pay with active duty pay. This relationship was broken for those retired prior to June 1, 1958, when the 1958 Military Pay Act increased active duty pay without a comparable increase for those on the retirement rolls. The people affected are in most cases those who have fought through two or three of our major wars. Legislation to correct this situation should no longer be delayed.

Basic long lines communications systems in Alaska which are now operated by the Army, Air Force, and the Federal Aviation Agency should be sold to private enterprise for operation and development under appropriate regulatory supervision. Legislation is recommended which will permit the sale of these Government-owned communications facilities under adequate safeguards.

The need for maintaining the relatively small naval petroleum reserves for strictly military purposes no longer exists. Legislation is therefore recommended to transfer responsibility for the administration of these petroleum reserves from the Department of the Navy to the Department of the Interior.

The need for manned aircraft, and for the pilots and other persons necessary to fly them, is declining gradually as more and more missiles enter the inventory of our operating forces. During the transitional period it will be necessary to remove from flying status a number of officers whose professional and managerial skills are still required by the services. The complete loss of flight pay which such removal now entails would represent a serious hardship to many officers who have served their country well and who believed they would qualify for flight pay as long as they maintained their flying proficiency. To help ease the transition which this group faces as a result of conversion to new weapons systems, the Congress should make provision for appropriate financial relief by reducing flight pay gradually for officers removed from flying status because of changing technology.

The provision of section 412 (b) of the Military Construction Act of 1959 requiring prior congressional authorization of appropriations for the procurement of aircraft, missiles, and naval vessels is inappropriate and should be repealed. Pending its repeal, the required authorizations for 1962 should be enacted promptly so that national security planning and preparation can go forward with the least possible delay. Further, in enacting the authorizations, the Congress should allow flexibility in the administration of the Department of Defense procurement programs to meet changing threats and take advantage of technological breakthroughs.

The Capehart military family housing program has admirably served its purpose. Over the last 6 years, more than 100,000 such family units were provided at a time when they were badly needed. It is now apparent that the most urgent family housing needs of the Department of Defense have been met. However, in order to. place under contract presently authorized projects and to provide for a final increment of 2,095 units in 1962, it is recommended that a 1-year extension of the existing authority be enacted.

In 1958, I recommended to the Congress a comprehensive program for reorganizing the Department of Defense. While many of these recommendations were enacted, and substantial progress has been made in implementing them, one area still needing attention is the method of providing funds for the Department. As a first step, appropriations have now been enacted on a broad category basis but with specific limitations by Service. I now recommend that the Congress, in acting upon the appropriation structure for the fiscal year 1962 for the Department of Defense, give earnest consideration to a plan which would make the necessary authorizations and appropriations to that Department to be administered by the Secretary, but with a substructure of sufficient identification which will retain for the Congress its constitutional prerogatives of raising and supporting the military forces of the United States.

North Atlantic Treaty Organization.--The evolutionary changes in warfare that have taken place over the last decade have had a profound effect on the military plans and programs of the North Atlantic Treaty Organization. These plans are again being reviewed and studied to take account of new weapons, better organization of the NATO military forces, and more direct channels of command to carry out NATO objectives effectively.

It is expected that the revised military plans for NATO will recognize the changes that have taken place. However, the menace of Communist military strength is growing. The NATO alliance remains vital to the security of the United States, no less than to the security of the other NATO allies. The United States will continue to contribute to the constructive and defensive tasks it has assumed.

Some changes in U.S. force deployments may become advisable in light of continuing studies of overall U.S. programs. Nevertheless, the United States will continue to provide a fully effective strategic deterrent force and will contribute to the forward deployed forces of NATO.

MILITARY ASSISTANCE.--U.S. military planning has long recognized the importance of allied forces in maintaining the security of the free world. Military assistance under the mutual security program helps to strengthen the forces of more than 40 nations. New obligational authority of $1.8 billion is recommended for military assistance for 1962 to provide training and material for essential maintenance and modernization of forces in the countries receiving aid.

In light of the expanding scope and cost of vital military programs being borne by the United States, we cannot continue indefinitely to provide military equipment on a grant basis to nations which now have the economic and financial capability to shoulder more of the burden of the common defense. The recent improvement in the financial position of many of our allies has highlighted the need for greater sharing of this burden.

Some of the Western European countries have now assumed full financial responsibility for equipping their own military forces, in which the United States had assisted earlier. We are confident that as full partners in the common defense all nations of the North Atlantic Treaty Organization who are able to assume this responsibility will do so. In 1962, military assistance to our Western European allies will be concentrated on selected types of new weapons and on the training required for their effective use.

This budget also reflects the continuing need to develop and maintain effective forces in other nations which are faced with serious threats of internal subversion or external aggression. Individually, and within mutual defense organizations, such as the South East Asia Treaty Organization (SEATO) and the Central Treaty Organization (CENTO), these forces play vital roles in the defense of vast areas, predominantly in Asia and the Near East. Assistance to these nations will be concentrated largely on the strengthening of conventional forces. In addition to its military value, this assistance in the common defense effort contributes to the sharing of technical knowledge and strengthens the bonds of friendship and mutual respect among the nations of the Free World.

ATOMIC ENERGY ACTIVITIES.--In 1962, expenditures by the Atomic Energy Commission are estimated to be $2,680 million, compared with an estimated $2,660 million in 1961. There will be increases in several program areas, but these will be largely offset by reductions elsewhere, notably in the procurement of uranium concentrates.

Expenditures for the production of nuclear weapons in 1962 will increase over 1961, while those for the development of weapons will continue at the same rate. Work will be carried forward in 1962 to improve methods for seismic detection of underground nuclear weapons tests. The Atomic Energy Commission is also cooperating with the Department of Defense in the improvement of methods for detecting high altitude tests.

In the naval reactor program, continued efforts will be made to develop longer lived nuclear fuel. The development of a nuclear ramjet engine for missiles and of nuclear powerplants for use at remote military installations will be pursued. The efforts to develop a nuclear engine for military aircraft will be continued in 1962 on one technical approach.

Peaceful uses of atomic energy.--Fundamental to progress in the peaceful uses of atomic energy is a sound and balanced program of basic research in the physical and life sciences. An important segment of this work is high energy physics. Last July, the United States began operating the alternating gradient synchrotron at the Atomic Energy Commission's Brookhaven National Laboratory on Long Island at the highest energy level ever attained anywhere in the world. During fiscal year 1962 two more high energy accelerators, at Cambridge, Mass., and Princeton, N.J., will begin operation. A high intensity accelerator is under construction at the Commission's Argonne National Laboratory near Chicago, Ill. Legislation is again proposed to authorize construction at Stanford University of a high energy linear electron accelerator which will be 2 miles long.

The development of civilian atomic power is being carried forward intensively. Expenditures of $250 million estimated for 1962 will support major development efforts on seven reactor types, and preliminary studies and experimental work on a number of other reactor concepts. The breadth and scope of our technology in this field are unmatched in the world.

The next 18 months will see further advances toward our long-term objective of making atomic energy an alternative and economic source of power at home and abroad. The total number of major Government-owned experimental power reactors in operation will increase by 5 to a total of 10 and the number of power reactors operating in public and private utility systems will increase from 3 to 10 The 1962 budget proposes additional funds for cooperative arrangements with private and public power groups in undertaking atomic power projects which would further the objectives of the program.

Jointly with the National Aeronautics and Space Administration, the Atomic Energy Commission is pursuing Project Rover to develop a nuclear powered rocket for possible future space missions. Expenditures for this project will increase in 1962. Continued emphasis will be given to development of small, long-lived nuclear power sources for space vehicles and other special applications. With the completion of a major experimental device in 1961, expenditures for long-term development of thermonuclear power will decrease somewhat, but the research work will continue at about current levels.

STOCKPILING AND EXPANSION OF DEFENSE PRODUCTION.--Expenditures for stockpiling and expansion of defense production are estimated to decrease from $70 million in 1961 to $52 million in 1962, as outstanding contracts for delivery of strategic materials are progressively completed or terminated. Most of the objectives for the strategic stockpile are completed, and no new expansion programs are in prospect.

Of major concern now are the storage and maintenance of large quantities of strategic materials and the orderly disposal over a period of years of surplus materials. Efficient management is hampered because these materials are in several inventories, each subject to different statutory requirements. Therefore, legislation is being developed to enable consolidation of the inventories of strategic materials and provide uniform procedures for disposing of surplus materials whenever disposal will not seriously disrupt markets or adversely affect our international relations.

NONMILITARY DEFENSE.--closely related to the major national security programs are the civil defense activities of the Government. These activities are discussed with other community facilities programs in the commerce, housing, and space technology section of this message, under which the expenditures for civil and defense mobilization are classified.

INTERNATIONAL AFFAIRS AND FINANCE

The national security and prosperity of the United States under conditions of peace and freedom require us to maintain our position of world leadership. Thus we must continue to assist in developing the resources and skills needed in many parts of the non-Communist world for the common defense and for economic growth.

Since the end of World War II, military and economic programs launched by the United States have helped to make possible the reconstruction of Europe and have thwarted the advance of Communist domination in most other areas. In recent years, the focus of these efforts has been shifting increasingly to the broader and more difficult problems of helping less-developed countries maintain their independence, build the foundations of growth, and advance the welfare of their people. Accordingly, increasing emphasis is being placed on such aspects of our international programs as development loans, technical assistance, and educational exchange. Greater use of multilateral channels is being fostered.

Expenditures for international affairs and finance programs in fiscal year 1962 are estimated at $2,712 million. The increase of $401 million over 1961 expenditures is due mainly to a greater volume of loan disbursements by the Development Loan Fund, to the second payment of our subscription to the Inter-American Development Bank, and to the expansion of activities in Latin America and Africa.

New obligational authority of $3,102 million is recommended for fiscal year 1962. This is a decrease of $105 million from the amount estimated for 1961. Increases for special assistance, commodity grant programs, and the second subscription to the Inter-American Development Bank are more than offset by the nonrecurrence of the 1961 supplemental appropriation requested for the new Inter-American Social and Economic Cooperation Program.

MUTUAL SECURITY PROGRAM.--The military portion of the mutual security program was discussed as an integral part of our national security effort in the preceding section of this message. For the total mutual security program, this budget recommends new obligational authority of $4,000 million for 1962, of which $ 1,800 million is for military assistance, $1,950 million for economic and technical programs, and $250 million for contingencies.

The 1962 recommendation has been determined with consideration for our present balance of payments situation and the steps being taken to improve it. I have recently directed that the use of the funds provided for assistance abroad should emphasize the purchase of the necessary goods and services in the United States. Such foreign procurement as may continue will be largely confined to less-developed countries, most of which do not increase their dollar reserves to any significant extent but tend rather to use their earnings to increase their imports.

Organization and financing of international programs.--Attention has been given constantly to the problem of improving the organization and administration of our international programs. For example, most of the recommendations of the President's Committee To Study the Military Assistance Program have already been fully or partially adopted. As required by section 604 of the Mutual Security Act of 1960, further analysis is being made of ways to improve the overall management and coordination of our various assistance programs. These studies will provide the basis for specific recommendations on organization later in the year when the detailed mutual security program for 1962 is presented to the Congress. Other studies concerning possible changes in the appropriation structure are currently under way.

In addition to possible improvements in the organization of foreign economic activities, the Congress is urged to consider means by which funds can be provided through the normal budgetary process to meet the needs of more than one specific fiscal year. This applies particularly to programs of long-term economic development and technical assistance in the training of manpower and the creation of basic economic, social, and governmental institutions. The provision of longer term financing should not only enable a more effective use of aid but, in the long run, should be more economical.

INTERNATIONAL AFFAIRS AND FINANCE

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obligational

1960 1961 1962 authority

Program or agency actual estimate estimate for 1962

Economic and financial assistance:

Mutual security--economic:

Development Loan Fund $202 $275 $425 $700

Defense support 741 705 665 650

Special assistance 255 250 256 298

Technical cooperation 172 183 190 203

Other 114 112 119 99

Mutual security--contingencies 129 150 220 250

Subtotal, mutual security--

economic and contingencies 1,613 1,675 1,875 2,200

Inter-American Social and

Economic Cooperation Program 50

Inter-American Development

Bank 80 110 110

International Development

Association 74 62 62

Export-Import Bank --323 --100 --4

Commodity grants for emergency

relief and development abroad

(title II, Public Law 480) and other 107 285 151 257

Subtotal, economic and financial

assistance 1,477 1,934 2,243 2,628

Conduct of foreign affairs:

Department of State, administration

of foreign affairs 215 210 228 233

Proposed legislation for

Philippine claims 49 49

Tariff Commission and other 4 4 3 3

Foreign information and

exchange activities:

United States Information Agency 113 125 138 140

Department of State, exchange

of persons 24 37 50 48

Total 1,833 2,310 2,712 ¹3,102

1 Compares with new obligational authority of $2,672 million enacted for 1960 and $3,207 million (including $666 million of anticipated supplemental appropriations) estimated for 1961.

MUTUAL SECURITY PROGRAM

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obligational

1960 1961 1962 authority

Program actual estimate estimate for 1962

Military assistance $1, 609 $1,700 $1,750 $1,800

Economic (including technical)

assistance 1, 484 1,525 1,655 1,950

Contingencies 129 150 220 250

Total, mutual security 3,223 3,375 3,625 ¹4,000

1 Compares with new obligational authority of $3,226 million enacted for 1960 ($1,331 million military, $1,895 million economic and contingencies ) and $3,931 million estimated for 1961 ($1,800 million military, $2,131 million economic and contingencies ).

Eligibility for assistance.--Legislation is again requested to allow greater flexibility in providing assistance to certain countries which are not in a position to meet the requirements of the Mutual Defense Assistance Control Act (Battle Act). Complex, time-consuming waiver procedures are now required for cases in which our own interests would be clearly fostered by the prompt extension of aid to countries endeavoring to reduce their dependence on the Soviet bloc.

ECONOMIC AND FINANCIAL ASSISTANCE.--The efforts of less-developed countries in mobilizing their domestic resources for economic growth will have to be supplemented during the next decade by continued investment from the economically more advanced countries. This investment will have to come from four major sources.

First, an increasing share should be private capital, which could increase directly the productive capacities within these countries. Among the steps taken by the U.S. Government to foster this goal are the negotiation of investment treaties and the provision of information on investment opportunities. Efforts are also being made to use, where appropriate, existing guarantee authority. Private sources, such as foundations and other specialized groups, should also continue their substantial contributions to the overseas schools, hospitals, and churches, so important in promoting democratic society.

Second, increased investment may be expected through international organizations. In addition to the International Bank for Reconstruction and Development there are now the International Development Association and the Inter-American Development Bank. These institutions are supported by contributions from many countries. Also, the United Nations Special Fund is receiving increasing subscriptions from member countries. Further, the Congress should authorize the United States to join the countries of Europe and Canada in the new Organization for Economic Cooperation and Development which will replace the Organization for European Economic Cooperation. The new organization will extend and invigorate the practice of consultation among its members and will help find ways to facilitate the flow of investment funds to less-developed countries.

Third, a greatly increased share of the needed investment must come from the bilateral programs of other industrialized nations. In the post-World War II era many of the other developed countries have succeeded in rebuilding their economies and have established a high rate of economic growth. In recent years they have substantially increased their gold and foreign exchange reserves. The time has come for such countries to augment materially their financing of the growth of the less-developed areas, and there is evidence of growing willingness on their part to do so. Strenuous efforts are being made to persuade our partner nations to accelerate significantly the pace at which they are taking on responsibilities for economic assistance as well as for the common defense.

Finally, common sense, goodwill, and national interest require that the U.S. Government continue substantial assistance. The needs of the less-developed countries cannot be met wholly by the efforts of private investors, international organizations, or other industrial countries.

Loans for economic development.--In 1962, the United States will pay the second installments of its subscriptions to both the International Development Association and the Inter-American Development Bank. However, successful development in many countries is dependent upon additional loans from outside sources. The Export-Import Bank expects to commit $602 million for development loans, and this budget proposes that $700 million be made available in 1962 to the Development Loan Fund. Both agencies now have requests for a variety of productive projects in such fields as electric power, transportation, and industrial facilities. In some countries, such as India and Pakistan, loans will be needed on a basis broader than individual projects to insure the success of development plans.

There is a pressing need to approve financing for development projects in several countries over and above the level of funds presently available to the Development Loan Fund. Accordingly, a supplemental appropriation of $150 million for 1961 is required. This supplemental request, if approved, together with funds already appropriated for 1961, would make available the full amount requested in the 1961 budget.

Mainly because of earlier commitments, expenditures by the Development Loan Fund are estimated at $425 million in 1962, an increase of $150 million over 1961. The Export-Import Bank plans to finance its operations without incurring net budget expenditures in 1962 by encouraging private lenders to participate in its loan programs, by using funds obtained from repayments and interest on prior loans, and by selling notes from its large portfolio.

Loans of the Development Loan Fund will continue to be made repayable largely in local currencies in order not to draw on the limited foreign exchange resources of the recipient countries.

Latin America.--A supplemental appropriation of $500 million is recommended for 1961 for the Inter-American Social and Economic Cooperation Program which was authorized by the last Congress. This amount represents the total authorization and therefore no further appropriation will be required for 1962. These funds will be used for a broad range of projects of direct benefit to the people of Latin America in such fields as housing, education, agricultural improvements, and land utilization.

When plans become firmer, a supplemental appropriation for 1961 should be requested for earthquake reconstruction in Chile under the $100 million authorization enacted by the last Congress. To cover interim needs a $20 million grant from mutual security contingency funds has been made available to Chile, and surplus agricultural commodities valued at $29 million are being shipped under the Agricultural Trade Development and Assistance Act of 1954 (Public Law 480).

Defense support and special assistance.--New obligational authority of $650 million for 1962 is proposed for defense support, a reduction of $25 million from 1961, and $298 million is recommended for special assistance, an increase of $66 million over 1961. These programs not only help maintain substantial military strength by free world countries rimming the Soviet bloc, but also include special economic programs in certain vital countries, and provide for the continuance of other special programs such as malaria eradication. The increase in special assistance funds recommended for 1962, is due principally to the growing need for aid to Africa. Other countries which have had a traditional interest in that continent may be expected to continue the constructive work started there, and their assistance, like ours, should increasingly be channeled through an expanded United Nations effort which we have proposed.

In estimating the requirements for defense support and special assistance, full account has again been taken of the substantial amount of economic assistance in the form of surplus agricultural commodities which may be programmed under Public Law 480. For 1962, the budget estimates provide for placing almost complete reliance on Public Law 480 for financing the Government programs for export of surplus farm products, but the mutual security program will continue to finance exports which cannot readily be programmed under Public Law 480. The requirement that a specified portion of mutual security funds be used to finance exports of these commodities should be eliminated.

Technical cooperation.--The scope and effectiveness of our technical assistance activities have been expanding, and this trend may be expected to continue. Experience has shown that improved human resources within a country are just as vital to development as capital assistance from without. New obligational authority of $203 million is requested for 1962 for technical cooperation programs, compared with $184 million enacted for 1961. Part of the increase is for a larger contribution to the United Nations Special Fund and United Nations technical assistance programs to support the continuing expansion of their work which has been made possible by larger contributions from other countries.

Contingency fund and other assistance.--Events of the past year have reemphasized the need for a fund to provide the President with the flexibility to meet international contingencies which cannot be foreseen in the budget. The situation in Africa continues fluid, and major emergency requirements are possible in other areas as well. To provide for such contingencies new obligational authority of $250 million is recommended under the mutual security program for 1962, about the same as provided for 1961. This is the minimum amount required for the coming year consonant with the responsibilities of the President.

Funds are also authorized under the Mutual Security Act for administration and for contributions to specialized programs such as those for refugees, Atoms for Peace, and children's welfare. For these purposes, new obligational authority of $99 million for 1962 is recommended. This amount is $6 million higher than available for 1961, due mainly to expanding administrative needs in Africa and Latin America.

CONDUCT OF FOREIGN AFFAIRS.--In 1962, the Department of State plans to expand further its activities in three important areas of its work. The number of diplomatic and consular posts in Africa is expected to increase from 36 in 1960 to 49 by the end of 1962. A Disarmament Administration has been established within the Department of State, and expansion of this activity is proposed. The Department will also intensify its efforts to increase U.S. exports, complementing efforts of the Department of Commerce.

During the calendar year 1960, there were 17 countries in Africa which gained their independence. Official representation with these new governments must be established as early as possible and preparation must be made for representation in other countries soon to become independent. Because of the large number of new nations, a supplemental appropriation for 1961 is requested to cover costs of establishing new diplomatic and consular posts in Africa and raising certain existing consulates to embassy status.

Legislation previously recommended to authorize payment of certain war damage claims of the Philippine Government should be enacted at an early date. The Congress should also act promptly to remove the existing reservation on acceptance by the United States of jurisdiction of the International Court of Justice (the World Court).

FOREIGN INFORMATION AND EXCHANGE ACTIVITIES.--Substantial increases have been recommended in the 1962 budget for exchange programs and the programs of the United States Information Agency in Latin America and Africa, made possible, in part, by reductions in activities in Western Europe. It is essential that these activities be stepped up in these areas to the extent of our ability to do so effectively. The 1962 budget recognizes this need. However, if the developing situation indicates both a further need for additional resources and an ability effectively to utilize them, we should stand ready to expand further these efforts. In Africa, 20 new information centers requiring sizable initial costs will be put into operation in 1961 and 1962, mostly in the newly independent countries. In Latin America, special efforts will continue toward expanding and strengthening activities of the binational cultural centers. Construction of new, more powerful radio facilities for worldwide broadcasting is under way in North Carolina, with completion expected in December 1962. Initial activities are under way toward the construction of a radio facility in Liberia. In 1962, further improvement of facilities of the Voice of America abroad is proposed by quintupling the transmitter power in the United Kingdom and by procurement of a transportable radio relay station to meet special needs on short notice.

The budget also provides for an expansion of cultural presentation activities and exhibits at international fairs abroad. Funds for this purpose are included in the estimates for the United States Information Agency instead of being appropriated to the President as in previous years. The trade mission segment of the program is included in the estimates for the Department of Commerce.

Activities under our cultural exchange agreement with the Soviet Union continue to progress mainly under private auspices. There are plans to exchange three Government-sponsored exhibits beginning this spring, each of which will be shown in several cities. A supplemental appropriation is proposed for 1961 to take advantage of this opportunity to demonstrate American achievements to a wide segment of the Russian people.

Further expansion in the programs of the Department of State for the exchange of persons is proposed in 1962, particularly in Africa. Continuing support of workshops and foreign university chairs in American studies, as well as assistance to American-sponsored schools abroad, is planned. An increase in the Department's new program of cultural and educational development abroad will permit many new contacts between foreign and American universities. The 1962 estimates include funds for the continued development of the Hawaii Center for Cultural and Technical Interchange between East and West.

COMMERCE, HOUSING, AND SPACE TECHNOLOGY

The Federal Government provides a wide variety of aids to transportation, operates the postal service, fosters local and private initiative in housing and urban renewal, provides financial and other aids to. small businesses and to areas suffering from substantial and persistent unemployment, and helps finance civil defense preparations. Expenditures for many of these and other commerce and housing programs will continue to increase as workloads rise and past commitments for construction and expansion fall due. Moreover, the Government's outer space activities are requiring substantially increased expenditures. Nevertheless, the total expenditures of $3.4 billion estimated for the fiscal year 1962 for commerce, housing, and space technology are $413 million less than the expenditures now estimated for 1961, primarily because legislation is proposed to increase postal rates and thus eliminate the postal deficit financed from the general fund.

SPACE EXPLORATION AND FLIGHT TECHNOLOGY.--Civil space activities being carried forward under the National Aeronautics and Space Administration include: (1) the development of larger and improved space vehicles, new types of propulsion and equipment, and a wide range of necessary supporting research and development; (2) the development of systems of meteorological and communications satellites; and (3) the search for new knowledge about the universe through unmanned, and eventually manned, space exploration. The NASA also carries on research related to new and improved types of aircraft and missiles, chiefly to support programs of the military services.

Expenditures for civil space programs are estimated at $965 million during fiscal year 1962, which is $195 million more than in 1961 and $564 million more than in 1960. Appropriations of $1,110 million for 1962, and supplemental appropriations of $50 million for 1961, are recommended in this budget. Legislation is being proposed to authorize the appropriations required for 1962 and to provide permanent authorization for later years. In addition, amendments to the National Aeronautics and Space Act of 1958 are again being proposed to improve the organization and management of the space programs.

We have just cause to be proud of the accomplishments of our space programs to date and can look forward with confidence to future achievements which will succeed in extending ever further the horizons of our knowledge.

The first attempts to develop communications systems have met with outstanding success with both the Echo I passive communications satellite, which has reflected signals between widely distant stations on the ground, and the Courier active communications satellite of the Department of Defense, which has stored and relayed messages transmitted to it from the ground. We are now ready, therefore, to take the first steps leading to a practical satellite communications system for commercial use. While the special nature of space operations makes it necessary and proper for the Government to take the lead in advancing the needed research and development of satellites for commercial communications use and to conduct the launchings, private industry should participate in the development phase and should be aggressively encouraged to assume the costs of the establishment and operation of the commercial system. The recommendations in the 1962 budget, including a supplemental estimate for 1961, provide for moving ahead rapidly with the development of an active communications satellite system for commercial use, and anticipate that private concerns will provide $ 10 million in 1962 in support of the program.

COMMERCE, HOUSING, AND SPACE TECHNOLOGY

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obligational

1960 1961 1962 authority

Program or agency actual estimate estimate for 1962

Space exploration and flight

technology $401 $770 $965 $1,110

Promotion of aviation:

Federal Aviation Agency 508 640 730 686

Civil Aeronautics Board 60 87 82 84

Promotion of water transportation:

Department of Commerce 269 279 338 293

Coast Guard 238 262 272 296

Panama Canal Company (¹) 16 10

Provision of highways 38 39 (¹) (²) (²)

Postal service:

Public service costs 37 49 63 63

Postal deficit under present law 488 897 843 843

Proposed rate revisions --160 --843 --843

Community development and facilities:

Urban Renewal Administration 108 159 208 310

Other 22 25 31 4

Public housing programs 134 153 170 183

Other aids to housing:

Federal Savings and Loan Insurance

Corporation:

Present program --20 --35 --64

Proposed premium increase --164

Federal Housing Administration --53 3 21 53

Veterans housing loans:

Present program 206 100 115 150

Proposed limitation on eligibility --30

Federal National Mortgage

Association --30 113 75 285

College housing loans 201 172 200 100

Farm housing loans and other --25 --39 26 12

Other aids to business:

Small Business Administration 63 68 94 24

Proposed area assistance

legislation 10 83

Other 33 56 58 71

Regulation of commerce

and finance 58 67 74 73

Civil and defense mobilization 46 50 81 104

Disaster loans and relief -- 1 14 7 9

Total 2,782 3,784 3,371 ³3,993

1 Less than one-half million dollars.

² Reflects proposed financing of Federal-aid highways in national forests and public lands from highway trust fund.

³ Compares with new obligational authority of $3,784 million enacted for 1960 and $4,612 million (including $203 million of anticipated supplemental appropriations) estimated for 1961.

In the field of meteorology we have also achieved success with the Tiros I and Tiros II satellites. The 1962 recommendations provide for further experiments with more advanced Tiros and Nimbus satellites, which may provide the basis for an operational system for weather forecasting and research.

In the program for manned space flight, the reliability of complex booster, capsule, escape, and life-support components of the Mercury system is now being tested to assure a safe manned ballistic flight into space, and hopefully a manned orbital flight, in calendar year 1961. Further testing and experimentation will be necessary to establish whether there are any valid scientific reasons for extending manned space flight beyond the Mercury program.

In unmanned space exploration, the scientific information received from our earth satellites and space probes has taught us a great deal about the earth and surrounding space. In the near future, the first launching under the Ranger unmanned lunar exploration program will take place. This program will eventually include the increasingly complex Surveyor and Prospector series. Investigations in the vicinity of the planets Mars and Venus are planned under Project Mariner with initial launchings scheduled for 1962. Large earth-orbiting astronomical and geophysical observatories are also planned as successors to our present scientific satellites.

The success of many of the advanced projects planned for 1962 and future years will depend on the success of the new and powerful Centaur and Saturn launch vehicles. Steady progress has been made on these boosters, which use proven liquid propellant in the lower stages and advanced liquid hydrogen propellant in the upper stages. The weightlifting capability of the Saturn launch vehicle will surpass any currently known to exist.

TRANSPORTATION AND COMMUNICATION.--Few segments of our economic system are more essential to economic growth and national defense than an adequate and efficient transportation and communication network. This budget reflects important actions under way to modernize Federal transportation and communication programs. As a basis for future legislation, the Congress also has before it a comprehensive study of our Nation's transportation system completed last year by the Secretary of Commerce.

Aviation.--The expanded program to improve air traffic control and navigation services, begun in 1957, is advancing rapidly under the direction of the Federal Aviation Agency. Over this period budget expenditures for the promotion of civil aviation have risen from $219 million to an estimated $811 million for 1962. Large numbers of radars and instrument landing aids, as well as many new navigation aids and other airway facilities, have been placed in operation. Substantial progress has been made in achieving joint use of facilities for air defense and air traffic management purposes. The improvements being provided and those now under active development by the Federal Aviation Agency will help assure accommodation of a growing volume of air traffic with maximum safety and efficiency.

The continuing expansion of the modernization effort will cause expenditures of the Federal Aviation Agency to rise by $90 million to an estimated $730 million in 1962. New obligational authority of $686 million is being requested, primarily for procurement of additional equipment, for operating the airways system, and for conducting research and development of new equipment and techniques.

New legislation is recommended to authorize appropriations for continuing Federal grants-in-aid for airport construction beyond 1961. In this legislation, the present method of providing new obligational authority by contract authorization in substantive legislation should be changed to appropriations which are subject to the normal executive and congressional review process, .but still provide for adequate advance planning by localities. For 1962, this budget includes recommended appropriations of $40 million, which is $23 million less than the presently authorized level. The reduction reflects the sound policy that the level should progressively be reduced and that, after a reasonable transition period, users and benefiting communities should assume full responsibility for the construction of airports, which should be largely self-financed.

Legislation is again recommended to establish a Federal corporation to operate the Washington National and Dulles International Airports in the Washington, D.C., metropolitan area. This arrangement will provide greater management flexibility to meet changing requirements and permit more business-like operations.

Subsidies to local-service airlines, including intra-Alaska operations and helicopter services in Chicago, Los Angeles, and New York, continue to be excessive. These Federal payments currently average about $12 per passenger-trip for all trips of local-service carriers. The reduction in subsidy expenditures of the Civil Aeronautics Board from $87 million in 1961 to $82 million in 1962 reflects the large non-recurring payments in 1961 to reduce the backlog of unpaid subsidies from prior years rather than any reduction in accruing subsidies. According to current Board estimates, subsidies will rise to a peak in fiscal year 1963 and will remain above $80 million through 1966. Strong demands for additional services and for new routes to smaller communities could cause further increases in subsidies because the potential traffic is inadequate to pay the full costs of the services.

The dependence of these local-service carriers on the Federal Government should be reduced. Toward this end positive action is needed from both the Civil Aeronautics Board and the Congress. The Board should discontinue the least essential routes and stops in accordance with its use-it-or-lose-it policy, and should also develop other means of limiting Federal support. The Congress should review the basic promotional policy of the Federal Aviation Act, giving special attention to the question of whether the national interest justifies continuing substantial Federal payments to sustain deficit operations for service to points with very limited traffic.

Domestic trunk airlines, now self-supporting, provide more passenger miles of transportation than any other common carriers. In view of this evidence of the industry's growing maturity, the Congress should enact legislation to make trunk lines ineligible for subsidies after a period of subsidy-free operations. This will remove a potential burden on Federal resources.

Airway user charges.--The civilian users of the Federal airways system enjoy substantial benefits from the large and growing Government outlays for improved traffic control and navigation services. Federal costs for operating and improving the airways system, excluding airport grants and weather and other indirect services, now approach $600 million a year. It is wholly appropriate that civilian users begin to assume a more reasonable share of these costs, most of which are now borne by the general taxpayer.

To achieve this purpose, it is again recommended that the present tax on aviation gasoline be increased from 2 to 4½ cents per gallon and that the 4½-cent tax rate be extended to jet fuels, which are now tax free. In addition, receipts from the existing and proposed aviation gasoline taxes should be placed in the general fund rather than transferred to the highway trust fund as at present. There is no sound reason for using these taxes to finance highway construction. The airlines should be assured that these tax increases may be reflected promptly in fare adjustments.

Promotion of water transportation.--The steadily rising cost of operating U.S. merchant ships is seriously hampering our efforts to achieve a healthy, competitive merchant marine industry. Net expenditures by the Department of Commerce, chiefly the Maritime Administration, in 1962 are estimated at $338 million, up from $279 million in 1961. Expenditures for replacement of war-built cargo ships are estimated to rise by $23 million, and outlays for operating subsidies are expected to be $32 million more than in 1961.

In order to assist the shipping industry to achieve lower costs and a stronger competitive position, the Government has recently initiated a new research and development program. A primary objective of this program is to make available the new equipment necessary to mechanize shipboard operations along the lines already well established in shoreside industries. The full cooperation of Government, industry, and labor will be required to assure the success of this program. Established practices and legislative policies must be reassessed, and attention must be focused on measures most likely to enhance the competitive position of U.S. merchantmen in international trade. If the United States is to maintain its position as a maritime nation, if the industry is to be reasonably profitable and less dependent upon Government aid, and if maritime employment is to be stable and wages high, continuous bold innovations are necessary.

It is again requested that the inflexible 3½% interest rate on ship mortgage loans made by the Maritime Administration be replaced by authority to charge the Government's full cost for such loans.

Expenditures by the Coast Guard are estimated at $272 million in 1962, which is $10 million more than in 1961. This increase reflects the operation of new loran stations, higher repair and maintenance costs, modernization of facilities, and replacement of equipment, such as patrol vessels, rescue helicopters, and aids to navigation.

Construction will continue on the Balboa Bridge across the Panama Canal. Widening of the canal from 300 to 500 feet in the area of the Continental Divide will also continue, in order to accommodate increased ship traffic. As a result of some increase in toll revenues and some decrease in capital outlays, budget expenditures of the Panama Canal Company in 1962 will be $6 million less than in 1961. The Company should be authorized to reimburse the U.S. Treasury for various costs associated with its operations which are not now recovered, including the increased annuity payable to the Republic of Panama in accordance with the treaty of 1955, and legislation to this end is proposed.

Following extensive study, I have concluded that the commercial activities of the Panama Steamship Line should be discontinued and the Board of Directors of the Panama Canal Company has been requested to take appropriate steps to do so. Commercial shippers now using the Panama Line have been notified of this action, and complete cessation of commercial activities of the Line is to be accomplished by February 10, 1961. Thereafter, the activities of the Line should be confined solely to the transportation of passengers and freight for the account of the Panama Canal Company and the Canal Zone Government. This action will undoubtedly require a reappraisal of the Line's operations, including a review of the need for supplying Company-owned shipping services to the Panama Canal Company from the continental United States, in the light of national maritime considerations and established Government policy to avoid undue competition with private enterprise.

Highways.--The Interstate Highway System has progressed considerably since the enactment of the Highway Act of 1956, with almost 10,000 miles now open to traffic. Active work is under way on another 14,600 miles, of which approximately 1,600 miles are expected to be open to traffic by the end of calendar year 1961. To continue this progress and assure timely completion of the Interstate System, two important legislative actions are required. The highway fuel tax should be increased to 4½ cents per gallon, as previously recommended, and the rate should be continued at this level through 1972, instead of reverting to 3 cents on July 1, 1961, as provided by present law. The unwise diversion of automotive excise taxes from the general fund to the highway trust fund, also scheduled for July 1, 1961, should be rescinded.

Adoption of these recommendations will make it possible to complete the Interstate System in 1973 to meet the traffic needs for which it is designed. The enactment of my previous recommendations to (1) transfer financing of forest and public lands highways, which for the most part are components of the Federal-aid systems, from the general fund to the highway trust fund and (2) retain the receipts from aviation gas taxes in the general fund, will not extend this planned completion date. Under the proposed program, Federal payments from the trust fund for highways in fiscal year 1962 are estimated at $3,029 million, up from $2,868 million in 1961.

The Secretary of Commerce, in a report submitted to the Congress this month, is presenting a current estimate of $37 billion as the total Federal cost of the Interstate System. The estimated construction costs of this 41,000-mile system are about $1 billion less than in the 1958 estimate, but the new total includes the cost of highway planning and administration not previously included.

Postal service.--During recent years, the Post Office Department has been conducting a large-scale modernization program to improve the delivery of mail and to reduce handling costs per unit. For example, a new system of mail transportation and distribution is now providing overnight delivery of letter mail within all principal metropolitan areas. Modern mail processing systems with electronic and mechanical equipment developed under the direction of the Department are already in operation in 17 major postal facilities, and similar installations will soon be in use in 48 others.

While the modernization program has increased the efficiency of postal operations and will contribute to savings in future costs, it cannot materially reduce the enormous postal deficit. In fiscal year 1962 this deficit is estimated at $843 million, after deduction of the $63 million estimated cost of services benefiting the public at large computed in accordance with the principles used by the Congress in previous years. The deficit is largely the result of the enactment by the Congress in the postwar years of postal pay increases without corresponding rate increases.

In the Postal Policy Act of 1958, the Congress established the policy that postal rates should be kept high enough to recover postal expenses except for the cost of certain public services as fixed by appropriation acts.. In accordance with this policy, rate increases adequate to cover such expenses were proposed to the Congress in 1959 and again in 1960. No rate legislation was enacted in either year. With record postal deficits in prospect for the current fiscal year and for 1962, rate increases must be provided promptly to achieve a self-supporting postal service. Accordingly, I strongly urge that additional revenue of $843 million be provided for the fiscal year 1962 and that the higher rates be made effective by April 1, 1961, in order to reduce the postal deficit for the fiscal year 1961. Such action is necessary to eliminate the drain upon the Treasury of this mounting deficit for which there is no justification in law or in equity.

HOUSING AND COMMUNITY DEVELOPMENT.--DURING the past decade, housing construction and improvement have gone forward at the highest level in history. The housing shortages of the postwar period have been largely met, and the housing conditions of the great bulk of the population improved. At the same time, major new governmental and private programs have begun to reverse the blight and deterioration afflicting our urban areas. Thus, a solid base has been laid for greater progress in the decade of the sixties.

In the future, as in the past, the best results will be obtained by emphasizing leadership and financial participation by private industry and by local and State public agencies. Federal assistance can be most effective, most consistent with our free institutions, and least costly to the taxpayers if it emphasizes the supplementary action needed to help overcome obstacles to private and local accomplishment.

The major needs for the immediate future can best be met by assuring private groups and local governments of the continuing availability of existing Federal programs. Unfortunately, at the present time most housing programs require legislative action at frequent intervals merely to continue present operations. These programs are no longer experimental. Their continued availability should not depend upon the enactment of legislation which also often includes controversial changes. Rather, the major existing housing programs, like most other Federal programs, should be authorized permanently, subject only to normal annual budgetary review by the executive branch and the Congress.

Urban renewal.--The nationwide program to rebuild and rehabilitate our cities continues to grow. By the close of the current fiscal year, an estimated 68 projects in 50 cities will be completed, another 577 projects will be under way, and planning for 310 more will be in process. These 955 projects will ultimately have required a total of almost $2 billion in Federal grants to pay two-thirds of the net cost. If present trends continue, approximately the same amount may also be needed for Federal purchases of mortgages to finance construction of housing connected with the same projects. This Federal aid will generate much greater private and local investment and will result in substantial increases in property values and in tax revenues to local public agencies.

This vital program should move forward on a basis which gives adequate assurance to local communities of continuing Federal assistance and also places proper emphasis on local participation. Accordingly, permanent authority should replace the present annual statutory limitations on Federal grants, with annual amounts provided through the normal appropriation process. Further, the local share in project costs should be increased from one-third to one-half to reflect more adequately the increases in local tax revenues and other direct benefits to the communities participating in the program. For the fiscal year 1962 new obligational authority of $300 million is recommended.

Urban planning.--The various housing and urban renewal programs and the Federal-aid highway program have important impacts on the character and development of our rapidly growing metropolitan areas. To help assure that these aids make the maximum contribution to sound community development, the Secretary of Commerce and the Housing and Home Finance Administrator have established a new procedure for the joint use of urban planning grants and Federal-aid highway research and planning funds for comprehensive metropolitan planning. This procedure is intended not only to produce better planning for the use of Federal, State, and local funds, but also to encourage effective coordination and cooperation among the many local governments and the State and Federal agencies engaged in metropolitan development activities. To help carry out the new approach, as well as to aid mass-transit planning and to meet other expanding requirements, it is recommended that the present statutory limitations on appropriations for urban planning grants be removed and that the appropriation for such grants be increased to $10 million for 1962 from the $4 million appropriated for 1961.

Public housing programs.--By the close of the fiscal year 1962 an estimated 522,000 federally aided public housing units will be occupied, and construction will be underway on 49,000 more units. Another 49,000 units will be under contract for Federal contributions but construction will not yet have been started on these units. In view of the large number of authorized units not yet under construction, no additional authorization is recommended in this budget. Expenditures for contributions to local authorities will increase in 1962 largely because of subsidies required on newly occupied units.

Federal Savings and Loan Insurance Corporation.--A year ago legislation was recommended to provide needed increases in the insurance reserve of the Federal Savings and Loan Insurance Corporation, which insures the share accounts of institutions representing the largest source of home mortgage financing. Because of the continuing rapid growth of these institutions, the Corporation's reserves are still only 0.66% of the insured liability, and legislation is even more necessary now. Therefore, it is recommended that the present unnecessarily high requirement for investment in stock of the Federal Home Loan banks be reduced, and that insured savings and loan associations be required to make additional prepayments of insurance premiums of approximately the amounts of that reduction. The objective should be to build up the secondary reserves of the Corporation until total reserves reach 2 % of the insurance liabilities. This proposal would cause a much more rapid increase in the insurance reserves of the Corporation, by adding an extra $164 million in 1962. It would not significantly increase the costs to member associations, but would allocate more realistically the combined resources of the Home Loan banks and the Corporation.

Insurance of private mortgages.--The Federal Housing Administration expects to increase its commitments to insure mortgages from about 800,000 housing units in the fiscal year 1961 to over 900,000 units in 1962; about 40% of the 1962 commitments will be mortgages on newly built houses. However, since the present amount of insurance authority will be used up within the next few months, prompt action is needed to prevent interruption of this important program. The Congress should remove the present ceiling on this authority so that home buyers, builders, and lenders can count upon the continued availability of Federal mortgage insurance.

Legislation should also be enacted to make permanent the authority to insure loans on home improvements, which expires October 1, 1961. This program, initiated in 1934, has proved to be an important aid to modernization of existing homes, and its continuance should no longer depend on periodic congressional action.

Statutory ceilings on interest rates for certain types of mortgages insured by the Federal Housing Administration, as well as for direct and guaranteed loans of the Veterans Administration, have from time to time limited the effectiveness of these programs. In the past, the Congress has recognized the need for some increased flexibility in such interest rates in order to attract adequate private capital. In the present situation, the interest rate ceiling of 5 1/4% on housing loans guaranteed by the Veterans Administration is a serious obstacle to adequate private financing. The similar ceiling on insured mortgages for rental housing, especially for the new housing program for the elderly, and the ceiling of 4 1/2% on family housing for members of the armed services also discourage private financing. As previously recommended, these ceilings should be increased or removed by the Congress. The success of the new mortgage insurance program for nursing homes in obtaining private funds through slightly higher interest rates illustrates the importance of adequate flexibility in such rates.

Veterans housing loans.--The last Congress extended the veterans direct housing loan program of the Veterans Administration for another 2 years, provided new obligational authority of $150 million for such loans for each of the fiscal years 1961 and 1962, and provided for a 2-year extension of the loan guarantee program for World War II veterans. The need for continuing the readjustment benefit programs of direct loans and loan guarantees for World War II veterans has long since passed.

Changes are recommended in the direct loan program to (1) confine this program, beginning July 26, 1961, to veterans of the Korean conflict, (2) extend the program for Korean conflict veterans from the present termination date of July 25, 1962, until February 1, 1965 (the same termination date as for loan guarantees for these veterans), and (3) finance the extended program from funds already authorized, augmented by funds from repayment of loans previously made. These changes will permit a satisfactory program of aid for veterans of the Korean conflict with expenditures of $85 million in 1962, a reduction of $15 million from 1961.

Voluntary Home Mortgage Credit Program.--Authority for the Voluntary Home Mortgage Credit Committee expires October 1, 1961. Under present unrealistic interest rate limitations, this program cannot contribute substantially to the financing of guaranteed home loans to veterans in remote areas. Other federally insured loans are, however, being placed for borrowers in such areas and for members of minority groups. The Committee is also now trying to find private financing for mortgages eligible for special assistance by the Federal National Mortgage Association. This program should, therefore, be extended for another 2 years.

Mortgage purchases.--Mortgage financing requirements for housing for displaced families, for elderly families, and in urban renewal areas, will continue to increase in 1962. Despite the progress made by the Voluntary Home Mortgage Credit Committee in finding some private financing, the bulk of the financing needs for these types of housing will continue to be met through mortgage purchases by the Federal National Mortgage Association under its special assistance functions. The Association will require, for this purpose, additional new obligational authority of $250 million in 1962; the legislation should authorize provision of this amount through the appropriation process.

Through its secondary market operations trust fund, the Federal National Mortgage Association will purchase an estimated $1 billion of insured and guaranteed mortgages of all types at market prices. Unlike the special assistance program, which is wholly financed by the Federal Government, almost all of the necessary funds for secondary market operations will be provided by sale of debentures to private investors and by purchase of common stock by mortgage sellers. New obligational authority of $35 million, however, is estimated to be required for additional Treasury subscriptions to the Association's preferred stock.

College housing.--Legislation enacted by the last Congress provided sufficient authority to continue the present college housing program into the fiscal year 1962. I have previously recommended a new program to be administered by the Department of Health, Education, and Welfare to provide Federal assistance for university facilities of all types through loan guarantees and grants. As a transition to that new and broader program, new obligational authority of $ 100 million for college housing loans is recommended for 1962. Together with funds from existing authorizations, this will permit new loan commitments of $200 million in 1962.

PROMOTION AND REGULATION OF BUSINESS.--The Federal Government provides a variety of direct and indirect aids to business enterprises. At the same time, Federal regulatory agencies and programs enforce competition and regulate monopoly in many specific areas.

Small business.--Federal assistance to small business will continue to grow in 1962. Financial aid under the Small Business Investment Act to both small business investment companies and to State and local development companies is increasing at a rapid rate. The number of such investment companies is expected to exceed 400 by the end of June 1962, compared to 109 in June 1960, thus expanding the supply of private capital available to small businesses. Other loans by the Small Business Administration will continue at a high level, as will the efforts to assist small businesses in obtaining a larger share of Federal procurement and research contracts and in improving management methods. Special efforts are being made to provide assistance to firms displaced by urban renewal projects and firms in labor surplus areas.

Legislation should be enacted to extend the important program of loans to local development companies, which otherwise expires at the end of the current fiscal year. In addition, legislation is again requested to extend the privilege of simplified filings under the Securities Act of 1933 to a wider range of securities issues, and thus to facilitate small business financing.

Area assistance.--The Department of Commerce, with the assistance of 16 other departments and major agencies, has further extended in the past year the wide range of Federal aids to local communities suffering from severe and chronic unemployment. However, private groups and local public officials must provide the primary initiative in finding successful permanent solutions for the difficult problems of their specific areas.

For the past 5 years I have repeatedly recommended legislation which would provide the authority necessary for more effective Federal assistance without merely substituting temporary Federal aid for indispensable local leadership. Alternative proposals enacted by the Congress, which would have been less effective and more expensive, have been vetoed. The Congress is again urged to enact sound legislation to permit reasonable increases in Federal aid through a program of loans and grants. This program should continue to be administered by the Secretary of Commerce to avoid establishment of an unnecessary new agency. Appropriations of $83 million for 1962 are requested to initiate the expanded Federal program.

Export expansion.--The national export expansion program launched early last year by the Department of Commerce has already had considerable success. This budget includes recommendations for additional appropriations to help achieve further increases in exports and to place greater emphasis on encouraging travel to the United States.

New York World's Fair.--The Secretary of Commerce, at my request, is developing plans, in anticipation of authorizing legislation, for Federal participation in the New York World's Fair scheduled to open in the spring of 1964.

Regulation of commerce and finance.--Under this budget, the Federal Communications Commission, the Federal Trade Commission, the Interstate Commerce Commission, the Securities and Exchange Commission, and the Civil Aeronautics Board will be further strengthened. The appropriations recommended for these five independent regulatory agencies will finance a staff 40% greater than at the end of 1956, an expansion clearly required by the growth of regulated industries, by new legislative responsibilities, and by the increased complexity of the problems involved. Numerous improvements in agency operations to simplify procedures and reduce backlogs are anticipated from a series of management studies made in recent months. The increasing workload of these agencies increases the need to adjust or impose charges on the regulated industries or activities sufficient to cover the costs of administration.

The antitrust laws should be strengthened by legislation (1) requiring large businesses to notify the antitrust agencies of proposed mergers, (2) empowering the Attorney General to issue civil investigative demands in antitrust cases when civil procedures are planned, and (3) authorizing the Federal Trade Commission to seek preliminary injunctions when it is likely that a proposed merger would violate the law.

CIVIL AND DEFENSE MOBILIZATION.--Prudent concern for the protection of the civilian population from hazards in a nuclear world makes it necessary to recommend increases for 1962 in appropriations for civil defense. The largest increases for nonmilitary defense will provide funds for increasing medical stockpiles and for the first full-year cost of a program begun in 1961 to match State and local costs for civil defense personnel and administration. Additional funds are also requested for procurement of radiological equipment and for strengthening Federal activities in emergency health and manpower programs.

The Congress and the executive branch have recognized that civil defense is the joint responsibility of Federal, State, and local governments. As exercise of its partnership, the Federal Government has, by leadership and example, implemented a national shelter policy, which recognizes the fallout shelter as the best single nonmilitary defense measure for the protection of the greatest number of people. Under this policy the Federal Government has instructed people in protective measures, conducted a sample survey of existing shelter capabilities, accelerated shelter research, and constructed prototype shelters for example and guidance. Moreover, the Congress has been urged to provide funds for inclusion of fallout shelters in appropriate new and existing Federal buildings. Funds and appropriate legislation are being requested to accelerate these activities in 1962.

In order to strengthen the program, legislation is being proposed to require appropriate fallout shelters in certain new private construction where the Federal Government provides some form of financial assistance. This legislation will also provide for a 1-year program of grants to States to assist in the construction of fallout protection shelters in selected State buildings. Upon the enactment of this legislation, supplemental appropriations will be required.

AGRICULTURE AND AGRICULTURAL RESOURCES

In the fiscal year 1962, Federal programs for agriculture will continue to require heavy expenditures for much the same reason as in the immediately preceding years: the lack of adequate modifications in the price support laws to make them conform to the increased efficiency and growing productive capacity of the agricultural industry.

Estimated expenditures for agriculture and agricultural resources in 1962 are $5.1 billion, which is $165 million more than the estimate for the current year and $263 million more than was spent in 1960. Total new authority to incur obligations requested for 1962 is $4.6 billion, which includes $936 million to restore, to the extent necessary, the capital impairment of the Commodity Credit Corporation resulting from previous price-support losses, and $1.7 billion to reimburse the Corporation for estimated costs and losses through fiscal year 1961 of other programs financed through that agency.

AGRICULTURE AND AGRICULTURAL RESOURCES

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obligational

1960 1961 1962 authority

Program or agency actual estimate estimate for 1962

Stabilization of farm prices and

farm income:

Commodity Credit Corporation--

price support, supply, and

purchase programs $1,480 $1,423 $1,537 $936

Commodity Credit Corporation--

special activities:

Public Law 480 (titles I and IV) 1,232 1,285 1,303 1,353

International Wheat Agreement 66 72 71 89

National Wool Act 93 62 66 59

Transfer of bartered materials to

supplemental stockpile 192 208 175 163

Other 6 --2 --2

Removal of surplus agricultural

commodities. 90 100 110 284

Sugar Act 74 74 85 81

Other 44 42 51 51

Subtotal 3,278 3,264 3,396 3,017

Financing rural electrification

and rural telephones 330 328 340 255

Financing farm ownership and

operation:

Farmers Home Administration 249 264 231 225

Farm Credit Administration --3 4 4 3

Conservation of agricultural

land and water resources:

Conservation reserve:

Present program 324 354 357 330

Proposed legislation for extension

and expansion 19 19

Agricultural conservation program:

Program total 237 236 234 238

Under CCC special activities (¹) (--4) (--8)

Soil Conservation Service (including

watershed protection and Great

Plains program) 131 151 163 166

Research and other agricultural

services 293 336 357 352

Total 4, 838 4, 936 5,101 ² 4,605

1 Less than one-half million dollars.

² Compares with new obligational authority of $5,151 million enacted for 1960 and $4,696 million (including $23 million in anticipated supplemental appropriations) estimated for 1961.

Each year that the current unrealistic price-support program is continued complicates further the production adjustments that will have to be made before present Government controls over farm operations can be relaxed. Carryover stocks of wheat continue to rise. Current indications are that by July 1, 1961, wheat stocks will amount to about 1.5 billion bushels, which is more than an average year's production and 2 ½ times an average year's domestic consumption. Carryover stocks of corn and other feed grains have risen each year since 1952, and by the fall of 1961 are expected to reach 82 million tons, or about one-half an average year's production. While cotton carryover stocks are expected to be down slightly by the beginning of the fiscal year 1962 as compared with a year earlier, the cotton program continues to be a substantial drain on the budget, principally as a result of the sale of cotton abroad at prices substantially lower than support levels.

Among the many aspects of the price-support program in need of major changes, the most urgent is the enactment of realistic price-support legislation for wheat. It is imperative that the Congress take early action so that farmers can make the necessary adjustments in their plans. Because of the time lag between enactment of new price-support legislation and its budgetary impact, legislation enacted in this session of the Congress can have little effect before the 1963 budget. My previous recommendations for wheat legislation allow for considerable latitude in method of approach as long as the legislation deals realistically with the problem.

The last session of the Congress did not extend the authority of the Secretary of Agriculture to bring additional land into the conservation reserve. Since the rental rates needed to induce farmers to place large quantities of surplus-producing land in the conservation reserve depend in large part on levels of price supports, it would be unsound to attempt to set such rates high enough to compete with the present unrealistic level of price supports, particularly for wheat. Therefore, legislation proposed by this administration to extend the conservation reserve through the calendar year 1964 and to expand the program from the present level of 28.6 million acres to a maximum of 60 million acres should be enacted only if satisfactory legislation for wheat is also enacted. An expanded conservation reserve would not be effective unless largely concentrated in areas producing wheat and other surplus commodities. For this reason, the Secretary of Agriculture should be provided with specific authority to give special consideration, in allocating conservation reserve funds, to those States and regions where curtailment of the production of wheat or other surplus commodities is consistent with long-range goals for adjusting production.

Stabilization of farm prices and income.--In fiscal year 1962, expenditures for price supports and other programs to stabilize farm prices and income are estimated at $3.4 billion, which is $132 million more than the amount currently estimated for 1961, and $118 million more than expenditures in 1960. Expenditures for these programs are not subject to regular annual budgetary control, since they are determined mainly by the loan, commodity purchase, and other price-supporting activities that the Commodity Credit Corporation is required to carry out under existing laws. In 1962 farm price support and related activities account for about two-thirds of the estimated expenditures for agricultural programs. The budget estimate assumes that yields per acre of price-supported crops for the 1961 crop year will be in line with recent years. It also assumes a continued favorable level of exports of farm commodities.

This high level of expenditures reflects, directly or indirectly, the continuation of present price supports in the face of a volume of agricultural production that cannot be absorbed by the domestic and world markets at currently supported prices. Total farm production for the calendar year 1960 established an all-time record both on an absolute and a per capita basis. It was 29% above the 1947-49 average, and was achieved with 30% fewer farm workers and 6% fewer crop acres.

Surplus wheat, cotton, corn, rice, and other commodities are being utilized in our Food for Peace program to promote economic development and common defense and to provide emergency relief for needy people abroad. The largest part of the program is the sale of farm commodities for foreign currencies under title I of the Agricultural Trade Development and Assistance Act of 1954 (Public Law 480). Because of the size of past sales, particularly a 4-year agreement with India, additional authority of $1.1 billion is recommended for the remainder of the calendar year 1961. Titles II and III of this act provide for donating surplus commodities to foreign governments primarily for emergency relief needs and to private relief organizations in support of their activities abroad; over 55 million people benefited this past year from these donations. Continuation of the programs currently carried on under titles I and II will require legislation this year to extend them beyond December 31, 1961.

Surplus agricultural commodities are also made available to the needy at home through the direct distribution program of the Department of Agriculture, which is carried on under the permanent appropriation for the removal of surplus agricultural commodities and through the Commodity Credit Corporation's surplus disposal operations. In the fiscal year 1960, there were donations of 526 million pounds of surplus food, valued at $59 million, directly to needy families in the United States. In October 1960, there were 3.3 million people in the United States receiving surplus foods through these programs; additional persons benefited from food donations to the school lunch program and to institutions providing aid to the needy.

Since the Sugar Act expires on March 31, 1961, prompt legislative action extending this program is required. In line with my previous recommendation, the Congress should amend the Act to provide the President with urgently needed flexibility in the allocation of quotas.

The National Wool Act, which expires on March 31, 1962, should be extended, and its financing should be shifted to a direct appropriation basis.

To conserve fiscal resources and to implement the principle that identifiable recipients of certain special services should pay for them, legislation is again proposed to permit the Federal Crop Insurance Corporation to include its administrative expenses in determining appropriate premium rates for crop insurance.

Rural electrification and telephones.--Expenditures of the Rural Electrification Administration are estimated at $340 million for 1962, and new obligational authority of $255 million is recommended, including $100 million for telephone loans and $145 million for electrification loans.

The Rural Electrification Administration has made a major contribution to the development of rural America. About 97% of our farms now have central station electric service as compared with 11% in 1935. The telephone program also is making a real contribution to a better rural America by improving rural telephone service.

The expanding use of power in the areas served by electric cooperatives, however, requires substantial amounts of new capital each year to provide additional generating capacity and heavier transmission and distribution facilities. More than half of the total power sales by the REA system are made to rural industrial, recreational, and other nonfarm users. These nonfarm users comprise about 80% of the new customers being added.

The capital needs of the Rural Electrification Administration are being financed currently by loans from the Treasury at 2% interest. Loans are made to borrowers at this same rate. While special treatment of these programs through favorable Federal financing was justified in earlier years, the progress that has been made by the local systems in achieving the objectives of the Rural Electrification Act and in developing financial stability indicates that the time has come to plan for methods of financing other than through the Federal Government. To that end, legislation should be developed for a federally chartered institution to finance the future requirements of the rural electrification and rural telephone programs. Such an institution should be owned and managed by the REA borrowers subject to the examination and supervision of the Secretary of Agriculture. To launch the new institution on a sound basis, it should be assisted initially by a Federal loan, with provision for orderly retirement of the loan. Future capital needs of the REA borrowers should be met by the sale of the institution's obligations to the public. Provision should also be made for loans by the institution on behalf of the Secretary of Agriculture to borrowers who are unable to qualify for regular loans.

Farm ownership and operation.--Expenditures for the loan programs of the Farmers Home Administration are estimated at $231 million for 1962, compared with $264 million estimated for 1961. Loans are made by the Farmers Home Administration 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.

Legislation previously recommended to simplify, consolidate, and improve the authority of the Secretary of Agriculture to make these types of loans should be enacted. Included in this legislation is a proposal to place the operations of the Farmers Home Administration on a revolving fund basis.

Authority to make loans under the farm housing loan program expires June 30, 1961. Extension of this separate farm housing loan authority is not recommended, since loans similar to the farm housing loans would be authorized under the general legislation being recommended relating to the loan authority of the Secretary of Agriculture.

Legislation should be enacted, as recommended previously, to require the States to share a greater part of the costs of farm disaster relief assistance.

Conservation of agricultural resources.--Expenditures in 1962 under the conservation reserve program are expected to be $357 million under existing legislation. If legislation extending and expanding this program is enacted as proposed in this budget, additional expenditures of $19 million in 1962 would result. Under the proposal, there would be a net increase of 10.5 million acres during the 1962 program year, bringing the total at the end of that year to 39 million acres. However, most of the increase in expenditures required for the 1962 program would not occur until 1963 and later fiscal years. To the extent that additions of land to the conservation reserve result in curtailment of the production of price-supported agricultural commodities, the added expenditures resulting from extension and expansion of this program will be accompanied by lower outlays for price supports.

An advance authorization of $100 million is recommended for the 1962 agricultural conservation program. This will affect primarily the expenditures for the fiscal year 1963. In recent appropriation acts the Congress maintained this program at a level which far exceeded my recommendations. As a result, expenditures for the agricultural conservation program are estimated to be $236 million in 1961 and $234 million in 1962. The $100 million advance authorization, together with other aids for soil and water conservation, will provide substantial incentives for the Nation's farmers to meet our high-priority conservation needs.

Federal cost-sharing assistance in the future under this program 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 directly conflicts with the recommended expansion of the conservation reserve program under which cropland is removed from production.

New obligational authority of $66 million is recommended for the upstream watershed programs, including $46 million under the Watershed Protection and Flood Prevention Act. Of this amount, $10 million is for initiating construction of projects involving an estimated total Federal cost of $70 million. Expenditures under these programs are expected to be $65 million in 1962, which is an increase of $12 million over 1961 and $21 million over 1960. New obligational authority requested for the Great Plains program totals $10 million, the same as for 1961.

Research and other agricultural services.--Expenditures for research, education, and other agricultural services in 1962, including $17 million for purchases of foreign currencies to finance research and market development programs abroad, are estimated at $357 million, which is an increase of $22 million over 1961. This increase reflects primarily additional support for the research programs of the Agricultural Research Service and continuing progress on laboratory construction.

Rural development.--The rural development program inaugurated by this administration is successfully stimulating economic progress and growth in low-income farming areas of the Nation. It is becoming widely accepted as a major national approach to helping families in these areas. By June 30, 1961, it is expected that some 350 counties in 39 States will be participating in the program. Among the impressive gains reported in participating areas are the following: (1) new farm crops have been introduced and production on small farms improved; (2) the number of jobs has increased through the establishment of new industries and enlargement of others; (3) income has increased from nonfarm sources such as recreation, tourist services, and expanded business activities; and (4) educational and training programs have been inaugurated for those who have little opportunity to enter commercial farming.

The Federal Government supports this program principally through a redirection and strengthening of existing services and activities. Emphasis is placed on cooperation among Federal and State agencies and local groups. In the Department of Agriculture, the program is conducted as a part of the continuing responsibilities of 10 of its agencies, with general leadership furnished by the Extension Service, for which an increase of $2 million is estimated in this budget. Other Federal departments and agencies have accelerated their activities that contribute to the aims of the rural development program. These agencies include the Small Business Administration, and the Departments of the Interior, Commerce, Labor, and Health, Education, and Welfare. All of these activities are carried out under the general guidance of the Committee for Rural Development Program which was established by Executive order.

NATURAL RESOURCES

Sound development of our natural resources is necessary to meet the needs of our growing population and expanding economy. The budget recommendations for the fiscal year 1962 provide for appropriate Federal participation in the development, conservation, and use of these resources, in cooperation with State and local agencies and private interests.

Federal expenditures for natural resources are estimated to be $2.1 billion in 1962 compared with $2 billion in 1961. These expenditures are higher than in any previous year.

Water resources.--Approximately two-thirds of the Federal expenditures for natural resources in 1962 will be for water resources activities. The programs of the Corps of Engineers and the Bureau of Reclamation will require expenditures estimated at $1.2 billion--a record level. Of this amount, $1 billion will be spent on construction. This includes $976 million for continuation of work on projects started in 1961 or prior years, $11 million for first-year expenditures on 37 proposed new project starts, and $13 million for advance planning of projects needed in later years. A large share of the construction expenditures of these agencies will be for multiple-purpose river basin projects, including flood control, navigation, irrigation, water supply, hydroelectric power, and in some cases related recreational and fish and wildlife benefits.

For the Corps of Engineers, the budget includes appropriations of $15 million for starting 31 new projects and an additional number of smaller projects costing less than $400 thousand each. The estimated total cost of building these new projects is $302 million. Appropriations of $6 million are also recommended to enable the Bureau of Reclamation to begin construction on five new projects, with an estimated total cost of $141 million, and to make a loan for one small reclamation project for which the total Federal commitment will be $5 million.

The 1962 program of the Bureau of Reclamation includes protective works for the Rainbow Bridge National Monument, as required by law in connection with construction of Glen Canyon Dam.

It is again recommended that the Congress authorize construction by the Bureau of Reclamation of the Fryingpan-Arkansas project in Colorado.

A few months ago agreement was reached between the United States and Canada on the basic terms of a treaty for the cooperative development of the water resources of the Columbia River Basin. The proposal envisages the construction in Canada, within a 10-year period, of three major reservoirs and the construction by the United States of the authorized Libby project in northern Montana. The substantial flood control and power benefits which will result from this agreement will be realized at a much earlier date with materially less cost than would be the case if they were provided by unilateral rather than by cooperative endeavor. The location of the proposed storage reservoirs will not interfere with the cycle for salmon and other anadromous fish, which constitute an important economic and recreational asset of the Pacific Northwest. The Senate should give prompt attention to the ratification of the treaty when it is presented. Following this ratification, pre-construction planning of Libby Dam should be started by the Corps of Engineers.

NATURAL RESOURCES

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obligational

1960 1961 1962 authority

Program or agency actual estimate estimate for 1962

Land and water resources:

Corps of Engineers $867 $930 $930 $932

Department of the Interior:

Bureau of Reclamation 209 240 305 290

Power marketing agencies 34 41 36 36

Indian lands resources 59 68 63 64

Public domain lands and other 35 45 50 50

Tennessee Valley Authority 12 55 103 30

Federal Power Commission 7 8 9 9

International Boundary and

Water Commission and other 12 15 19 20

Forest resources 220 263 311 248

Mineral resources 65 66 67 82

Recreational resources 74 87 101 105

Fish and wildlife resources 68 75 84 85

General resource surveys

and administration 51 58 60 61

Total 1,713 1,951 2,138 ¹ 2,012

1 Compares with new obligational authority of $2,533 million enacted for 1960 and $2,049 million (including $139 million of anticipated supplemental appropriations) estimated for 1961.

The previous Congress enacted legislation to authorize negotiation of an agreement between the United States and Mexico for the joint construction of Amistad (Friendship) Dam on the Rio Grande, and appropriated $5 million for this project. The 1962 budget includes $12 million to finance further work on the dam as soon as the technical details relating to its construction are approved by the two Governments.

Legislation should be enacted to place the financing of the Bureau of Reclamation and the power marketing agencies of the Department of the Interior on a revolving fund basis, retaining annual review and control by the Congress.

Net budget expenditures of the Tennessee Valley Authority are estimated at $103 million in the fiscal year 1962. The increase of $48 million over the current year will be largely for construction of power and navigation facilities. Under the authority to sell revenue bonds, enacted in August 1959, the TVA issued $50 million of such bonds in November 1960. The Authority plans to issue an additional $140 million in the fiscal year 1962 which, together with power revenues, will provide funds for continuing construction of power facilities and for starting construction of a new steam powerplant in the eastern part of the TVA power area. Construction will continue on Wheeler and Wilson locks and on the navigation features of the Melton Hill project, financed by appropriated funds. The Authority plans to make a payment of $50 million from power proceeds to the Treasury in fiscal year 1962, of which $40 million is a dividend and $10 million is a return of Government capital. A similar payment, estimated at $51 million, is being made in 1961.

The 1961 and 1962 programs of the TVA contemplate the acquisition of certain coal land or mining rights, on which options have been taken, in the eastern portion of its coal supply area. Since it has not been clearly established that such acquisitions are necessary to assure an adequate reserve of coal for TVA's operations, I have directed that these actions not be taken without specific Presidential approval.

Research conducted by the Department of the Interior over the past several years has reduced substantially the cost of obtaining fresh water from saline water. Two demonstration plants for conversion of sea and brackish water into fresh water will be completed in the fiscal year 1962. Appropriations of $3.5 million are recommended for starting two additional plants in 1962, one at Roswell, N. Mex., and the other at a location to be selected on the east coast.

River basin planning commissions.--In addition to the Corps of Engineers, Bureau of Reclamation, Tennessee Valley Authority, and International Boundary and Water Commission, several other Federal agencies participate in phases of water resources programs. The Department of Agriculture assists local groups in watershed protection and flood prevention; the Department of Health, Education, and Welfare has responsibility relating to control of water pollution; and the Federal Power Commission has broad river basin planning authority in connection with licensing construction of private power projects. The Fish and Wildlife Service, National Park Service, and other agencies also participate in certain aspects of water resources projects. Furthermore, activities of State and local agencies and private interests in the field of water resources are of increasing importance. Only with coordinated planning on the part of all groups concerned can there be assurance that all possible uses of water are adequately considered.

To provide for comprehensive, coordinated planning, legislation is being submitted to authorize the President to establish water resources planning commissions as needed in the various river basins or regions. These commissions would be composed of Presidentially appointed members from the various Federal agencies and the States. They would prepare and keep current comprehensive, integrated river basin plans. This proposed general authority would be an improvement over separate laws such as those which established the two ad hoc river basin study commissions for the Southeastern and Texas areas.

Cost sharing for local flood protection.--The varied requirements for financial participation by State and local interests in local flood protection projects have resulted in inequities among the various beneficiaries of such projects. In the case of projects of the Corps of Engineers, the Bureau of Reclamation, and the Department of Agriculture, non-Federal contributions range from zero to over 60% of flood protection costs. In previous budget messages, legislation has been recommended to provide an equitable, uniform minimum of 30% non-Federal cost sharing for all flood protection projects. Although the Congress did not act on that proposal, a forward step was taken in the Flood Control Act of 1960, which provides for a uniform minimum of 20% non-Federal cost sharing on local flood protection projects of the Corps of Engineers authorized by that act. The Congress is urged to broaden this action by requiring a minimum of 30% cost sharing on all local projects providing flood protection benefits which are authorized in the future for the Corps of Engineers, the Bureau of Reclamation, and the Department of Agriculture.

Public domain and Indian lands.--In the fiscal year 1962, expenditures for the conservation and development of the public domain lands, administered by the Bureau of Land Management, will be $43 million, somewhat higher than in 1961. Receipts from grazing fees, timber sales, and mineral leases on the public domain lands, including the Outer Continental Shelf, are estimated at $221 million in the fiscal year 1962, an increase of $55 million over the revenues estimated for the current year. A portion of the estimated increase will result from the increases authorized last year in the fees for noncompetitive oil and gas leases. Some of these revenues are shared with States and counties. Shared-revenue payments to these governmental units in 1962 from the public domain lands amount to $58 million.

Estimated expenditures of $63 million for the management of Indian lands in the fiscal year 1962 include $33 million for construction of roads; for irrigation facilities; and for buildings and utilities, mainly additional school facilities for Indian children who reside on lands held in trust by the United States.

Forest resources.--Some increases in expenditures of the Forest Service in 1962 are needed to carry forward its long-range development program for the national forests. These increases will be for forest roads and trails and for forest protection and utilization, including forestry research, fire prevention, and recreational facilities. A supplemental appropriation of $69 million is being requested for the fiscal year 1961 to enable the Forest Service to pay for those portions of the forest lands of the Klamath Indians which are not sold to competitive bidders by April 1, 1961 (as required by Public Law 85-731), with expenditures estimated in the fiscal year 1962. These increases will be offset in part by an expected decrease from the expenditures of $33 million in 1961 for fire fighting in the national forests--the highest annual expenditures on record.

Management of the national forest lands yields substantial revenues, mostly from timber sales and grazing permits. These receipts--which are in addition to the amounts cited earlier under public domain lands-are estimated at $156 million in the fiscal year 1962. Shared revenue payments to the States in 1962 are estimated at $29 million.

Legislation is recommended to provide authority for the Secretary of Agriculture to complete acquisition of the remaining lands in the Boundary Waters Canoe Area of the Superior National Forest in order to preserve this unique wilderness area for public use.

Mineral resources.--Amendments to the Helium Act during the last session of the Congress authorize a long-range program for conserving vital helium resources. Under these amendments, effective March 1, 1961, private industry will be encouraged to finance, build, and operate plants to recover helium for sale to the Department of the Interior. Where necessary, the Secretary of the Interior may take direct steps to conserve this important resource. The program is to be financed from borrowing authority, subject to the appropriation process. Supplemental borrowing authority of $12 million for the fiscal year 1961 is recommended so that the Bureau of Mines can start the program promptly, and provision is made in the 1962 budget to augment this initial amount by $15 million.

The Bureau of Mines will continue its research on improved methods of production and utilization of coal and other minerals. Under recent legislation, the Department of the Interior will contract with educational, trade, and other organizations for research aimed at early solutions to some of the problems confronting the coal industry.

Recreational resources.--The rapidly expanding use of public recreational facilities is placing great demands on the resources of our national park system. The estimated increase of $14 million in expenditures of the National Park Service from 1961 to 1962 will provide for needed maintenance and rehabilitation of the park areas and for operation of new facilities and areas added to the system in recent years. Prompt action should be taken on legislation, as recommended last year, to permit the Secretary of the Interior to acquire three of the remaining undeveloped seashore areas for the national park system. Such action will enable these areas to be preserved for public benefit.

The forthcoming report of the Outdoor Recreation Resources Review Commission will provide a comprehensive survey of outdoor recreational resources and needs. The report should be useful as a guide for Federal, State, local, and private interests in their plans for meeting increasing needs for recreation.

Fish and wildlife resources.--Expenditures for fish and wildlife resources in the fiscal year 1962 are estimated at $84 million, an increase of $9 million over the current year. Part of the increase will be for management and operation of fish hatcheries and wildlife refuges by the Bureau of Sport Fisheries and Wildlife. Outstanding refuges recently established by the Secretary of the Interior are the Arctic, Kuskokwim, and Izembek wildlife ranges in Alaska, comprising 11.2 million acres, with unique values as waterfowl breeding grounds and with wilderness areas of scenic beauty. Increases for the Bureau of Commercial Fisheries are for construction of oceanographic research facilities, and for biological and technological research to be initiated in 1962 under a special foreign currency program to aid the fishing industry.

General resource surveys.--Expenditures of the Geological Survey will increase primarily as a result of increased interest and participation by the States in the cooperative programs for topographic and geological mapping and water resources investigations.

LABOR AND WELFARE

The labor and welfare programs of the Federal Government have assumed in the last decade a growing role in meeting human needs in our increasingly complex, urbanized society. These programs provide manpower, health, education, science, economic security, and welfare services of great importance to the entire population and also assist many special groups such as the aged, the children, the disabled, the unemployed, and the needy.

Budget expenditures for labor and welfare programs in the fiscal year 1962 are estimated at $4.8 billion, an increase of $276 million over 1961. In the last decade these budget expenditures have more than doubled. Labor and welfare benefit payments from the social security and other trust funds, supported largely by payroll taxes on employers and employees, have increased fivefold in the same period to an estimated $19.6 billion in 1962.

Of estimated expenditures of $24.4 billion from budget and trust accounts for labor and welfare programs for 1962, an estimated $13 billion will be for benefits and services for elderly persons. When benefits for veterans and others are added, total estimated expenditures in 1962 for benefits and services for persons who are 65 and over exceed $16 billion.

New obligational authority recommended for 1962 for labor and welfare programs in the budget totals $5 billion, and is $88 million more than estimated for the current fiscal year. The largest program increase is for public assistance, including medical care for the aged. The proposed appropriations for hospital construction grants are lower than the amounts enacted for 1961, but expenditures will increase by $13 million as a result of commitments under obligational authority provided in prior years. Recommended appropriations, as well as estimated expenditures, for programs to assist federally affected school districts are reduced for 1962 in view of the modifications proposed in those programs.

LABOR AND WELFARE

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obligational

1960 1961 1962 authority

Program or agency actual estimate estimate for 1962

Promotion of education:

National Science Foundation,

science education $57 $65 $69 $74

Department of Health, Education,

and Welfare:

Assistance to schools in federally

affected are as:

Present programs 258 264 173 102

Proposed legislation 60 93

Defense education program 129 161 190 194

Vocational education and other 65 73 79 80

Other, primarily Bureau of

Indian Affairs 60 64 69 73

Promotion of science, research,

libraries, and museums:

National Science Foundation,

basic research 63 90 119 138

Department of Commerce:

Bureau of the Census 100 38 19 17

National Bureau of Standards

and other 17 28 54 77

Other 31 47 58 40

Labor and manpower:

Department of Labor:

Grants for administration

of employment

services and unemployment

compensation¹ 325

Repayable advances to

unemployment trust fund 36 --42

Other 29 47 48 47

Other, primarily Selective Service

System and National Labor

Relations Board 57 64 66 67

Promotion of public health:

National Institutes of Health 348 439 516 540

Hospital construction and

research grants and activities 146 157 170 153

Grants for construction of

health research facilities 26 26 25 30

Community and environmental

health 58 75 101 104

Grants for construction of waste

treatment facilities 40 41 43 50

Other 199 234 240 251

Public assistance:

Present programs 2,061 2,162 2,290 2,291

Proposed legislation for medical

care for the aged 25 25

Correctional and penal institutions 46 49 52 52

Other welfare services:

School lunch and special milk programs:

Present programs 234 245 155 326

Proposed legislation to extend

special milk program 94 95

Other, primarily vocational

rehabilitation 68 78 84 105

Total 4,419 4,483 4,759 ² 5,025

1 By law the receipts and expenditures for employment security grants are shown as trust fund transactions for 1961 and 1962, and as budget transactions for 1960.

2 Compares with new obligational authority of $4,574 million enacted for 1960 and $4,937 million (including $34 million in anticipated supplemental appropriations) estimated for 1961.

EDUCATION.--The vitality of our democracy and the productivity of our economy depend in large measure on the development of our human resources through an effective educational system. Primary responsibility for education rests with the local communities and States and with private institutions and groups. The strength of our American educational system flows from its freedom and this broad basis of support. Thus, the Federal role in education is properly a supplementary one, limited primarily to providing assistance where there is a special national concern. For such assistance, the Federal Government will spend in all budget categories about $1 billion in 1962 for educational activities, including college housing loans and readjustment aid to veterans, but excluding indirect assistance through research contracts and grants.

In the last few years, it has become increasingly clear that the national interest requires an expansion of Federal activities in the field of education. Accordingly, I recommended in 1958, and the Congress enacted, the National Defense Education Act to assist students, particularly those interested in science, mathematics, and languages, and to help States improve school facilities and services. I have also recommended repeatedly and again recommend the enactment of temporary legislation to provide Federal assistance for construction of primary and secondary school classrooms and for construction of college classrooms and supporting facilities.

As outlined in last year's budget message, the proposed program would stimulate and assist in the construction of $3 billion of public elementary and secondary schools in the next 5 years by a Federal commitment to pay half the debt service (principal and interest) on school bonds. The cost to the Federal Government over a 30-year period would be about $2 billion. To help institutions of higher education finance construction of required facilities, the legislation would authorize a 5-year program which would provide (1) Federal guarantees of principal and interest on $1 billion of non-tax-exempt bonds to be sold by colleges to private investors and (2) Federal grants, payable over 20 to 35 years, of 30% of the principal of $2 billion of bonds to be issued by colleges. The aggregate Federal cost of the aid to institutions of higher education would be about $600 million.

The precise requirements for Federal aid to local school districts are difficult to determine because of the inadequacy of available information on the classroom needs of districts in various parts of the country and on their financial capacity to meet these needs. Accordingly, funds are included in the budget for improvement of education statistics, including data on local school construction requirements and the actions local communities and States are taking to meet them.

National Science Foundation educational activities.--Expenditures of $69 million in 1962 are estimated for graduate fellowships in science and mathematics and for other programs to train new scientists, to improve the teaching of science and mathematics, and to stimulate interest in scientific careers. This represents more than a fourfold expansion in the training programs of the National Science Foundation in 5 years.

Schools in federally affected areas.--The Federal Government has recognized an obligation to assist school districts in which enrollments are significantly increased by its activities. Legislation for this purpose was enacted as a temporary measure during the Korean emergency. However, legislation providing aid to districts with children whose parents both reside and work on Federal property was made permanent in 1958. The budget provides funds required to meet Federal obligations under this program.

The programs of assistance to school districts on behalf of pupils whose parents work on Federal property but live on private taxable property expire on June 30, 1961. This budget includes $93 million to cover the cost of extending the program for operating grants, but on a modified basis which would discharge more equitably than the expiring legislation the Federal responsibility to these districts. In the case of construction grants, where general aid for needy districts is again proposed, no separate provision is included for continuing the special program for federally affected districts. It is recommended, furthermore, that the Congress defer consideration of any extension legislation until after it has considered and enacted the broad program of Federal aid for school construction which is being recommended. The Congress would then be in a better position to determine the kind of support which should be provided to discharge the Government's obligations to these areas.

Defense education program.--The National Defense Education Act, which will be in its fourth year in 1962, the last under the current authorization, has provided outstanding assistance to American education. Expenditures under this act in 1962 are estimated to be $190 million, an increase of $29 million from 1961. The proposed 1962 appropriation of $194 million will provide modest increases for fellowships, language and cultural training centers, counseling institutes, and area vocational programs. The amount requested for student loans for 1962 is estimated at the 1961 level pending further information as to the rate of applications.

I am again recommending repeal of the provision of the National Defense Education Act that requires a student seeking aid to supply an affidavit stating that he does not believe in or belong to any organization that teaches the illegal overthrow of the Government. This requirement is unwarranted and discriminatory.

SCIENCE AND RESEARCH (INCLUDING LIBRARIES AND MUSEUMS).--The advancement of our national security and welfare depends in great measure upon the strength and progress of American science. The Federal Government plays a major role in the development of the Nation's scientific capacity through the research programs of many agencies.

Expenditures for promotion of science, research, libraries, and museums in 1962 are estimated to be $251 million, which is $48 million more than in 1961 and over three times the amount 5 years earlier. In addition to these figures, there are large amounts of expenditures for research and development included in other functional categories.

New scientific knowledge which stems from basic research is indispensable to the technological progress of modern industrialized society. Expenditures of $119 million are estimated for general purpose basic research grants by the National Science Foundation, chiefly for research projects and facilities, including the support of national research centers and the improvement of graduate school laboratories. This represents an increase of $29 million over 1961 and a sevenfold expansion in these activities in 5 years. Many other agencies are engaged in the support and conduct of basic research where it is recognized that such fundamental research is important and desirable in the attainment of their objectives.

Increased funds are included in the budget for the National Bureau of Standards, particularly for the completion of the major laboratories and service buildings at its new Gaithersburg, Md. site. Expansion is also provided in the regular scientific program of the Bureau, including initiation of a program for research projects abroad financed with foreign currencies which the Government holds in excess of its normal needs.

Certain scientific areas of broad national interest have been given special attention in recent years by the Federal Council for Science and Technology. These include long-range programs for oceanography, high-energy physics, and the atmospheric sciences, which will be further expanded under this budget. Part of the financing of these activities is included in other functional categories.

The scientific program for the Antarctic is developed, financed, and managed by the National Science Foundation with logistic support from the Department of Defense. Under this program the United States is cooperating with many other nations in the peaceful development of the Antarctic.

Government statistical services.--An estimated $56 million in obligations is provided throughout the budget for gathering, processing, and disseminating the statistical information which is used by Government, private institutions, and individuals in policy formulation and decision making. Increases in 1962 for collecting the regular recurring statistics are more than offset by the decrease from the funds required in 1961 for the Eighteenth Decennial Census.

Further improvement is planned in the scope and reliability of statistical data on current economic and social conditions. These include information on retail and service trade, foreign trade, manufacturing, construction, crop and livestock production, prices, manpower utilization, characteristics of the unemployed labor force, health and medical care, vital statistics, and education. Provision is also made for completion of the processing and publication of the results of the 1960 decennial census, for taking the 1962 Census of Governments, for planning the 1963 economic censuses, and for continuing a substantial portion of the work, begun over a year ago, looking toward a major revision of the Consumer Price Index.

LABOR AND MANPOWER.--The manpower programs of the Department of Labor and other labor agencies help maintain an efficient labor market and a healthy national climate in labor-management relations.

Employment security.--Of particular importance are the job placement services and unemployment compensation payments made through the State employment security offices. In addition to general job placement services, farm people are assisted in finding industrial work and workers in depressed areas are helped in finding jobs in other areas.

Last year the administration proposed, and the Congress enacted, amendments to the Social Security Act that placed Federal receipts and expenditures for the employment security program on a trust fund basis starting July 1, 1960. This is the same arrangement that is used for other social insurance programs. Expenditures for this program are now expected to exceed the 1961 tax receipts, and the Treasury, as authorized by present law, will advance to the trust fund the additional $36 million needed in 1961. This advance will be repaid with interest in 1962 from the excess of receipts which will come from the increased Federal unemployment tax rate taking effect on January 1, 1961, from 0.3% to 0.4% of covered payrolls.

Based on the level of claims for unemployment compensation, this budget estimates $41 million more than enacted to date for the limitation on 1961 grants to States for administering unemployment insurance and employment services. Together with the $326 million already enacted, this brings the estimated 1961 requirement to $366 million, which is in excess of the $350 million annual ceiling established by the Social Security Act Amendments of 1960. In view of the number of workers now filing claims for unemployment compensation, it is necessary to ask the Congress to remove this ceiling so that adequate funds can be provided to pay claims promptly.

Last year, coverage of unemployment compensation was extended to about 60,000 additional workers, but further legislation is still needed to extend unemployment compensation to some 3 million workers, most of whom are employed in small businesses employing fewer than 4 workers each. Such action, together with action by States to increase the amount and duration of unemployment compensation benefits, would provide more adequately against economic hardship for the Nation's work force. This program has proved to be one of the most successful means for combining the interest of the economy as a whole with the interest of the individual worker.

Other labor programs.--In the last several years the operating programs of the Department of Labor have been strengthened by additional funds and new legislation. The 1962 budget provides an increase of $4 million in appropriations to strengthen further such activities of the Department as the enforcement of the Labor-Management Reports Act and the statistical and research programs of the Bureau of Labor Statistics.

Last year the Secretary of Labor endorsed expanded coverage and a moderate adjustment in the level of the minimum wage under the Fair Labor Standards Act. This recommendation is repeated. Legislation should also be enacted to make the Welfare and Pension Plan Disclosure Act more effective. Legislation is again proposed to assure equal pay for equal work and to improve the laws relating to hours of work and overtime pay on Federal construction projects.

HEALTH.--Americans enjoy a high standard of health service. About three-quarters of the more than $25 billion devoted annually to health services and facilities in this country is being spent through private channels. However, State and local as well as Federal agencies also play an important role.

Promotion of public health.--The Federal Government's contribution toward improved health care for the American people has been increasing rapidly in recent years. Expenditures for the promotion of public health in 1962 are estimated at $1.1 billion, more than twice the amount spent only 5 years earlier. Total Federal expenditures for all health programs in the various categories of this budget (including military and veterans hospitals ) are about $4 billion.

In 1962, expenditures by the National Institutes of Health for medical research and training will represent about half the total spent for promotion of public health. The programs of the National Institutes will have multiplied more than threefold from 1957 to 1962.

The budget for 1962 recommends appropriations of $540 million for the National Institutes, compared to the $560 million enacted by the Congress for 1961. While this is $20 million less than the 1961 appropriation, it actually represents a substantial program increase for medical research and training. The reduction results from the elimination in 1962 of nonrecurring projects and from the transfer of programs to other parts of the Public Health Service which were included in the total for the National Institutes of Health for 1961. These decreases more than offset increases for new research activities. Expenditures by the Institutes will rise by an estimated $76 million in 1962.

Appropriations of $153 million for hospitals, mainly construction grants, are recommended for 1962. Although this is less than the level of appropriations for 1961, it will not result in a decrease in federally assisted hospital construction. On the contrary, it is anticipated that expenditures in 1962 for this program will be at an all-time high because of the prior authorizations and the volume of construction which has been initiated but not yet completed. The appropriation recommended for 1962 will permit initiation of new projects for general hospital beds, which, together with construction not federally assisted, will be sufficient to provide for growth in population, cover current obsolescence, and reduce the backlog by over 5,000 beds. The 1962 appropriation will also permit starting the same volume of new projects for specialized facilities for longterm care as is provided for in the appropriation for the current year. In recognition of the need for medical care facilities and the continuing rise in the cost of hospital services, new legislation is proposed to encourage coordinated community and regional planning of hospital facilities, to augment research on design and operation of hospitals, and to permit use of grants for high priority modernization projects.

Federal grants for construction of health research facilities in the last 5 years have materially helped expand our Nation's medical research capacity. This budget continues appropriations for this purpose at the full authorization of $30 million.

One of our greatest national health needs is the expansion of existing schools and establishment of new schools to train doctors and dentists. The shortage of physicians, already a critical factor in the rising cost of medical care, will become increasingly acute as the population and the demand for medical services increase. The Congress should at an early date enact legislation to authorize $100 million of matching grants over a 5-year period to stimulate construction of additional medical and dental school facilities.

Legislation should also be enacted to authorize a loan guarantee program. to facilitate the construction of clinics for the group practice of medicine and dentistry. The sharing of such clinics by groups of physicians and dentists is economical in terms of reducing capital expenditures for such purposes and leads to more complete care for the patient by enabling the practitioners to combine their diverse skills.

In our urbanized and industrial society, environmental and community health is assuming increasing importance. Appropriations of $104 million for 1962 are proposed for Public Health Service activities in these fields. Increased funds are provided to augment the research and operating arms of the Public Health Service in the fields of air pollution, water pollution, community sanitation, and radiological health control activities. Larger amounts are also proposed for community health service activities to make the benefits of improved medical knowledge more widely and quickly available. Legislation is again recommended to authorize greater Federal leadership in combating air pollution.

The budget also includes an appropriation of $50 million for construction of waste treatment works, the full amount authorized for this program. These funds will help stimulate local action to correct immediate pollution problems. The control of water pollution is principally a local responsibility and requires greater financial and enforcement efforts by local interests. The Federal Government can most appropriately assist State and local governments through legislation (1) to strengthen its enforcement powers under the Federal Water Pollution Control Act and (2) to provide flexibility assuring that highest priority is given to waste treatment construction grants for projects which contribute to the reduction of pollution of interstate and coastal streams. Legislation to accomplish these and related objectives should be enacted by the Congress.

Of daily importance to each of us is the work of the Food and Drug Administration in establishing and enforcing standards of safety for food and drugs. The 1962 budget continues a long-standing policy of strengthening this agency, which in 1962 will spend three times as much as it did 5 years earlier.

Legislation should be enacted to transfer Freedmen's Hospital to Howard University and to provide for construction of a new teaching hospital. Such legislation would give essential support to Howard University's program of medical education and end the divided responsibility and control now existing.

SOCIAL INSURANCE AND OTHER WELFARE.--Since the Social Security Act first became law in 1935, the United States has made great strides in its public income maintenance programs, both under the social security system and other public retirement systems. Today 93% of our workers are protected under the basic old-age, survivors, and disability insurance program or under other Federal or State-local retirement systems. To assist the unemployed we also have the Federal-State unemployment insurance system, and the Federal Government further provides or helps finance assistance to needy groups through other programs.

In 10 years the benefit payments made because of loss of income due to old age, death, disability, or unemployment under Federal, State, and local programs have trebled, rising in the calendar year 1960 to approximately $26 billion, of which about $24 billion was paid from federally administered or federally aided programs. Benefits were paid during the calendar year 1960 to an average of more than 20 million families or single persons. The cost of these benefits, 6% of our national income, is funded from employee and employer contributions and taxes. Benefit payments and taxes under laws already in effect will increase greatly over the years.

Social insurance.--The Federal old-age, survivors, and disability insurance system now covers 9 out of 10 American workers and their families. In fiscal year 1962 it will pay $12.9 billion in benefits to an average of 16.5 million people of all ages, including 12 million persons aged 65 and over. Coverage should be extended to Federal civilian employees and self-employed physicians, the largest groups of regularly employed persons in our economy not now covered by this system.

Benefit payments and administrative costs are paid from trust funds supported by payroll taxes shared equally by workers and employers and from contributions of the self-employed. The combined employer-employee rate is now 6% of covered payrolls. Under present law it will rise by steps to 9% in calendar year 1969. Expenditures for the administration of this vast insurance system will be increased in fiscal year 1962 to cope with the increased workloads resulting from extension of disability protection to workers below age 50 and from other amendments enacted by the last Congress.

Public assistance.--Total Federal expenditures for public assistance and medical aid in 1962 under existing law are estimated to increase by $128 million over 1961, largely reflecting the cost of the newly enacted medical assistance program for the aged. In 1962, the Federal share of payments for an average of 6.3 million recipients is estimated to be $2.3 billion, which is 58% of the total. Caseloads for old-age assistance and aid to the blind are declining moderately, while caseloads for aid to dependent children and aid to the permanently and totally disabled are increasing.

Medical care for the aged.--In recent years, the American people have greatly improved their ability to obtain and pay for medical care through private and nonprofit health organizations. This approach has produced excellent results and should be preserved.

However, some aged persons are finding it increasingly difficult to pay for the medical services which they require. Medical and institutional care for the aged financed by public funds (Federal, State, and local) is currently estimated to cost over $1 billion annually. The last Congress authorized substantial expansion in Federal assistance for medical care of the aged through (1) increased Federal participation under the regular old-age assistance program and (2) a new program of medical assistance for the aged who are not recipients of public assistance but who nevertheless require aid to pay their medical and hospital bills.

In the 1962 budget, $400 million is included in the amount shown for public assistance for the old and the new programs of medical care for the aged. There will be a substantial increase in these expenditures in future years under existing law as additional States participate in these programs.

Extension of medical care assistance to the aged through a voluntary program under Federal-State-local auspices--as authorized by the Congress--is sound national policy both from a fiscal standpoint and from the standpoint of encouraging the widest participation of private as wall as public agencies in the improvement of medical care for this group. However, under the program approved by the Congress many of the aged will still not be able to obtain needed protection against catastrophic hospital and medical expenses even though under ordinary circumstances they are able to pay their normal medical bills. The Congress is therefore urged to broaden the existing program in keeping with the recommendations which were made by this administration last spring. This would further increase the number who receive assistance.

Public action in providing assistance for medical care and the sharply rising costs of hospital and medical care underline the need for more adequate information regarding medical costs and the best methods of organizing to meet them. This budget provides for augmented research in medical economics under the Department of Health, Education, and Welfare. Likewise, it expands the related program of research and demonstration projects on causes of dependency for which appropriations were first authorized last year.

Military service credits.--Both the Railroad Retirement Act and the Social Security Act provide that military service during certain periods of military conflict should be counted toward the rights of employees in determining benefits even though the employee made no contribution during this period. As has been previously indicated, it is appropriate for the Federal Government to reimburse the trust funds for the cost of benefits paid on the basis of such military service credits. But it is not sound policy for the Government to pay more than the true cost of such benefits or to pay both the railroad retirement and old-age and survivors and disability insurance trust funds for the same military service credits, as the present law requires.

Under statutes now in effect the Federal Government has paid the railroad retirement account an estimated $400 million more than the estimated cost of military service benefits. At the same time the Federal Government is obliged to reimburse the old-age and survivors and disability insurance trust funds for an estimated $450 million for military service benefits. The Congress is again urged to enact legislation to recover the overpayments to the railroad retirement account and to transfer them to the social security trust funds to cover the Government liability. Pending action on such legislation, no appropriations are included in this budget for military service payments to these trust funds.

Other welfare services.--Between 1950 and 1960, the number of disabled people rehabilitated annually through the Federal-State rehabilitation program increased by 48%, to 88,000. The budget for 1962 includes enlarged appropriations of $97 million for this program, mostly for grants to State agencies for the rehabilitation of an estimated 103,000 persons.

The authorization for the special milk program, financed by the Commodity Credit Corporation, expires June 30, 1961. Appropriations are recommended in this budget to reimburse the Corporation for costs of the 1960 and 1961 operations. This program was originally established as a temporary measure to aid the dairy industry. An evaluation presently under way in the Department of Agriculture will provide a basis for determining the proper level of the program. Pending the results of this evaluation, an appropriation of $95 million is included under proposed legislation to provide for a continuation of the special milk program in 1962 through a regular annual appropriation. Including this amount, grants to the States through the school lunch and special milk programs of the Department of Agriculture would be $250 million in 1962.

Our society must continue to encourage all our citizens to achieve the maximum degree of self-realization and economic independence. There are two large groups which as a nation we have recognized must be given special attention--the 16 million aged persons and the 65 million children and young people under 18. A White House Conference on Children and Youth was held last spring. Widespread local and State preparations have been made also for this month's White House Conference on Aging. Such conferences can help State, local, and Federal agencies, as well as private organizations and individuals, to increase opportunities for the aged and for the youth of our land.

VETERANS SERVICES AND BENEFITS

Budget expenditures for veterans programs are estimated to total $5.3 billion in 1962, which is $69 million more than in 1961. Continued increases in pensions for non-service-connected disabilities and deaths and in costs of medical care are expected to be largely offset by a decrease in readjustment benefits for veterans of the Korean conflict.

Expenditures for pensions are estimated to increase in 1962 principally because World War I veterans and survivors of World War II veterans will continue to be added to the pension rolls. These additions reflect both the number of World War I veterans reaching age 65 by 1962 who will be able to meet the eligibility standards, and the effect of the liberalizations provided in the Veterans' Pension Act of 1959.

The decline in the education and training assistance provided to veterans of the Korean conflict foreshadows the approaching end of this second historic venture in providing readjustment assistance for wartime service. Henceforth, the bulk of the veterans expenditures will be for pensions, compensation, and medical care benefits. Because of the growth in non-service-connected disability and survivor pension costs, veterans expenditures will continue to increase for many years under laws now in effect.

In the 6-year period 1957-62, annual pension, compensation, and medical care expenditures will have risen by over $i billion. This increase is in part the result of liberalizations in pension laws and improved standards of medical care. It also results from the advancing age of our veterans, which makes more of them or their survivors eligible for benefits. The trends are illustrated by the fact that from 1957 to 1962 there will be a net increase of 750,000, or about 20%, in disability and survivor cases on the rolls. Of the 22½ million living veterans, 1 out of every 7 will be receiving compensation or pension benefits at the end of 1962.

An increasing proportion of the total expenditures of the Veterans Administration is attributable to disabilities, diseases, or deaths not related to military service. Between 1957 and 1962, non-service-connected costs will increase by 70% rising from less than one-third to nearly one-half of all budget expenditures for veterans services and benefits.

This trend raises serious questions about the further expansion of veterans programs, particularly since veterans, their dependents, and survivors of veterans total about 80 million people or over two-fifths of our total population. The improvement in recent years of general welfare programs, for which veterans as well as others are eligible, coupled with the improvements in veterans programs, has reduced the justification for providing additional special benefits to veterans on the basis of non-serviceconnected factors. Any further expansion of non-service-connected benefits would create serious inequities of treatment between veterans and others in our population. I particularly oppose measures which would increase or make available non-service-connected pensions for veterans of World War I contrary to the principle of need incorporated in the Veterans' Pension Act of 1959.

VETERANS SERVICES AND BENEFITS

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obligational

1960 1961 1962 authority

Program or agency actual estimate estimate for 1962

Readjustment benefits:

Education and training $383 $233 $128 $72

Loan guarantee and other benefits 132 131 77 9

Unemployment compensation 5

Compensation and pensions:

Service-connected compensation 2,049 2,038 2,026 2,026

Non-service-connected pensions 1, 263 1,512 1,717 1,487

Burial and other allowances 56 55 55 55

Hospitals and medical care 904 982 1,025 1,025

Hospital construction 57 63 66 75

Insurance and servicemen's

indemnities 33 31 27 40

Other services and administration 179 182 174 174

Total 5,060 5,227 5,296 ¹4,963

1 Compares with new obligational authority of $5,169 million enacted for 1960 and $5,438 million (including $58 million in anticipated supplemental appropriations) estimated for 1961.

Readjustment benefits.--Expenditures for readjustment assistance, estimated in 1962 at $205 million, continue their decline from a post-Korean high mark of about $900 million in 1957. The principal reduction is in the education and training program, in which the average number of Korean conflict veterans participating will be reduced to 85,000 in 1962, compared to 288,000 in 1960 and 170,000 in 1961.

The previous Congress extended until July 25, 1962, the home loan guarantee program as it applies to veterans of World War II. The direct loan program was similarly extended for both Korean conflict veterans and World War II veterans. It is clear that continuation of direct loan assistance and of loan guarantee assistance is no longer required to help World War II veterans in their readjustment to civilian life 15 years after the end of that war.

Veterans, like other citizens, can and should participate in the regular housing programs when their special readjustment needs resulting from military service have passed. The loan guarantee program for World War II veterans should therefore be terminated as of July 25, 1961. Changes proposed in the veterans direct loan program have been described with other housing programs elsewhere in this message.

Legislation is again recommended to provide vocational rehabilitation for peacetime ex-servicemen having substantial service-connected disabilities. This would add to other benefits which the Federal Government provides peacetime ex-servicemen, such as unemployment compensation, employment service, and reemployment rights. On the other hand, there is no justification for the extension of special educational or housing benefits to peacetime ex-servicemen. Such benefits cannot be justified by conditions of military service and are inconsistent with the incentives which have been provided to make military service an attractive career for capable individuals.

Compensation and pensions.--Expenditures for service-connected death and disability compensation benefits continue a slow decline from their 1959 peak as compensation rolls are reduced by the deaths of veterans or their widows and by the transfer of many aging veterans to pension rolls. These decreases are offset in small part by the addition of veterans of the Korean conflict and of peacetime ex-servicemen or their survivors. Compensation will be paid to an average of 2,397,000 veterans and survivors of veterans in 1962 compared to 2,410,000 in 1961 and 2,428,000 in 1960.

The continued rise in expenditures for non-service-connected pensions, however, will more than offset the decline in compensation payments. Approximately half of all World War I veterans over 65 will be receiving pensions by the end of 1962, and the pension rolls will carry an average of nearly 2 million veterans and survivors in 1962. The Veterans' Pension Act of 1959 is expected to increase expenditures by adding over 100,000 new beneficiaries to the rolls at an estimated additional cost of $77 million in 1961. These additional expenditures also reflect higher rates for many veterans on the rolls before July 1, 1960.

Hospitals and medical care.--The budget includes expenditures of approximately $1 billion for hospital and medical care for eligible veterans in 1962, an increase of $43 million over 1961. The increase will permit continued improvement in the quality of medical care in the hospitals and clinics. The new 1,000-bed hospital at Brecksville, Ohio, is scheduled to be opened in 1962 and the new Palo Alto, Calif., hospital addition will be fully activated. Hospital and domiciliary care will be provided for an average of 141,500 beneficiaries per day in Veterans Administration, contract, and State facilities, and a total of 3,622,000 visits for medical services are expected to be made by veterans to outpatient clinics and to private physicians on a fee basis.

Hospital construction.--An appropriation of $75 million is proposed for 1962, the same as for 1961, as the second step in carrying out a 12-year hospital modernization program of $900 million initiated in 1961. Of the 1962 appropriation, $26 million will be for construction of a 1,250 bed replacement hospital at Wood (Milwaukee), Wis., $11 million will be for replacement of 500 beds at Charleston, S.C.; the remainder will be for planning a new 580-bed general hospital at Atlanta, Ca., planning the replacement of approximately 1,000 beds in the Los Angeles, Calif., area, and for a large number of modernization projects.

Administration.--The general operating expenses of the Veterans Administration (other than the direct costs of administration of medical, dental, and hospital services) in 1962 are expected to be $162 million, slightly less than in 1961. Reductions in administrative costs are expected to accrue in future years from the program now under way to convert the recording and payment of veterans benefits to automatic data processing equipment.

INTEREST

Interest payments are estimated to decrease by $400 million to $8.6 billion in the fiscal year 1962. These payments are almost entirely for interest on the public debt and represent 11% of budget expenditures.

INTEREST

[Fiscal years. In millions]

New obligational authority and budget expenditures

1960 1961 1962

Item actual estimate estimate

Interest on public debt $9,180 $8,900 $8,500

Interest on refunds of receipts . 76 83 83

Interest on uninvested funds 10 10 10

Total 9,266 8,993 8,593

Market rates of interest have been decreasing from the levels prevailing last year. This makes it possible for the Treasury to pay, on the average, lower interest on securities issued to refinance maturing obligations. The reduction in the public debt during the year, facilitated by the surplus in the budget in 1960 as well as currently, is also helping to a lesser extent to reduce interest payments.

GENERAL GOVERNMENT

Expenditures for general government activities are estimated to rise by $89 million to $2.1 billion in the fiscal year 1962. The increase is primarily for more construction of Government buildings and for strengthening the tax collection system.

Central fiscal operations.--The 1962 budget includes an increase of $36 million in new obligational authority to $450 million for the Internal Revenue Service. This will finance the second year's cost of a program to provide more effective enforcement of our tax laws and will thus reduce the revenue losses which arise from the failure of some individuals and businesses to report their incomes fully or accurately. Ultimately, all aspects of tax administration capable of being mechanized will be handled electronically. With the growth of the economy, tax returns are increasing in volume and necessarily become more complex. Installation of the new and modernized system for the processing of these returns will make possible the collection of taxes with lower expenditures than would otherwise be the case. Legislation should be enacted to authorize the adoption of tax account numbers which are needed for mechanical and electronic processing.

Legislation to authorize the consolidated reporting by employers of wages for income tax and social security purposes should also be enacted. Such legislation would produce considerable savings for both employers and the Government by reducing paperwork and would also help in enforcing the tax laws. Nearly 4 million employers could be relieved of the need to file for social security purposes 14 million separate quarterly wage reports each year covering over 230 million wage items. The Treasury Department and the Department of Health, Education, and Welfare have already agreed on the cooperative steps to be taken for improved administration of the tax laws and the social security system once such legislation is enacted.

Presidential office space.--There is pressing need for providing future Presidents with modern and efficient office facilities. My experience during the last 8 years strongly confirms the conclusion of the Advisory Commission on Presidential Office Space that present facilities "are outmoded, overcrowded, inefficient, and not consistent with effective and well coordinated management of the highest office of the executive branch of the Government." The Commission recommended: (1) a new building to house only the White House office on the site of the existing Executive Office Building; (2) a new building for other units of the Executive Office; and (3) remodeling of the west wing of the White House for use as quarters for visiting dignitaries.

GENERAL GOVERNMENT

[Fiscal years. In millions]

Recom-

mended

Budget expenditures new obligational

1960 1961 1962 authority

Program or agency actual estimate estimate for 1962

Legislative functions $109 $137 $130 $100

Judicial functions 49 53 56 56

Executive direction and

management 12 14 15 15

Central fiscal operations:

Internal Revenue Service 360 412 446 450

Other 198 207 218 218

General property and records

management 367 417 467 516

Central personnel management

and employment costs:

Department of Labor 190 212 216 216

Civil Service Commission:

Present programs 21 74 95 95

Proposed legislation --45 --45

Civilian weather services 54 57 66 70

Protective services and

alien control 217 241 247 250

Territories and possessions,

and the District of Columbia:

District of Columbia 28 48 66 63

Other 63 75 81 75

Other general government 28 34 12 17

Total 1,695 1,982 2,071 ¹ 2,096

1 Compares with new obligational authority of $1,664 million enacted for 1960 and $2,073 million (including $131 million in anticipated supplemental appropriations) estimated for 1961.

As a first step in carrying out these recommendations, the Congress should provide funds for constructing a new Executive Office Building on the west side of Lafayette Square, and this budget includes $26 million of new obligational authority for this purpose. More than two decades ago, the Congress wisely provided new quarters for the Supreme Court of the United States. In recent years, major improvements and expansions have been made in the facilities necessary to carry on the increasingly complex and important duties of the legislative branch. The next logical step is to remedy the serious deficiencies in the office space of the Chief Executive of the United States. I strongly urge the Congress to give early attention to the needed building as well as to the other recommendations of the Commission.

General property and records management.--New obligational authority of $516 million is requested for the general property and records management activities of the General Services Administration, predominantly for management of existing buildings, construction of new buildings, purchase and distribution of supplies, and custody of Government records. Of this total, $212 million is for the construction of Federal office buildings, $26 million more than enacted for 1961. Budget expenditures for new buildings will be $169 million in 1962, nearly 50% above the 1961 level. This large increase results from an acceleration in construction initiated in 1959 to remedy some serious deficiencies of space which interfere with effective operations in many Federal agencies.

The expanded program of the General Services Administration for improving the utilization of excess Federal personal property is accomplishing significant results. Transfers of property in 1962 from agencies having an excess to those which can use it are expected to be $350 million valued at acquisition cost, compared to $218 million in 1960.

As a part of an overall program for improving supply management, the responsibility for the procurement and distribution of subsistence items for the civilian agencies has been centralized in the Veterans Administration. Substantial progress has also been made toward centralizing in the Veterans Administration the procurement and distribution of medicines, drugs, and pharmaceuticals for the civilian agencies. Progress is also being made in transferring from the Department of Defense to the General Services Administration responsibility for managing the supplies of certain items which are used by civilian agencies as well as by the military services.

Central personnel management and employment costs.--Appropriations of $147 million are recommended in 1962 for the Department of Labor to provide unemployment compensation for former Federal civilian employees and ex-servicemen. Another $69 million will be required for workmen's compensation for present and past Federal employees. The new obligational authority recommended for the Civil Service Commission includes $26 million to finance the Government's share of the new health benefits programs for retired Federal personnel. The remaining appropriations in this category are predominantly for administration of the civil service system.

A long-range policy should be established for financing the civil service retirement system, which covers over 90% of Federal civilian employment. Previous recommendations to accomplish this objective should be enacted. This legislation would assure continued availability in the fund of the full amount of the net accumulations from employee contributions and would 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.

Under present law, an appropriation of $45 million would be required for 1962 to finance the cost of civil service retirement benefits enacted in 1958 for certain retired employees and certain widows or widowers of former employees. Without this appropriation these benefits could not be continued. Legislation is again recommended to assure that in 1962 and later years such benefits are paid from the civil service retirement and disability fund on the same basis as other benefits, without specific annual appropriation.

A number of outmoded and inconsistent statutes now regulate the employment and compensation of retired military personnel in civilian positions with the Government. We should replace this legal maze with a single, rational statute which would eliminate unnecessary dual payments, adequately safeguard the civilian career service, and permit the Government to hire members of this group possessing needed skills under conditions that are fair to the individual.

Efforts must be continued to improve Federal job evaluation and other pay practices so as to make Federal pay, including that at the executive level, more comparable with private enterprise. This is essential to recruit and retain superior personnel for Federal programs, particularly in the middle and upper professional and managerial positions, and to overcome the severe competitive disadvantages with which the Federal Government must now contend in recruiting personnel.

To help attain this objective, the accuracy of comparisons of Federal salary rates with private business rates should be improved. Funds are recommended in this budget for the Department of Labor to continue its recently expanded surveys which provide annual reports on salaries currently paid in private business. In time the Federal Government should make full use of this information as a guide in fixing salaries for its own officers and employees.

Legislation should be enacted to provide a system of survivorship annuities for the widows and dependent children of judges of the Tax Court of the United States comparable to the system already in effect with respect to the other Federal courts.

Civilian weather services.--The successful launching of meteorological satellites has created vast possibilities for increasing our knowledge about the atmosphere and for improving daily weather services and forecasts. To realize some of this potential, an appropriation increase of $9 million over 1961, to a total of $70 million, is recommended for the Weather Bureau for 1962. This increase will provide for the establishment of processing facilities to permit the immediate use of worldwide cloud data received from satellites, as well as for increased research in applying this new source of information to improve understanding of atmospheric motion. The budget also continues the efforts of the past several years to transfer to Weather Bureau appropriations the financing of certain meteorological activities of other Federal agencies which are national in scope and serve both civilian and military needs.

Territories, possessions, and District of Columbia.--The expenditures required to meet the Federal share of the financing of governmental operations in the District of Columbia will increase substantially in 1962, primarily because of loans authorized in prior years to meet capital requirements of the area, including a metropolitan sewage system to connect with the Dulles International Airport.

A constitutional amendment to permit residents of the District to vote for President and Vice President is now before the States for ratification. The States should act promptly on this amendment.

Another basic step, recommended on many past occasions, would be the restoration of home rule for the 764,000 District of Columbia residents. I repeat my recommendation in this respect. Such local self-government is essential not only to carry out our democratic principles but also to remove excessive and unnecessary responsibilities from the Federal Government.

To promote the further development of democratic institutions, and in keeping with the growth of local self-government, the Congress should authorize representation of the Virgin Islands and Guam in the Congress through nonvoting territorial deputies.

Intergovernmental relations.--Federal financial assistance to State and local governments plays a large role in financing their operations. In 1962 such aid, including budget and trust funds, will amount to $7.9 billion and account for a substantial portion of total annual State and local revenues. Continuous attention must be given to Federal-State-local fiscal interrelationships so that they reflect the proper distribution of responsibilities. The Advisory Commission on Intergovernmental Relations established in 1959 can make an important contribution through its work in reexamining intergovernmental relations and fiscal problems.

In this field, a uniform Federal policy is needed (1) defining immunity from local taxation on the use or possession of Federal property in the custody of contractors and lessees, and (2) governing payments in lieu of taxes made by the Government to localities on certain real properties. Legislation on these matters should be enacted in accordance with the recommendations made by the administration in the last session of the Congress, which call for partial restoration of immunity from taxation of Federal property in the hands of contractors or lessees and authorization of a system of payments in lieu of taxation on certain real properties in cases of local hardship.

Other recommendations.--lt is again recommended 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.

In support of our position of world leadership, legislation is again recommended to liberalize and modernize our immigration laws. The quota system should be brought up to date by revising the methods of determining, distributing, and transferring quotas, and the total number of immigrants admitted under quotas should be doubled. A permanent program for admission of refugees should also replace the inadequate and piecemeal legislation now in effect.

The enactment of the Civil Rights Acts of 1957 and 1960, the activities of the Department of Justice in enforcing these statutes, and the contribution of the Civil Rights Commission in identifying basic problems and legislative action required, represent significant progress in the field of civil rights. To permit the Commission to explore more thoroughly the necessity for further legislation in this field, its life should be extended for another 2 years. As part of an effort to extend civil rights in education to all our citizens, the Congress should enact legislation to assist State and local agencies to meet costs of special professional services needed in carrying out public school desegregation programs. Also, legislation should be enacted to establish a Commission on Equal Job Opportunity to make permanent and expand, with legislative backing, the important work of the President's Committee on Government Contracts.

The seriously congested conditions in the courts require that the Congress give early consideration to the creation of additional Federal judgeships as proposed by the Judicial Conference.

It is important that the Congress enact legislation, such as that passed by the House of Representatives last year, to reimburse Americans for certain World War II property damage.

A system of awards to recognize outstanding civilian achievements should also be established, as previously recommended.

Legislation should be enacted to incorporate the Alaska Railroad to place its operations on the same basis as other Federal activities of this type.

Last spring, legislation was introduced in the Congress to enlarge and change the boundaries of the site for the National Cultural Center in accordance with the design for the structure contemplated as a national center for the performing arts on the banks of the Potomac. It is important that such legislation be enacted as early as possible so that the fund-raising activities of the Center's Board of Trustees may be energetically continued.

I have repeatedly urged construction of a freedom monument symbolizing the ideals of our democracy as embodied in the freedoms of speech, religion, press, assembly, and petition. I still believe such a living, ever-building monument would be fitting.

IMPROVEMENTS IN BUDGETING

The budget process is a means of establishing Government policies, improving the management of Government operations, and planning and conducting the Government's fiscal role in the life of the Nation. Whether that role is increasing, decreasing, or remaining unchanged, the budget process is perhaps our most significant device for planning, controlling, and coordinating our programs and policies as well as our finances. Thus, the President and the Congress will always need to give attention to the improvement and full utilization of the budget system.

Improvements in presentation.--The budget totals in this document reflect a technical accounting adjustment which affects budget expenditures and budget receipts equally, and does not affect the budget surplus for any year. This is the exclusion from the totals of expenditures and receipts, for all years shown in this document, of certain interfund transactions, mainly interest payments to the general fund of the Treasury by wholly owned Government enterprises which have borrowed from the Treasury. The amounts involved continue to be included in the figures for each function and for each agency, but are deducted in one sum to reach expenditure totals. Similarly, they continue to be included as miscellaneous budget receipts of the Treasury, but are deducted to arrive at the total of budget receipts. Since the beginning of the present fiscal year, various statements and reports on Government financial operations have been eliminating these interfund payments from budget totals.

Steady progress is being made in applying the principles of performance budgeting. In this budget, the appropriation pattern or activity classifications of several agencies and bureaus have been improved and greater use is being made of program and workload measurement data. Cost-type budgets, which present the most adequate measure of financial performance, are used for more than 80 appropriation accounts for the first time. With these additions, about two-thirds of the appropriation accounts are now presented on a cost-type basis.

Funding arrangements.--Recommendations placed before the Congress in this budget are again based upon the principle that authority to incur budget obligations and make expenditures should be granted in appropriation acts, rather than in substantive legislation handled outside the regular appropriation process. Of course, the budget totals include-as they have for many years--all of the new obligational authority actually granted each year and the subsequent spending, no matter what the method by which provided. The Congress ought to pass upon all new obligational authority in a regular systematic way as part of the appropriation process. We must never be led into thinking that special funding arrangements, which are a claim against budget receipts or borrowing, are somehow not a part of the budget or not a cost to the taxpayers.

From time to time, the Congress has enacted legislation and appropriations under which additional sums become available for obligation and expenditure annually without further congressional action. These are so-called permanent appropriations. In a few cases, such as interest on the public debt, permanent obligational authority may be desirable. In many other cases, however, permanent appropriations give unnecessary preferential treatment. A complete congressional review is needed of all such provisions of permanent authority, including those to use borrowed money, to enter into contracts ahead of appropriations, and to use collections to supplement appropriations. Those provisions which cannot be fully justified at this time should be repealed.

It is again recommended that major business-type activities of the Government be placed on a revolving fund basis, through which receipts can be used to meet obligations and expenditures, subject to annual review and control by the Congress. Such a system, which is presently applied successfully to all of the Government-owned corporations and many unincorporated Government enterprises, provides a clear display of the business-type nature of these activities, their income or loss from current operations, and the extent to which they are adding to or using up the Government's capital assets. In accordance with legislation enacted in response to a previous recommendation, the loan guarantee program of the Veterans Administration is thus presented in this budget. Legislation should be enacted to provide revolving funds for the Farmers Home Administration, the Bureau of Reclamation, and the power marketing agencies of the Department of the Interior.

A few mixed-ownership Government corporations having authority to draw money from the Treasury or to commit the Treasury for future expenditures are presently outside the Government's budget system. This is largely because of the unrealistic and inconsistent distinction the law now makes between wholly owned and mixed-ownership Government corporations, even though both may affect the Government's finances. All Government corporations with such authority, namely, the Federal Deposit Insurance Corporation, the banks for cooperatives, and the Federal intermediate credit banks, should be brought within the flexible budget provisions of the Government Corporation Control Act, and thus within the normal budgetary and reporting structure of the Government.

The extensive recommendations made a year ago for the control of foreign currencies generally were adopted by the Congress, and this action has proved helpful in obtaining more adequate budget control of these resources. However, there still remain various special provisions of law, requiring reservations of currencies for certain programs, that hinder the Government in making the wisest use of the foreign currencies coming into its hands. They should be repealed. Expenditures of all foreign currencies owned by the Government and used for its activities should be controlled through the annual budget process and should be accounted for in the same way as dollar expenditures.

The budget process in the Congress.--Although the President presents one budget for the entire Government to the Congress each year, the Congress considers the budget in a multitude of pieces rather than as a whole. The financing methods outside the regular appropriation process, already mentioned, are but one phase of this problem. Another is the tendency to require a double budget process each year for certain agencies--requiring them, first, to seek legislation to authorize appropriations annually and, second, to seek their appropriations. The subcommittee arrangement and time schedule for processing appropriation requests further fragments the budget process. The complete separation of the handling of tax legislation from the consideration of appropriations and expenditures adds to the total problem.

The Congress should therefore provide a mechanism by which total receipts and total appropriations (and expenditures) can regularly be considered in relation to each other. Further, substantive legislation with respect to all continuing programs should be written so that new legislation is not required each year, thus permitting the budget and appropriation process to proceed in an orderly manner.

In accordance with recommendations of the second Hoover Commission, legislation was enacted in 1958 authorizing the Congress to establish limitations on accrued expenditures as a means of enabling more direct control over spending. Limitations were proposed for selected accounts in the last two budgets, but were rejected by the Congress without exception. Therefore, and since the law providing for accrued expenditure limitations expires in April 1962, no such limitations are proposed in this budget.

Provision of item veto.--Future Presidents should have the authority to veto items of appropriation measures without the necessity of disapproving an entire appropriation bill. Many Presidents have recommended that this authority be given to our Chief Executive, and more than 80% of the States have given it to their Governors. It is a necessary procedure for strengthening fiscal responsibility. As in the case of other vetoes, the Congress should have the authority to override an item veto.

In my first budget message to the Congress, I described the philosophy of this administration in the following words:

"By using necessity--rather than mere desirability--as the test for our expenditures, we will reduce the share of the national income which is spent by the Government. We are convinced that more progress and sounder progress will be made over the years as the largest possible share of our national income is left with individual citizens to make their own countless decisions as to what they will spend, what they will buy, and what they will save and invest. Government must play a vital role in maintaining economic growth and stability. But I believe that our development, since the early days of the Republic, has been based on the fact that we left a great share of our national income to be used by a provident people with a will to venture. Their actions have stimulated the American genius for creative initiative and thus multiplied our productivity."

This philosophy is as appropriate today as it was in 1954. And it should continue to guide us in the future.

Over the past 8 years, we have sought to keep the role of the Federal Government within its proper sphere, resisting the ever-present pressures to initiate or expand activities which could be more appropriately carried out by others. At the same time, the record of this administration has been one of action to help meet the urgent and real needs of a growing population and a changing economy. For example, Federal expenditures between 1953 and 1961 for aids to education have more than doubled; outlays for public health have more than tripled; civil aviation expenditures have more than quadrupled; highway expenditures are five times the 1953 level; and urban renewal expenditures are more than seven times as great.

The major increases in spending which have taken place have not been devoted to the tools of war and destruction. A military posture of great effectiveness and strong retaliatory capability has been maintained without increasing defense expenditures above 1953, despite rising costs. We have, fortunately, been able to direct more of our public resources toward the improvement of living conditions and the enlargement of opportunities for the future growth and development of the Nation.

By applying the test of necessity rather than desirability to the expenditures of government, we have made significant progress in both public and private affairs during the past 8 years. And it is significant that requirements have been met while holding budget expenditures to a lesser proportion of the national income than in 1953.

The 1962 budget has been designed to promote further advancement for all of our people on a sound and secure basis. In that spirit, I commend it to the consideration of the next administration and the Congress.

DWIGHT D. EISENHOWER