"Reconstruction Finance Corporation. The Commission believes that the operations of this Corporation, on which we make recommendations in our report on Federal business enterprises, should be placed in the Treasury Department with general responsibility for its supervision vested in the Secretary. "Federal Deposit Insurance Corporation. * * "Export-Import Bank. * "Recommendation No. 3.-We recommend, therefore, that the supervision of the operations of the Reconstruction Finance Corporation, the Federal Deposit Insurance Corporation, and the Export-Import Bank be vested in the Secretary of the Treasury." The President's special message to Congress on small business on May 5 is pertinent to questions arising in connection with Reorganization Plan No. 24, submitted May 9. In his message the President recommended a five-point program including, first, insurance of bank loans up to $25,000; second, the chartering of national investment companies; third, broadening of lending powers of the Reconstruction Finance Corporation; fourth, strengthening and improvement of the technical and managerial aids now provided by the Department of Commerce; and fifth, placing of responsibility for these new programs in the Secretary of Commerce, including transfer of the RFC to his supervision. With respect to the broadening of the lending powers of the RFC, the President said: "The Corporation should be permitted to relax its collateral requirements on loans to small businesses, if management abilities and potential earnings of the borrower afford reasonable expectation of repayment. This amendment will merely give the Corporation the same discretion which many bankers already successfully exercise. The Corporation should also be authorized to increase its participation with private banks on such loans. In addition, I again recommend that the present 10-year maximum maturity on all types of business loans be increased to at least 15 years." Title III of S. 3625 and H. R. 8565, which embodies the President's recommendations for aid to small business, relates to amendments to the Reconstruction Finance Corporation. This bill, which is before the Banking and Currency Committees, is designated as the Small Business Act of 1950. The principal proposed amendment would insert the following among present statutory lending powers of the RFC: "To make loans to any small-business enterprise (as determined pursuant to section 603 of the Small Business Act of 1950, and the classifications established thereunder) which is a worthy credit risk but does not have adequate collateral, either directly or in cooperation with banks or other lending institutions through agreements to participate or by the purchase or participations, or otherwise, for the purpose of meeting the credit requirements of such business enterprise : Provided, That management abilities, potential earnings, and other factors deemed pertinent by the Corporation afford a reasonable expectation that the loan will be repaid." Section 603, referred to in the proposed amendment, authorizes the Secretary of Commerce to establish such classifications of business enterprises as he deems appropriate. The criteria to be considered in establishing such classifications include the relative size and importance of businesses in an industry, the competitive circumstances and degree of independence, and such other factors as may be appropriate. Reorganization Plan No. 5, which recently became effective, gave the Secretary of Commerce broad powers with respect to reorganization of all agencies under his supervision. Thus, in the event of approval of Reorganization Plan No. 24 transferring the RFC to his supervision, the Secretary would be in a position to reorganize that agency. The CHAIRMAN. As I understand, the Citizens Committee thinks this plan should be rejected. Is that correct? Mr. McCORMICK. That is correct, sir. The CHAIRMAN. At least pending some legislation that you think is desirable to clarify the general policies of the RFC with reference to the small-business program. Mr. MCCORMICK. Yes, sir. Our view is that until Congress decides what it wants this agency to do, the organization problem cannot be settled because that is always supplemental to what you want people to do. The CHAIRMAN. Any questions, Senator Fulbright? Senator FULBRIGHT. I gather that you have made quite a study of all these reorganization plans, your committee has? Mr. MCCORMICK. Yes, sir. Senator FULBRIGHT. Í notice you make reference to plan No. 5, which has been accepted, giving the Secretary of Commerce the broad powers with respect to the reorganization of all agenices under his supervision. Supposing this plan goes into effect, would his authority under Reorganization Plan No. 5, which is already in effect, give him the authority to completely reorganize the RFC along lines that are agreeable to him? Mr. McCORMICK. When I wrote the statement I was under that opinion. After hearing the testimony this morning, I am not so sure I am right. I think it is a legal question that I can't answer here, sir. I would be glad to send you a letter on it, though, from our lawyer. (Subsequently, a legal opinion on this matter was requested from the Attorney General. See p. 73.) Senator FULBRIGHT. During that discussion I had forgotten about Reorganization Plan No. 5. Although I thought of it at the time, it slipped my mind. I now regret I didn't ask the Secretary about it, but I did not think about it while he was here. I think it is a very interesting question as to how far his authority would go in reorganizing the RFC. The CHAIRMAN. In other words, this plan would be subject to the authority contained in plan No. 5 in addition to the powers here delegated. Senator FULBRIGHT. Mr. Chairman, I think it is a subject worthy of some study, and I would hope that some legal expert on your staff or otherwise would submit for the committee an opinion on just what the effect of Reorganization Plan No. 5 would be as applied to the RFC in case it is transferred. The CHAIRMAN. We expect to inquire of the Bureau of the Budget about it, and I assume the Bureau of the Budget can, and would be willing to, consult with the Department of Justice about it and get some opinion from them. I think we might well ask the Bureau of the Budget to clarify this point by getting an opinion from the Attorney General. In other words, whatever opinion we might get from our own staff or our own counsel might not be binding upon the Secretary of Commerce or the RFC after the plan goes into effect, but it would be presumed, of course, that an expression from the Attorney General as to his interpretation of the effect of the plan and what authority is now in the Secretary of Commerce by reason of Reorganization Plan No. 5, and how that authority would extend to the RFC if the RFC is transferred into the Department would be binding. It seems to me it is a very pertinent question and something that ought to be clarified and decided, and we should have the information about it before this plan goes into effect. We shall undertake that and develop that in the course of the hearings, so it will be well established what is going to be the effect of transferring another agency into the Department, in view of the broad powers already given to the Secretary under Reorganization Plan No. 5, and whether those same broad powers would not extend to another agency transferred into the Department. (The letter referred to will be found on p. 73.) Does your statement show whether the Citizens Committee approves of plans 22 and 23, since you referred to them in your statement? Mr. MCCORMICK. I haven't made any statement that we are supporting or not supporting any of these plans. We are indicating their conformance to the Hoover Report, in accordance with our charter which makes it clear that we are in favor of some and not in favor of others. The CHAIRMAN. I think maybe that is one suggestion I made to you when you testified before, arising from the thought that possibly one man may be making these decisions and coming down here and expressing them. I cannot go along with that sort of what I would regard as ill-advised policy. I think the Citizens Committee, if it is going actually to render a service in this matter, should try to go into these plans to determine whether they conform to the Commission's recommendations and, even further than that, to try to determine whether they tend to accomplish the general objectives of reorganization with respect to greater efficiency and economy. I do not see that there is any particular economy in this plan. I do not know that any economy will result in it. According to my interpretation of it, it does concentrate greater power. It confers a power and authority that actually now does not exist. It keeps this board from being an independent board and an independent agency. It destroys the independence of it and puts it under the direction of a Cabinet officer as to policy. I think the language here is broad enough that he in actual practical effect would be the operating head of the agency. Maybe that is what some want, but I do not know whether that is what the Congress is willing to grant. Thank you very much, Mr. McCormick. Any time we have any of these plans the committee welcomes your views on them. Whether we have a resolution of disapproval or not, we are glad to have your counsel on them at all times. Mr. McCORMICK. Thank you. The CHAIRMAN. The committee then will be in recess until tomorrow morning at 10 o'clock. (Whereupon, at 12:45 p. m., the hearing recessed until 10 a. m., Thursday, June 15, 1950.) REORGANIZATION PLAN NO. 24 OF 1950 THURSDAY, JUNE 15, 1950 UNITED STATES SENATE, COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS, Washington, D. C. The committee met, pursuant to recess, at 10 a. m., in room 357, Senate Office Building, Senator John L. McClellan (chairman), presiding. Present: Senators McClellan, Mundt, Smith, and Schoeppel. The CHAIRMAN. The committee will come to order. Mr. Stauffacher, will you come forward, please, sir? STATEMENT OF CHARLES B. STAUFFACHER, EXECUTIVE ASSISTANT DIRECTOR, BUREAU OF THE BUDGET, ACCOMPANIED BY FRED F. LEVI AND HAROLD SEIDMAN, DIVISION OF ADMINISTRATIVE MANAGEMENT, BUREAU OF THE BUDGET Mr. STAUFFACHER. I have with me Mr. Seidman and Mr. Levi from the Budget Bureau staff. I have a brief statement, Mr. Chairman. If it would be all right I will go through that as rapidly as possible. The CHAIRMAN. All right, sir, you may proceed. Mr. STAUFFACHER. Reorganization Plan No. 24 of 1950 transfers the Reconstruction Finance Corporation to the Department of Commerce. The Corporation will continue to be administered by its Board of Directors and officers but subject to the supervision, coordination, and policy guidance of the Secretary of Commerce. This plan is designed to group the major Government services to business, both financial and nonfinancial, under the supervision of the department head who is charged by law with responsibility to— foster, promote, and develop the foreign and domestic commerce of the United States. It thus accomplishes the objective set in section 2 (a) (4) of the Reorganization Act of 1949 which specifically directs the President— to group, coordinate, and consolidate agencies and functions, as nearly as may be, according to major purposes. The principle of organization by major purposes underlies most of the recommendations of the Commission on Organization of the Executive Branch of the Government. The Commission found that the executive branch is not organized into a workable number of major departments and agencies which the President can effectively direct, but is cut up into a large number of agencies, which divide responsibility and which are too great in number for effective direction from the top. 55 To remedy this defect, the Commission made the following recommendation in its initial report on General Management of the Executive Branch: The numerous agencies of the executive branch must be grouped into departments as nearly as possible by major purposes in order to give a coherent mission to each department. In conformity with this recommendation, the Commission unanimously recommended that RFC should be brought within the departmental structure of the executive branch. The Commission was not unanimous, however, in recommending the department to which the Corporation should be transferred. A majority of the Commissioners favored transfer to the Treasury Department; a minority preferred the Department of Commerce. When the RFC was created in 1932, there might well have been justification for placing it in the Treasury. At that time the Corporation's basic mission was to make loans to distressed banks and other financial institutions. This mission was related to the bank supervisory functions of the Treasury. However, the Congress in subsequent legislation has changed the original mission of the RFC and has indicated that the Corporation's primary function is to make loans to business enterprises. The RFC Act of 1948 clearly enumerates the purposes for which such loans may be made. Financial assistance may be extended to aid in financing agriculture, commerce, and industry; encourage small business; help in maintainng the economic stability of the country; and assist in promoting maximum employment and production. These purposes are not directly related to those of the Treasury which is charged with responsibility for assessment and collection of revenues, custody, and disbursements of public funds, maintenance of accounts, preparation of financial reports, management of the national debt and currency, and supervision of national banks. They are, however, almost identical with the purposes to be achieved by the various services to business now provided by the Department of Commerce. Loans are but one of several types of Government services directed toward the encouragement of small business, the maintenance of economic stability, and the promotion of maximum employment and production. The fact that in one instance the process employed is that of lending, and in another the furnishing of economic and trade information or managerial and technical assistance, does not lessen the need for unified supervision to assure that all of the services are most effectively utilized in achieving their common purpose. While private financial institutions may properly make loans for any purpose, the Government is justified in making loans only to achieve such public purposes as are established by law. As the Senate Banking and Currency Committee stated in its report on the 1948 RFC Act the interest of the public should be considered primary and the personal interests of the particular borrower should be considered secondary. The committee went on to state that the RFC should measure each loan application against the purposes enumerated in the act. This principle was again reaffirmed in the recent interim report of the |