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NEED FOR ITEMS

Chairman HAYDEN. Is there a real immediate need for the items that will be procured, or will the advancement of the procurement result in stockpiling a lot of supplies, materials, and equipment, thereby creating problems of storage and warehouse space, deterioration, et cetera?

Mr. MERRIAM. It is our proposal, Mr. Chairman, that only those items be bought which are needed and wbich can be utilized within the immediate future. There will not be a stockpiling of items based on a potential future use. In other words, this proposal is based on what we have already said was needed for 1959, and it is only a question of timing as to the procurement.

Chairman HAYDEN. Do you foresee any problems that may be created?

Mr. MERRIAM. No, sir.

We believe this can be done in an orderly manner, in such a way as to expedite the procurement without causing us any after effects.

NECESSITY FOR DEFICIENCY APPROPRIATIONS

Chairman HAYDEN. Can you assure this committee that as a result of this resolution, deficiency appropriations will not be necessary in fiscal year 1959 because of this stepped-up purchasing?

Mr. MERRIAM. Mr. Chairman, if I may, I will say to you the same thing I did to the House committee. I have not been in Washington very long, but I have already learned never to make any positive assurances on any such subject; however, let me say that it is our intent, and we shall do our level best to live up to it, that there be no additional deficiency appropriations because of this enactment.

Chairman HAYDEN. I noticed you stated that the design was to channel these funds into areas of labor surpluses or unemployment.

Now, how do you go about that?

Mr. MERRIAM. If I may, I would like to ask Mr. Bean, who is the Commissioner of the Federal Supply Service of the General Services Administration, to give you that answer. He has already worked out some details on that and can fill in for me.

CHANNELING OF MERCHANDISE INTO

LABOR-SURPLUS AREAS

Mr. BEAN. We have an order, Mr. Chairman, which I believe will be signed by the Administrator tomorrow, on channeling merchandise into labor-surplus areas, which will in effect make a set-aside, and we are shooting at a minimum of 50 percent, into labor-surplus areas, and more where it can be done.

The set-aside will go into surplus labor areas and the first call on this will be small business, then it will be big business in the laborsurplus area, and then, if we cannot get the entire amount of goods that are needed in that particular area, then it will go to small business in the non-labor-surplus area.

Where prices are concerned, where you have a set-aside; for instance, if you were to buy a thousand pieces of something and you might set aside 500 for labor-surplus area and 500 for competition, you would then bid; you would take the lowest bidder on the competitive bidding scale and, we will say that that was a dollar, then to small business in the labor-surplus area you would offer these goods to anyone who wanted to take them.

Senator BRIDGES. In no case would we pay more than the lowest competitive bid for the parts submitted?

Mr. BEAN. That is correct.
Senator ELLENDER. Would the bid be on the whole amount?

Mr. Bean. The regulations provide if it is a minimum quantity that, of course, we could provide it. It is only if there is a reasonable production run left that we can make a provision.

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Senator ELLENDER. And this is related to supplies only?
Mr. BEAN. That is right; supplies and equipment.
Senator ELLENDER. I would like to be a little specific, if I may.

What type of supplies will be purchased from the appropriations, Department of Defense, "Civil functions," "General investigations, $200,300, and "Construction, general," $4,000,000?

Mr. BEAN. Mr. Merriam might answer that better than I. Senator ELLENDER. That is on page 9. Mr. MERRIAM. Now, I cannot give you the specific details, Senator, of each of these items.

Senator ELLENDER. Well, will that be for supplies or is it for contractural services?

Mr. MERRIAM. No, sir; this is only supplies and materials and equipment. But it could be equipment the corps purchases for various kinds of uses. It will be office equipment, and the like.

Senator ELLENDER. Yes.

RELATION TO ORIGINAL BUDGET REQUEST

And this is to be in addition to the $171 million that was only released just recently.

Mr. MERRIAM. No, sir.
Senator ELLENDER. This is in addition (indicating]?

Mr. MERRIAM. This applies only to the amounts that were in the original budget request, so it would be separate from that.

Senator ELLENDER. You mean, original budget, or do you mean for the coming fiscal year?

Mr. MERRIAM. Yes, sir; for the fiscal year 1959.
Senator ELLENDER. Yes.

And it does not take into consideration moneys previously appropriated?

Mr. MERRIAM. No, sir; it does not.

Senator ELLENDER. Then this, in fact, would be in addition to what the civil functions of the Department of Defense was authorized to expend on a recent order from the President?

Mr. MERRIAM. Yes, that was a speedup of the 1958 appropriation.

Senator ELLENDER. I understand. In other words, it was releasing money that had been tied up by the Budget Bureau?

Mr. MERRIAM. Yes, sir; without getting into the details of that, which is a separate subject.

Senator ELLENDER. Yes; which is what it amounts to. I am glad to see that. It should have been done long ago.

EFFECT ON DEFICIT

Senator BRIDGES. May I ask this: The effect it will have is, it will increase the problem of the deficit; will it not? I mean, we have already passed the housing bill, $1,800 million; and the road bill, $1,700 million; and now we have this community facilities bill, $1 billion.

We have increased the debt limit $5 billion. The President proposed the approximate balance of the budget. This showed a little surplus, but that does not take into account all of the military spending, which was additional. This will push against the debt limit and the deficit; will it not?

Mr. MERRIAM. I think you have to look at it this way. These expenditures were planned and have already been calculated in our 1959 estimates.

Now, it is true that by accelerating procurement you will move some of the expenditures into fiscal 1958 and therefore add to the fiscal 1958 expenditures by that amount. However, you could deduct from the fiscal 1959 expenditures the same amount.

Actually, our calculations are that while we think we could obligate about $200 million in fiscal 1958 of the 1959 procurement money, actual expenditures in 1958 would run somewhere in the neighborhood of $50 million. That is actual cash expenditures.

Senator BRIDGES. Now we have before us the 1959 budget. In it are these items which you are asking to accelerate today?

Mr. MERRIAM. Yes, sir. Senator BRIDGES. Therefore, if this is passed the budget will be affected to that extent; will it not?

Mr. MERRIAM. To the extent that the expenditures are pushed into fiscal 1958, the 1959 expenditures will be less.

METHOD OF HANDLING 1959 ITEMS

Senator BRIDGES. How is this committee, when they pass on the budget, going to know what has been utilized this year and what should not be included in 1959?

Mr. MERRIAM. Well, of course, as you know, you are passing on the appropriation. The appropriation request will remain the same. It will just be that we will credit the actual amount spent against the appropriation after it is enacted, and the amount available to the agency will be the appropriation minus what they have already spent.

So that there is no change in the total.

Senator ELLENDER. Even though we appropriate this money now, it does not affect the debt until it is actually spent.

Mr. MERRIAM. That is correct.

Senator ELLENDER. So you can obligate now, but you will not have to pay out funds until after June 30, thus this year's debt will not be affected.

Mr. MERRIAM. That is correct.

Senator Young. By the time you get around to contract for these items, it will be the midyear or the season of the year when you have the highest employment; and next year, when the bad employment situation comes around in the winter, which you might well have, you would not have as much to place under contract?

Mr. MERRIAM. Well, Senator, of course, this proposal is only a part of a number of suggestions which the administration has made, all of which are based upon the theory that the best effect the Government can have on the present recession is working within the framework of things which are already underway, planned, or going ahead.

This merely moves some of our procurement up to a time when we think the greatest problem may exist.

MOTOR-VEHICLE PROCUREMENT

If I could give you an example: Ordinarily, in the purchase of automobiles and trucks, the procurement plans are scheduled so that they place orders in November and December for delivery in January and February

Under this proposal, they would place orders in May and June for delivery in July and August.

Now, just in automobiles and trucks alone, a rough estimate is that in the neighborhood of 23,000 civilian vehicles will be purchased next year which would cost approximately $43 million, and what you would be doing is taking that planned purchase for 1959 and moving it up to May and June.

Senator YOUNG. May and June, which is your best employment period of the year, and next winter when you have the low-employment period again, you will not have much to place on order?

Mr. MERRIAM. Well, the estimates we have, Senator, from our economists are, that by fall and winter, certainly, if not earlier, we are going to see an upturn in this whole unemployment picture, and therefore this is designed to have an effect when it is really needed in terms of the situation as it exists this year. Senator SALTONSTALL. May I ask just two questions very quickly? Chairman HAYDEN. Certainly.

OVERALL EFFECT OF RESOLUTION

Senator SALTONSTALL. First, the overall effect of this bill would be less than $200 million, as I read the House report. Is that correct?

Mr. MERRIAM. Our estimate, Senator Saltonstall, is that about $200 million would be obligated in fiscal 1958.

Now, in addition to that, the effect of accelerating the procurement process will mean that other obligations in fiscal 1959 will be made earlier than they would otherwise have been made, so there is that additional effect.

Senator SALTONSTALL. But it means cash of $200 million would be spent in fiscal 1958 that otherwise would be spent in 1959?

Mr. MERRIAM. Cash of $50 million; obligations of about $200 million.

Senator SALTONSTALL. And the other question is this: You do not intend in this bill to push any articles, or to use the effects of this acceleration scheme where the House report has cut it down, or cut it out; is that correct?

Mr. MERRIAM. No, sir; it would not be applicable in that case.

Senator SALTONSTALL. And you would not intend to use it that way?

Mr. MERRIAM. No, sir.

Senator SALTONSTALL. Thank you.
Chairman HAYDEN. Senator Thye.
Senator THYE. I have no questions.
Chairman HAYDEN. Senator Smith.
Senator SMITH. No questions.
Chairman HAYDEN. Senator Dworshak.

Senator DWORSHAK. There would not be any increased Federal expenditure because of this program, because you are going to apply the competitive bid system as has already been explained? You merely accelerate purchases without increasing the actual cost thereof?

Mr. MERRIAM. Yes, sir; that is right.

As a matter of fact, while I do not think any dollars and cents figure can be put on this, I think it is a proper observation to note that purchases will be made in the summer, when we anticipate the softest market as opposed to the fall and winter months when our hopes are, and expectations are, that you will have an upswing; and therefore a greater civilian demand for goods and supplies of various kinds.

So actually, it could—and I do not know whether Mr. Bean would want to give you any scientific evaluation of this-it could give us a more favorable result.

Senator DWORSHAK. You are not increasing the overall amount, and not expanding the overall purchases beyond the possible justifiable needs of the Government? Mr. MERRIAM. That is correct, sir. Chairman HAYDEN. Senator Robertson.

Senator ROBERTSON. From time to time we have had proposals that are directed toward the changing of our procurement rules in favored areas, and there is nothing in this joint resolution on that subject, and I do not know of any other law on the subject that would permit you to spend, say $800 million, in a way different from the general procurement laws. Mr. MERRIAM. No, sir; that is correct.

Now, there have been some administrative directions to the extent possible within those rules to funnel these things into areas of substantial surplus labor.

Senator ROBERTSON. If you had been buying a substantial amount of cotton goods, as well as blankets, in the South, and you took all of those orders away for a whole year, you could create some unemployment in another area, and we do not want you, for this temporary recession, to make a major shift in violation of this competitive basis.

What regulations do you refer to by which you can change the law?

Mr. MERRIAM. There are none, Senator. We cannot and would not want to.

Senator ROBERTSON. I just wanted to be clear on that point.

OBLIGATIONS AND EXPENDITURES

Chairman HAYDEN. I notice that on the table on page 37 of the House hearings it is estimated that $195 million is to be obligated under your resolution, that a total of $54,300,600 will be expended.

I think it would be well to have this table in the Senate hearings, since it shows how much it is estimated will be expended by each agency.

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