has developed information indicating that the funds placed in reserve by the Bureau of the Budget were not needed in 1953 as other funds became available in the account through adjustments of prior-year obligations. Since these adjustments permitted the Department to carry out the planned buildings program in 1953, the action taken by the Bureau of the Budget was appropriate, and the reserve does not appear to fall within the types of cases encompassed by your request. We appreciate the patience and cooperation of your staff on this matter. If further available data is desired, we will be glad to furnish it on request. Sincerely, RALPH S. ROBERTS, Deputy Assistant Secretary for Budget. U.S. HOUSE OF REPRESENTATIVES, Hon. SAM J. ERVIN, Jr., Chairman, Subcommittee on Separation of Powers, Washington, D.C. DEAR MR. CHAIRMAN: Thank you for your letter of February 11 advising that your subcommittee is planning to hold a series of hearings involving the constitutional separation of powers between the Legislative, Executive and Judicial branches of the government. While I will not be able to take advantage of your offer to testify personally before your subcommittee, I would appreciate it if you would include this letter as a part of the record of your hearings. You will recall in January of 1969 I advised you that in my experience the Executive branch had not been involved in the impounding of funds after money had been voted by the Congress insofar as the field of veterans affairs was involved. I regret to say that the situation has changed with the submission of the 1972 budget. The direct loan program was enacted by Public Law 81-475 on April 20, 1950, it has been extended on numerous occasions and generally has had the full support of the Congress. In essence, the program makes it possible for the rural and small-town veteran to be eligible to get loans for homes which would not be available to him because private lending institutions are unwilling to service loans of this nature. In such instances, the Veterans Administration makes a direct loan and charges the going rate of interest-at the present time 7% for this loan-thus placing the rural and small-town veteran on the same basis as the veteran who is serviced in a metropolitan area by private lending institutions. The Veterans Administration surveys the entire country each six months to set up counties and portions of counties which are eligible for the direct loan program. During the Eisenhower Administration, there was created the Voluntary Home Mortgage Credit Corporation which required, in effect, that before the Veterans Administration could make such a loan the veteran must show evidence that three private lending institutions had refused to make him a loan. By way of Administration, this provision had been a "dead letter" in recent years because it has been unworkable and was repealed in the 1970 Housing Act. Now the Administration has announced that it will discontinue, effective July 1, 1971, the direct loan program. It does this by the two sentences which I quote from the 1972 budget: "However, continued improvement in the availability of private capital for guaranteed loans will obviate the need for direct lending in the budget year. It is anticipated that private capital will be sufficient to cover veterans' housing credit needs." If this provision is allowed to stand, the program which was authorized specifically by Congress in 1950 will become a "dead letter." This despite the fact that at least $500 million and perhaps more will be available on July 1, 1971 for the purpose of making direct loans. The Congress would not have to appropriate any additional funds. This amount of money which is already available and authorized would be more than sufficient to service the direct loan program for an indefinite period of time because repayments of loans and interest constantly increase the supply of money in this fund. This action on the part of the Administration, in my judgment, completely flaunts the will of the Congress and this program which has been supported by both Democrats and Republicans and discriminates in the strongest fashion against the rural and small-town veteran. The direct loan program has worked extremely well. It has been efficiently managed and it is fair to say that the government has sustained a profit on this operation. In an effort to provide a complete history on this program, I am attaching to this statement pertinent excerpts from the 1972 budget which show the operation of this program. I would appreciate any support that your subcommittee and your colleagues can give in righting this obvious wrong. Sincerely yours, EXHIBITS OLIN E. TEAGUE, Chairman. LOAN GUARANTY REVOLVING FUND No change in the FY 1971 appropriation language is requested for FY 1972 including the expenditure limitation of $350 million. APPROPRIATION LANGUAGE During the current fiscal year, the Loan guaranty revolving fund shall be available for expenses, but not to exceed $350,000,000, for property acquisitions and other loan guaranty and insurance operations under Chapter 37, title 38, United States Code, except administrative expenses, as authorized by section 1824 of such title: Provided, that the unobligated balances including retained earnings of the Direct loan revolving fund shall be available, during the current fiscal year, for transfer to the Loan guaranty revolving fund in such amounts as may be necessary to provide for the timely payment of obligations of such fund and the Administrator of Veterans Affairs shall not be required to pay interest on amounts so transferred after the time of such transfer. Receipts will be sufficient to meet estimated expenditures. However, over three-fourths of the receipts and revenue for 1972 are provided by the sales of assets which are dependent on market conditions and cannot be predicted precisely. In the past, there have been periods when it has been necessary to postpone payments from the Fund because the timing of receipts did not coincide with the need for funds to pay current obligations. This has occurred even though revenues on an annual basis met funding needs. The authority to trans fer excess funds from the Direct loan revolving fund, will provide flexibility in the operation of the Program and permit payment of obligations when due. BUDGET AUTHORITY Definite appropriations are made to the Payment of Participation Sales Insufficiencies Appropriation and transferred as needed to the Loan Guaranty Revolving Fund. Appropriated funds (Budget Authority) of $6.1 million will be required in 1971 and $5.9 million in 1972 to pay participation sales insufficiencies. These insufficiencies are paid to the Government National Mortgage Association, as trustee, on account of outstanding beneficial interests in participations in the Loan Guaranty revolving fund assets authorized by the Independent Offices and Department of Housing and Urban Development Appropriation Act, 1968. Appropriated funds transferred from "Payment of Participation Sales 1970 actual 1971 estimate 1972 estimate $4,764, 150 $6, 128, 000 $5,929,000 Relationship of participation sales insufficiencies to budget authority. The budget authority required for "insufficiencies" is computed as follows: The Veterans Administration is responsible for administering a loan guaranty and insurance program which has its statutory basis in Title 38, United States Code, "Veterans Benefits." PROGRAM OBJECTIVE The principal objective of the loan guaranty program is to assist eligible veterans to obtain credit on favorable terms for the purchase or construction of homes to be occupied by the veterans and their families. Credit assistance has also been provided for the establishment and operation of farming or business ventures. The assistance provided normally consists of the guaranty or insurance of loans made by private lenders to veterans. However, under certain conditions the Veterans Administration may make loans directly to veterans for homes and farm residences. PROGRAM SCOPE Credit assistance for veterans of World War II was authorized by the Servicemen's Readjustment Act of 1944, Public Law 346, 78th Congress, approved June 22, 1944 and for veterans of the Korean Conflict by the Veterans' Readjustment Assistance Act of 1952, Public Law 550, 82nd Congress, approved July 16, 1952. Eligibility for loan benefits was extended to Post-Korean veterans and certain members of the U.S. Armed Forces by the Veterans' Readjustment Benefits Act of 1966, Public Law 89-358, approved March 3, 1966. The Veterans Housing Act of 1970, Public Law 91-506, approved October 23, 1970 revived expired unused loan guaranty entitlement of World War II and Korean Conflict veterans and made all loan guaranty entitlement available until used whether derived from World War II, Korean Conflict, or Post-Korean Conflict service. Continued improvement in the availability of private capital will increase the number of guaranteed loans and obviate the need for direct lending in FY 1972. The strongest demand for credit assistance will be from Post-Korean veterans since most of them are of an age where they are just entering the home buying market. The following table shows guaranteed or insured home loan experience in fiscal years 1969-1970, and estimates for fiscal years 1971-1972. STATEMENT OF ACCOUNTABILITY Funds have been provided through fiscal year 1970 for the expenses of the program from the following sources: Assumption of assets at inception of fund... Appropriation for payment of participation sales insufficiencies_ Receipts from operations, net. Transfers from direct loan fund: $521, 335, 096 12, 557, 767 12, 925, 326, 509 As of June 30, 1970, $476.9 million of the total shown above remained available for obligation. A summary statement of the use made of the total amounts which have become available to this fund is shown below: Unobligated balance_. Accounts receivable-net- Payment of claims and acquisitions of properties_ Total Insufficiencies paid participation sales fund......... Total expenditures and transfers.. Reconciliation of net accountability: Insufficiencies paid participation sales fund. Receipts from operations, net. Appropriation for payment of participation sales: Net accountability---. Invested capital: Loans receivable.. Real property -- - - . Veterans indebtedness. Total_ Deficit-June 30, 1970_. Accounts receivable-net__ Collection in transit____. Total Government investment - - Long-term liabilities: Participation certificates outstandingnet-- Excess of Government investment over long-term liabilitiesnet_ 1 Excludes $98,322,820 principal collections transferred to participation sales fund. EXPLANATION OF DEFICIT $476, 855, 274 -10, 375, 240 - 1, 838 2, 761, 242, 271 854, 606, 275 3, 615, 848, 546 10, 763, 630 3, 626, 612, 176 4,093, 090, 372 10, 763, 630 3, 615, 848, 546 1-2, 925, 326, 509 -12, 557, 767 688, 727, 900 1, 374, 898, 591 114, 118, 297 10, 779, 353 1, 499, 796, 241 78, 231, 761 10, 375, 240 1, 838 1, 588, 405, 080 -899, 677, 180 688, 727, 900 The $90,789,528 net loss existing in the Loan Guaranty Fund at the close of fiscal year 1970 is the net cost to date, exclusive of administrative expenses which has resulted from paying claims for the guaranty or insurance issued on 7.6 million loans in the amount of $78.6 billion. The net loss reflects the results of the liquidation of properties as well as claim payments. On this basis, there has been an average loss of $341.35 on the claims paid through June 30, 1970. Cast in other terms, the loss has been 0.116 percent of the dollar value guaranteed or insured. The elements which made up the net cumulative loss through fiscal year 1970 are as follows: Commission on sale of participations-- Interest expense on participation certificates... Provision for valuation allowance on unsold properties. 151, 377, 907 3, 940, 118 4,353, 129 2, 879, 254 144, 261, 498 4, 628, 340 1 For all practical purposes, guaranty losses, net are the difference between payments to holders for claims against defaulted guaranteed or insured loans and the value of properties conveyed to the VA. PROGRAM EXPENDITURES The Loan Guaranty Revolving Fund requirements in FY 1971 are expected to be $300.4 million, or $51.4 million more than they were in FY 1970. The FY 1972 requirements are expected to be $328.2 million or $27.8 million more than in FY 1971. The following table summarizes the actual and estimated significant items of cost: |