Message to the Congress Transmitting Corporation Supplement to the Budget for 1947.

To the Congress of the United States:

In this document, for the first time, I am transmitting for congressional consideration the budget programs of all wholly owned Government corporations. The submission of these programs is a long-delayed forward step toward rounding out the Executive budget established by the Budget and Accounting Act of 1921.

The budget programs of the Government corporations are an integral part of the Federal Budget. They will be included hereafter in the Budget transmitted to the Congress in January. The present document is not a separate budget but a supplement to the Budget transmitted last January, necessary this year because the Government Corporation Control Act of 1945 became law too late for inclusion of these statements in the regular Budget.

The information contained in these budgets will provide a better opportunity than we have ever had before to present the interrelationships between the activities of corporations and those of other Government agencies. Thus, both the executive and legislative branches will be able to review the Federal program as a whole. Such a review means better appraisal of individual programs and better integration of the activities of each agency into the changing pattern of the Federal Government.

Corporations are used to carry out a broad range of Government programs largely of a revenue-producing type. They make loans and guarantee loans of private institutions to businessmen, farmers, home owners, foreign governments and other borrowers. They insure private individuals against loss from crop failure, price declines, war damage, and other hazards. They have constructed and are now managing many vital war plants throughout the country as well as navigation and flood control projects, electric power plants, and other enterprises in the Tennessee Valley. They operate railroads, a steamship service, barge lines, and terminals. They purchase, stockpile, and sell commodities in domestic and foreign markets. They administer many of the wartime subsidy programs, either through direct payments or through purchase and sale operations at a loss.

Each corporation is a unit, but each is a part of a broader Federal program. Hence appraisal of individual corporations should be based upon their contribution to achievement of these broader programs.

In the main, Government corporations operate in the borderland area where the general welfare requires action but the risks of loss are too great or the prospective return too small to attract adequate private capital. They supplement or assist private business, rather than supplant it. Some corporations operate at a loss because of marginal operations designed to provide public services below cost, and this must be taken into account in interpreting their financial statements.

The chief source of loss by Government corporations during the war years has been the payment of production, transportation and food subsidies authorized by the Congress. Several of these wartime subsidies have now been eliminated. Others, however, have had to be increased. Much as I regret the necessity, continuance of these programs is essential to hold the line against the forces of inflation. I have said before, and I repeat here, they will be reduced and discontinued promptly as soon as the inflationary pressure slackens. I hope and expect this will occur by the end of the fiscal year 1947.

Legislation is now pending which would provide premium payment subsidies from corporation funds to finance expansion in the supply of building materials and which would establish other aids urgently required for the Veterans Emergency Housing program. Enactment of the full program which I have requested is essential to provide an adequate supply of housing for our returning veterans. I also urge prompt consideration and enactment by the House of Representatives of the legislation approved by the Senate designed to raise the long-run housing level of the nation.

Almost all of the corporations whose budget programs I am transmitting were organized to meet specific depression or war emergencies. Many have finished their jobs and are well on the road to liquidation. Others, however, will probably continue as more or less permanent Federal agencies, with major functions changing from time to time. The Reconstruction Finance Corporation, for example, has proved so useful during the depression and the war that it has become one of the major instrumentalities for conducting the postwar business activities of the Federal Government. I recommend, therefore, that its statutory authority be extended beyond the present expiration date of January 22, 1947.

Under the Government Corporation Control Act, all wholly owned corporations organized or acquired in the future must be Federally chartered, and the 16 corporations not now Federally chartered must either cease activities (except for liquidation), or be reincorporated by Act of Congress before June 30, 1948. Moreover, in any case where the activities of a corporation are more nearly analogous to nonbusiness services of the Federal Government, or where for other reasons it would be more practicable to handle its budgets like that of a regular Government agency, the Director of the Bureau of the Budget, with the approval of the President, is authorized to recommend such action to the Congress.

As part of the investigations necessary to carry out these provisions of law, I am requesting the Director of the Bureau of the Budget to reexamine and redefine the role of Government corporations. The findings of these studies will be useful not only in effectuating the specific provisions of the Act, but also in determining the basic principles to be followed in reviewing the existing charters of Federally chartered corporations as they come up for renewal. Thus, through successive steps we shall continue to move forward in developing a more consistent and integrated organizational pattern for the business-type activities of the Federal Government.

In our business operations, the Federal Government, like private business, needs greater flexibility than the customary type of appropriation budget ordinarily permits. Some Government corporations are committed by statute to support prices, furnish electric power, pay insurance claims or meet other demands which may experience wide and unexpected variations because of circumstances beyond their control. Other corporations supply credit or other services to clients who often cannot forecast their own needs in advance, or who will request Government services only if and when the same services cannot be obtained from private institutions. These difficulties can be overcome by the use of business-type budgets.

The budget programs submitted place primary emphasis upon the types of programs specifically authorized by law or by the charter of each corporation. Many corporations have very broad grants of authority. Through their budgets, they apprise the Executive and the Congress of the manner in which they plan to use their available resources, and the funds they expect to devote to each type of program within the limits set by their authority.

In developing budgetary controls applicable to the corporations, the wisest course appears to be to progress carefully, through experiment and evolution. I recommend that the Congress approve the types of programs set forth in the budgets transmitted herewith, and, in addition, provide general authority for actions necessary to meet unforeseen emergencies or contingencies arising subsequent to approval of the budget. In such emergency situations, I suggest that corporations be permitted to initiate new programs, even though these are not specifically included in the budget approved by the Congress, provided such programs are within their existing authority. Such new programs will be initiated, however, only after approval by the President and the new programs will be promptly transmitted to the Congress. No program will be undertaken prior to congressional approval if it requires increased borrowing authority. Enactment of these provisions is essential to preserve the flexibility required to meet changing business conditions while maintaining the necessary control of corporate activities.

The accompanying document consists of a summary narrative and supporting tables, followed by detailed presentations of the budgets of the 34 wholly owned Government corporations and certain related noncorporate housing activities. Each budget contains narrative material together with financial statements.

These budgets have been prepared on the basis of existing accounting records. One by-product of the budgetary and auditing requirements of the Act which we hope to realize is an improvement in these records, with a corresponding improvement in future budgets. The present budgets provide more information on the current and future programs of Government corporations than has ever been previously reported.

The summary statements reveal that the level of operations for corporations as a group will decline during the fiscal year 1947 because of the continued liquidation of wartime programs. Commodity purchases of 3.0 billion dollars will amount to less than half the 1945 levels. Funds received from the sale of fixed assets will exceed additions to these assets. Subsidy payments of 19 billion dollars will be somewhat lower than in 1946. On the other hand, lending activity will jump from 2.6 to 4.6 billion dollars, as both domestic and foreign borrowers make use of the Government's financial facilities.

Total assets by the close of the fiscal year 1947 will be 16.2 billion dollars, a decline of 400 million dollars during the fiscal year. Book value of plant and equipment will be 6.8 billion dollars. Outstanding loans will amount to 6.0 billion dollars. Inventories of 1.3 billion dollars include 470 million dollars in metals and minerals declared surplus and available for transfer to stockpile.

For the group as a whole, a total net loss of 4.0 billion dollars is anticipated in the fiscal year 1947. Subsidy payments, price support operations and losses on sales of surplus property account for an estimated loss of 3.4 billion dollars. Expenditures from appropriations to convert temporary war housing are responsible for most of the remaining loss. Expanded lending operations, power operations and many other activities will show profits.

The programs of individual corporations fall into five major groups.

The Reconstruction Finance Corporation and its subsidiaries expect to liquidate a substantial part of the plant and equipment constructed during the war. Loans to businesses and to finance the program of the Rural Electrification Administration, however, will expand rapidly.

Under the existing program of the National Housing Agency and its constituents, well over one-half of the expenditures during the fiscal year 1947 will be devoted to completion of the program for provision of 200,000 temporary housing units for veterans financed from appropriated funds. War deferred low rent housing projects will be resumed. Insurance of loans to finance construction of new housing and repairs to existing homes will double the 1946 volume. Liquidation of wartime public housing and of the prewar loans of the Home Owners Loan Corporation will progress rapidly.

The price support operations and subsidy payments of the Commodity Credit Corporation will again involve large expenditures, but inventories will continue to decline from the high wartime levels. The Federal Farm Mortgage Corporation will cease making new loans. Most of the other wholly owned corporations supervised by the Secretary of Agriculture expect a further decline in the volume of their financing activities.

With its broadened lending authority, the Export-Import Bank anticipates disbursements possibly as high as 2.0 billion dollars on loans to finance purchase of American commodities and to provide the necessary minimum credit for postwar reconstruction abroad. The five corporations created by the Office of Inter-American Affairs by the close of the fiscal year will either be in liquidation, or nearing completion of cooperative international programs.

The principal corporations engaged in the regional development of resources and transportation facilities, the Tennessee Valley Authority, the Panama Railroad Company and Inland Waterways Corporation, are all planning to make substantial expenditures to construct new plant or to purchase new equipment.

Net new borrowing of the 34 corporations will amount to 3.0 billion dollars over and above retirement of debt. Outstanding obligations, almost entirely held by the Treasury Department, will amount to 15.8 billion dollars, on June 30, 1947. New capital investments of 300 million dollars through purchase of Export-Import Bank stock, previously authorized, will provide additional funds. On the other hand, the budgets of six corporations provide for return of 48 million dollars in capital funds to the Treasury, and the payment of 10 million dollars in dividends.

By June 30, 1947, the Federal Government will have a total investment of 4.8 billion dollars in the capital stock and paid-in surplus of these corporations. This capital investment will be impaired to the extent of 8.5 billion dollars from cumulative deficits arising almost entirely from the heavy volume of subsidies and other loss-creating activities during the war period.

In this Budget I am recommending that the Congress appropriate 921 million dollars to restore the capital impairment of the Commodity Credit Corporation, as of June 30, 1945. This impairment has already been reflected in the public debt. Additional prospective impairment arising from losses in the fiscal years 1946 and 1947 will require appropriations in subsequent years. The remaining capital impairment for Government corporations is almost entirely confined to the Reconstruction Finance Corporation and certain of its subsidiaries. Until the amount can be more accurately determined, I am not recommending any action by the Congress.

Neither continuance nor restoration of capital impairment alters the budgetary deficits or surpluses. With minor exceptions, the financing of Government corporations is already handled by the Secretary of the Treasury, and net expenditures and receipts of corporations for three years have been included in the Budget total of expenditures. Consequently, appropriations to restore impairment involve merely transfers of funds between Government agencies. They do not affect the Treasury's borrowing requirements or the total public debt.

I also recommend reduction of 1.0 billion dollars in the borrowing authority of the Federal Farm Mortgage Corporation. With the substantial liquidation of its depression loans, the cessation of new loans, and the broadened lending authority of the Federal land banks, the Corporation's borrowing authority is now far in excess of its foreseeable needs.

HARRY S. TRUMAN