Special Message to the Congress on the Proposed Federal Economy Act of 1970.

To the Congress of the United States:

I propose reduction, termination or restructuring of 57 programs which are obsolete, low priority or in need of basic reform. These program changes would save a total of $2.5 billion in the fiscal year 1971. of this amount, $1.1 billion savings require Congressional action--roughly the equivalent of the amount by which the 1971 budget is in surplus.

No government program should be permitted to have a life of its own, immune from periodic review of its effectiveness and its place in our list of national priorities.

Too often in the past, "sacred cows" that have outlived their usefulness or need drastic revamping have been perpetuated because of the influence of special interest groups. Others have hung on because they were "too small" to be worthy of attention.

At a time when every dollar of government spending must be scrutinized, we cannot afford to let mere inertia drain away our resources.

Some of these programs are the objects of great affection by the groups they benefit. But when they no longer serve the general public interest, they must be repealed or reformed.

No program should be too small to escape scrutiny; a small item may be termed a "drop in the bucket" of a $200.8 billion budget, but these drops have a way of adding up. Every dollar was sent to the Treasury by some taxpayer who has a right to demand that it be well spent.

As an extreme example, the government since 1897 has had a special board of tea-tasters. At one time in the dim past, there may have been good reason to single out tea for such special taste tests; but that reason no longer exists. Nevertheless, a separate tea-tasting board has gone right along, at the taxpayer's expense, because nobody up to now took the trouble to take a hard look at why it was in existence. The general attitude was: It did not cost much, it provided a few jobs, so why upset the tea cart?

That attitude should have no place in this government. The taxpayer's dollar deserves to be treated with more respect.

Most of these programs have the strong support of some special interest group, and in many cases the changes I am proposing will be resisted. Overcoming this resistance will not be easy. I urge, therefore, that the Congress examine the possibilities of establishing special arrangements for consideration of this legislation. The Joint Committee on Reduction of Federal Expenditures may be able to provide the focus needed to secure the savings I have included in this Federal Economy Act; or, perhaps, a joint select committee empowered to propose legislation to both Houses should be established.

This Administration is making extraordinary efforts to hold down spending; it would be fitting for the Congress to approach the need for economies in the same spirit.

Of the 57 savings actions I have proposed to prune the 1971 fiscal year budget and slow down the momentum of Federal spending, forty-three ¹ are within the authority of the President to effect; four are already before the Congress and awaiting action; ten more are submitted with the Federal Economy Act.

¹ It was later found that one of the 43, the board of tea-tasters, required legislation to abolish it.

Of the total savings effort, these are the most significant items:

1. I propose that we reform assistance to schools in Federally-impacted areas to meet more equitably the actual burden of Federal installations.

In origin this program made good sense: Where a Federal installation such as an Army base existed in an area, and the children of the families living on that installation went to a local school; and when the parents made no contribution to the tax base of the local school district, the Federal government agreed to reimburse the local district for the cost of educating the extra children.

But this impacted aid program, in its twenty years of existence, has been twisted out of shape. No longer is it limited to payments to schools serving children of parents who live on Federal property; 70% of the Federal payments to are now for children of Federal employees who live off base and pay local property taxes. In addition, the presence of a Federal installation (much sought-after by many communities) lifts the entire economy of a district. As a result, additional school aid is poured into relatively wealthy communities, when much poorer communities have far greater need for assistance.

One stark fact underscores this inequity: Nearly twice as much Federal money goes into the nation's wealthiest county through this program as goes into the one hundred poorest counties combined.

The new Impact Aid legislation will tighten eligibility requirements, eliminating payments to districts where Federal impact is small. As it reduces payments to the wealthier districts, it will re-allocate funds to accord more with the financial needs of eligible districts. Children whose parents live on Federal property would be given greater weight than children whose parents only work on Federal property.

While saving money for the nation's taxpayers, the new plan would direct Federal funds to the school districts in greatest need--considering both their income level and the Federal impact upon their schools.

Reform of this program--which would make it fair once again to all the American people--would save $392 million in fiscal year 1971 appropriations.

2. Medicaid. The original purpose of this program was to provide medical treatment to all persons, regardless of age, who .could not afford such care. As many States have discovered, an additional item---long-term residential care in nursing homes and mental hospitals that often involves little medical treatment has been an unexpected cause of great expense. I propose that we direct Federal matching funds toward medical treatment rather than custodial care and provide new incentives to the States to emphasize more efficient forms of extended care.

Estimated savings to the Federal government in fiscal 1971 appropriations would be $235 million.

3. Space research. After the recent successful Apollo missions, scientific needs for more manned lunar explorations were reassessed. We concluded that fewer manned expeditions to the moon were needed, and production of additional Saturn V launch vehicles and spacecraft has been suspended. Eight Saturn Vs remain in our inventory for manned flights during the early 70s. Savings as a result of these and related space research decisions total $417 million in fiscal year 1971 appropriations.

4. Duplicated veterans benefits. During the past twenty years, Social Security and other legislation has been enacted which often duplicates benefits due to veterans with wartime service to defray burial expenses. I have proposed to limit Veterans Administration payments to the difference between $250 and the total of non-VA benefits due the veteran's survivors, saving $54 million in fiscal year 1971.

In addition, I propose to require insurance companies to reimburse the Veterans Administration for the general hospital care of veterans with non-service connected medical problems who have purchased private health insurance but who elected to receive that care in VA hospitals. At present, most insurance contracts preclude payment to VA facilities, which is unfair; insurers should not be relieved of payments because their policyholders choose to be treated in VA hospitals. This will save the government $40 million in fiscal year 1971.

Modern medical treatment makes possible permanent recovery from tuberculosis, and over a year ago the Congress ended future payments of $67 per month to veterans Whose disease is completely arrested. However, about 40,000 veterans, whose disease has been cured, are still on the compensation rolls; since their cure makes further compensation unnecessary, I propose that they be removed from the rolls at a saving of about $46 million.

5. Lower-priority agricultural programs. The Federal government currently cost-shares with farmers certain conservation practices, a substantial part of which are in fact profitable farming techniques; as the number of large farms using these techniques has increased, there is less need for this program that now would require $211 million in fiscal year 1971 appropriations. In addition, $84 million per year is appropriated to subsidize the purchase of milk in schools for children, a great many of whose families are not poor; these resources should be reallocated to more effective nutritional programs to benefit children of poor families which will include milk as a part of the total program.

Federal crop insurance, a useful program, has developed to the point where Federal assistance can be gradually reduced. This insurance is now subsidized by the Federal government, and it should be made self-supporting over a period of time. I propose legislation adjusting premiums to cover administrative costs, which will produce a first full-year saving of $ 12 million.

6. The government-owned Alaska Railroad. It is time for the Federal government to get out of the operation and ownership of the Alaska Railroad. With the discovery of oil and other potential economic development in Alaska, the need for Federal ownership has passed and the Alaska Railroad has become an attractive investment. It should be sold either to the State of Alaska or to private enterprise for a substantial sum.

7. Replacement of hospital grants with loan guarantees. At one time, hospitals were not generating enough income to pay off capital construction loans; today, through reimbursements by Medicare, Medicaid and private insurance plans, the financial status of hospitals has been markedly improved. Accordingly, using the same principle that has been so successful in the Federal Housing Administration program, the 1971 budget terminates direct grants to hospitals in favor of a new program of mortgage guarantees to hospitals for construction capital with a liberal subsidization of the interest rates they will be charged. The new program, which will be more effective in stimulating hospital construction, will save the taxpayer $65 million in fiscal year 1971.

8. Miscellaneous items requiring Congressional action. These include charging the industries involved to recover the costs of Federal grading, classing, and inspecting of tobacco, cotton and grain, saving $4 million; charging to recover the costs of administering marketing agreements and orders, $2 million; ending Federal formula grants to schools of veterinary medicine, a low priority item, $3 million; turning over Federal maintenance of recreational marinas to the users of such facilities, $1 million the first full year.

9. Terminating the Coast Guard Selected Reserve Program. The eliminating of the Coast Guard Selected Reserve program would not significantly reduce overall effectiveness of the Coast Guard.

The proposed legislation eliminates the statutory requirement for a Selected Reserve within the Coast Guard Ready Reserve after fiscal year 1971.

It provides that personnel who are fulfilling their Selective Service obligation through the Coast Guard Reserve may be transferred, with their consent, to other Reserve components, with the assurance that their Coast Guard service will be credited toward fulfillment of that obligation. It is also anticipated that some personnel in the Selected Reserve would be retained in the Ready Reserve in a notraining status. All will be offered the opportunity of accepting a discharge from the Coast Guard Reserve or volunteering for extended active duty for the purpose of fulfilling their military service obligation, First full year savings are approximately $25 million.

10. Sale of stockpile commodities. The greatest bulk of the stockpile materials to be disposed of in fiscal year 1971 would be sold in accordance with standing authorizations. With respect to those stockpile surpluses for which there is presently no disposal authority, we have already sent to the Congress twenty bills requesting the necessary authority. In addition, we have endorsed three other pending bills. The proposed sales program, including disposals which would be authorized under new legislation, would produce about $750 million in fiscal 1971.

I am transmitting with this message a proposed Federal Economy Act of 1970.

Never has the need to curtail unnecessary spending been as vital as it is now. The rising cost of living, which causes so much hardship to so many of our people, must be arrested; a balanced budget is needed to hold the line on rising prices and interest rates.

In this fight, no time-honored program is sacrosanct if it cannot be justified on the grounds of high priority; there is too much that needs to be done for all the people to permit special benefits to be conferred unfairly upon some of the people.

Of course animal-lovers want more veterinarians, but Federal funds should be spent on providing more doctors for people; of course harbors should be kept clear for pleasure craft, but Federal funds should be directed to help clean water for people to drink; of course all the elderly should be cared for, but Federal funds should be directed to medical rather than custodial care of the elderly who are poor and ill.

That is why we have looked at Federal spending with new eyes--not on the basis of government as it is, but on the basis of what comes first for now and tomorrow. The time is past for "more of the same."

Federal spending must be in response to present needs, not a reflex caused by old habits. The savings we make now are dollars enlisted in the fight against inflation, and there is no need more urgent to all the people than the need to hold down the rising cost of living.

I have already made a great many of the hard decisions that are mine to make to hold down nonessential domestic spending, above and beyond the substantial cuts already made in our defense budget, and I urge the Congress to make the hard, responsible decisions that the Congress is charged to make. This is no time for business as usual, spending as usual, politics as usual. This is the time for cutting out waste and cutting down costs with new vigor and new determination.

RICHARD NIXON

The White House

February 26, 1970