to the nation's investment in new plant and equipment. Because it represents an increase in depreciation deductions, it would confer disproportionately large benefits on unincorporated businesses which are in high personal income tax brackets, and smaller benefits on corporations in the 22% corporate tax bracket. Because it eliminates salvage value from the calculation of annual allowances, it would benefit taxpayers who are able to resell used assets at attractive prices more than those whose assets decline rapidly in value. Perhaps most importantly in terms of tax equity and fairness, the ADR system is likely to confer its greatest benefits on businesses which have failed to comply with the depreciation rules instituted in 1962, and which have been under compulsion to comply by the end of a generous transition period instituted in 1965. These businesses would be excused by the new reform from ever complying with the present law at all. Thus the Treasury's proposal will benefit most generously those who have been most delinquent in conforming to present depreciation policies. The proposed system of capital cost recovery cannot be squared with traditional concepts of depreciation. It is plainly not the same system of depreciation accounting that has been authorized by Congress in section 167. In this paper I have not dealt with the significant policy deficiencies of the Treasury proposal. However, even if it were wise as a matter of public policy, the change could only be adopted by further congressional action. ROBERT J. DOMRESE. NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, Hon. SAM J. ERVIN, Jr., Chairman, Subcommittee on Separation of Powers, Washington, D.C. DEAR MR. CHAIRMAN: We have reviewed NASA's records from the Agency's inception in 1958 to the present, and we find no instances of withholding of funds by the Bureau of the Budget that appear to fall within any of the four categories enumerated in your letter of February 5, 1969. However, for the information of the Subcommittee, we are furnishing herewith basic data on all cases in which funds have been withheld through the apportionment process. NASA's authorizations and appropriations have been made in three basic funding categories: research and development, construction of facilities, and administrative operations. The withholding history of each of these appropriations is as follows: Research and Development: In the fiscal year 1967, $60,000,000 of NASA's research and development funds were placed in reserve by the Bureau of the Budget. This represented NASA's share of a Government-wide anti-inflationary effort by reducing expenditures. In the fiscal year 1968 the funds were re leased to NASA and applied to the Apollo program for that year. The action taken reduced by $60,000,000 the amount of new appropriations needed to fund NASA's total fiscal year 1968 program. The final effect of the transactions was to give the agency full use of all its appropriated funds in both 1967 and 1968. In the fiscal year 1969, $117,473,000 has been reserved from research and development funds by the Bureau of the Budget pursuant to the Revenue and Expenditure Control Act of 1968 (P.L. 90-364, 82 Stat. 251). The budget now before the Congress recommends that these funds be applied to NASA's fiscal year 1970 space flight operations program, thus reducing the new appropriations required to fund the Agency's total 1970 program. This also would ultimately result in full utilization by NASA of all appropriated research and development funds. Construction of Facilities: There have been a number of occasions on which the Bureau of the Budget has retained funds appropriated for construction in reserve at the end of a fiscal year pending the initiation of segments of the required work in a subsequent fiscal year. However, all such funds have been released to NASA as they were actually needed. Administrative Operations: These funds are appropriated by the Congress for use within a specific fiscal year, and there have been no cases in which the Bureau of the Budget or the President have withheld funds from this appropriation beyond the end of the fiscal year for which they were appropriated. It is assumed that the Subcommittee's inquiry does not call for a report on funds temporarily withheld by the Bureau of the Budget in connection with annual apportionment procedures associated with the regular and orderly management of appropriated funds; therefore, we have limited our report to situations in which reserves have been carried over from one fiscal year to the next. If we can be of further assistance in this matter, please do not hesitate to call on us. DEAR SENATOR ERVIN: The National Association of Housing and Kedevelopment Officials, representing over 2,500 local communities with active programs in housing and community development, would like to commend the hearings called to explore the constitutional question involved in the withholding by the executive branch of the federal government of funds approved by Congress. This is a critically important question, not only from the viewpoint of the relationship of the executive to the Congress, but also because it has implications and impact for local communities all across the country. NAHRO would like to present to the Subcommittee some information describing the impact on local communities of the administrative withholding of funds for urban renewal and public housing, as well as suggestions as to how such impounding of funds might be handled in the future. We respectfully request that this letter and its attachments be filed for the record of the hearings. IMPACT ON LOCAL COMMUNITIES OF FREEZE ON URBAN RENEWAL AND When the President presented his budget for fiscal 1972 to the Congress on January 29, it became apparent that monies appropriated and cleared for use by the Congress for fiscal 1971 for urban renewal and public housing were not to be made available for use by local communities. In urban renewal, the funds withheld involve some 200 million dollars, cleared by the Appropriations Committees and the Congress in December, 1970. The approval of these additional funds for urban renewal came after a yearlong series of hearings and actions during 1970, with mayors, citizens, and urban renewal officials across the nation advocating and justifying the need for such additional funding. It is well known that the backlog of demand from local communities for urban renewal approximates 3 billion dollars. In 1970, local officials presented an additional dimension related to the funding question, i.e. that the stop-and-go character of the urban renewal funding over the past several years, was raising serious questions of credibility with local citizens, particularly those citizens in substandard city areas that were anticipating improvement activity. The inability to deliver local commitments, due to lack of federal funding, was undermining the entire effort to renew local communities. In public housing, the case is equally clear. Funds withheld for use in fiscal 1971 involve 192 million dollars of public housing contract authority. The sum includes a total of 150 million dollars approved by the Congress in the 1970 Housing and Urban Development Act, with 75 million dollars earmarked for development activity, and 75 million dollars for assistance to local housing authorities to meet urgent operating needs. As in the case of urban renewal, the additional contract funds in 1970 were approved by the Congress after hearings and communications from communities across the country. In the case of funds for local operating needs, the Congress in the 1970 HUD Act specifically reaffirmed its 1969 action to meet the urgent operating needs of local authorities, provided an additional 75 million dollars for such a purpose, and asked that action be taken "immediately". In the case of funds for new public housing development, in July, 1970, when it became apparent that contract authority for fiscal 1971 would be shortly exhausted, local communities with projects ready for development waited hopefully for affirmative action by the Congress. Again, the backlog of demand-some 350,000 housing unitscould not be accommodated by the additional allocation of 75 million dollars for new development. But this authority could be used to take care of the most advanced and urgent projects. When the President signed the HUD Act of 1970 on December 31, there was widespread hope that these funds would be immediately released. Only with the 1972 budget submission in late January, 1971, did it become apparent that these funds were not to be made available. Local agencies which had proceeded in good faith to hold options on housing sites, and to encourage potential turnkey developers to stay involved, were left without relief. Most seriously affected were low-income citizens requiring housing who would have to wait still longer for action. As of January 1, 1971, there were over 400 local communities with 90,000 public housing units under reservation or preliminary loan contract, which were jeopardized by the fund withholding. A list of these communities is attached to this letter. and we request that it be included in the record of the hearings. In summary, the withholding of funds for urban renewal and public housing for fiscal 1971 came after a full exploration and clear action by the Congress in 1970, taken specifically and precisely to use these funds for specified needs. The withholding action only became publicly apparent when the 1972 budget was presented to the Congress. ANOTHER EXAMPLE OF FUND WITHHOLDING WITH IMPORTANT PUBLIC HOUSING IMPACT A still further example of how withholding of funds is having a seriously negative impact on low-income housing efforts involves the use of authority by the Department of Health, Education, and Welfare to match funds of local housing authorities to meet social service needs of low-income families in public housing, providing them with an opportunity to move toward full independence. The Congress has provided clear authority for the Department of HEW to use its funds for such purposes. However, the Office of Management and Budget is holding, without approval, the proposed HEW guidelines that would implement the use of these funds. Again, it appears that the clearly specified intent of the Congress is not being observed. THE MECHANICS OF FUND WITHHOLDING One of the most disturbing aspects of the executive impounding of appropriated funds is the mystery surrounding it. For example, there was no publie announcement of the Executive Department's decision to withhold money nor any computation of the amount of funds involved. The extent of this embargo was not publicly apparent until the President submitted his fiscal year 1972 Budget, when a comparison of proposed outlays with appropriations revealed that a substantial portion of fiscal year 1971 funds were being withheld or postponed. The result was confusion and disorganization; for example, communities were at a loss as to how to calculate the effect of this embargo on pending community development and housing applications. NAHRO suggests that a way to avoid such confusion in the future would be to require a public announcement of all embargoes, a rationale for them and an indication of the length of time that funds will be withheld. This would alert the Congress to the fact of the embargo, as well as encourage a public discussion on the rationale of the embargo. It would focus attention on the methods which were used in determining which programs and areas were to have funds withheld. It would provide local operating agencies with clearer guidelines for scheduling of activity. We would appreciate your serious consideration of our viewpoint in this matter. Because this subject is of great interest to the Appropriations Committees. we are also taking the liberty of sending them a copy of this letter. Sincerely yours, ENEAS J. KANE, |