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I am here today in support of the budget estimate of the Renegotiation Board for the fiscal year ending June 30, 1965. The House has heard, but not yet acted upon, our appropriation request.

Senator ALLOTT. I might interrupt you to say that the distinguished chairman of the committee, Mr. Magnuson, has been detained this morning, which is why I am presiding. We are doing now as we did last year when we were delayed so long and when I am sure you all felt the pressures of the budget while you were waiting. We are trying to go through the backbone of the bill, even though the House has not acted upon it, and it is probable that we might have to call on you for some additional explanation.

Mr. HARTWIG. Yes, sir.

Senator ALLOTT. After the House has acted.

Mr. HARTWIG. Yes, sir.

Senator ALLOTT. So, go ahead.

Mr. HARTWIG. The Board's appropriation for fiscal 1964 was $2,550,000. For fiscal 1965, the Board requests an appropriation of $2,600,000. The additional $50,000 is due solely to the general pay increases that became effective on January 1 of this year.

NEGOTIABLE SALES REVIEWED

In fiscal 1963 the Board reviewed renegotiable sales under both prime contracts and subcontracts in the total amount of $31.2 billion. This was the largest amount reviewed by the Board since it began in 1956 to submit annual reports to the Congress. In fiscal 1965, the sales to be reviewed are expected to be even larger in amount. They will result mainly from increased defense and space expenditures in fiscal years 1963 and 1964. Combined expenditures of the Department of Defense and the National Aeronautics and Space Administration for major procurement, research, development, and testing have maintained a steady upward trend in recent years, as follows:

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This trend has had a marked impact upon the Board's constant effort to keep current in its work. To achieve this objective, the Board has consolidated field offices and introduced operating efficiencies.

TOTAL AGREEMENTS MADE BY BOARD

From its organization under the 1951 act through the end of fiscal 1963, the Board made agreement or orders determining excessive profits in the total amount of $871,635,030 before Federal tax credits. In addition, renegotiation proceedings with assigned contractors during that 12-year period disclosed voluntary refunds and price reductions to the Government amount to $1,189,054,130. Thus, the purpose of the Renegotiation Act as defined by Congress-the elimination of excessive profits-is accomplished both by Board proceed

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ings and by voluntary actions of contractors. The total amount of such refunds and savings, from the inception of the Board through June 30, 1963, aggregated $2,060,689,160.

DETERMINING OF EXCESSIVE PROFITS, 1963

During fiscal 1963, the Board made 48 determinations of excessive profits totaling $10,069,536; and as of June 30, 1963, had also made, but had not yet incorporated in agreements or orders, additional refund determinations in the amount of $14,536,129. Also, in fiscal 1963, contractors reported to the Board volunatry refunds and price reductions in the amount of $28,047,146.

Of the 48 determinations of excessive profits made in fiscal 1963, 38 resulted in refund agreements and 10 resulted in the issuance of unilateral orders. Three of these orders were appealed to the Tax Court before June 30, 1963, and five more after that date.

From its inception through June 30, 1963, the Board made 3,608 determinations of excessive profits, and 3,262, or 90.4 percent of such determinations were agreed to by contractors. During the same period, 123 of 346 unilateral orders issued by the Board were appealed to the Tax Court. As of June 30, 1963, the court had disposed of 63 cases, leaving 60 pending on that date. The Board's determinations were upheld in 38 cases; in 4 cases they were increased; and in 21 they were decreased.

My colleagues and I will be pleased to answer any questions or supply any other information that the subcommittee may desire, Mr. Chairman.

PERSONNEL SITUATION

Senator ALLOTT. For the sake of the record, in 1963 you had total permanent positions of 225; in 1964 you had 225 and in 1965 you have 225.

Mr. HARTWIG. Yes.

Senator ALLOTT. So your total positions remain unchanged.

Mr. HARTWIG. Unchanged.

Senator ALLOTT. Actually at the end of the 3 years you had respectively 216, 222, and 220.

Mr. HARTWIG. Yes.

INCREASE IN EXPENDITURES TO BE SUPERVISED

Senator ALLOTT. Going back to page 2 of your statement, Mr. Hartwig, I notice the increase in the amount of expenditures that you have had to supervise, and I notice it has gone up some $7 billion, in fact just $7 billion since 1961. Is the majority or the great portion of that increase in space?

Mr. HARTWIG. There was approximately a $2 billion increase in defense, and $3.4 billion in space. So the answer is that most of that increase is in space.

Senator ALLOTT. All right. Now, your act does expire June 30; doesn't it?

Mr. HARTWIG. June 30 of this year.

Senator ALLOTT. Well, I presume that you will be continued.

Mr. HARTWIG. You gentlemen in the Senate will have an opportunity to vote on our bill, we hope, in the very near future. It has just passed the House, a 2-year extension.

Senator ALLOTT. Well, off the record.

(Discussion off the record.)

SAVINGS TO FEDERAL GOVERNMENT

Senator ALLOTT. And during 1963 your determination of excessive profits is $10 million, and additional refunds of $14 million make $241⁄2 million, and there were voluntary refunds of $28 million, so altogether you end up with something like $52.5 or $53 million of savings to the Government.

Mr. HARTWIG. Except that the $14.5 million figure represents those which had not been finalized but which were in the process as of June 30. Those will be reported in this current fiscal year.

Senator ALLOTT. I see. So actually the two figures we are dealing with in 1963 are net results of the $10 million and the $28 million. Mr. HARTWIG. That is right.

WORKLOAD CURRENT

Senator ALLOTT. Now, how are you with respect to your workload and your schedule?

Mr. HARTWIG. I can say that we are current. In fact, we hope this year to improve upon the record we had last year. Last year our annual report shows that we screened out approximately 87 percent of the filings in an average of 66 days. I do not know how many we will screen out this year but I do now that for the first 6 months of this fiscal year we bettered that record. Our screening average was approximately 58 days. For the balance of the cases that went through the full renegotiation process last year the time for completion averaged 16 months. For the first 6 months of this fiscal year the average was 15.8 months. So by constantly trying to improve our efficiency we are trying to shorten the time for the completion of cases. This is an important matter for us.

Senator ALLOTT. Let me see, the Board was established originally when? Mr. HARTWIG. 1951.

INCREASE IN VOLUNTARY REFUNDS

Senator ALLOTT. 1951. As you continued this your experience has been, as I recall it, that more and more companies or contractors report voluntary refunds. Is this not true or is my memory giving me trouble?

Mr. HARTWIG. No, I would not say that more companies report voluntary refunds. In fact, I think that in dollar amount more voluntary refunds and price reductions were reported during the Korean period than now.

Senator ALLOTT. So that it is still a matter of having

Mr. HARTWIG. It is still a substantial amount. These figures are disclosed in contractors' reports. They are not necessarily complete, but they do substantially evidence the deterrent effect of the act. The mere fact that the act is on the books has a policing effect.

INVESTIGATIONS MADE IN 1963

Senator ALLOTT. Now, of the 48 determinations of excessive profits in fiscal 1963-how many actual investigations would these 48 determinations represent?

Mr. HARTWIG. Those are 48 cases.

Senator ALLOTT. Yes.

Mr. HARTWIG. And some of them might have been consolidations, and some may not have been.

Senator ALLOTT. Maybe my point is not clear. But you say that you had 48 determinations of excessive profits.

Mr. HARTWIG. Yes.

Senator ALLOTT. Now, what I was wondering is, how many investigations are reviewed? If you have actually found excessive profits in that many cases how many reviews does that represent?

Mr. HARTWIG. Well, let us look at it this way. In 1963 approximately 4,000 filings went through the screening process at headquarters. Out of that 4,000, 551 assignments went to the regional boards. We have two regional boards.

Senator ALLOTT. And where are they?

Mr. HARTWIG. One is located here in Washington, and one in Los Angeles. During that same period the regional boards completed 464 assignments; and included in the 464 investigations, if you want to call them that, were 48 determinations of excessive profits.

Senator ALLOTT. Well, gentlemen, that is all I have unless you have something else.

Mr. HARTWIG. No, sir.

Senator ALLOTT. I suppose that we will see you a little later—and I hope it is just a little later.

Mr. HARTWIG. All right.

Thank you, Mr. Chairman.

(Whereupon, at 8:55 a.m., Tuesday, May 5, 1964, the subcommittee adjourned, subject to call of the Chair.)

INDEPENDENT OFFICES APPROPRIATIONS FOR 1965

WEDNESDAY, MAY 6, 1964

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, D.C. The subcommittee met, pursuant to recess, at 8:45 a.m. in room S-128, U.S. Capitol Building, Senator Warren G. Magnuson, presiding. Present: Senators Magnuson, Monroney, Allott, and Young of North Dakota.

SECURITIES AND EXCHANGE COMMISSION

STATEMENT OF WILLIAM L. CARY, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION; ACCOMPANIED BY MANUAL F. COHEN, COMMISSIONER; JACK WHITNEY II, COMMISSIONER; PHILIP A. LOOMIS, JR., GENERAL COUNSEL; ALLAN F. CONWILL, DIRECTOR, DIVISION OF CORPORATE REGULATION; RALPH S. SAUL, DIRECTOR, DIVISION OF TRADING AND MARKETS; EDMUND H. WORTHY, DIRECTOR, DIVISION OF CORPORATION FINANCE; WILLIAM E. BECKER, MANAGEMENT ANALYST; AND FRANK J. DONATY, COMPTROLLER

APPROPRIATIONS, FISCAL YEAR 1964, ESTIMATE FISCAL YEAR 1965 Senator MAGNUSON. The committee will come to order. This morning we have the Securities and Exchange Commission. Senator MAGNUSON. Mr. Cary is here, Mr. Cohen and Mr. Whitney and other members of the staff. For the purpose of the record last year your appropriation was $13,937,500. The budget estimates this year are $15,225,000, or a plus of $1,287,500 over last year. Your letter of January 28, 1964, transmitting your budget justifications will be placed in the record at this point.

The chairman has a short statement. We will be glad to hear from

you.

Mr. CARY. Fine. If I may identify my colleagues and staff I will like to.

Senator MAGNUSON. We will put in the record, too, the members of the staff that are here. You identify them.

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