The subcommittee met at 10 a.m. in room 1224, New Senate Office Building, Hon. Joseph M. Montoya (chairman) presiding. Present: Senators Montoya, Boggs, and Allott.

EXECUTIVE OFFICE OF THE PRESIDENT

COST OF LIVING COUNCIL

STATEMENT OF MR. JOSEPH E. MULLANEY, GENERAL COUNSEL

SENATE DOCUMENT 92-43: IMPLEMENTATION OF ECONOMIC
STABILIZATION ACT

Senator MONTOYA. The subcommittee will come to order.

This morning the subcommittee will take testimony in connection with a proposed supplemental related to economic stabilization activities contained in Senate Document 92-43, dated November 17; an excerpt of the pertinent section will be placed in the record at this point.

(The excerpt follows:)

Excerpt from Senate Document No. 92-43, November 17, 1971

FUNDS APPROPRIATED TO THE PRESIDENT

ECONOMIC STABILIZATION ACTIVITIES

SALARIES AND EXPENSES

“Full expenses necessary to carry out the Economic Stabilization Act of 1970, as amended, including activities under Executive Orders No. 11615 of August 15, 1971 and No. 11627 of October 15, 1971, both as amended; activities under Proclamation 4074 of August 15, 1971; and hire of passenger motor vehicles, and services as authorized by 5 N.S.C. 3109, but at rates for individuals not to exceed the per diem equivalent of the rate for GS-18, such amounts as may be determined from time to time by the Director of the Office of Management and Budget, to be derived by transfer from balances reserved for savings in such approriations to the departments and agencies of the Executive Branch for the current fiscal year as the Director may determine: Provided, That advances or repayments from the above amounts may be made to any department or agency for expenses of carrying out such activities."

(1079)

The proposed transfer authority requested is to cover necessary
expenses in fiscal year 1972 of the new economic measures instituted by
the President on August 15, 1971.

The subcommittee understands that neither Secretary Connally
nor Mr. Rumsfeld are available to testify before the Committee this
morning, and that Mr. Joseph E. Mullaney, the General Counsel of
the Cost of Living Council will be the prime witness, is that correct?
Mr. MULLANEY. That is correct, Mr. Chairman.

Senator MONTOYA. Before proceeding with your statement, Mr.
Mullaney, I ask you to please read the proposed language contained in
Senate Document 92-43 for the information of the Committee.

You may proceed with your prepared statement after you have
read said document, and after you have identified the witnesses at the
table.

Mr. MULLANEY. Thank you, sir.

The language requested reads as follows:

For expenses necessary to carry out the Economic Stabilization Act of 1970,
as amended, including activities under Executive Orders No. 11615 of August 15,
1971. and No. 11627 of October 15, 1971, both as amended; activities under
Proclamation 4074 of August 15, 1971; and hire of passenger motor vehicles, and
services as authorized by 5 U.S.C. 3109, but at rates for individuals not to exceed
the per diem equivalent of the rate for GS-18, such amounts as may be deter-
mined from time to time by the Director of the Office of Management and Budget
to be derived by transfer from balances reserved for savings in such appropria-
tions to the departments and agencies of the Executive Branch for the current
fiscal year as the Director may determine: Provided, That advances of repay-
ments from the above amounts may be made to any department or agency for
expenses of carrying out such activities.

INTRODUCTION OF ASSOCIATES

Mr. Chairman, I am General Counsel for the Cost of Living
Council.

I have here with me this morning Mr. Earl D. Rhode, Director.
Executive Secretariat, Cost of Living Council; Mr. Norman E. Sims.
Jr., Director, Office of Budget and Finance, Treasury Department:
Mr. William A. Plissner, budget officer, Cost of Living Council:
and Mr. Robert E. Tripp, budget analyst, Cost of Living Council.
Senator MONTOYA. You may proceed with your statement, sir.
Mr. MULLANEY. I am very pleased to appear before you this morn-
ing to testify in behalf of an appropriation request for the economic
stabilization program.

PRESIDENT'S 90-DAY FREEZE OF PRICES AND WAGES

Last August in response to the Nation's problems of inflation and
balance of payments, the President instituted a 90-day freeze of prices
and wages.

The Economic Stabilization Act of 1970 enacted by the Congress
gave the President the tools he needed to move forcefully to meet the
economic problems facing the Nation.

AUTHORITY TO TRANSFER RESERVED FUNDS FROM OTHER

APPROPRIATIONS FOR INITIAL COSTS

We have asked the Congress for new, broader legislation which,
among other things, would give the President authority to transfer
reserved funds from other appropriations to meet the initial costs of
implementing the program.

The action requested in the supplemental budget you are consider-
ing today is consistent with that legislation.

The proposed language will provide the authority for the fiscal year
1972 budget which we will describe to you today.

FUNDING OF COUNCIL, PAY BOARD AND PRICE COMMISSION ACTIVITIES

This budget will fund the activities of the Cost of Living Council,
the Pay Board and the Price Commission and certain related activi-
ties of the economic stabilization program.

This budget represents our best estimate of the amount of funds that
will be required in fiscal year 1972 to conduct the economic stabiliza-
tion program.

REQUIRED POSITIONS: 90-PERCENT FUNDING BY INTERNAL REVENUE SERVICE

The President has stated repeatedly that he is flatly opposed to
creating a vast bureaucracy. Our proposal calls for about 3,500 po-
sitions, and almost 90 percent of these have been funded by the IRS
and are not included in the requested budget.

In the coming weeks we will be in a better position to determine
the exact magnitude of the task and the resources that are required.
Before discussing the preliminary cost estimates I would like to re-
view the operation as it is now constituted.

COST OF LIVING COUNCIL

The Cost of Living Council has the responsibility for establishing
policies and goals which are designed to reduce the rate of inflation
and maintain price stability.

Secretary of the Treasury John Connally was designated by the
President to serve as Chairman of the Council.

Donald Rumsfeld, counselor to the President, has been named
Director.

The other members include: The Chairman of the Council of Eco-
nomic Advisers; the Secretaries of Agriculture, Commerce, Labor,
Housing and Urban Development; the Director of the Office of Man-
agement and Budget; the Director of the Office of Emergency Pre-
paredness; and the Special Assistant to the President for Consumer
Affairs.

Dr. Arthur Burns, the Chairman of the Federal Reserve, serves as
a special adviser to the Council.

The Council also has the responsibility for coordinating the eco-
nomic stabilization program and it shares the responsibility for en-
forcement with the Price Commission and the Pay Board.

The Council is not involved in the development of specific criteria and standards governing the operation of the program, but it is authorized to recommend to the President any modifications that might be necessary to increase the program's effectiveness.

Although the Council does not hear specific appeals from decisions of the Pay Board and Price Commission, it is authorized to recom mend the invocation of sanctions provided under the Economic Stabilization Act.

PAY BOARD

The Pay Board is made up of 15 members-five representatives of labor, five representatives of management, and five members representing the public.

The Board formulates standards for wage adjustments to achieve the goals and objectives of the program.

The Board is empowered to analyze and review the economic provisions of a contract to see that they are consistent with wage guidelines.

The Board also has the power to deal with disputes over wages and can, when appropriate, request assistance from the Federal Mediation and Conciliation Service.

It should be noted that the Construction Industry Stabilization Committee will continue to operate within the standards issued by the Pay Board.

The attainment of equitable, non-inflationary wage and salary adjustments is vital to the success of the economic stabilization program.

PRICE COMMISSION

The Price Commission is composed of seven public members who formulate and issue criteria and standards governing price and rent adjustments.

The Commission is charged with the development of explicit rules governing price adjustments.

It will also identify windfall profits and bring about price reductions when the operation of the stabilization program results in such profits.

Interim regulations have been issued governing adjustments in rental rates and a Rent Advisory Board has been created to develop guidelines for consideration by the Price Commission.

Like the Pay Board, the Price Commission has the authority to invoke the sanctions provided by the Economic Stabilization Act if voluntary adherence to the guidelines and standards issued by the Commission cannot be obtained.

SERVICE AND COMPLIANCE OFFICES

To implement the actions of the Council, the Pay Board, and the Price Commission at the loval level, a nationwide system of regional and local service and compliance offices has been established as part of the economic stabilization program in the Internal Revenue Service.

These centers will provide information to the public, issue rulings, and review requests for exemptions.

They will also investigate complaints, monitor compliance, and conduct factfinding activities for the Commission and Board. These functions will be carried out at 360 locations throughout the country.

FUNDING REQUISITE AND SOURCE OF FUNDS

I shall now turn to our specific request for funding of these activities. Much of the cost of the Federal activity has been absorbed as part of the program of the contributing agencies.

For example, the Internal Revenue Service is allocating some 3,000 positions and $34 million to provide compliance, enforcement, and information services to the public.

We cannot at this time precisely predict the funding which will be required to conduct this program.

The appropriation which we are requesting provides for transferring "such sums as may be determined from time to time by the Director of the Office of Management and Budget."

We have, however, despite recent activities of the Pay Board, Price Commission, and Cost of Living Council, developed estimates of the funding requirements for fiscal year 1972 which are based on our present staffing assumptions. These estimates total $20.2 million and consist of the following:

COST OF LIVING COUNCIL

The Cost of Living Council estimates a requirement of $3.5 million and 111 positions.

Of this amount, $2.6 million will support the Cost of Living Council's Phase II activities for the remainder of the year.

The balance will reimburse the Exchange Stabilization Fund for Phase I and Phase II costs, pay for Treasury Department administrative support, and pay the expenses of two advisory committees, one on State and local government cooperation, and the other on the health services industry.

It is presently estimated that an additional 20 positions will be required to provide a small staff for the two advisory committees.

PAY BOARD

The Pay Board estimates a requirement of $4.3 million and 131 positions.

These resources will pay for the cost of operating the Pay Board and its staff.

The Pay Board staff consists of an Executive Director's office and two operating offices-a Policy Review and Development Division, , and a Research Analysis and Evaluation Division.

PRICE COMMISSION

The Price Commission is requesting $9.4 million and 417 positions. This estimate will provide the resources necessary for the operation of the Commission and its staff.

! The Price Commission staff consists of an Executive Director's office and three operating offices-one, Price Policy Division; two, Exceptions Review Division and three, a Program Operations Division.

68-396 O-71-pt. 2-15